Pedestrians on the streets of Stockholm during the New Coronavirus pandemic on July 27, 2020. (Jonathan Nackstrand/AFP via Getty Images)正体简体
As a mother of a 17-year-old in the Deep Blue State, I am often asked various questions about socialism and communism. I can’t answer every one of these questions, so I have to do extensive research. I think this is the same situation that many readers of The Epoch Times encounter: the inevitable discussion of these topics with Family and friends.
I saw a comment that said, “Yeah, I know communism is bad. But I want socialism, like the kind in Sweden or other Nordic countries.”
Indeed, the Nordic countries are often cited as examples of “good” socialism by leftists such as Senator Bernie Sanders, the Clintons and former President Barack Obama. The country is “a country that seems to defy the laws of the economic universe. Despite high taxes, it has “one of the lowest poverty rates in the world, low unemployment, steady economic growth and almost no corruption.
In 2003, Goran Persson, former prime minister of the Swedish Social Democratic Party, described the country’s economy in terms of a bumblebee: “The bumblebee is so heavy and has such small wings that it should not be able to fly, but it does.”
Nima Sanandaji, a Swedish researcher and Writer, is the author of Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism (Scandinavian Unexceptionalism: Culture, Markets and the Failure of Third-Way Socialism), which explains in detail the reality of the Nordic countries. I will now summarize the essence of the book for you, the reader, for your benefit.
(Note: Scandinavia refers geographically to the Scandinavian Peninsula, which includes Norway and Sweden, and culturally and politically to Denmark. These countries see each other as belonging to Scandinavia, and although politically separate from each other, the common designation shows their deep cultural, linguistic, and historical roots.)
Culture – not the welfare state – leads the Nordic countries to success
“A Scandinavian economist once said to Milton Friedman (an American economist and 1976 Nobel laureate in economics), ‘In Scandinavia, we don’t have poverty.’ Milton Friedman replied, ‘That’s interesting, because among Scandinavians in America, we don’t have poverty either.'” — Joel Kotkin, Professor, Chapman University
The welfare state is not the reason for the success of the Scandinavian countries. Prior to the development of the welfare state, Scandinavian societies had achieved low income disparities, low poverty rates, and high levels of economic growth.
Between 1870 and 1936, before the welfare state policies were implemented, Sweden had the highest growth rate among the industrialized countries. However, with the gradual introduction of the welfare state between 1936 and 2008, Sweden’s growth rate declined to 13th place.
Sanadaji argues that “high levels of trust, a strong work ethic, civic participation, social cohesion, personal responsibility and family values were long-standing features of Nordic societies prior to the welfare state. These deeper social institutions explain why Sweden, Denmark and Norway were able to develop so quickly from poor to rich countries after the introduction of industrialization and market economies in the late 19th century. These also played an important role in the growing prosperity of Finland after World War II.”
(All quotations in this article are from Sanadaji’s book, unless otherwise noted.)
The book notes that religion, climate and history all seem to have played a role in the formation of these particular cultures. The countries are all demographically homogeneous and share similar religious and cultural backgrounds. Protestants often had a strong work ethic; the very harsh natural environment made Scandinavia a difficult place to survive and farmers were forced to work exceptionally hard; many farmers owned the land and had complete control over the fruits of their labor, so hard work was financially rewarded.
Culture is important. It is this culture, combined with free market capitalism and the rule of law, that has allowed the Nordic countries to prosper and make it possible to implement welfare policies without serious adverse consequences.
It is also this culture that has nurtured the success of the descendants of Scandinavian immigrants in the United States. Most of these immigrants came to the United States in the 19th century before the implementation of welfare state policies. They were not part of the elite group, but their descendants were more successful than their Scandinavian counterparts, suggesting that welfare state policies hindered economic development.
Southern European countries such as Italy, France, and Greece have adopted similar welfare state policies to those of the Scandinavian countries, but the results have been far worse. This is strong evidence once again that culture does matter.
Welfare state policies have weakened Nordic culture and values
“Nordic culture has an extremely high level of social capital, which takes Time to build. And it also takes time for generous welfare models to gradually erode the strong work ethic in these countries.” –Swedish researcher Nima Sanadaji
Policies help shape the character of a society. As Scandinavians became accustomed to high taxes and generous government benefits, their sense of responsibility and work ethic gradually deteriorated.
In a survey conducted between 1981 and 1984, 82 percent of Swedes and 80 percent of Norwegians agreed when asked if it was “absolutely unreasonable to ask for government benefits to which you are not entitled. In a similar survey between 2005 and 2008, only 56 percent of Norwegians and 61 percent of Swedes agreed with this statement.
Generous benefits diminish people’s passion for participating in employment or working hard, and weaken Parents‘ incentives to educate their children to work hard. More and more people are becoming dependent on government welfare payments. And this dependence extends down through the generations. The growing population in turn votes accordingly for high welfare and big government, which leads to high taxes and pushes the Nordic countries to more extreme socialism.
Are the Nordics more tolerant of high taxes? No.
“Fiscal illusions distort democratic decision-making and can lead to ‘excessive’ redistribution.” –Swiss economist Jean-Robert Tyran and Austrian economist Rupert Sausgruber
Scandinavians have not yet fully realized the costs of big government. Politicians have created a “fiscal illusion” that a large part of these taxes are indirect or hidden, such as those that take effect before wages are paid, in the form of employer fees or employer social security contributions, and those that are included in the list price of goods, such as VAT. These taxes end up falling on everyone, but they are not known to them.
Sanadaji also described a survey conducted in 2003. “The Swedish population was asked to estimate the total amount of taxes they pay. Respondents were asked to consider the amount of all forms of direct and indirect taxes. Almost half of the respondents thought that the total amount of taxes was about 30 to 35 percent of their income. This compares to a total tax rate (including excise taxes) of about 60 percent for an average earner at the time of the survey.”
According to the Organization for Economic Cooperation and Development (OECD) database and Sanadaji’s calculations, the tax burden increased significantly between 1965 and 2013 in all Nordic countries, but decreased in most of the visible taxes except for Denmark.
This succeeds in creating the illusion that government expansion does not increase spending. So, why not choose politicians who expand government and increase the amount of welfare?
The Failed Swedish Socialist Experiment
“Sweden is the global champion of ‘jobless growth’.” –The title of a 2006 article in the Swedish business daily Dagens Industri (Industry Today)
From the beginning of the social democratic era in the 1930s until the 1960s, the Nordic countries remained relatively free-market oriented, with tax levels on par with other industrialized countries. in the early 1970s, radical social democratic policies were introduced and fiscal burdens and government spending reached high levels.
Since the late 1960s, Sweden has been the most socialist of the Scandinavian countries. The basic idea was to replace the free market with a model closer to a socialist planned economy.
“Not only did the overall tax burden rise, but the new system also heavily discriminated against individuals who owned businesses. With political radicalization, social democracy began to challenge the core of the free-market model: entrepreneurship.”
According to Swedish economist Magnus Henrekson, in 1980, “the effective marginal tax rate (marginal tax plus inflationary effects) imposed on Swedish businesses reached more than 100 percent of their profits.” This meant that private entrepreneurs would actually lose money if they made a profit. Henriksen thus concluded that these tax policies were “based on the vision of a market economy without the participation of individual capitalists and entrepreneurs”.
The result of the policies is clear: after 1970, the number of new business formations dropped significantly. “(In 2004,) 38 of Sweden’s top 100 companies in terms of revenue were started by domestic private companies. Of these businesses, only two were founded after 1970. None of Sweden’s 100 largest companies, ranked by employment, were founded after 1970.
“Moreover, between 1950 and 2000, despite the fact that Sweden’s population grew from 7 million to nearly 9 million, net job creation in the private sector was close to zero.”
Public sector jobs, on the other hand, increased significantly until the late 1970s. By that time, the public sector could not expand any further because taxes had reached their highest level.
“When the welfare state could no longer expand, overall job creation stagnated – neither the private nor the public sector could expand.”
In the early 1980s, Sweden began implementing “employee funds,” where a portion of a company’s profits is taken out and transferred to a special union-controlled fund. The aim was to achieve a modest degree of socialism by gradually transferring ownership of private companies to unions. “Although the system was abolished before it could turn Sweden into a socialist economy, it succeeded in driving the founders of IKEA, Tetra Pak, H&M and other well-known companies out of the country.”
The terrible policy of “employee funds” was finally abolished in 1991, when Sweden was facing the worst economic crisis since World War II. It then took nearly 20 years for employment to reach the pre-1990 levels. By way of comparison, it took only seven years for Sweden to recover from the Great Depression of the 1930s.
The Last Welfare Reform
“A few decades ago, Sweden was the more socialist-leaning of the Scandinavian countries. It is also currently the most reformed country.” –Swedish researcher Nima Sanadaji
Since the 1990s, almost all the Nordic countries have realized that welfare reform is inevitable, except Norway, where in 1969 one of the world’s largest offshore oil fields was discovered in Norwegian waters. Oil wealth has enabled its generous welfare system to be maintained. Since Sweden and Norway are quite comparable in many ways except for welfare reform, this is a good experiment to test the effects of the reforms.
Sweden’s reforms included reducing benefits, lowering taxes, liberalizing the job market, and introducing a gate-keeping mechanism for receiving sickness and disability benefits. After the reforms, the population supported by Swedish government benefits fell from 20% to 14% from 2006 to 2012. In comparison, the population supported by government benefits in Norway decreased by less than 1% in the same period.
For young Norwegians, there is little incentive to work hard. Employers are therefore turning to foreign labor markets, including Sweden, where the number of young Swedes employed in Norway increased more than 20-fold between 1990 and 2010 due to wage increases resulting from Norwegian oil revenues. According to a survey of Norwegian employers, three quarters of them believe that young Swedes work harder than young Norwegians.
The reforms have led to an impressive economic performance in Sweden during the global financial crisis of 2008 and 2009. The reforms have led to greater economic freedom, stronger work incentives, and less dependence on government benefits.
Denmark and Finland have also reformed their welfare systems. Even Norway has made some market reforms. More reforms may be on the horizon.
A word to the wise for Americans
The Nordic countries are returning to their free-market roots. They have learned their lessons from welfare state policies and even tentative socialist implementations and are turning back from the dead end. We Americans should not fall into the trap of leftist propaganda and rush toward a doomed future.
Jean Chen is from China and writes under a pen name to protect her Chinese family.
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