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Nordic, schmordic

By Lorenzo

So, Tim Worstall has invoked joined the long list recurring fascination of Anglosphere progressivists of various stripes who want to with adapting the Nordic model to Anglo societies (in his case, the US).

It is a very bad idea.

A recent report (pdf) by Swedish-Kurdish economist Nima Sanandaji, whose Tino brother runs the excellent — and very empirical – Super-Economy blog, goes into considerable detail why, for the report provides some revealing comparisons with the US as it the examines the sources of Swedish success (or not).

For example, Swedish-Americans have a 50% higher per capita income than Swedes but (using American benchmarks) the same poverty rate as Sweden (p.21). So, this “natural experiment” suggests that the American model is better for Swedes than the Swedish model is.

One reason for the better US performance is that Sweden had no net private sector job creation from 1950 to 2010.  All employment growth was in the public sector, while the overall employment/population ratio fell (p.14).

The American model is also better for migrants than the Swedish model.  In the words of the report (p.27):

Between 1993 and 2000, the income from work for the average Iranian immigrant was only 61 per cent of that of a native Swede and that of the average Turkish immigrant 74 per cent (…). This contrasts with the situation in the USA. According to the US Census for 2000, those born in Iran had an income that was 136 per cent of the average for native-born residents, compared with 114 per cent for those born in Turkey (US Census, 2000). Clearly, similar groups of immigrants had very different opportunities in the USA compared with Sweden.

The lack of private sector job creation would go a long way towards explaining why migrants generally do much better in the US than they do in Sweden.

The report points out that Sweden was a highly successful society before the expansion of the welfare state, with high rates of economic growth and low levels of income inequality.  The expanded “Swedish model” degraded Sweden’s relative economic performance, in part through the suppression of entrepreneurship. The dramatic drop in the creation of new businesses after the expanded welfare state was constructed has seen entrenchment of very unequal wealth distribution (more so than the US).

The expanded welfare state has also seen increases in wealth (and income) inequality in recent decades due to welfare dependent households that do not save and often have negative or zero assets (p.20). Migration has also increased inequality.

Sweden was a successful society because it had good institutions, with strong social cohesion and high levels of trust. It has remained, apart from the labour market, a country whose markets are generally lightly regulated (as is also true in the other Scandinavian countries; they score persistently high in economic freedom [pdf]). The issue here is, as so often, secure freedom; the wider the ambit of the secure freedom to transact, the more transactions there will be. High levels of trust makes for more secure and lower cost transacting, hence more transacting and so more economic activity.

If one has an extensive welfare state, then lots of people will learn how to be good at being dependant on the welfare state; this is just natural, since it is likely to offer the best return for their efforts (particularly when the value of extra leisure is taken into account). This then has effects on social attitudes. For example, when Swedes were polled on whether they agreed with the statement “claiming government benefits to which you are not entitled is never justifiable” there was a dramatic shift in attitudes over time (p.25):

1981-84  81.5%
1989-93  74.5%
1994-99  57.9%
1999-04  55.3%
2005-08 61.0%

Clearly, a welfare state where there is strong social consensus that you do not claim unjustified benefits is going to work more effectively (and more cheaply) than one where “get what you can” becomes increasingly the attitude. (The mild shift back towards earlier attitudes coincides with a shift to the right in Swedish politics.).The extensive welfare state — what progressivists normally point to when talking of the “success” of the Swedish model — does not explain Swedish success. That is a result of social cohesion, a high trust society and secure freedom to transact (again, apart from a highly regulated labour market). The level of social cohesion likely helped produce the extensive welfare state, due to a strong sense of common identity. It also likely ameliorated its deleterious effects. Consider this comment by economic historian (and Nobel laureate) Douglass North:

The implications of ideological consensus or ideological diversity for our modeling of institutions should be clear. To the degree that the members of a society have the same ideological framework, the formal rules of the society that define the constraints making up institutions will not have to be defined very clearly and enforcement mechanisms and procedures may be minimal or even absent altogether. But to the degree that society has diverse ideologies reflecting the growth of specialization and division of labor, more resources will have to be devoted, first to defining the rules precisely, and second to enforcing those rules. Such definition and enforcement is necessary because, with conflicting ideologies, the individual participants will feel no necessity to constrain individual maximization (cheating, shirking, etc.) at the expense of the other party. Given the costliness of measuring performance, ideological consensus or alienation is a fundamental influence upon the form of institution.

Adjusting that from ideology to culture, relatively small, strongly culturally homogenous societies can achieve outcomes through centralised provision that larger and more diverse societies simply cannot by such means. Even the much greater geographical diversity of a US or Australia makes the Nordic model problematic, without getting into the much greater ethnic and religious diversity.

Indeed, if Sweden keeps importing Muslims migrants at the rate it has, Sweden won’t be able to run the Nordic model any more, because the level of social commonality needed to make it work just won’t be there. Moreover, the evidence such that trust levels persistent (i.e. the trust levels in various ethnic groups continue to reflect the level of their originating cultures) — so importing migrants from low trust societies will also have persistent (negative) effects on level of social trust. Which affects what sort of policy regime is sustainable. Even without considering some of the more dramatic issues.

So, it is hardly surprising that Swedish policies are increasingly moving in a more “Anglo” direction; the more socially diverse their country becomes, the more their policy patterns will tend to become like those developed countries which have always been much more socially diverse. So, trying to adopt the Swedish model to ethnically, religiously and geographically diverse “Anglo” societies is a very bad idea, one that is a complete misreading of the basis for Swedish success and the implications of social diversity for public policy regimes.

I long ago reached the conclusion — in large part from observing how disastrously badly extensive welfare policies failed to cross, or deal with, cultural divides in indigenous policy in Australia — that the Swedish model was grotesquely inappropriate to Australia (and even more so for the US). There has been a persistent delusion among progressivists that the Scandinavians are somehow “nicer”, “more moral”, than us retrograde Anglos when the relevant policy regimes were much more explicable as broadly rational responses to quite different social conditions. Australia in particular — which actually does better than Sweden in the UN’s Human Development Index, for example — has no good reason to adopt the Swedish policy regime and lots of very good reasons not to. Trying to make the US’s overall policy regime more like Sweden or the other Scandinavian countries is also a very bad idea. Neither of which precludes adapting specific policies, provided they will work with, rather than against, the ethnic, religious and geographical diversity that the US and Australia have to deal with.

 

16 Comments

  1. Posted September 26, 2012 at 12:16 pm | Permalink

    One almighty drawback, or unintended consequence, of the “swedish” model, is the outcome caused by the generous maternity leave provisions.
    Result: Breeding age females are more or less wasting their time applying for private sector positions.
    Most breeding age females are to be found in the public service.

  2. TerjeP
    Posted September 26, 2012 at 1:31 pm | Permalink

    There is no legislated minimum wage in Sweden. Just wanted to put that out there.

    As a child of two scandinavians I endorse your article. Although I’m not sure that counts for much. :-)

  3. Posted September 26, 2012 at 3:53 pm | Permalink

    “So, Tim Worstall has joined the long list of Anglosphere progressivists of various stripes who want to adapt the Nordic model to Anglo societies (in his case, the US).”

    No, not quite.

    Rather, I want to point out that *if* you want to create a progressive/social democratic society then you need to do it the Nordic way. And not in the way that most progressives/social democrats suggest we should do it.

    I don’t support the Nordic way at all (and it would be very difficult to call me a progressivist too). I’m using it the other way around entirely. I’m using it to argue against many domestic US and UK policies.

    @Look, if you want that large state high redistribution economy here’s how you have to do it. Not with the policies that you’re all recommending”.

  4. Posted September 26, 2012 at 5:06 pm | Permalink

    TW@3 That is not what I took from your post, but I take your word for it.

    But, even on that reading, the Nordic model is precisely how you do not do it in highly socially diverse societies. If, however, you want to make the point that market friendly policies are needed to finance redistribution, then OK.

    The model you should be looking more closely at is Australia. We went through two decades of reform whose aim was to create a sustainable welfare state. Market-friendly regulation, focused welfare policies, private superannuation, low public debt, a central bank committed to macroeconomic stability with a clear target based on an appropriate time frame (the business cycle) which manages expectations about both prices and spending.

  5. Conrad
    Posted September 26, 2012 at 6:31 pm | Permalink

    I’m just picking on one of your first statements here and not the rest of the article, but it’s basically worthless trying to compare immigrants in their new/old country since there are huge selection biases. Ever seen a Chinese person digging holes by the side of the street? I’ve seen lots, but none in Australia, and believe it or not, most Chinese arn’t doctors and engineers either.

  6. Mel
    Posted September 26, 2012 at 10:49 pm | Permalink

    A highly biased post but I don’t disagree with everything you say. Country to country comparisons are not straightforward and America is notoriously wasteful in many ways, for example it spends more than twice as much on health as Sweden for no additional benefit. Sweden also does more with less in areas like education. In deed, I still recall how the first American truck driver kidnapped in Iraq was only there to pay off his wife’s medical bills. This isn’t an issue in Sweden, where the state even pays for dental care until age 18.

    As regards, the HDI, you ignore the fact that Scandinavian Norway comes out tops whereas the UK is 28th.

    A poor person in America may be homeless, may spend time in jail, will almost certainly live a a crime and drug infested neighbourhood, have no access to dental services and probably only patchy healthcare and have extremely low social mobility. Poor Americans may not even get enough to eat:

    “An estimated 85.1 percent of American households were food secure throughout the entire year in 2011 ….. The remaining households (14.9 percent) were food insecure at least some time during the year, including 5.7 percent with very low food security—meaning that the food intake of one or more household members was reduced and their eating patterns were disrupted at times during the year because the household lacked money and other resources for food. ”

    One in 32 Americans is on prison or on parole.

    The Scandy countries aren’t perfect but in many ways I’d prefer to be born in one of them than in the United Correctional Facilities of America.

    And so on and so forth.

  7. Mel
    Posted September 27, 2012 at 12:44 am | Permalink

    Lorenzo:

    “For example, Swedish-Americans have a 50% higher per capita income than Swedes but (using American benchmarks) the same poverty rate as Sweden (p.21). So, this “natural experiment” suggests that the American model is better for Swedes than the Swedish model is.”

    Now that is a lazy wet fart of an argument. The 50% differential applies to many other groups as well. Indeed, the differential is much greater for various other groups, such as 80% for Austrians.

    It isn’t surprising that if you are a member of a high status group (North Europeans), and move early (early 19th century in the case of Swedes) to a vast new fertile land where the local inhabitants have been largely extinguished and partake in the expropriation of 99% of the land, you’ll do quite nicely and your ancestors, sans any great disasters, will do even better.

  8. Patrick
    Posted September 27, 2012 at 5:51 pm | Permalink

    Of course there’s an easy solution to much of what ails America – ban the war on drugs!

  9. Mel
    Posted September 27, 2012 at 7:36 pm | Permalink

    from Salon:

    “So that means around half of all inmates in federal prisons are there for drugs, around 20% of inmates nationwide in state prisons are there for drugs and around 18% of inmates in California state prisons are there for drugs.”

  10. Mel
    Posted September 28, 2012 at 2:38 pm | Permalink

    Lorenzo also rather conveniently ignores the mobility data. This from Brookings, which generally centre-right on economic matters. According to this and numerous other reports, the Scandys have higher social mobility than most comparable countries by a small margin whereas America’s social mobility trails the rest by several orders of magnitude.

    BTW, Lorenzo, you can come out of hiding now. I won’t bite :)

  11. Garm
    Posted September 28, 2012 at 6:37 pm | Permalink

    “For example, Swedish-Americans have a 50% higher per capita income than Swedes but (using American benchmarks) the same poverty rate as Sweden (p.21). So, this “natural experiment” suggests that the American model is better for Swedes than the Swedish model is.”

    Rather the opposite, actually. When you compare Swedish-Americans to Swedes, your American group is comprised of people who still know who their ancestors from a 100-150 years ago were, and who still identifies with that group. In other words, a group selected for an exceptionally stable family situation. The Swedish comparison, on the other hand, is a country cross section including the normal number of broken families, immigrants and single mothers.

    If you compared the average wealth of Americans whose can trace their family back to the Mayflower, to the average UK citizen, what would you expect to find.?

    In any case, even given this confonding factor, when you adjust for social benefits such as the cost of health care, college etc, the medican Swedish family do better than the median Swedish-American, despite the latter having a number of historical advantages in location, ethnicity and stability making them an above-average selection of Americans.

  12. Mel
    Posted October 2, 2012 at 8:54 pm | Permalink

    According to the OECD, average annual working hours are as follows:

    Sweden 1,644 hours

    Australia 1,693 hours

    USA 1,787 hours

    This effectively means Americans work 3 1/2 weeks more per year than Swedes while Australians work 1 1/2 weeks more.

    I also made a mistake when I said Swedes are entitled to free dental care until age 18. The age limit is actually 20.

    Anyway, October is Be Kind to Lorenzo Month, so I’ll say no more ….

  13. Posted October 3, 2012 at 9:36 am | Permalink

    C5 So, migrants are making irrational choices in moving? That you don’t see Chinese digging holes in Australia is the precisely the point surely; they get opportunities not available from whence they came.

    Yes, there are selection effects but voluntary migration selects somewhat for initiative but not much else. Much of the Swedish migration to the US took place before Sweden “took off” in the last third of the C19th.

    In fact, it is hard to find a migrant group that does not do better in the US; that includes the descendants of slaves who had, if anything, negative selection effects.

  14. Posted October 3, 2012 at 9:44 am | Permalink

    M@6

    America is notoriously wasteful in many ways, for example it spends more than twice as much on health as Sweden for no additional benefit.

    Rather my point, since that is the most government-intervened US market outside education. Of course Sweden does that sort of thing better, it has the cultural bases to do so, that is my argument.

    As regards, the HDI, you ignore the fact that Scandinavian Norway comes out tops whereas the UK is 28th.

    I ignore it because it is no problem for the argument that Australia cannot be expected to do better from adopting the Scandinavian model.

    And yes, the poor in the US have problems you don’t see nearly as much in Sweden; see my comments about high trust, monocultural society.

    M@7 Yes, ethnic groups generally do better in the US, that’s why folk migrate there. But that doing better is surely not unconnected to the institutional environment. Moreover, it is one that can cope with highly diverse and so lower trust society.

    M@10 Yes, there are advantages in being a monocultural and high trust society with sound institutions. What a shock.

  15. Posted October 3, 2012 at 9:47 am | Permalink

    G@11 As noted in my other comments, ethnic groups generally do better in the US than from whence they come. Even the descendants of slaves with notoriously problematic family situations.

    Do you have citation for the claim on “after you adjust for …”?

    Even if that is correct, it would come from being in a high trust, monocultural society.

    One also notes that migrants do better in the US than do the same source migrants in Sweden.

  16. Posted October 3, 2012 at 9:49 am | Permalink

    M@12 And folk working more is some independent variable? Or is it going to be a result of reaction to, for example, tax rates, etc?

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