Posted by on December 18, 2017

No, I don’t mean that kind of model.  I mean the economic model.

The location of the workers’ paradise is highly mobile.  Back in the 1920s/1930s, it was the Soviet Union.  But then the body bags started to pile up, even though people like the New York Times’  Walter Duranty won a Pulitzer for denying their existence[1], and economists started to point out that the central planners may have overestimated the demand for left shoes for one-legged midgets.

The workers’ paradise gravitated to China, but then we had the famine of the Great Leap Forward – when Mao was going to modernize China overnight by having peasants tend to backyard smelters instead of their crops – and the mass murder, torture and chaos of the Cultural Revolution.  And, of course, the very embarrassing fact that China only started to make economic advances after it made pro-market reforms in the 1980s.

Cuba was the poster child for a while, but despite massive subsidies from Russia and latterly Venezuela, it fell from being the most economically advanced country in the region to a laggard.  Chavismo in Venezuela earned a lot of early praise from the likes of Bernie Sanders, Jeremy Corbyn and a bevy of Hollywood useful idiots, but it has since put the entire country on the Venezuela Diet and, since socialism must always find political scapegoats for its fundamental incompetence,  has converted a once-vibrant democracy into thinly disguised military rule.

There are no shortages of other examples in the 100 years since socialism was first put into practice in the Soviet Union.  The count varies, but at 70 to 100 million, it has certainly been responsible for more deaths than that other totalitarian scourge of the 20th century, fascism.  But the body count isn’t the real differentiator.  The biggest difference between socialists and fascists is that the latter never claim that the problem with their system is that true Nazism has never been properly tried.

Which brings us to the present.  And the current favorite.  Scandinavia.

I have commented before about Bernie Sanders’ affection for Denmark (see Bernie Sanders here).   I was reminded of this when listening to a recent debate between editors from Reason and their counterparts from the socialist Jacobin magazine.  The Jacobins were draping themselves in the Scandinavian model constantly, although they felt that it could be improved if the governments nationalized more businesses, thereby ignoring the fact that the Scandis have been moving in the exact opposite direction since they were pioneers of the privatization trend in the 1970s.  For good reasons.

The modern Left understands nothing about the Scandinavian model, a truth which earned this rebuke from Danish Prime Minister Rasmussen in 2015:

I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.

And yet the Left continues to invoke Scandinavia because, unlike all their other hellish exemplars, it actually works.

But not for the reasons they think.

There are three problems with socialism.   The first was pointed out by Ludwig von Mises in his famous problem of socialist calculation.  This is the inability of any economy which has advanced beyond the rudimentary state to make rational allocations of scarce resources in the absence of market prices.  Although the socialists think that they countered this argument with computers[2] and economist Oskar Lange’s “market socialism,” this is a fantasy which Lange personally demonstrated when he went back to his native Poland after World War II to become a central planner.  We know how well that turned out.

The Scandinavian model avoids this problem – to use social media diction – because Rasmussen.  These are market economies where almost all of the means of production are under private control.  The small “tweak” that the Jacobins would like to implement, to have much more state ownership, would in fact send them spiralling into economic irrationality.

The second problem is a stultifying, centralized planning that hobbles innovation and the economic advancement it brings, and promotes corruption and cronyism.  The Scandis avoid this problem by having regulatory regimes that are, in fact, some of the freest in the world.  In the World Bank ratings of the ease of doing business,  Denmark is number three, ahead of the US (sixth) and the United Kingdom (seventh).  Norway and Sweden rank eighth and tenth.

(Personal anecdote: My group bought an over-staffed property company in Sweden in the early 1990s.  Within a very short period of time and after minimal drama, the company was completely restructured.  We could have never done this in a place with labor laws like they have in France or Italy.  The Scandis know that you do not drive an economy staring in the rearview mirror.)

The last problem with socialism is incentives.  “From each according to his ability, to each according to his need” is not exactly a recipe for getting the best out of the able and discouraging all but the truly needy.  If the Scandinavian model is socialist at all, it is in its redistribution.  So, how is it possible for the Scandis to have robust economies with levels of taxation and welfare that Americans would find excessive?

The answer lies in the culture and other circumstances of these countries.  The Scandis exhibit to a great degree the cultural characteristics that have produced economic advancement in any number of groups: a strong work ethic; high trust[3] and a continuous effort to deserve it; a commitment to education and other forms of investment; a willingness to delay gratification and control impulses; respect for the rule of law and an avoidance of corruption; and punctuality, responsibility and self-reliance.

All of these factors have been reinforced by the social circumstances of Scandinavia.  A major theme of this blog is that people respond to the incentives placed in front of them.  But I have never claimed that these incentives are only pecuniary.[4]  People are also motivated by considerations of social esteem, peer pressure and stigma.  These factors are particularly important in small, homogeneous populations where the degree of separation is not six, but probably about three.[5]

One does not “game the system” in an environment where shirking is frowned upon and where everyone knows who the shirkers are.

So, the answer here is that the Scandinavians succeed despite the redistribution and not because of it.  Among other ways, this can be seen in the performance of Scandinavians who have left their countries but carried their cultures with them.[6]  Although my copy of Debunking Utopia by Swedish author Nima Sanandaji[7] is currently about halfway across the Atlantic and therefore I cannot be too precise in my citations, the book presents some interesting statistics.   The descendants of Scandinavian immigrants to the United States significantly outperform other ethnic groups in America on a wide range of indicia (educational attainment, incomes, family stability, unemployment, crime, etc.).  More importantly for this argument, they also massively outperform the Scandinavians who have remained in their native lands.

Scandinavia has a world-beating culture, which is obvious to anyone who has spent time in these countries.  The idea that this culture, or the economic system it makes tolerable, can be readily transplanted to a country such as the USA is a complete nonsense that could only be plausibly believed by someone, like Bernie Sanders, whose native state of Vermont vaguely approximates the Scandinavian circumstances.  But it is also interesting to note that household incomes in “Live Free or Die” New Hampshire greatly exceed those in neighboring Vermont.

The other truth is that the model is not even sustainable in its native lands.  It has been rolled back almost continuously from the high-water mark of redistribution in the 1970s, when marginal tax rates sometimes exceeded 100%.   Even Norway, sitting on the world’s largest sovereign wealth fund and offshore wells that produce $20/day in revenue for each man, woman and child in the country, cannot continue to tolerate a system in which the Ministry of Finance estimates that roughly 20% of the working-age population is voluntarily idle due to the generosity of the welfare system.

Here is another way of looking at it: Why has the affection of the Jacobins not stayed closer to home?  They take their name from a radical group in the French Revolution.  So, why isn’t France their workers’ paradise?  After all, as noted in a recent article in the Economist, France outscores Scandinavia on many of the parameters that the Jacobins hold dear.  French government spending commands a higher percentage of GDP (56% versus slightly less than 50% for Sweden), pensions are more generous (over 14% of GDP versus 10%), and there are far more state-owned businesses (1,800 firms that employ 800,000).  And with a diverse population of 66.9 million – “How can you govern a country which has 246 varieties of cheese?”[8] – versus 5.7 million in a Denmark,  some might even think that France is a better approximation of the situation in the USA.

Or take the democratic socialism of the post-war United Kingdom, which made it the Greece of the 1970s.  Or the democratic socialism of Canada until its market-reforms in the 1990s.  Or the democratic socialism that produced the “Hindu rate of growth” in India, despite the fact that the Hindus are growing quite nicely now and Hindu immigrants were always some of the most successful entrepreneurs whenever they escaped the corruption, delay and demotivation of the Permit Raj.  Or, for that matter, the democratic socialism that was already crushing the Venezuelan economy despite $100+/barrel oil and the largest proven reserves in the world.

For every falsely claimed Scandinavian success story, there are at least 10 verified disasters of socialism, democratic or otherwise.  So, it is time once again for the workers’ paradise to move on.  At this point, they might want to try another planet.

Net Neutrality

The FCC’s repeal of the net neutrality rules has been generating mass hysteria.  Everyone has forgotten that the now-repealed rules were put in place a grand total of 34-months ago.  Netscape, the first mass-market browser, was released in December 1994.  How did we ever survive for those first 20-plus years without the net neutrality rules?  Doesn’t everyone remember how horrible, exclusionary and over-priced internet services were before the government saved us?  And how much better things have been since February 2015?

Ajit Pai, the head of the Federal Communications Commission, is one of Trump’s best appointees and an excellent example, along with Neil Gorsuch, of the good the administration can do when Donnie is distracted by the TVHere is a great interview with Pai from Reason.

Pai’s position is that net neutrality was an answer to a question that no one was asking, except President Obama who had made it a campaign promise and who inappropriately[9] intervened with the “independent” FCC in order to impose it.  In fact, prior to net neutrality, the only examples of companies offering differentiated services were free browsing in certain cases.  Consumers sure needed protection from that.

Which makes it highly *ironic* that, when Paul Krugman was recently ask to comment about the repeal of the rule, he said (apparently with a straight face):

We’ve done very, very well with providers not allowed to discriminate among different users. This is something that’s very much not broken. Why try to fix it?

I am sure that he would have found that a compelling argument in February 2015.

As a gentle reminder why we might want to revert to the permission-less regulatory regime that existed prior to the net neutrality rule, John Cochrane has just published a review of Thomas Hazlett’s book The Political Spectrum.   Hazlett is a former chief economist of the FCC.  The book is a compendium of delay, incompetence and regulatory capture which asks the rhetorical question: Are these really the people we want to empower to determine the future of the net?

Which brings me back to one of the major themes of this blog.  One of the favorite fallacies of the people who hate free markets is to compare an (allegedly) imperfect market with a (fictionally) perfect regulator.  We must never let them get away with this.

Roger Barris

Evergreen, Colorado

 

[1] Yes, the willingness of the left-leaning media to distort in the interest of a political agenda is not a recent phenomenon.  And it continues.  Here is a story about how the Left, ever happy to enable Trumpism, is justifying “fake news” by suspending journalistic standards when it comes to negative stories about Trump.  There is more than enough true, bad stuff about Trump.  No need to make things up.

[2] This fantasy lingers.  Careful listeners to the debate will hear the Jacobins claim at one point that advances in computer power are making market socialism more feasible.  The problem isn’t the speed of calculation.  The problem is GIGO (“garbage in, garbage out”) – the fact that the inputs to the program are unobservable, unknowable and ever changing.  Faster garbage is not a solution.

[3] A high level of trust in a society has been repeatedly shown to predict economic progress.  Since advancement depends in large part on a division of labor and cooperation, and since contracts are expensive to create and enforce, societies where people can be counted on to deal fairly with each other have a large advantage.

[4] The fact that people also respond to non-pecuniary incentives does not negate the fact that pecuniary incentives strongly influence behavior.  Decisions are made at the margin.  Holding all else constant, including non-pecuniary incentives, changes in pecuniary incentives will have a large marginal impact on behavior.

[5] Another illuminating personal anecdote: I was in Sweden the day after a ferry en route to Stockholm sank in the Baltic with 800 people on board.  I literally did not meet a single person that day who did not know someone who had died in the tragedy.

[6] An interesting thing is that the culture seems to endure for multiple generations, as anyone who has been to Scandinavia and also to Minnesota – or just watched Fargo – will attest.

[7] A good discussion of his findings can be found here.

[8] A famous quote from Charles De Gaulle (for those who are wondering what I am babbling about).

[9] So, add this to the litany of times Obama violated the spirit or letter of laws or the Constitution.  Along with DACA, the Title IX “dear colleague” letters, the Paris Climate “Accord,” the corporate enforcements settlements which created “slush funds” for various progressive groups, the worst-ever record in judicial review, etc., etc., etc.

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6 Comments on "The Scandinavian Model"

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Dave Anderson
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Ok, Roger, you are so good at arguing this case that I feel reduced to asking — What would an equally talented adversary would argue in response?

Dave Anderson

Stuart
Guest
Roger, what an excellent blog post, thanks. I find that my Socialist friends (of course in philosophy only, not in precise name) frequently like to refer to the democratic socialism model of Scandinavia as the compass for America. And what bad can you say about such a nice hetero(geneous) place? What is further interesting is the loaded tax rates in America for someone living in Manhattan, across Federal, State, Payroll, Corporate, City, etc – not far behind if not ahead of Scandinavia. Unfortunately Socialism has been creeping up State side far more than we may want to admit.
Gordon
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You are spreading false stories about Sanders, as if there is no difference between dictator states like Cuba and Venezuela and incredibly successful socialist countries like Sweden and Finland. Only the ignorant and too lazy to do their own research follow you.
https://www.quora.com/Did-Bernie-Sanders-ever-praise-Hugo-Chavez