Jeffrey Sachs has written a new paper on the Nordic model, extending his Scientific American article in praise of the welfare state. It is listed as "not for quotation" so I won’t. I agree with much of the paper, but I would emphasize a few propositions more:
1. Many ideas and innovations are international public goods. This will make the Nordic model more sustainable over time. Swedish society doesn’t have to be that innovative, although of course sometimes it is.
2. Societies differ a great deal in their innate level of cooperativeness. This is a key to making the Nordic model work. I wouldn’t try the Swedish model in France, much less in the United States.
3. The Nordic countries generally take a light hand in regulation, capital income taxation, and many of the public welfare programs pay people to work and not to sit at home on their behinds. In fairness to Sachs, he does mention these points. Furthermore given the extensive subsidies to child care, which encourage female labor force
participation, the high marginal tax rates do not discourage labor supply as we might at first think.
4. Government policy is often most usefully thought of as endogenous. Higher levels of cooperativeness, and lower levels of corruption, mean that people will choose more government. The government they get will work better than government works elsewhere. The point is not that all choices are efficient, but rather there is a selection bias in the data we observe on government size and performance. Nordic welfare states are large, in part, because they work relatively well.
5. The long-term consequences of a slightly lower growth rate are in any case troubling, no matter how well a society works at any moment in time.
Here is my previous post on the Nordic model. Here is a post on Swedish stagnation. Excerpt: "I’ve been to Stockholm several times and loved it. That being said, how
attractive will this model remain when it offers only half of the per
capita income of the United States?"