…the Scandinavian welfare states have an above average growth record during the period 1970-2000: Sweden has to some extent lagged behind, but Finland and especially Norway have grown steadily.
Andreas Bergh offers two answers: First, if we look at measures of economic freedom, especially those measures which track freedom independent from the size of government expenditures, the Scandinavian countries have become much freer. (Note that the Netherlands, which until very recently was outperforming the other European welfare states, experienced the greatest gains in this category.)
Second, the Scandinavian economies have become much more globalized. The old story was that globalization rendered welfare state expenditures unsupportable; it is more likely that the opposite is true, at least provided trade is open, credibility is high, and business regulation is light.
I wish this paper were 100 rather than 20 pages, but I believe the author is on to something very important.
Addendum: Here are other versions of the link to the Bergh paper, if the given link is still down.
Wouldn’t globalization render welfare state expenditures more supportable if the welfare state expenditures were actually efficient?
I’m thinking of the common “single payer” advocates’ claim that the US government should provide free health insurance because companies that are groaning under their health insurance expenses will run to Canada. That argument would work only if either the single-payer system really was more efficient than private health care (or if the Canadians really did manage to find sugar daddy for which the single-payer advocates are constantly searching).
^ confirmation bias is hopefully taken into account when AT/TC post content, if not, caveat lector and adjust your reading accordingly. i suspect like libertarians would that AT/TC expect their readers to take responsibility for their own understanding.
also, the link to Andreas Bergh is broken…
Here is a paper looking at the relative economic failure of Latin American countries compared to Europe, the US, and especially Asia. It shows the flip side, that the conditions that Scandinavian welfare states have is what Latin America lacks.
“We find that this failure is primarily due to total factor pro-ductivity (TFP) differences. Latin America’s TFP gap is not plausibly accounted for by hu-man capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding low Latin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries.”
http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=1065
One of the possible explanations they give for the existence of the barriers to competition is that the extreme concentration of wealth gives the wealthy power over the government. It would be ironic if the policies put into place to increase growth in the United States by increasing incentives had the long term results seen in Latin America.
One does have to be careful about making too much
about Norway because it has oil, although it has
avoided the “curse of natural resources” that so
many oil exporting nations have experienced.
I have for some time in many places been trying
to make this point. There is this general knee
jerk reaction out there that Sweden et al are
about to collapse (I have been hearing that they
are “about to collapse” from certain parties for
decades) for their “socialism.” But they indeed
have never had comprehensive central planning and
very little state ownership. They have long had
free trade, and they have surprisingly few
business regulations, with the ones they have
carefully targeted. It is easier to establish
property rights in most of those countries
than it is in the US.
Needless to say, their success is really the
success of a model that Hayek was developed
in Germany originally, the social market economy,
a phrase introduced by some allies of Hayek,
the Ordo-Liberals of Frankfurt in particular.
And of course, their success give the lie to
the endless and nearly mindless propaganda
that one hears in the US that one must cut
taxe all the time in every way blah blah blah.
Just plain baloney.
“What I find interesting about this blog is that its purpose seems to be serving the confirmation bias of libertarians.”
From the post: “The old story was that globalization rendered welfare state expenditures unsupportable; it is more likely that the opposite is true, at least provided trade is open, credibility is high, and business regulation is light.”
The idea that free trade can help support the welfare state isn’t very libertarian at all.
Frankly, Mike Huben, it seems more like you don’t like any blog that fails to confirm your biases.
In fact, there is simply not another blog out there that challenges its readers underlying biases as much as this one. Not one. Get out of your bubble.
“he’s essentially saying that globalization can rescue the welfare state if only they follow the other principles of “economic freedom”.”
I would say that’s more or less a consensus view among most economists, libertarian or not. The evidence points against may interventions in trade and the price system interventions, but a large welfare state doesn’t seem to be destructive in certain societies.
“As for your assertion that this blog challenges the underlying biases of its readers, I’d love to see you back that up in a credible manner.”
Um, posting about a successful welfare state doesn’t challenge libertarian biases?
Look, you’re clearly on some sort of moronic crusade. You have some faith-based issue against libertarians. They’re some sort of devil to you, and you can’t deal with them. That’s fine, we all have our hang-ups. Good luck with yours.
Maybe the success of Scandinavian welfare states is proof of the Stolper-Samuelson Theorem, that there are enough gains from trade so that the winners can compensate the losers and everyone can be better off.
The Scandinavian welfare state still works because Scandinavia is full of Scandinavians. The moral hazard of the welfare state has only slowly eroded the Scandinavian work ethic and sense of honesty because they were so deeply rooted to begin with. (Note Tim Harford’s article on how Swedish diplomats at the UN don’t park illegally even though they can.) In contrast, the welfare state wrecked Britain’s economy in just 30 years (1945-1975) and it wrecked American inner cities in about 30 months when it was introduced in the mid-1960s.
My understanding was that the ethnic homogeneity of Sweden was part of the reason Swedes tolerate such high tax rates. As they bring in more foreigners I’d expect a backlash (perhaps the recent success of the center-right party is part of that.)
I actually have family in Sweden. One relative is a Vietnamese woman who married a Swede. Right now Sweden is paying her way thru Pharmacy school, and giving her husband a year of paternity leave to take care of their kids. She’s a wonderful woman, but I imagine situations like hers might well breed a degree of resentment among some parts of Swedish society. Or at least an interest in reducing some aspects of the welfare state.
That said, most Scandinavians I’ve known have been extremely egalitarian, and although worried about their Muslim immigrants, were still very positive about immigrants like my relative who’ve worked hard to integrate themselves into Swedish society.
Thanks Tyler for mentioning my paper, and to everyone else for interesting comments!
To Mike (and others), I see your point about “economic freedom” being an ideologically loaded term. But I still think that the index is basically an excellent index of institutional quality
(especially if you exclude the part of the index that is directly related to government size
(and even this component does not include for example total government size, but rather for example top *marginal* tax-rate)
).
As for ‘the paper should be 100 rather than 20 pages’, I have a book coming out. First in swedish, then in english. 100 pages actually. Working title: “The capitalist welfare state”.
Oops, turns out that Anders Bergh and I sits within 50 meters from each other, when Anders is not at George Mason. Feels odd to get to know his work through a blog. This may not be pure procrastination, then.
I was discussing this very issue with my spouse yesterday. She is a native Finn who has lived in the US for 14 years.
The difference between the countries is that the Scandinavian government is better at stopping graft and corruption. Certainly, there is some. But, it pales to the corruption in the US.
One of problems with America is that there is so much an emphasis equating money with the quality of life. What really matters in Scandinavia is time you have to spend outside of work. Working 14 hours a day is not glorified. In fact, it is scorned.
This does not mean Scandinavians have a low work ethic. One of the things trumpeted by industrialization was that workers would have more leisure time. Certainly, as a culture, spending 1 hour with your child is worth more than spending 1 hour at work. Although the marginal value of spending time with your child goes down, so that 1 hour at work eventually equals out.
And, don’t be fooled. Just because one is taxed, say 10% of income to support the health care system in Finland and 1% in the US does not mean that one spends less on health care in the US. To the contrary, we spend more on health care in the US. For, generally, an inferior product.
Yes, it is inferior. On a macro level. On a micro-economic level, our health care system looks good. We have the best doctors, the best hospitals, and the best research. But, they are available to the privileged few. In Finland, health care is excellent, the best in Finland are nearly as good as the best here, but the worst in Finland is about average for the US.
The same goes for other public welfare issues, such as schools. In fact, there is only one area where the US excels. In that area, the US spends as much money as is needed and ignores graft and corruption. That area: defense.
I heard Mancur Olson give a lecture with this argument in the 90s. Don’t know if he wrote it up, but it was the same point. Outside of spending and tax levels, Sweden was pretty non-interventionist in markets.
Once again, Mike, good luck with your hang-ups. You’d probably do better to look at your own blinkered worldview instead of projecting all of your own personal flaws onto libertarians.
You know, Keith, Jon Stewart said “I’m not your monkey” when told to be funny by a right winger. But when I point out your lack of argument, you perform on command with another simple ad-hominem attack. Are you really that much a creature of reflex?
Allow me to suggest that you address the criticism of the posting, and not the critics. You might learn something when you stop flinging feces.
Allan
I couldn’t agree more re the Scandi attitude to work. What I find interesting is how much they get done compared to the UK.
In the UK work is kind of an extension of socialising. People work long hours, to make sure the boss sees them there when he comes in in the morning, and when he leaves (rather like Japan). And people socialise and drink together. Drinking at lunch (which destroys office productivity) is condoned, and the culture is about encouraging drinking (everyone buys ‘a round’ for colleagues, so that means one can easily wind up drinking 5 or 6 beers after work). If you absent yourself from that post office drinking, you will be hurting your career. (again very Japanese).
The brilliant TV series ‘The Office’ is no joke, almost too painful for words.
http://www.bbc.co.uk/comedy/theoffice/ we’ve all had a boss like Ricky Gervais!
And if you’ve ever worked with the Americans, the emphasis is on endless meetings. You spend half your day reading through extraneous emails to make sure you are not ‘out of the loop’. See Lucy Kellaway’s brilliant ‘Martin Lukes’ column
http://www.ft.com/comment/columnists/martinlukes
By contrast in Scandinavia, on consulting projects in Sweden and Denmark I observed:
- much more comfortable office environments – lots of natural light, adjustable height desks
- high level of technical support – many of the customer support people (see below) worked from home
- high level of skills eg many of the women in a service environment spoke several languages (to deal with a global customer base)
- high level of technology generally – especially mobile
Basically Scandinavians seemed to invest in their workers, whereas in the UK a worker is a disposable item– the American companies I have worked with seem even worse in that regard- the GE ‘we cut the lowest 10% every year’ seems to be a commonly followed principle. Americans literally seem to be sending out their CVs from the day they get behind the desk.
The general business attitude in Scandi was ‘we are here to get work done’. So there was not the level of extraneous conversation. Meetings were quick, and efficient. There was accountability and efficiency throughout the business process.
If you worked after 6pm the general consensus was that you were not efficient, not that you were hardworking.
There are problems with the model, of course. You can’t get anything done in Sweden in July, which means given that Germany France Italy shut down in August, the summer can be a wipeout. Finns, in my experience, make damned poor salesmen (whereas Americans are the world’s best salesmen).
But generally Scandinavian countries seem to combine a high level of productivity with a high quality of life. Britain has low productivity and long hours. The US has high productivity and long hours. The US healthcare system is not one I would wish on anyone– my US friends are always worried about medical treatments or drugs that their insurance won’t cover, or what will happen to their parents as they get old.
A picky little comment: The Netherlands is not a Scandinavian country.
Otherwise I enjoy the discussion.
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