The lessons we can learn from the Nordic nations

The Economist has put up a great piece taking a look at what the Nordic countries (The Netherlands, Norway, Denmark, Sweden, and Finland) are doing differently from the United States and the rest of Europe and how this could be used as a model going forward. I decided to add some commentary and data to the most interesting bits from the article.

The Nordic countries: The next supermodel | The Economist:

If you had to be reborn anywhere in the world as a person with average talents and income, you would want to be a Viking. The Nordics cluster at the top of league tables of everything from economic competitiveness to social health to happiness. They have avoided both southern Europe’s economic sclerosis and America’s extreme inequality. Development theorists have taken to calling successful modernisation ‘getting to Denmark’. Meanwhile a region that was once synonymous with do-it-yourself furniture and Abba has even become a cultural haven, home to ‘The Killing’, Noma and ‘Angry Birds’.

Here’s the United Nations’s World Happiness Report for 2012. The Nordic countries dominate the top of the list, while the United States comes in 11th place. Here’s a graph of the employment rates in the Nordic countries versus in the United States, from the OECD’s statistics database:

Employment for all person Nordic countries versus United States

Socialism is clearly taking its toll on the Swedish work ethic. Of course, one major reason the United States is so far behind is our employment of women compared to the Nordic countries:

Employment rates in Nordic countries versus United States

Employment males Nordic countries versus United States

Government’s share of GDP in Sweden, which has dropped by around 18 percentage points, is lower than France’s and could soon be lower than Britain’s. Taxes have been cut: the corporate rate is 22%, far lower than America’s. The Nordics have focused on balancing the books. While Mr Obama and Congress dither over entitlement reform, Sweden has reformed its pension system (see Free exchange). Its budget deficit is 0.3% of GDP; America’s is 7%.

The Free exchange article about notional savings accounts sounds a lot like the suggestions put forward in a piece in The Atlantic I talked about a few weeks ago. Such cuts would make Social Security sustainable for the foreseeable future and help to balance the budget.

So long as public services work, they do not mind who provides them. Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools. Denmark also has vouchers—but ones that you can top up. When it comes to choice, Milton Friedman would be more at home in Stockholm than in Washington, DC.

Private firms running anything with public funds has a bad reputation here in the United States for a few big reasons. The biggest is probably the money pit that is Medicare Advantage, the program that lets you get Medicare benefits via a private plan. As an example of how wasteful this program has been, a 2008 study found that the United States government was overpaying for Medicare Advantage plans by about 12%. As for school vouchers, studies of programs here in the United States have found either no impact or decreases in student achievement. While the necessary changes to how school works in the United States are massive, perhaps taking a look at how the Nordic countries implement their systems would point us in the right direction.

This may sound like enhanced Thatcherism, but the Nordics also offer something for the progressive left by proving that it is possible to combine competitive capitalism with a large state: they employ 30% of their workforce in the public sector, compared with an OECD average of 15%. They are stout free-traders who resist the temptation to intervene even to protect iconic companies: Sweden let Saab go bankrupt and Volvo is now owned by China’s Geeley. But they also focus on the long term—most obviously through Norway’s $600 billion sovereign-wealth fund—and they look for ways to temper capitalism’s harsher effects. Denmark, for instance, has a system of “flexicurity” that makes it easier for employers to sack people but provides support and training for the unemployed, and Finland organises venture-capital networks.

This is definitely something that Americans can learn from – having the government employ lots of people to provide services is not what makes “big government” a problem, it’s when government oversteps into your private life (you know, by telling you who you should sleep with, deciding what chemicals you can put in your body, and snooping through your mail). Additionally, the Nordic countries are clearly strong believers in the idea of a strong free market backed by a strong safety net to help people get back on their feet when things go bad.

The main lesson to learn from the Nordics is not ideological but practical. The state is popular not because it is big but because it works. A Swede pays tax more willingly than a Californian because he gets decent schools and free health care. The Nordics have pushed far-reaching reforms past unions and business lobbies. The proof is there. You can inject market mechanisms into the welfare state to sharpen its performance. You can put entitlement programmes on sound foundations to avoid beggaring future generations. But you need to be willing to root out corruption and vested interests. And you must be ready to abandon tired orthodoxies of the left and right and forage for good ideas across the political spectrum. The world will be studying the Nordic model for years to come.

I couldn’t have said the first three quarters of this paragraph better myself. The one major problem is that short sentence near the end, about rooting out corruption in vested interests. I probably don’t need to tell you how bad those are here in the United States. Lobbyists, Super PACS, corporations with the ability to donate as much as they want – all of these make for a system where those who have money can buy the government they want. Unless we can clean up the system and bring this country back in line with the ideals of representative democracy, it seems that it would be incredibly difficult to make the reforms that could bring us closer to something like the Nordic model.

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