Why Scandinavia isn’t
Exceptional by Tyler Durden, 8/16/18.
First, Sanandaji makes
clear that the rosy story of the Scandinavian welfare state, as it is usually
told, is at best incomplete. The Scandinavian countries were among the European
continent’s poorest by the end of the 19th century and were largely unaffected
by the industrialization that had started centuries earlier in the United
Kingdom.
A combination of
classical liberal reform and the adoption of industrialized production created
a century-long “golden age,” as Bergh (2014) denotes the period approximately
1870–1970 in Sweden, of economic growth and rapidly rising standards of living.
This growth was partly
also made possible by a distinct Scandinavian culture, which is characterized
by the “high levels of trust, a strong work ethic and social cohesion [that]
are the perfect starting point for successful economies”
.
As Sanandaji points
out, the market-aligned virtues of Scandinavian culture also explain the
limited impact of the welfare state as it was erected and ballooned in the
1930s and beyond. Cultural change takes time, and thus old values lag in the
face of political change. So it took time for the Scandinavian virtues to give
way to the destructive incentives of the welfare state.
It should also be
noted, though Sanandaji fails to make this point clearly, that after the
welfare state was established, and during its several decades of expansion,
it’s growth rate tended to be lower than that of the overall economy. The
increasing burden was therefore, in relative terms, marginal. That is, until
the radical 1960s and 1970s when Scandinavian governments, and the Swedish
government in particular, adopted very expansionist welfare policies. (This
political shift is analyzed in detail in, e.g., Bergh.)
Sanandaji also
presents interesting data with respect to Scandinavian gender equality. His
discussion begins with the internationally enviable women’s labor market
participation rate in Scandinavian countries, and especially Sweden. The
background, however, is that Sweden’s government had adopted a radical agenda
for population control formulated by Gunnar and Alva Myrdal (yes, the same
Gunnar Myrdal who shared the 1974 economics prize with Hayek). The gist of this
reform was to enforce a shared responsibility between parents and “the
community” for children’s upbringing. By raising taxes on income while offering
government-run daycare services, families were incentivized (if not “forced,”
economically speaking) to secure two full-time incomes.
Interestingly, while
this indeed rapidly increased women’s participation in the labor market,
Sanandaji notes that “few women in the Nordic nations reach the position of
business leaders, and even fewer manage to climb to the very top positions of
directors and chief executives”.
Part of the reason is
that jobs that women typically choose, including education and healthcare, are
monopolized in the vast public sectors. As a result, women at trapped in
careers where employers do not compete for their competence and many leadership
positions are political.
This development is
indirectly illustrated in a terrifying statistic from Sweden’s labor market:
“Between 1950 and 2000, the Swedish population grew from seven to almost nine
million. But astonishingly the net job creation in the private sector was close
to zero” (p. 33).
Finally, Sanandaji
addresses the issue of immigration and shows that the Scandinavian nations were
exceptionally good at integration, with greater labor participation for
immigrants than other Western nations, prior to the radicalization of the
welfare state.
Thereafter, due to
rigid labor regulations and vast welfare benefits, immigrants were more or less
kept out of Scandinavian job markets.
The literature
identifies two potential explanations.
First, the
anti-business and job-protection policies practically exclude anyone with a
lack of work experience, highly sought-after skills, or those with lacking
proficiency in the language or limited network.
This keeps immigrants
as well as young people unemployed (the very high youth unemployment rates in
Scandinavia illustrate this problem).
Second, the promises
of the universal welfare state tend to attract people who are less interested
in working their way to the top and thus have a lacking work ethic.
This explains the
recent problems in Scandinavia with respect to immigration, which is
essentially an integration and policy problem - not a foreign-people problem.
Overall, Sanandaji’s
book provides plenty of insights and a coherent explanation for the rise of the
Scandinavian nations and their welfare states.
Their impressive
standard of living is a free-market story, which is rooted in an economically
sound culture. This culture also supported the welfare state, until decades of
destructive incentives eroded the nations’ sound values.
The welfare state,
after its radicalization, was soon crushed under its own weight, and
Scandinavia has since undergone vast free-market reforms that again have
contributed to economic growth and prosperity.
Considering the full
story, Sanandaji summarizes the example of the Northern European welfare states
simply and bluntly: “Scandinavia is entirely unexceptional.”
Norb Leahy, Dunwoody
GA Tea Party Leader
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