Demystifying the 'Scandinavian Model'

Many a plucky free marketeer has been stymied by Scandinavia.  Too often, while well on the way to giving a socialist state-lover an intellectual hammering, these defenders of freedom are tripped up by the old, “but what about Scandinavia?” question.  The question of course refers to the perception that Scandinavian countries have produced wealthy and efficient societies while maintaining a deeply socialist economic structure.

The “but what about Scandinavia?” question is a free marketeer’s nemesis, and the ‘ace up the sleeve’ for all intellectually stumped statists.  It seems to put the lid on many a heated dinner table argument, leaving the freedom fighter neutered and the state lover feeling glibly reassured that at least somewhere in the world there is a beacon of what’s possible when socialism is “implemented properly”.

Folks, it’s long overdue to put this fallacy behind us, for socialism works no better in Sweden, Norway and Denmark than it does anywhere else in the world.

As the following articles make clear, like the rest of the social democracies in Europe, the real prosperity in Scandinavia was created in the 1800’s and first half of the 1900’s. Scandinavian economic dynamism resulted from freedom not serfdom. Moreover, Sweden and the other Scandinavian economies have been liberalising since the 1980’s, not ’socialising’.

The Scandinavian-Welfare Myth Revisited by Markus Bergstrom
The Sweden Myth by Stefan Karlsson
About those capitalist Scandinavians… by Stephen van Jaarsveldt

Prior to the Great Depression Swedish government spending only constituted about 10% of GDP and Swedish entrepreneurs prospered.

Unfortunately the Great Depression, induced by inflationary policies from central banks and massive malinvestment of capital as a result, and prolonged by wage controls, protectionism, and higher taxation, was seized upon by statists from both sides of the Atlantic to make the false claim that laissez-faire had failed and more government oversight in the economy was needed.

After World War II and with an aggressive Soviet Union on its doorstep, Scandinavian countries became increasingly seduced by the lure of being able to leverage off all their hard earned real capital created over the previous century.

And so began the great push toward the left in Scandinavian countries, intensified in the 1970’s by populist leaders trying to fix runaway inflation and sharply depreciating currencies bought about by the very socialist structure they tried to engineer.

In fact, in the 1980’s Sweden was forced to make free market reforms after it was clear the economy had shifted into moribund socialist sclerosis.  As Markus Bergstrom writes in his insightful piece posted on mises.org, The Scandinavian-Welfare Myth Revisited,

“The Swedish economy was in an uphill struggle throughout the ’70s, mainly because the increasingly socialist policies had caused the economy to stagnate and lag behind the rest of the world. Many other European countries had caught up with Sweden and its monstrous welfare state and were now outperforming the country economically. 

In an effort to save the economy, the government carried out extensive reform and liberalizations throughout the ’80s and ’90s, cutting taxes and welfare expenditures, abolishing government monopolies, reducing regulation, floating the currency, and permitting more private alternatives in the public sector.”

It will no doubt come as a surprise to many to learn that Scandinavian governments have been liberalising their economies over the past 15-25 years rather than socialising them.  Yes, Scandinavian tax rates are extremely high, but these countries are still perennially ranked among the top free economies in the world.  Why?  Because while taxes might be high, overall business regulation is low and as Stephen van Jaarsveldt writes,

“Sweden is so open to foreign trade that more than two thirds of its economy consists of dealings with other countries. So much so, that recently the EU had no bargaining power with Sweden – there simply were no trade barriers to reduce in exchange for anything.”

But, in the ‘age of globalisation’, haven’t all economies been getting freer in the past 15-20 years and Scandinavian countries just treading water relative to their peers?  No, not according to the Heritage Foundation’s annual Index of Economic Freedom which shows that, since 1995, not only has Sweden’s economic freedom been higher than the global average, but it has been getting freer at a far faster rate than the global average.

As Bergstrom explains,

“The index also reveals a crucial point: there’s a common misperception that the Scandinavian countries are borderline Cuban in terms of economic freedom, while the rest of the developed world (particularly the United States) is far more free-market oriented. However, the reality is that the Scandinavian countries are among the top 10 and 20 “most liberalized” economies in the world, even despite their massive welfare states.

As the Heritage index shows, Sweden, Denmark, and Finland have more economic freedom than most of their European counterparts, including Germany, Austria, France, Belgium, Spain, Portugal, and Greece. While the Scandinavian countries do tend to have higher taxes and government spending than most other European states, the other states tend to have more regulation and less efficient and transparent legal systems, which cancel out the positive effects of the lower taxes.”

Indeed, Scandinavia’s regulatory burdens are among the lightest in the world, especially in Denmark which actually looks set to trump the US for 8th spot in the global economic freedom rankings.

That’s right, The United States of Capitalist Pigs is about to be surpassed in economic freedom by the Soviet Socialist Republic of Denmark.

Bergstrom concludes,

“We have seen that while the Scandinavian countries have extremely high amounts of what Rothbard called binary intervention, i.e., taxation, their saving grace is their relatively lower amount of triangular intervention, i.e., regulation. This puts the Scandinavian countries on a level playing field with other developed countries and helps explain why they are able to have equal or higher living standards. The misconception that the other Western countries are a lot more free-market oriented than Scandinavia is very unfortunate; it feeds the notion that more government expansion would bring joy and happiness to all, when in fact it would make things worse.”

Unfortunate indeed.  The great seduction of socialism is that it appears to propel a society toward greater prosperity with less effort, but the lie only lasts as long as capital off which this too-good-to-be-true party is leveraged.  As Maggie Thatcher once said, “Socialism works until you run out of other people’s money”.

In December we had this to say in reference to an on-the-ropes Greece, although its application reaches far beyond the lazy debt-addicted borders of that ancient basket case,

“[Socialism] is always built upon real wealth gained through hard work, and so for a time it appears to ‘work’ because society effectively lives off the mortgaged capital that it once created and owned.  Socialism is a holiday, a break from history, a lull from real life, a hiatus from the fortitude required for prudence and production, and always a temporary and utterly false reprieve from the actual duties required of adult men and woman.

Will the penny drop and the Greek nation come to realise, as their ancestor Hesiod did in 700 B.C that money doesn’t pay for coffee and crepes, production does, and that the sooner one gets productive the more double-espressos one can drink?  Ok, so Hesiod said it a little differently,

“If you work, you will be dearer to immortals and mortals; they both loathe the indolent.  No shame in work but plenty of it in sloth.  If your work brings you wealth, you will be envied by the slothful, because glory and excellence follow riches.  Whatever your lot, nothing will be as good as work.”

Quite.  It is surely becoming a shame to this once-proud nation that it can now barely pay the interest on its debts.  Sometimes shame is a profound and electrifying motivation to become productive once more.  But remember also, that old habits die hard, and sitting for decades on the drip of government welfare has made Greeks bloated and lazy, not to mention profoundly dissatisfied with their lot in life and yet tragically unable to see that it’s the stultifying nullity of their ‘social democracy’ that’s plunged them into this morass of economic degeneracy.

Can the Greeks learn from their mistakes and turn to become a great productive and prudent nation?  Hard to say really.  Their “Club Med” brethren (Italy, Spain, Portugal, Latin America) haven’t been so good at learning the lesson.  Argentina was plunged into currency crisis not more than 8 years ago only to remain forever reeling on the brink of a new default, a new devaluation, a new socialist leader promising more prosperity through spending… Prolonged Socialism will only make the inevitable ruin that follows it that much more devastating and absolute.

That’s the reality Scandinavian countries faced in the 1970’s, and, thanks to the Thatcherite revolution, they managed to pull themselves away from the brink of Greekdom.  Unfortunately, the same old tired and useless Keynesian bunk is being foisted upon policy makers by economist eggheads once more, and once again the threat of the 1970’s looms large, except this time the stakes are sky-high.

Even more unfortunate is that the Scandinavian economies rank so highly in terms of global economic freedom when they are anything but truly free. The social democracies of Europe have all chosen the road to serfdom, but some are just getting there faster than others.

Swedes, Norwegians, Danes, Fins, and Icelanders are among the most innovative, productive people in the world.  Thanks to their liberal reforms they have been given a lifeline.  They can liberalise fully and achieve glory, remain part-free and therefore part-prosperous, or they can regress back into the stultifying dark ages of economic lunacy and kiss their wealth goodbye forever.

Let’s just hope the ghosts of Keynes and Marx don’t return to haunt those beautiful and proud lands that were once upon a time the frontiers of freedom.  John Cleese’s ‘Norwegian Blue’ may have been pining for the fjords, but the Scandianvians are not pining for socialism.

The next time a bleeding-heart socialist throws the “but what about Scandinavia?” question, turn it back on them and ask, “but what about the Scandinavian socialism myth?”