The nordic model is greatly admired in progressive circles. The nordic countries are supposedly a great example of “socialism that works” and the wonders that could be accomplished if Americans would only give up on all those silly ideas that are enshrined in their constitution.
Now, for those of you who don’t know me, I’m a conservative with master’s degree in behavioral economics who was born and raised in Sweden, and in this article I intend to challenge the mainstream view of the Nordic countries as a utopia.
I am going to list five uncomfortable facts about the nordic model that you are very unlikely to learn from American media & its political pundits – this may be partly because they don’t want you to know, but mostly because they don’t know themselves (very few Americans have more than a very basic understanding of European politics & economics).
Let’s get started:
1) The poor are heavily taxed. The nordic countries are world-famous for being the only ones who don’t let the rich “get away” from paying their fair share. Now, whether that’s true or not, it is a mathematical fact that the poor are not in any way getting off scot free.
In America, approximately 43 % do not pay taxes. In Sweden, that number would be close to 0 %. If you’re an adult and you’re not a student, you’re paying income taxes and that’s it. Only the first $2,300 USD of income earned in a year is tax free – and there is no way you can live on that. Even if you’re collecting unemployment or disability benefits, you’ll make more than enough money to pay income taxes. In fact, many children working summer jobs end up having to file tax returns as their hard-earned salaries puts them above the treshold.
Here are a few numerical examples to illustrate my point:
If you earn the equivalent of $12,500, your effective tax rate will be 13 % (more than the average American’s federal income tax rate). At $37,000, you’re paying 23 %, and at $62,000 you’ll end up having to send 29 % of your income to Uncle Sam… I mean, Sven. These are relatively modest incomes, and we’re already talking about tax rates multiple times what Americans are used to. And we haven’t even began to talk about the payroll taxes – when those are included, the average Swede pays about 43 % of his income in taxes (the low-income earner making $12,500 would pay “only” 34 %) . And then we pay a 25 % VAT on the rest – a regressive tax. And then there’s the fixed-rate TV license, and… you get the idea.
Still, it used to be worse – between 2006 – 2014, income taxes were slashed by almost 25 % by the centre-rightwinged government which lost power in the September elections.
But what about the rich? Surely they’re getting clobbered? Indeed they are. If you earn $125,000/year, your effective income tax rate will be a staggering 43 % (58 % including payroll taxes).
The point I’m trying to make is this: You cannot build a welfare state on the backs of the rich. If America wants to introduce a nordic welfare state, it will have to raise taxes on everyone. The left likes to talk about how all you have to do is “make the rich pay”. Trust me: If that was possible, we would have already done it. We have no moral qualms about taxing the rich in Scandinavia; the reason we tax the poor so much is because we have to or the system wouldn’t work.
2) America subsidizes the Nordic welfare state. The left makes a big deal about how America should stop wasting money aiding Israel, but did you know that by far the biggest subsidies from America goes to Europe?
Don’t get me wrong, I’m not talking about foreign aid, I’m talking about two other forms of subsidies:
The first one is defense. Ever since WWII, the US has guaranteed European liberty, which has mainly been threatened by the Soviet Union and more recently Russia. Even Sweden and other non-NATO states benefitted from this as the Soviet Union wouldn’t attack us just in case the US decided to get involved. The leaders in Europe soon realized this, and decided that since the US was already paying for our defense, there was really no need for us to spend any money on it. As a consequence, most European armies are a joke. The money we saved on defense was instead used to pay for universal health care and the other programs associated with the nordic welfare state.
The second subsidy is through innovation. American capitalism easily beats Nordic social democracy when it comes to producing innovation (Acemoglu et al, 2012). Innovation in turn creates growth (in fact, it is the only source of long-term growth), not just for the country that does the innovating, but for all countries that adopt the inventions. In practice, this means that America invents, and as a consequences Europe gets a higher growth rate and more tax revenue than we otherwise would have. Tax revenue which we then use to, you guessed it, pay for our welfare states.
If America goes nordic, is there anyone out there who can subsidize all of us? Because I honestly don’t think so.
3) We were really lucky. Creating a welfare state is all about timing. We in the nordic countries built our welfare states in the aftermath of WWII (though Sweden started in the 30’s), when the post-war boom ensured growth rates never seen again, no unemployment, and pay increases that are unheard of today. The last one in particular is very important: You see, most people measure their success relative to how well off they used to be. If you feel like you’re better off today than you were a year ago – maybe because you’re making more money – then chances are you’re feeling pretty good, even if your income is still below average. And it goes the other way around too – if you’re making less than you did a year ago you may feel miserable even if you’re still rich by any reasonable standard. This is really just behavioral economics 101.
What does that have to do with the Nordic model? As we’ve already established, introducing the nordic model would mean raising taxes for everyone. And it’s so much easier to raise taxes when wages are growing fast (as they were in 1950’s Sweden) than when they have stagnated (as in 2010’s USA). If you get a 10 % pay raise and the government increases taxes by 5 %, you’re still 5 % better off than you were last year. This means you still feel pretty good about your situation, and you still feel motivated to get up and go to work every morning.
If on the other hand you raise taxes when wages are stagnant, you’ll face a lot more complaining from workers as net salaries would actually start falling in absolute terms. Now the big problem with that is that some of those workers are going to get so discouraged that they decide that working just isn’t worth it anymore – especially not since unemployment benefits have suddenly become so generous (that’s part of the welfare state, remember). In a worst case scenario, this can actually lead to tax revenue going down as tax rates go up, as more and more workers leave the workforce to collect benefits. What this means is that America would likely need even higher taxes than Sweden to replicate the same model, as you would have to compensate for workers leaving the workforce. This wasn’t a big issue for the nordic countries, but like I said, that’s because we were lucky and got the timing right.
In addition to timing, some of us (read: Norway) were lucky enough to find enormous oil deposits under their ground, which they promptly nationalized. Needless to say, America can’t replicate this.
And finally, we were lucky enough to have homogenous societies (though this is rapidly changing) which tend to make welfare states work better. Again, something America can’t replicate.
4) Universal health care has its drawbacks. There are two main ones, and the first one is long waiting times. Now, a lot of liberals are going to shrug at this and say “Well, at least it’s fair – everyone’s got the same risk of dying while waiting to get health care, the rich don’t gain any advantage from their wealth”.
But that’s not true. You see, people in general like to stay alive. And if you got the money, you’ll find a way to do so, even in Sweden. Do you really think a Swedish millionaire is just going to wait patiently to receive public health care while he’s got a cancer tumor growing inside of him? Or do you think he’ll take the next flight to a private hospital abroad and get treatment as soon as possible? Exactly.
Basically, what the Swedish system amounts to is that the rich who can afford private treatment will get it, and the rest have to pray that they get to the front of the line before they die.
The other problem is the labor union, as in the medical doctors’ labor union. They have a long history of sabotaging our health care system – the best example was when they successfully lobbied the government to reduce the number of entry spots at the medical schools around the country. Why? Because fewer doctors mean higher salaries for the already-practicing doctors, per the law of supply and demand. It also means longer waiting times, poorer quality of the care provided and more patients dying as a result, but the union couldn’t care less. In a socialistic country like Sweden, unions hold a lot of power. That’s not only a bad thing for sure, but it sure has screwed up our health care system.
I actually confronted the regional union leader about this at a public event they held when I was 13 – I was invited because my dad is an MD. And when I say confronted, I mean I blasted her for what her corrupt organization had done and told her doctors should not be allowed to unionize. For some reason that was the last time my dad invited me along to meet his colleagues.
5) We don’t really hate the Right – we’re just risk averse. One thing often pointed out in favor of the nordic model is how stable the Social Democrat governments here have been. Sweden being the most obvious case in point – we had a social democrat government from 1932-1976. Surely if people re-elect their government in every election for over 40 years, they must be doing something right?
Well, maybe. However, the biggest reason why the right was completely unable to win elections for 44 years in Sweden was because the right-winged parties – there were three of them at the time – were unable to agree on anything and were more interested in fighting one another than they were in defeating the common enemy, the social democratic party.
And so, most people figured that they knew what they got with the Social Democrats (who were big enough to govern on their own), but who knew what a right-winged majority might bring? Since the 1970’s forming coalitions and uniting behind one candidate for Prime Minister before the election has become more common, and in 5/8 elections when the right-winged parties have united, they have prevailed. We don’t necessarily like our leftist governments, nor hate the right. We just don’t like taking risks.
To add to this point, it should be noted that we’ve seen a significant right-winged shift in the past 25 years. In Sweden, taxes as a % of GDP peaked in 1990 at 49.9 %. Today that number is 42.9 %, which is still way too high for me as a conservative, but a significant improvement. Taxes have mainly been cut for high income earners – back in the 1980’s, the top marginal tax rate was above 100 %! Yes, we literally fined people for working. Today, the top marginal tax rate is “only” 57 %. During the same time period, we’ve privatized several government monopolies, reduced unemployment benefits, abolished the wealth tax and reformed our social security system (you could learn from us!). Denmark too has introduced similar reforms in recent years (look up “flexicurity”).
We didn’t do this because we wanted to – we still have pretty much the same egalitarian anti-rich people culture that we always had – we did it because we had to, because the system we used to have, the one that liberals would like America to introduce, was collapsing under its own weight.
There is more that could be said about this topic, but this post was only meant to be an introductory guide and it’s already far too long, so I’ll stop here. Thank you for reading.