Flags of the Nordic Countries
Photo credit: Blue Square Thing (CC-By-NC-SA 2.0)

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.

The flags of the nordic countries.

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.

Photo credit: Blue square thing via Flickr (Attribution license 2.0)

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  1. Fascinating article. Good read. How is the education system? How does it compare? I think this is one area Nordic countries do very well. From my perspective as the parent of a 1st and 5th grader…ours is an unqualified disaster

    1. Hi! It’s funny that you’d ask me about the education system as I am actually going to write a post about that. Basically, Sweden’s higher education system is good, but our schools could do better. Teachers have very little authority in Sweden and bullying is rampant at many schools (usually little is done about it – I’m speaking from experience here).

      Our higher education system however is overall good. We have a national student aid system which covers all students – what this means is that the state lends you money to cover your living costs (and also gives you a grant) while you’re at university. There is no means testing, everyone who is admitted gets covered. This gives everyone the chance to go to university, no-one is held back by lack of money, which I think is a good system.

  2. I have long noted some of these points, especially the way the U.S. subsidizes European defense. So why don’t we pull out? Because Europe wouldn’t step up to the plate. Who cares? If your neighbor gets rats, and doesn’t care, they will eventually bother you, too. Terrorism isn’t just Europe’s problem – it’s everyone’s. Fight them there or fight them here.

    A form of subsidy he doesn’t mention is low-cost drugs. Drug companies sell drugs to other countries at legally capped prices, so American consumers have to make up the difference.

    Homogeneous societies are also important. Sweden has fewer people than Los Angeles COUNTY. I’d love to see Sweden try to govern Los Angeles County for a month. It would be hilarious. And the Nordic cultures traditionally ostracized anti-social behavior. They didn’t have large American-style underclasses where crime and drug use were considered normal and acceptable. That, unfortunately, seems to be changing for the worse.

    1. I honestly wasn’t aware of the low-cost drugs subsidy, but I’m not surprised at all, thanks for bringing it up.

      As for your last point, Sweden is currently learning how hard it is to hold a welfare state together without a homogenous society.

  3. The author leaves out other things you get for your high taxes. How about free pre-school? How about free college? I’m in the 33% federal tax bracket and I’d gladly pay the top tax rate (39.5%), if it meant my three kids could attend college for free. I’m looking at $500K in college costs for those 3 kids. Give me the higher tax rate and the free college.

    1. The reason I “leave out” the things we get for our high taxes is because everyone already knows about those things. Everyone “knows” Scandinavia is a utopia, no-one knows the downsides. I’d actually support free tuition for areas where there is a shortage of labour, but not in general.

  4. Hi, I am an American ex-pat who has been living in Sweden for 10 years, and yes! I totally agree with what you wrote! I have been telling my American family and friends for a long time that US should not, can not, could not copy the Nordic Model. The points you hit in your article is exactly what I told them! (except I didn’t know about the defense part) Funny enough I also used the analogy that LA county has way more population than the entire Sweden combined. I just have a simple question: when is your number last updated? I thought the highest bracket of income tax was 63%, told to me by my accountant 2013. Has something changed 2015?

    1. Hi and first of all thank you for your comment! The top marginal tax rate in Sweden is 57 %, but if you include the payroll tax it’s 67 %. 63 % would have been the top marginal tax rate a few years ago – we had a right-winged government from 2006-2014 and they cut taxes quite a bit like I mentioned in the post. Your accountant probably didn’t know that.

      If you want to check out my other posts, here’s the link: http://caffeinatedthoughts.com/author/john-gustavsson/

  5. FYI, the U.S. is closing 15 military bases in Europe, according to the Department of Defense. I believe one of bases is in England. It is a cost cutting measure and it should not make them less effective, or so they say.

    1. That’s perfectly in line with Obama’s weak foreign policy, I’m not surprised at all.

  6. I do think a couple of points here need to needs to be addressed. Not in the least because while the Nordic nations may look similar from the US, we are actually five separate nations with different economic, defence, foreign and internal policies.

    1) Arguably not so. First off, it is wildly inaccurate to state that “In America, approximately 43 % do not pay taxes.” The truth is that 43 % of households do not pay FEDERAL taxes, mostly due to having too low income. Pensioners are a large slice of this group.
    As for Nordics, you need to look at the concept of “fradrag”, deductions. Interest on your mortgage, student loans, work-related travel etc are deductible from your income. And everyone gets a minimum deduction of roughly 20 000 U$. Only people that make more than that pay any taxes, and only if they don’t have further deductions.

    It is true that more households pay federal taxes than in the US. That is because they make more money. The minimum pension payout in Norway is about 28 000 U$. Scandinavians who make what the 43 % in the US make, don’t pay any federal taxes either.

    2) Um, no…on defence you could have made that argument back in the days of the Warzaw pact. Today…Russias GDP is about the size of Mexicos. Norway could match their military budget if pushed. In fact, UK + France + Germany spends more money on their militaries than Russia and China combined (SIPRI 2009) As for Nordic defences in general, Finland fought off the Soviet Union in living memory and is prepared to do it again, Swedens always had a big defence budget, Norways defence budget is in the top 30 in the world.

    Europe in total outspends, out produces, out sciences and out populates Russia to such a degree its not even funny. The argument that the US subsidizes Europe defensively basically is a marketing ploy for military hardware. Subtract the US and Europe/NATO has 1/3 of the military budget of the planet.

    As for innovation, no. Well, only in IT. Nordics start more businesses and innovate more in other areas. Per head, not in total. 300 odd million people still innovate more in total. Mostly because outside IT, people who start businesses are late thirties or older, and have started to need their healthcare. More Americans _want_ to start businesses, but more Nordics actually do. The only paper that found more innovation in the US used patents as a measure of innovation without compensating for how much less protection one patent gives in the US. (Patent-spamming is a US term)

    3) is an interesting point, but notice that taxes vary widely across the Nordics. A Norwegian worker pay 25 % effective taxes, while a Dane…pays a lot more. And while 25 % may look like a lot from the US, it is actually quite passable by European standards. Norway is only a few pips above a high-tax US state.

    4) is based on myth. The US has a tendency to think the healthcare systems of Canada in particular and to a lesser degree the UK is how healthcare works in the rest of the first world. Not so. Canada does have a particular problem with waiting times. The US thinks it does good here because its shared a desk with the slowest kid in class. The reality is more complicated. Waiting times in emergency room sin the US are longer than the average. Waiting times for physician or nurse appointments are longer. Waiting times for specialist appointments or elective surgery is shorter. Note however that the more urgent surgery gets, the shorter the wait becomes in the Nordics. Your odds of dying while waiting for treatment or from errors are far greater in the US. (Amendable mortality. Any paper really)

    Once again, five countries. Denmark and Norway has very short waits. Sweden and Finland in general longer than insured or Medicaid recipients in the US.

    As for the number of physicians…the Nordic countries are far ahead of the US, with 50 % more physicians.

    It should be added that the Nordic healthcare systems generally beat the US on every public health measure. Lifespan, infant mortality, HALES, maternal mortality, DALYS, amendable mortality, average lifespan, the lot.

    1. >Europe in total outspends, out produces, out sciences and out populates Russia to such a degree its not even funny.

      What’s funny is that you can somehow conjure up a ferociously self-defended Europe out of these tidbits. European defense is a myth — including its ability to defend against the largest nuclear arsenal on the planet, right next door in Russia.

      And if Europe is “out-populating” Russia, how much of that is due to migrants from the Islamic world? And how is that working out for long-term social stability — or for innovation, for that matter? (Unless you count 7th-century legal forms, such as Shari’a being enforced in European urban “no-go” zones, as “innovative”…)

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