David Bruining

Nordic Economics Explained

Nordic Economics Explained

Photo: EUObserver

Photo: EUObserver

Compassionate Capitalism: a better name for what Nordic countries practice.  It is certainly true that Sweden, Finland, Norway, and Denmark have notable economic successes.  It is certainly false that this is through Socialism. Nordic countries focus on combining a free market system with several social programs.  This nexus gives way to programs such as free education, free healthcare, and a guaranteed pension program for retires. For this to take place, the citizens must place an enormous amount of trust in their government and their policy makers.  The economy, work, and welfare must work hand-in-hand. Policy makers must address ever changing social challenges and then pass solutions through a democratic process. Places like Sweden and Norway have cut the gap between the rich and the poor, while still preserving the basic benefits of Capitalism.  This type of Capitalist model reliant upon creative destruction, a term coined by Joseph Schumpeter in 1942: the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”  While Nordic nations seem to flawlessly use this system, and as the Left continues to say this is Socialism (“my policies most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden,” Rep. Alexandria Ocasio-Cortez told “60 Minutes”), where does it fall in American standards?  Can we learn anything from this derivation of socialism? There is a lot behind this model, and a lot more behind why the Left praises it so greatly.

Capitalism is a dynamic system, constantly changing and evolving, created by opportunities for profit and property.  This ideal seamlessly fits with many other economic systems that naturally evolve–much like the Nordic model. The Left likes to believe that America is in need of such an economic evolution.  The poor are so far away from the rich that Socialism–of all things–is a necessity. Leftists claim Americans need equality across all sectors, all markets, and all classes. Frankly, Schumpeter did not have equilibrium in mind when he philosophized creative destruction.  Instead, he wished a place where inventors and entrepreneurs would improve, creating a type of disequilibrium that would actually benefit the constituents of the system. A socialist idea, where all are equal on all grounds, was not the backbone of creative destruction, nor that of any Nordic model, nor that of any common-sense-economy.  Why would anyone want to kill the goose that lays the golden egg?

But there is a myriad of other differences that the Nordic model holds compared to Socialism:

First, the beginning: Nordic nations developed their current economic system after years of a free economy with free trade.  They would be nothing without this foundation. The wealth previously created allowed the government to begin its social programs, with its high tax rates.  Never should the government begin with extensively high rates and expect its citizens to keep pace. The Economist magazine describes the Nordic countries as “stout free-traders who resist the temptation to intervene even to protect iconic companies.”  Does this sound like Socialism? Certainly not. What’s more, both Norway and Denmark are easier to do business in than the United States, according to DoingBusiness.org.  The government benefits didn’t create the wealth of these nations, the wealth of the populus created the government benefits.  

Second, government interference: a staple of the laws of labor in the US are not found in Nordic governances.  A minimum wage, set by the federal government, does not exist in Nordic or Scandinavian nations–and yet they still survive!  Unions and organizers help to set wages, but the government does not get involved in the negotiation process. This decentralized system is arguably the best way to do things.  Businesses are free to pay less for unskilled work (apprenticeships/ internships) and unskilled workers. Having a minimum wage is almost suicide for small businesses! They cannot hire the workers they need because they are not making enough profit, so the business will only continue to stay small.  The minimum wage makes it difficult for a business to grow. For example, recently, US politicians enacted our minimum wage on all of the US territories, including American Samoa. In Samoa, the largest employer of the island was tuna canner factories. Once the minimum wage was enacted, it destroyed the competition that was on the island, the factories closed down, and the unemployment rate skyrocketed.  Samoa did not need the minimum wage, politicians simply wanted to feel good about their actions and not look at the consequences.  The lack of government involvement allows for people to be paid by their worth. Not by what Big Brother deems their worth to be.

Third, education: the Nordic economy is the ultimate ‘zip codes should not define a child’s future’ supporter.  While education is free, the choices that citizens have are impeccable. This could be because it is extremely similar to the Libertarian point of view (as defined by economist Milton Friedman in his 1955 essay, “The Role of Government in Education”).  Nordic governments gift their citizens with voucher-like education coupons.  These vouchers can be redeemed for schooling anywhere, whether public schools, government-run charter schools, or private schools.  According to the Institute for the Study of Labor, this privatization of schooling “improved average educational performance both at the end of compulsory school and in the long run in terms of high school grades, university attendance, and years of schooling.”  This school choice benefits the citizens, children, and future of the nations. Just as Turning Point USA promotes school choice, so do Nordic and Scandinavian nations. Socialists, however, are not the ones promoting free choice.  

Lastly, how it evolved: Nordic nations have not always been as progressive; in fact, they are beginning to take a step back.  Until the 1950s, Nordic countries were the top free-market, competition-based nations in the world. In the 1970s, however, an intense social government and regulatory system was put in place–with high tax rates.  All of the economic growth came to a sad end. (Sweden’s economic growth fell to 1% lower than the rest of Europe and 2% lower than America. By the 1990s, government spending was up to 70% of GDP and the debt to GDP ratio accumulated to 80%.  Even the unemployment rate rose 5%.) As soon as policy makers saw this Socialist makeover gone wrong, things changed. 1991 rolled around and legislatures privatized parts of the healthcare, introduced the schooling vouchers, and cut back on the money-wasting welfare programs.  By 1997, the debt to GDP ratio was cut in half, and the citizens earned 40% more income–thanks to the new 28% income tax. In fact, that tax is on track to being lowered to 20.4% within the next 2 years. So countries like Sweden took an extremely progressive stance, realized it didn’t work, then converted to an even more free market philosophy.  My question for Leftists is this: why make the US learn for itself that Socialism doesn’t work when we can just trust Sweden’s experiment?  The lesson learned is not what the Left teaches. Due to deregulation, Sweden has actually exceeded economic growth compared to all other European peers by at least 1% a year.  This is not an act of progressivism or Socialism. It is the opposite.  

Leftists grossly overuse the comparison of Nordic nations to Socialist ones.  The Nordics are, actually, a poor example–they practice a predominately free market system.  The only likeness between the two is the social programs. And, to add insult to injury, the Nordic economies don’t completely fall apart–and kill millions of people on the way down–like Socialist systems do.  So here’s why the Left claims this is a product of Socialism: they need a good example. There are zero, none, no good examples of Socialism–anywhere.  As soon as a progressive system is somewhat close, yet so far away from, a Socialist state, the Left will take credit and proclaim that it is Socialism.  The Left needs something–anything–to justify their position and surreptitiously prove Socialism all-of-a-sudden works. The truth is, it doesn’t. And nations that try it end up destroying any advantage they had on the world and return to a system of freedom, or suffer the consequences.  Look at Venezuela: 1,600% inflation, -17% GDP growth, 44% unemployment (expected in 2020). It is willful ignorance that the Left continually proposes this economic model but can’t tell the difference between an insolvent economy and a prosperous one. The Left is too hedonistic to realize their promotion of Socialism gives a good name to a tragic system.

The Nordic Model is not an end all, be all.  Neither is Capitalism, nor Socialism. Most economies develop, change, and become better over time.  History is the best teacher for guidance in the evolution process. The Left does not deserve to take credit for the glamours, the accomplishments, the benefits of a free market system and slap the Socialist sticker on it.  They define Nordic and Scandinavian models as progressive, but this is no longer an argument of definition. This is about whether the Left will stop lying to the American people, making Socialism appear so beneficial. The younger generations are prone to it, however–everything important to them is ‘free’ under Socialism, condolences to Rep. Bernie Sanders.  The young do not know, they are not told of the consequences. It is time to reconquer the battlefield we know as life. The Left does not deserve our deference.