During its laissez faire period, between 1850 and 1950, Swedish income per capita increased eightfold as the population doubled. Infant mortality fell from 15 to 2 percent, and life expectancy increased by a whopping 28 years. And all this happened before the welfare state was even a glint in the taxman's eye.Feel free to compare and contrast the secular stagnation in Scandinavia with the rot that set in along with Lyndon Johnson's Great Society.
As late as 1950, total taxes as a percent of GDP in Denmark and Sweden were not just lower than in other European countries but lower than in the U.S.: 20 and 19 percent, respectively, vs. 24 percent in America.
It was at this point, when we Scandinavians had satisfied our thirst, that we thought that we could turn our backs to the well. We began to regulate. We increased taxes and beefed up the public sector. It's easy to see how foreigners observing the implementation of these unorthodox policies might confuse cause and effect. But those who think the semi-socialism made us rich would also probably look at a snapshot of Bill Gates and conclude that you become the world's wealthiest man by giving your money away.
Instead, the Scandinavian countries became a real life version of the old joke about how to make a small fortune; you start with a large one. Sweden took democratic socialist policies further than its neighbors, and as a result its economy fell more steeply. Slowly but steadily the policies of Prime Ministers Tage Erlander and Olof Palme eroded productivity and the long-renowned Scandinavian work ethic. In 1970, Sweden was 25 percent richer than the OECD average. Twenty years later, the average had almost caught up with us. Once the fourth richest country on the planet, Sweden was now the fourteenth.
Sweden's most famous author, Vilhelm Moberg, wrote that the government was out of control, and that we were turning into a third way between democracy and dictatorship "where everybody is discontented and disappointed." Our most famous film director, Ingmar Bergman, was snatched by the police at the Royal Theatre on charges of tax crimes (later dropped). He had a nervous breakdown and left the country.What's Swedish for "Government is not the solution to our problems. Government. Is. The. Problem?" Moreover, perhaps rent-seeking is less common in Scandinavia. (Is that a lesson going back to the end of Northumbria paying Dane-geld?)
Our most famous author of children's books, Astrid Lindgren, had to pay more than 100 percent in marginal income tax, prompting her to write a bitter, satirical essay about the kind old witch Pomperipossa and vicious tax authorities: "She had thought that the rights of everybody would be respected in a democratic country. People should not be punished and persecuted because they happened—with or against their will—to make money in an honest way." But in the end, she finds a solution to her problems: "But suddenly it struck her—woman, you must be able to get welfare benefits! Oh, wonderful thought! And then Pomperipossa lived on welfare happily ever after. And she never wrote another book."
Kjell-Olof Feldt, the Social Democratic minister of finance from 1983 to 1990, admitted in a 1992 book that some of the government's program was "unsustainable," some of the policies "absurd," and the tax system "perverse." These policies also collapsed after a debt- and inflation-fuelled boom in the late 1980s.
Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don't have the multitude of occupational licensing laws that block competition in the United States.But that's only the beginning of the ways the Scandinavian political economy is different. I've long speculated that rules of allocation descended from kinship ties are, well, ways to marginalize the other, at the same time that they might strengthen social cohesion. Thus Mr Norberg.
Apparently, you can take Scandinavians out of Scandinavia, but not the Scandinavia out of Scandinavians. There is a cultural background that explains some of our success, going even further back than the laissez faire period in the late 19th and early 20th century, a culture of social trust, comparative lack of corruption, and a Lutheran work ethic. This may reflect a long history of internal stability, scant levels of feudalism, and a strong tradition of trading.That doesn't work so well once Moslems show up in Malmo, and Minnesota Nice is getting strained with Moslems in Minneapolis. But buying into America is about a mind-set, not about ancestry. So, too, might it be with Sweden.
Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system.
It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.Strong work ethic. Non-corrupt. Trust. Competitive free trade. Put another way, all the mediating institutions that the enablers of dysfunction have deconstructed.
Gunnar and Alva Myrdal, the two leading Social Democratic thinkers of the 20th century, thought that the Scandinavian countries were uniquely suited for experimenting with high taxes and redistribution. They had homogenous populations with a strong work ethic, non-corrupt civil services, a high degree of trust in bureaucracies and politicians—and competitive free trade economies to foot the bill. If it did not work there, they suggested, it would be difficult to think it could work anywhere.