Vaunted Nordic model is all the rage, but we mustn't ignore its flaws
Published 24/07/2015 | 02:30
Our latest political party, the Social Democrats, has expressed admiration for the vaunted "Nordic model" and thinks Ireland should adopt it. The Nordic model encompasses high taxes, but in return for excellent public services and low rates of poverty.
High taxes are supposed to repress rates of economic growth, but the Nordic countries seem to be an exception because their growth rates are highly respectable. So why wouldn't Ireland adopt the Nordic model? It seems to have everything going for it.
A new paper issued by the Institute of Economic Affairs in the UK called Scandinavian Unexceptionalism by Nima Sanandaji looks at the Nordic model and, among other things, asks whether it is true that a big, well-funded state does not interfere with economic growth.
What he finds is that growth stagnated in Sweden - the purest expression of the Nordic model - during the 1970s and 1980s when "Peak State" had been reached, and it is mainly because of market reforms introduced since the 1990s, when socialism began to lose its grip, that economic growth increased again.
In 1975, as Peak State was being reached, but before the sheer size of the state began to affect growth, Sweden ranked number four in the world in terms of income per capita, according to the OECD. By 2000 it had dropped to number 11 (behind Ireland).
This decline was then arrested, and by 2010 Sweden had climbed back one place to number 10 (still behind Ireland). That doesn't seem like much of an improvement, but if market reforms had not been introduced, would Sweden now rank number 14 or 15 on income per capita tables?
Market reforms were introduced, however. Sanandaji reports: "During recent decades, Nordic nations have implemented major market liberalisations to compensate for the growth-inhibiting effect of taxes and labour market policies."
Denmark's economy is now only marginally less free than the US economy.
What about poverty levels in the Nordic countries? It is true that levels of poverty and economic inequality are low.
Crucially, however, the same thing is found among Scandinavians living in the United States. Almost 12 million Americans are of Scandinavian descent. According to the 2010 US census, median household income in America was $51,914. Among Danish Americans it was $61,920 and among Swedish Americans it was only slightly lower at $61,549.
So Scandinavian Americans are better off than Scandinavians living in Scandinavia. In addition, poverty rates among this group are half the overall US level of 11pc, which means poverty levels among Scandinavian Americans are lower than in any of the Nordic countries.
This seems to turn the conventional wisdom about the Nordic model completely on its head. According to the accepted view, and one that is very prevalent among our political class, poverty rates in Scandinavia are low because taxes are high and the welfare state is very generous.
The fact that taxes in America are lower and the welfare state is less generous points to a different explanation, or at the very least a supplementary explanation for lower levels of poverty among Scandinavians, namely culture, or to put it another way, social capital.
First and foremost, the Scandinavian countries have historically made hard work worthwhile. There is a history in the Nordic countries of strong, independent farmers who benefited directly from the produce of their land.
Elsewhere in Europe, the feudal system existed. Farmers worked for their feudal lords first and themselves second. Therefore, hard work did not pay.
In Scandinavia, where hard work was rewarded, personal wealth increased and so did overall wealth. This same culture of hard work persisted when industrialisation came.
This helped catapult the Scandinavian countries to near the top of the global wealth charts. Those countries were rich before the arrival of Big Welfare in the 1970s and also had low poverty rates before Big Welfare and widespread income redistribution.
The welfare state is at its most generous in Denmark, but even there it is starting to be questioned. Our new Social Democrats ought to read a very revealing article that appeared in the New York Times two years ago entitled Danes Rethink a Welfare State Ample to a Fault.
It is finally dawning on the Danes that overly-generous benefits discourage work. They are now working on ways of getting people off welfare and into work because they know the current system can't last, especially with a rapidly ageing population.
Two more things are worth noting. The first is the Nordic childcare system, which is the envy of our political class. In fact, there are two different Nordic childcare systems. The Danish/Swedish one is totally biased in favour of state-subsidised creches, while the Norwegian/Finnish one is much more pro-choice in that it makes direct payments to parents of young children and the parents can then use that money to subsidise home-care or creche-care.
This distinction between the two childcare models is never made in this country by anyone who matters, even though polls show that only a small minority (17pc) of parents of young children say that placing their children in a creche is their first choice.
When our politicians talk about the Nordic childcare model they mean the Danish/Swedish one. They should also do themselves the favour of reading an article that appeared in the Daily Telegraph a few weeks ago, written by an English woman raising young children in Denmark. She said social pressure there makes it almost impossible to raise your children at home. Do we really want that here?
Finally, let's note rates of family breakdown in the Nordic countries. They are extremely high, on a par with Britain's. When looking at the quality of life in Scandinavia we almost never take this into account, which is very, very strange because who would want to live in a country where your marriage is likely to end in divorce?
So before rushing to embrace the Nordic model, we would do well to study it properly and be more aware of its flaws as well as its undoubted merits. The Nordic model may be fashionable, but let's not make our usual mistake of substituting fashion for hard thinking.