by Rand Paul
World Bank statistics actually rank Denmark the third-easiest country with which to do business worldwide. In this ranking, Denmark ranks ahead of the United States and just behind Singapore and New Zealand.5
The Heritage Foundation also compiles an index of economic freedom. Heritage ranks Denmark eleventh freest in the world, also ahead of the United States.6
Iceland, Sweden, Norway, and Finland all rank among the top twenty-six freest economies.7
The Economist reports that the Nordic nations are “stout free-traders who resist the temptation to intervene even to protect iconic companies.” Denmark, Norway, and Sweden “all rank in the top 10 easiest countries to do business in.”8
The Nordic countries do indeed have large welfare states and extensively socialized medicine, as well as free tuition for college financed by extremely high taxes at all income levels. But the Nordic countries have never gone so far as to attempt to take over the means of production. As Professor Dorfman describes it: “The Nordic countries are smart enough not to kill the goose that lays the golden egg.”9
Most debates over Scandinavian socialism or socialism in general begin and end with misinformation. Witness the dustup between Joy Behar and Meghan McCain on The View.
McCain commented on the primary victory of self-proclaimed socialist Alexandria Ocasio-Cortez by pointing out that socialism had virtually destroyed the once-rich nation of Venezuela. Behar directed the conversation away from Venezuela: “I think [Ocasio-Cortez] is talking more about Scandinavia.” When McCain challenged Behar to name one country where socialism has ever been successful, Behar responded, “Sweden, Denmark, Finland, Iceland.” The gullible audience roared. Unfortunately, no one had time to discuss whether Nordic countries actually owe their success to socialism.
From the liberals at The View to Hillary Clinton to this new wave of young Democrat socialists, the drum they beat always plays the tune of Scandinavia and its socialist success.
Chris Matthews, at Fortune, writes that “Vermont Senator and Democratic presidential hopeful Bernie Sanders has been at the forefront of this new Nordophilia. He has repeatedly namechecked countries like Denmark and Sweden in interviews and debates, arguing that we should copy policies like mandatory paid leave for new parents and free healthcare and college education to improve the economic lives of ordinary Americans.”10
As he told George Stephanopoulos one Sunday morning, Bernie believes that “[i]n those countries, by and large, government works for ordinary people and the middle class, rather than, as is the case right now in our country, for the billionaire class.”
Bernie and others continue to ignore the inconvenient truth that Scandinavia is in many ways as capitalist as the United States. In the Democratic presidential debates, Bernie tried to let his love for Denmark shine brighter than Hillary’s. Bernie proclaimed: “I think we should look to countries like Denmark, like Sweden, and Norway and learn from what they have accomplished for their working people.”11
Hillary’s initial response was “We are not Denmark,” but she quickly followed up with: “I love Denmark. We are the United States of America and it’s our job to rein in the excesses of capitalism so it doesn’t run amok.”12
But perhaps we should listen to the Scandinavians themselves. Denmark’s prime minister chided Sanders and asked him to stop insulting his country as “socialist.” Perhaps the prime minister didn’t want potential investors or foreign corporations looking at Denmark and getting the wrong idea.13
“You have nothing but capitalism in Denmark,” says Annegrethe Rasmussen, a Danish journalist. “We have one of the lowest corporate tax rates in the world. But once the capitalists have done their work, we just tax the hell out of our people!”
As Jesse Plunkett wrote in the Orlando Sentinel, “Scandinavian countries truly are exceptionally wealthy, but ‘democratic socialists’ are being dishonest about their policies. Far from socialist, the Nordic countries are actually closer to true laissez-faire capitalism than the U.S., as reflected in the Heritage Foundation’s Economic Freedom Index, year after year.”14
The economist David Lacalle writes, “Private property [in Scandinavia] is guaranteed by law and citizens’ savings are fully private and free of government control.” In fact, according to Lacalle, Scandinavian countries in recent years have become more capitalistic. As Lacalle writes: “All Nordic countries have been lowering the tax wedge and—until the recent US tax cuts under President Trump—had lower corporate tax rates than the US.”15
Despite the facts, American socialists continue to point enviously and approvingly to the large welfare systems in Scandinavian countries as “successful socialism.” On 60 Minutes, Ocasio-Cortez said, “My policies most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden.”
She fails to understand, though, that the story of Scandinavia is one of success before socialism, economic stagnation under the socialist policies of the 1970s and ’80s, and finally a return to economic growth in the 1990s as center-right governments instituted market reforms and lowered taxes.
During its socialist era, Sweden grew 1 percent slower than Europe and 2 percent slower than the United States. Sweden’s government grew to consume 70 percent of GDP and their debt exploded to 80 percent of GDP, and more than 400,000 jobs were lost.
When the center-right government was elected in 1991, they partially privatized health care and allowed private schools and school choice vouchers. Welfare benefits were reined in. New spending proposals could only be considered if they were offset by corresponding spending cuts.
Debt as a percent of GDP was cut in half. In reality, Sweden is hardly the “socialist miracle” Sanders and Ocasio-Cortez believe they are extolling.16
In a 2015 speech at Harvard, Denmark’s prime minister was quite explicit in responding to those on the American left who refer to his country as socialist. He said, “I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”
Plunkett notes, “Unsurprisingly, Sen. Bernie Sanders has refused to stop using Denmark as an example of a ‘democratic socialist’ economy.”17
It is politically expedient for Bernie to ignore the fact that Nordic success owes more to its capitalist origins than to any semblance of socialism.
As Iacono, a Thorpe Fellow with the Foundation for Economic Education, summarized, “Sanders has convinced a great deal of people that socialism is something that it is not, and he has used the Scandinavian countries to prove its efficacy while ignoring the many ways they deviate, sometimes dramatically, from what Sanders himself advocates.”18
Sanandaji, who is of Kurdish-Iranian ancestry, migrated to Sweden as a child and grew up in a welfare-supported family. Sanandaji received his Ph.D. degree from the Royal Institute of Technology in Sweden and has become a well-known author who has spent much time researching the reasons for Nordic success.19
Sanandaji points out that rather than socialism, it is “the affluence and cultural norms upon which Scandinavia’s social-democratic policies” rely that created their success. Sanandaji writes in Scandinavian Unexceptionalism that the success of Scandinavia “developed during periods characterized by free-market policies, low or moderate taxes, and limited state involvement in the economy.”
Sweden began the nineteenth century as a poor nation. During this period there was a surge of Swedes fleeing to the United States. Sweden’s prospects improved later in the century. As Sanandaji explains, “around 1870, [Sweden] turned to free-enterprise reforms. Robust capitalism replaced the formerly agrarian system, and Sweden grew rich. Property rights, free markets, and the rule of law combined with large numbers of well-educated engineers and entrepreneurs [allowed for] an unprecedented period of sustained and rapid economic development.” Over the next fifty-six years, Sweden had the highest economic growth in the world.20
&nb
sp; Sanandaji maintains that not only is Nordic success not a result of socialism but actually it is a result of Scandinavia’s embrace of capitalism.21
He writes that “a closer look shows that what the left admires about Nordic societies is not due to socialism, and that the true lesson from Nordic countries is the importance of free markets and a vibrant work ethic,” reminding us that for most of the past century and more, Scandinavia was not socialist but “relied on free markets and protection of private property.” 22 Author Stefan Karlsson agrees that “Sweden’s history is actually one dominated by capitalism.”
Ignoring Sweden’s history allows today’s socialists to argue that high taxes and an enormous welfare state are not detrimental to economic growth.
But Karlsson reminds us that “far-reaching free market reforms in the 1860s allowed Sweden to benefit from the spreading Industrial Revolution.” Also, Sweden was fortunate to be the home of many great creators, from Alfred Nobel, the inventor of dynamite and the founder of the Nobel Prize, to Sven Wingquist, who invented the self-aligning ball bearing, to Baltzar von Platen, who invented the gas absorption refrigerator.23
Wingquist’s SKF became the world’s largest bearing company and ultimately created another successful Swedish company, Volvo, all during Sweden’s capitalist heyday. Before the era of big government, the car manufacturer SAAB and the telecommunications giant Ericsson originated.
As Karlsson puts it: “with just a few exceptions, nearly all large Swedish companies were started during the late 19th and early 20th centuries, which was not only a period of strong growth, but also the time when the foundation for later economic growth was laid.”24
John Larabell agrees that much of Sweden’s success can be traced to the capitalist era at the beginning of the twentieth century when IKEA, Tetra Pak, and other Swedish powerhouses were founded and “Sweden . . . saw phenomenal growth.”25
Even today, the majority of Swedish industrial success stories actually originated during the capitalist era. Sanandaji points out that “of 38 [current] privately owned businesses in Sweden 21 were founded before 1913. 15 were founded between 1914 and 1970. Only two had been formed after 1970.”
If you examine the one hundred largest firms ranked by how many people they employ, you find that none of Sweden’s large employers were founded after 1970. It is clear that Sweden’s economic success predates the 1970s expansion of the welfare state.26
In addition to its capitalist roots, Sweden has also been fortunate to avoid war. Sweden was not involved in either of the twentieth century world wars. In fact, Karlsson notes that “Sweden is, in fact, the country with the longest consecutive period of peace, having fought no war since 1809. . . .”27
Contrary to the myth espoused by today’s new socialists, Sweden boomed for nearly a century as a capitalist mecca. During this era, Sweden was famous for defending property rights and free markets and enjoyed unprecedented economic growth. Basically, the capital formed in this era allowed Sweden to afford the ensuing welfare state.
As Sanandaji recounts: “Sweden’s economic development can be divided up in four eras. A free-market era lasted between 1870 (when capitalism was introduced) and 1936 (where the social democrats came to power). During this time the economic policies of the country were characterized by minimal government involvement, and the Swedish economy grew more rapidly than any other Western European country.”
As Karlsson points out: “Sweden had the highest per-capita income growth in the world between 1870 and 1950, by which time Sweden had become one of the world’s richest countries, behind only the United States, Switzerland, and Denmark (who have since also fallen behind because of high taxes).”28
Even when the social democrats ruled, between 1936 and 1970, Sanandaji points out, “they were careful not to disturb the free-market.” As taxes and government grew during this period, Sweden continued to grow but went from leading Europe in economic growth to a growth rate closer to the European average.29
That is not to say that the social democrats didn’t begin to muck up the capitalism of the previous era. As Karlsson puts it: “like FDR in America and Adolf Hitler in Germany, they started to expand government power over the economy. Until 1932, government spending had been kept below 10% of GDP in Sweden. . . . Even in the early 1950s, Sweden was still one of the freest economies in the world, and government spending relative to GDP was in fact below the American level.”30
From the 1950s through the mid-1970s, however, Sweden’s government spending grew from about 20 percent of GDP to more than 50 percent of GDP in 1975. Taxes spiraled upward and the size of government exploded. Sweden’s massive welfare state came into being during this period.31
Chapter 14
The Nordic Model Is Welfarism, Not Socialism
Corey Iacono writes at the Foundation for Economic Education that “while it is true that the Scandinavian countries provide things like a generous social safety net and universal health care, an extensive welfare state is not the same thing as socialism. What Sanders and his supporters confuse as socialism is actually social democracy, a system in which the government aims to promote the public welfare through heavy taxation and spending, within the framework of a capitalist economy.”
There is a name for this mix of capitalism and welfarism—economists refer to these mixed economies as the “Nordic model.” This mixture of big government and private ownership is not, however, free. It comes with the heaviest middle-class tax burden in the world.1
It’s worth noting that one of the reasons that this type of welfarism is accepted in Denmark, for example, is the high degree of cohesion in both racial and cultural identity among its 5.7 million citizens, unlike the diversity in America’s 350 million. Hillary Clinton was right when she flatly refuted Bernie’s Denmark dreams with the withering retort, “We aren’t Denmark.”
Historically, people in Denmark and other Scandinavian countries have embraced 60 percent taxation of middle-class earnings because they are actually utilizing all of the services that they get in exchange. The free tuition and health care are not a safety net for the poor, but used by all. This system has been challenged by the recent wave of immigrants from Syria, Afghanistan, and other Muslim countries, which illustrates the difficulties such a system would face in a country as culturally and racially diverse as the United States.
“In Denmark, both parents work full time and everyone utilizes the high quality state run day care. Being a ‘stay at home’ mom is virtually unheard of among native Danes. Due to cultural and religious differences, many immigrant families have the mother staying at home with the young children, and therefore drawing more in benefits than they are paying in taxes,” explains Danish journalist Annegrethe Rasmussen. “This has caused resentment among some Danish who believe they are not contributing fairly to the social welfare system, and is one of the many reasons why the last four elections have been all about immigration.” In other words, the Danish welfare system only works when every citizen pays equally high taxes. As reported in the New York Times, Kristian Madsen of the Danish newspaper Politiken said, “The Social Democrats lost four out of five elections this century because of the immigration issue.” It is noteworthy that in 2018, Denmark stopped accepting UN quota refugees.
And yet American socialists persist in their belief that the “free stuff” that is offered in Scandinavia can somehow be paid for by high taxes only on “the rich.” As Matt Palumbo writes, Scandinavian “countries offer much of what Bernie wants for America—free college, socialized medicine, paid year-long maternity leave, among other generous welfare state benefits.”
How do they pay for it? Well, high taxes for sure. Higher rates than most Americans can imagine or likely will tolerate. And not just on the rich; the Scandinavian middle class is taxed at a significantly higher rate than in America.
Johan Norberg, a Cato fellow from Sweden, comments, “Yes, we have a bigger welfare state with more public services than the U.S. but it’s n
ot paid for by ‘the rich’; they are too few and too important for the economy. The dirty little secret of the Swedish tax system is that we don’t squeeze the rich, we squeeze the poor.”
Norberg references an OECD study to make his point, saying, “the top 10% of earners in the United States paid more than 45% of all income taxes . . . whereas the Swedish top 10% paid less than 27%.” Remember that the next time you hear Elizabeth Warren or Bernie accuse the rich of “not paying their fair share” in the United States.2
American socialists look at the giant welfare states and relative economic success of Scandinavia and conclude that you can have big government and economic growth. American socialists forget that Scandinavia didn’t become wealthy at the same time they created a giant welfare state. As Palumbo puts it: “Scandinavia’s economic success predates the era of high taxes and big government. Scandinavia is rich today—but in spite of their generous government policies, not because of them.”3
American socialists who bandy about the success of Nordic socialism are crowing about welfarism within the context of and paid for by capitalism.
As Dorfman writes, “in reality the Nordic countries practice mostly free market economics paired with high taxes exchanged for generous government entitlement programs.”4
While most left-wing Democrats once hid their socialist banner, now many progressives flaunt it. Actress Cynthia Nixon got raucous applause at a New York Democrat convention when she said, “Since Republicans are going to call us socialists no matter what we do, we might as well give them the real thing.”5
Yet when today’s socialists point to Scandinavian welfare states and trumpet their economic success, they fail to understand that, as Dorfman puts it: “It was not the government benefits that created wealth, but wealth that allowed the luxury of such generous government programs.”6
The Economist points out the irony: “Indeed, the ‘socialist’ part of those countries that Mr. Sanders’s fans like would be unaffordable without the dynamic capitalist part they dislike.”7