Thursday, September 13, 2018

Sloppy Writing on the Nordic Welfare States


It is important to expose the ideological mythology of the left, and to do it in every way that helps Americans understand just how dangerous the welfare-state ideology is. However, in doing so we are not being helped by poor "research" and sloppy analysis. Not only does that kind of work misrepresent what the left is actually all about, but it also gives the left itself more fuel. They thrive on the sloppy work done by its critics.

The latest fad in the sloppy category is called Nima Sanandaji. An engineer turned policy writer, Sanandaji has written a book about the Nordic welfare-state model that he claims exposes the wet dream of the left for what it is. 

The ambition is honorable. American leftists often use Scandinavia as their role model, and have done so for a long time - much longer, in fact, than people like Sanandaji realize. As I explained in my book The Rise of Big Government: How Egalitarianism Conquered America, the ties between the American and the Swedish welfare states are much deeper than a cursory, drive-by look at it might suggest. 

Sanandaji's contributions fall into this last category. I really don't want to use this blog to criticize purported fellow travelers, but Sanandaji is neither a conservative nor a libertarian. He is also sloppy with details and casual, at best, with analysis. 

If we do not correctly understand the Swedish welfare state, we also will not be able to:

a) stop the process toward a completion of that model here in America, and
b) roll it back.

This last point is all too often overlooked by the American conservative movement. The welfare state is already vast, its reach into our lives is deep and its effects on the economy unrelenting. 

Plain and simple: if we do not understand why and how the left built the welfare state, we cannot dismantle it. 

The very first step toward such understanding is to separate the Nordic countries from each other. This is Sanandaji's first mistake: he bundles them together as though they were one and the same welfare-state model. While a flyover look at them gives that impression, the differences are so important that they can in fact serve as a platform for free-market oriented reforms of the American welfare state.

It will take much more room than I have in a blog article to fully explain the differences; as an appetizer before we move to Sanandaji's writing, let me give some quick contrasting points about Sweden and Denmark:

1. The Danish welfare state is built to give the taxpayer a maximum of influence over how he uses his portfolio of entitlements earned under the welfare state; by contrast, the Swedish welfare state is built from the top down, placing the user in a template-style entitlement system that is easy to administer but difficult to live in;
2. Denmark implemented school choice and health care choice long before Sweden did, allowing private schools under a full-fledged, user-friendly voucher system; their funding model also allows for private money on top of the voucher without any repercussions from the public funding system;
3. While Denmark has a single-payer health care system, they have built the system so that Danes can choose their own doctor under a voucher model similar to school choice; the Swedes have tried this model under limited and temporary reforms, with little success in creating actual health-care choice;
4. While the Swedes created a Social Security-style retirement pension system, the Danes created a more generous, base pension model tailored to the average retiree, with a supplementary retirement model on top, again giving the individual the choice of how to balance savings vs. consumption during his active years. 

These are just a few glimpses of institutional differences that exist between just two of the Nordic countries. I provide more examples below. The point with these examples is that they illustrated how two Nordic countries can differ philosophically and economically on how to build a welfare state: 

--The Swedish model is a full-fledged, statist construction run from the top in the same image as the welfare states in Eastern Europe during the Soviet era; to work properly, this welfare-state model requires central economic planning, a point that the architect of the Swedish welfare state, economist Gunnar Myrdal, made already in the late 1950s;
--The Danish model is a hybrid between egalitarian economic theory and Anglosaxian philosophy of individual freedom; an entitlement program may very well redistribute economic resources between citizens, but it cannot bundle citizens together such that individual choice and self determination is hampered as a result.

To see the significance of this difference, think of our current welfare state as the Swedish version, then imagine a decentralization of the American welfare state where all welfare programs, from SNAP-WIC-TANF to Medicaid and even the EITC, were decentralized and run by the states. Imagine, furthermore, that the federal government's only responsibility was to send checks to the state without any other ties than "use this money for health insurance for low-income families" and then left it to the states to design their programs as they saw fit. Imagine, also, that Social Security was replaced with a base pension, paid out to all retirees at the same amount, and that IRAs and other savings models were given a more prominent role in funding people's retirement. 

Lastly, imagine every child in America having a school-choice voucher that could be used in any school of the parents' choice. 

In other words, it is clumsy, to say the least, to lump together the Danish and Swedish welfare states and then criticize them as one. 

Yet this is precisely what Nima Sanandaji does. The latest example of his misunderstandings being spread around appeared in Crisis Magazine, an online Catholic publication. Jonathan Coe, who is a good and thoughtful writer, accidentally happened to draw on Sanandaji's work in a commentary about the Nordicwelfare states. Writes Coe:
One of the positive aspects of a particular political party holding power for several years or even decades in a particular city, state, or country is that you can see if their policies really work or not. They don’t have an opposing party to limit their influence so there’s no excuses such as “Things would be a lot better in our fair city but ‘Party X’ hindered our plans in the last election.” ... all things being equal, the effects of public policies implemented over several years will make themselves known. One reason the American Left is constantly holding up the Nordic countries as an economic and social model to their audiences is that they have a hard time finding models here in the US they can point to as paragons of sustained, successful “progressivism.” 
Coe then exemplifies the work of this progressivism, pointing to urban blight in left-run cities, as well as California, about which he notes it "is drowning in red ink."

He then makes the good point that Scandinavian countries are still used by the left as role models for America. Quoting Senator Sanders, Coe explains:
Fulsome praise for the Nordics has also come from Bill and Hillary Clinton, Barack Obama, and left-leaning academics such as Jeffrey Sachs and Paul Krugman. The Left has constructed a beloved mythology concerning the Nordic countries that is easily de-mythologized when held up to close scrutiny. 
Unfortunately, he then moves on to Sanandaji's book about "exposing the myth of Nordic socialism". Coe runs through the five myths that Sanandaji presents in his book:
Myth #1: At present all five Nordic countries are run by robust, social democracies. Not true. A social democracy is where the government takes control of some but not all sectors of the economy (e.g., education, health care, elderly care, child care, etc.) and is combined with democracy and the free market. As of this writing the Bernie Sanders brand of socialism would not be popular with a majority of Scandinavians. Sanandaji writes that “…conservative [center-right] parties are in power in most Nordic nations while anti-immigration parties with a populist touch have been gaining ground.” 
Here, Sanandaji exposes his lack of attention to important facts. There are, in particular, three that are relevant to this his first "myth". First, a parliamentary democracy, unlike the American constitutional republic, is a conveyor belt for reforms that allow for a much more comprehensive overhaul of a country, in much shorter time than you could ever see happening in a constitutional republic. I gave one example of this in my latest piece for the Center for Freedom and Prosperity about socialism in South Africa and America.

The convenience of a parliamentary system explains the expediency with which social democrats reformed the Scandinavian countries. But it also explains why those welfare states have persisted despite shifting political majorities, which brings us to the second detail that Sanandaji overlooks. 

Already in 1958, Gunnar Myrdal predicted that conservative and classical European liberal parties would have to embrace the welfare state, or vanish from the political scene. In 1984, former Swedish conservative leader Gunnar Heckscher confirmed Myrdal's conclusion, explaining how his own party underwent a transition from opposing the welfare state to accepting it. In doing so, the center-right in Swedish politics could regain influence and even compete with the Social Democrats for parliamentary majority.

The third point is that it was not the social democrats themselves who limited socialism in Sweden. They reformed the country very quickly in the 1940s and '50s and would have gone for full-fledged central economic planning, had it not been for the fact that the center-right parties embraced the welfare state as it stood in the early 1960s. In doing so, they moderated the progress the country was making toward all-out socialism. 

Other Nordic countries had other political compositions that moderated the welfare state from the start. In Finland, for example, the close ties to the Soviet Union were contrasted with strong Finnish nationalism in the wake of their independence in 1918. This allowed for conservative influences that, in turn, moderated any progress toward socialism. The Danish political system has always been more of a mosaic, ideologically, than the Swedish, again explaining a different path for the welfare state. 

In other words, in his first myth Sanandaji exposes his lack of understanding of both social democracy and the nature of the welfare state.

Another of Sanandaji's errors - and this is a big one - surfaces as Coe writes:
what is so often overlooked is Myth #3: the Nordic countries were always high tax, big government, big welfare state countries. This shift began around 1960 and Scandinavia had great metrics concerning quality of life issues before they embraced democratic socialism. In fact, between 1870 and 1936 and even up until 1970, Sweden was an economic juggernaut. 
This is patently wrong and again exposes the sloppiness of Sanandaji's writings. The Swedish welfare state was created in the short span of 1938-1958, with the last few pieces, such as completing the single-payer health care system and the Social-Security style retirement system, being put into place shortly thereafter. Sweden was way ahead of the Nordic curve here, again setting one country apart from its neighbors.

But Sanandaji's errors do not stop here. Coe again:
Famous companies such as Volvo and IKEA were founded and were helped by low taxes and business-friendly policies. Sanandaji writes: “In 1960, when the Nordics had small welfare states, Norway had the highest life expectancy in the world, followed by Iceland in second place, and Sweden and Denmark in fourth and fifth. In 2000, during the peak of the Nordic welfare states, Norway and Denmark had dropped out of the top-ten league” while Sweden had slid to tenth and Iceland (not a big welfare state in comparison to the other four countries) held the fourth position.
Rolling this up backwards, life expectancy has very little to do with the welfare state in either direction. Yet the left, like Sanandaji, often use it to suggest that we need more government. There is no statistical evidence in either direction as to the correlation between the size of government and life expectancy in general. 

The next point about "the Nordics had small welfare states", is another factual error that Sanandaji casually throws around. As mentioned, Sweden had already built its welfare state by 1960. All the institutions were in place, from a nationalized school system to government-run retirement security to single-payer health care to a virtual government takeover of the housing market to the foundation for a general income security system...

It is very important to understand the significance of this error. Sweden being ahead of the other Nordic countries meant that it was used as a role model by social democrats in other Nordic countries. Due to a different political composition in those countries - as mentioned earlier - they progressed at slower pace and with different nuances (again, see my points about Denmark). 

The differences  between the Nordic countries made for different macroeconomic outcomes, in turn leading to different economic performance later in the lives of those welfare states. This is why Sweden today is a macroeconomic mess while Finland and Denmark are doing comparatively well. 

So how did Sweden combine a big welfare state with a successful business sector? With a limited experiment of central economic planning. Again, I must refer to my book The Rise of Big Government, where I outline the details of how this was done. No other Nordic country had a system like this in place, again setting the Swedish example apart from the others. 

This is no small difference, and it is hugely important to anyone who wants to understand the American welfare state. The men behind the War on Poverty, which gave us the welfare state we have today, were heavily influenced by Sweden - not Denmark, not Norway, not Finland. Sweden. There was a good reason for this: the Swedish welfare state's combination of comprehensive egalitarianism and a limited central-planning system, made it look much more successful than any other welfare state in the world.

Thanks to its limited central planning, Sweden was able to pay for its welfare state with big tax revenue from large, successful corporations. This model worked for about 30 years, until it began imploding under its own weight. It explains why the heavily centralized Swedish brand of a welfare state stood so strong, financially and macroeconomically, for so many years. It also explains why Sweden is now crumbling while other Nordic countries can still hum along at a modest but for some acceptable economic pace. 

While Sanandaji may have the ambition to contribute something to the debate, his carelessness has really only set the conservative movement back. Poor analysis takes us in the wrong direction. Perhaps this quote from Coe explains why Sanandaji has not done a better job:
Though Sanandaji’s general economic philosophy is right-of-center on most issues, he is not a doctrinaire economic conservative in the American tradition: i.e. privatize almost everything. For example, he supports such policies as public funding of child care and schooling and is simpatico with universal health care in certain countries. 
In other words, Sanandaji believes in the very welfare state he criticizes. With this in mind, it is not difficult to see why he has not bothered to actually understand the very subject he is writing about.

I really have more important things to do than to correct errors like these, but if need be I will expose Sanandaji's book in detail. He sets a bad example for the public policy discourse, giving the impression that twitter-style dinner conversations can somehow rise to the level of actual research. That is a mistake too many have made before him, and they are part of the explanation why the conservative movement, both in Europe and in America, is having such a hard time making political progress. 

When the analysis is short on substance, so are the policy initiatives that the analysis is supposed to inform.

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