Scandinavia — A Free-Market Capitalist’s Paradise

In Denmark, Finland, Norway, Sweden by Neal & Linda Goldstein14 Comments

Statistically, at least, life in the Scandinavian countries is wonderful. According to the United Nations Quality of Life Survey, Denmark, Norway, Finland, and Sweden (the four we visited) were the happiest countries in the world, ranking 1, 4, 10, and 5 respectively. Although the headline makes them sound like Disneyland, the survey’s measure of happiness is not the number of people walking around with goofy smiles all the time. Happiness is measured using six variables — income, healthy life expectancy, support in times of trouble, generosity, freedom, and trust, with trust measured by the paucity of corruption in business and government. These factors, at least according to the survey designers, determine a citizen’s quality of life.

Not surprisingly, as social support and trust in business and government decline — those factors that contributed to the Nordic countries’ higher scores — the U.S.continued its slide from 3rd ten years ago, and is now ranked 19th.

Of course, there are other factors that contribute to quality of life. As we traveled, we were always envious of the amount of vacation time people from around the world got, and took, with a 24×7 work style not the standard expectation. In the four Scandinavian countries we visited, the average hours worked per year ranged from 1419 to 1653 with a minimum mandatory paid leave ranging from 27 days (Norway) to an average of 35 for the rest. In the U.S. the average hours worked per year was 1763 and the United States is the only Organisation for Economic Co-operation and Development (OECD) country that does not require employers to provide even a day of paid leave to its employees. Not surprisingly, only about 77% of Americans working for privately owned companies got paid vacation days, with 10 to 14 days the average. And four in ten Americans do not use all of their paid vacation days.

Interestingly enough, the quality of life associated with the Scandinavian countries became an issue in the presidential primaries, and this was the point at which resemblance to reality disappeared, as politicians ignored, distorted, or just lied about the facts for their ends and to further their agendas.

Bernie Sanders used the Scandinavian countries to explain how socialism could work in America. Hillary Clinton, while loving Denmark, defended free-market capitalism, and in doing so, implied what Sanders claimed outright — that the Scandinavian states were socialist. The Defenders-Of-American-Capitalism counterattacked with warnings about the devastating impact socialism would have.

One of the good things about traveling is that it affords you the time to think more clearly about what is happening someplace, not because you have any special access to information — although you can see things in person and learn a lot from people you meet — but because, if you stay someplace for a while, you get into the rhythm of life, allowing you to focus on what is happening where you are. So after listening to Sanders, Clinton, and the holier-than-thou Defenders-Of-American-Capitalism, we were looking forward to getting a more realistic picture of Scandinavia. And we quickly realized, both Sanders and the Defenders-Of-American-Capitalism were talking about mythical places they had constructed out of their hopes and fears.

The Danes, at least, were not amused by Sanders, The center-right Danish Prime Minister Lars Lokke Rasmussen, speaking at Harvard’s Kennedy School of Government, said he was aware “that some people in the U.S. associate the Nordic model with some sort of socialism.” “Therefore,” he said, “I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”

He was right — we found the Scandinavian countries in some ways to be more of a free-market capitalistic economy than the United States.

As you would expect in a free-market capitalist system, just as in the U.S., in Scandinavia there is a commitment to widespread private ownership, free markets, strong property rights, and contract enforcement.

But you also find significant tax breaks for starting and owning a business, low barriers to free trade, a much lower corporate tax rate (before the recent tax cuts), and much more of a commitment to free markets. In response to market forces, Sweden had deregulated industries including taxis, electricity, telecommunications, railways, and domestic air travel. To increase competition, the Competition Act in 1993 blocked big mergers and anti-competitive practices, making it easier for new firms to enter the market. That is probably one reason Stockholm produces the second-highest number of billion-dollar tech companies per capita, after Silicon Valley.

The U.S. economy is becoming less competitive. Two-thirds of all corporate sectors have become more concentrated since the 1990s, and since 2008 there have been more than $10 trillion in mergers, and the trend is continuing to accelerate. In April of 2016, the Council of Economic Advisors acknowledged that the economy had become less competitive and more concentrated and suggested that we should actually enforce antitrust laws.

So much for the free market.

While not in the pejorative sense that The Defenders-Of-American-Capitalism use it, the Nordic States are welfare states. You get free education with low-cost loans for living expenses (allowing anyone to pursue higher education), universal healthcare, childcare subsidies, public pension plans, labor market institutions working collaboratively with businesses instead of antagonistically, and mandatory paid leave. This is not necessarily because of some misguided ideas you find in a nanny state, but because it is in the self-interest of free-market capitalism to protect people from the risks associated with economic openness, nurturing capitalism and enabling innovation and economic growth. These services are not in opposition to free markets, but instead, allow a freer and more open market with none of the consequences of an increasing quality of life gap and social unrest we find in more traditional economies like the United States.

In Scandinavia they have figured out how to use self interest to create an economic model that is not a zero-sum game.

And yes, taxes are high, The Personal Income Tax Rate in Sweden is 57.10%, Denmark 55.80%, Finland 51%, and in Norway, because of its effective management of oil revenues, 38.52%. Since the tax structure is relatively flat, even those with medium and low incomes are taxed at relatively high levels. Yet many Swedes and Danes we met said they didn’t mind the high taxes because they got things in return, like free education and healthcare, they would otherwise have to pay for.

But instead of the conventional wisdom that high tax rates discourage investment and innovation, the opposite is true. This social safety net reduces risk for entrepreneurs because none of the social programs are contingent on having a job, so people know that they can take entrepreneurial risks and know many of their necessities will be taken care of — if a project doesn’t succeed, you don’t have to go broke.

And it works.

So while new businesses are expanding in “socialist” Scandinavia, the opposite is true in the U.S.

Around 65 percent of Swedes aged 18 to 64 think there are good opportunities to start a firm where they live, compared to just 47 percent of Americans in that age group. In Sweden overall, there are 20 start-ups per 1,000 employees, compared to just five in the United States (The Organization for Economic Cooperation and Development). While in the United States the rate of business creation is 8 percent, down from 15 percent in 1978, in Sweden the rate of new-business creation has been increasing. The Scandinavian free-market capitalistic economy creates a lot of businesses, which employ many people. Swedish companies that survive for at least three years create five new jobs for every existing 100 jobs in the economy, according to the OECD, while that number is only two in the U.S.

And new job creation is what growth (and prosperity) is all about.

As far as being innovative, the U.S. dropped out of the top 10 in the 2018 Bloomberg Innovation Index sinking to 11. South Korea and Sweden were 1 and 2, with Finland at 7, Denmark at 8, and Norway at 15.

But innovation is not just for startups — it is what enables mature businesses to survive. In Sweden, 28 percent of working adults were involved in an intrapreneurial activity in the last three years, compared to 11.7 percent of Americans.

While outsourcing has been much of the focus of our politicians, the reality is automation is a far larger threat to workers, and the Scandinavian countries seem far better structured to deal with its consequences. While in the United States, the owner employee relationship is a zero-sum game, that is not the case in Scandinavia. In Sweden and its Scandinavian neighbors, unions are powerful, and there is trust between employers and employees. Both groups view robots as just another way to make companies more efficient, and the goal is to maintain workers (by retraining as necessary), not jobs. As employers prosper, workers have consistently gained proportionately — a stark contrast to the United States and Britain, where wages have stagnated even while corporate profits have soared.

Nobel economist Michael Spence and former chair of the Council of Economic Advisors Laura Tyson report that 80 percent of job losses in American manufacturing over the past three decades have been due to technological displacement. New jobs have also been created but mostly in low-wage services with greatly diminished income. Recent studies project that the trend will continue with as much as 40 percent of the U.S. workforce losing their jobs to technology by the early 2030s — widening the already large wealth gap even more.

And if you’re at the top, and you think that widening the wealth gap doesn’t matter to you, think again. Having an underclass like the United States is developing is a real threat to stability. As we have seen, young men with no future are a dangerous force, and ignoring their grievances will not make them go away. It will only increase their anger at the state of their world — until they explode.

The challenge all governments face in a more dynamic perpetually innovating knowledge-driven economy is developing a more robust and redefined safety net and opportunity web to cope with the steady disruption and the gaps in wealth and power that will result.

If not broken, free-market capitalism in the United States appears to be close to a tipping point.

Welcome to the future — a free-market capitalist worker paradise.

Don’t get me wrong; I agree that simply adopting the Scandinavian model will not work. In the U.S. we have a different culture and a different history. But we need to realize there are other economic models that work better than ours, especially in dealing with the inevitable problems we foresee, and we should be examining how best to evolve American free-market capitalism as market and economic conditions have changed and will continue to change.

And by the way, Scandinavia was a great place to visit with kind people, great museums, the best natural history museum we have ever been to, and some of the most spectacular scenery in the world. If you scroll down, way down, past India, where we are now, and Australia, you can see some of our photographs on TravelingIsAVerb on Instagram and TravelingIsAVerb on Facebook .

Share this Post

Comments

  1. Neal, your writing is concise, clear and probes beneath the surface in the way land-lubber Americans need to understand. Unfortunately too many in US don’t travel or if they do, stick to well trodden paths that replicate their suburban existence. Traveling provides both depth and breath to understanding… and you bring light to ignorance. This could use some more probing of capitalism and socialism and the unique mix both here and there, but overall a great piece… thanks!

    1. Author

      Thank you Don. Obviously, more work on this needs to be done, but what I wanted to do was create a framework to hang new ideas on to – that social welfare and capitalism are not mutually exclusive and together create a framework to effectively deal with the problems facing us.

  2. Thanks for such a thoughtful and realistic assessment of the economic situation in the Scandinavian countries and in particular its contrast with the US. I am personally very concerning about the widening income gap in the US, both for the political unrest this will continue to create and for the economic insecurity this can pose for my own children if they are to “make it” on their own. One difficulty I see is the challenge of addressing these issues at scale in the US. I would be very interested in learning your thoughts on how we could evolve our system and create jobs as technology continues to displace middle income workers at a scale that the Scandinavian countries can’t even imagine.

    All good wishes to you both as you continue to explore the world!!

    1. Author

      Thanks Kathy, obviously I share your concern. I need to give this a lot more thought, and we can talk more about it when we are back later this year. Much of it a political problem, not just an economic one. One of the more important issues is that ideology, and money of course, get in the way of creating effective policies. It is not in the best interest of our career politicians to deal with the problems of their constituency unless it helps them get re-elected.

      Thanks. for your kind words

  3. I couldn’t agree with you more. Our elected officials at the federal level lack the imagination to face the future and find new ways to bring prosperity and contentment to its population. They are clinging to old ideas coupled with an entrenched racism and hatred for minorities and a need to debase the disadvantaged. I believe that we need to place our hopes in forward-thinking state and municipal governments who want to move forward despite the roadblocks that Washington keeps throwing in their way.

    1. Author

      I think the system as it stands needs radical change. I think that one of the main problems is politics has become a profession, and your real job is to get re-elected and not do what is the best for the people you represent

        1. Author

          We should talk more when we see you in December.

  4. Thank you for your post; I don’t follow Facebook so I have been missing out! Neal, you are a wonderful author and you broaden my scope of knowledge. Maybe this should be Twitted to Trump!

    Miss you and so very happy you two are enjoying your life.

    1. Author

      You can pass it on if you’d like. We miss the both of you too!

  5. As usual a thoughtful and thought provoking essay. Interestingly, when I lived in Sweden some 50 years ago, the father of my Swedish girl-friend was a dyed in the wool capitalist and railed against their system which, from what I gather in your essay, hasn’t changed dramatically over the decades. Because of the smothering taxes, the family emigrated I think to Germany where he could run his factory more efficiently and more profitably. Of course I never did find out how that turned out. Sweden, sadly, is also suffering profoundly from its Muslim immigration with Muslim gang rapes and crime proliferating in dramatic fashion. Malmo has become a “no-go” city for Jews, But that is a subject for another time. Keep up the great writing…..

    1. Author

      Thanks, we have lots to talk about when we see you again.

  6. A fabulous & thought provoking piece. The rest of my thoughts will share in person.

    1. Author

      Thanks, we really look forward to seeing you

Leave a Comment