The decline and fall of the Scandinavian Economic model

Allister Heath, editor of City AM, had a very good review last week in the Daily Telegraph here about a book by Swedish author Nima Sanandaji which was recently published by the IEA, and rejoices in the someone academic-sounding title

"Scandinavian unexceptionalism: Culture, Markets and the failure of third-way Socialism."

Allister points out that the supposed success of the Scandinavian model is often quoted by critics of so-called "austerity" in Greece and Britain or those who supported Syriza, Ed Miliband, or anyone further left. As he puts it

"Many people believe that the Scandinavian economies have managed to combine high taxes, hugely generous welfare states and prosperity. They therefore wonder why Britain or Greece cannot do the same, and thus instinctively reject any talk of austerity or spending cuts. If Sweden can be rich and spend such a large proportion of its GDP, why cannot Britain or Greece?"

Yet the voters of Scandinavia themselves seem to be rejecting the Scandinavian model: the recent defeat of Denmark's left-wing government leaves three of the four Scandinavian countries with centre-right governments.

Nima Sanandaji has been asking whether the "big state" Scandinavian experiment has been as successful as it had been made out to be and has assembled some very interesting statistics.

For example, between 1870 and 1936, Sweden was the country with the highest growth rate in the industrialised world; its economy continued to be managed along conventional lines for several decades after the Second World War. In 1960, the tax burden ranged between 25pc of GDP in Denmark to 32pc in Norway, roughly the same as in other Western countries and a very low number by contemporary European standards.

Then in the 1970s Sweden and the other Scandinavian countries embraced big-state policies.

That is well known. What is less well appreciated is that these were not always seen as successful in those countries, and began to be reversed, starting in the 1990s.

Private sector employment didn’t grow at all in Sweden between 1950 and 2000, while the biggest employers were long-established companies. It became almost impossible for disruptive start-ups to rise to the top, a situation which has now ended thanks to the partial deregulation and opening of many Scandinavian economies.

Crucially, the report argues, the original pre-1970s free-market Scandinavian model went hand in hand with high levels of trust, a remarkable work ethic and various positive cultural attributes. At first, these remained when socialism was introduced; hence the view among those in the UK and elsewhere who think that Scandinavia provides evidence that socialism can work that there was no disincentive effect of high taxes.

This might have been true for a short period of time but the author argues that it no longer is. Scandinavia’s social capital has been dramatically eroded by the rise of the welfare state: the IEA report points to the fact that the Netherlands is the only country that spends more on incapacity-related unemployment than Scandinavia.

Mr Sanandaji also highlights a survey that showed that 44pc of workers believe that it is fine to claim sickness benefits in the event of one’s dissatisfaction with one’s working environment.

In the 1981-84 World Values survey, 82pc of Swedes agreed that “claiming government benefits to which you are not entitled is never justifiable”; when this survey was repeated in 2010-14 version, the figure was down to a worryingly low 55pc.

In 1960, Norway had the highest life expectancy in the OECD, with Sweden, Iceland and Denmark ranked third, fourth and fifth. Today, the gap with other countries, including the UK, has shrunk dramatically.

As Heath and Sanandaji argue, the big-government, high-tax model doesn’t work: even in homogenous, hard-working countries like Sweden, Denmark or Norway, the imposition of incentive-destroying policies eventually derails the economy and leads to massive social problems.

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