The combination of welfare states and economic liberalism might not be enough to continue accumulating wealth and prosperity in the long run.
“Democratic socialism”, it is one of the latest utopian ideas of those on the far-left. Ask Bernie Sanders, Jeremy Corbyn, or any cool kid on the street, and you will get to hear that it is the solution to today’s problems. Forget about the dark history (and present) which again and again has shown that socialism can neither be democratic nor prosperous or sustainable, that instead it is turning into tyranny and widespread misery. Yes, indeed, this new idea of democratic socialism will finally be the solution. Of course.
Advocates of this system always point to the Nordic states to prove their point. Countries like Denmark and Sweden show that one can have “socialism” – that is, a huge welfare state – and still be on a prosperous path, staying free and democratic nonetheless. It truly sounds like paradise hearing Bernie Sanders talk about beautiful Denmark. Then again, it is also a myth.
I can only suspect that it was just one of the reasons to organize this year’s Europe Liberty Forum by the Atlas Network in Copenhagen – to shatter this myth, and give those advocating for a market economy the arguments against the Sanders’ and Corbyn’s of the world. On several panels, scholars from Nordic countries, both from think tanks and universities, showed two things: one, that Northern Europe is not successful because of socialism. Two, that precisely this area of the world could be even more successful if it were to completely drop all remnants of state interventionism.
Now, it is true that at first this seems rather unlikely. After all, more than once at the Liberty Forum did panelists almost get into arguments over whether their country has the highest income tax rates in the world. Denmark vs Sweden seemed to be the decisive battle in this – no conclusion was found. Instead, one of the funnier moments was when a scholar from a US tax advocacy group tried to shock the participants by mentioning that Tax Freedom Day in the US was only in April this year. Considering they fall into June and July (and sometimes even August) in most European, and especially so in Nordic countries, the general reaction rather seemed to be: “And for Bernie Sanders this side of the Atlantic is seriously paradise?”
Speaking of Tax Freedom Day, taxes can actually show why Northern Europe is doing well. Yes, income taxes are exceptionally high, but others are not. Corporate income tax rates are in the 20 percent range in all Nordic countries and thus, in stark – positive – contrast to countries like Germany and France, which can boast rates up to 35. Actually, the question needs to be put forward how burdensome overall tax rates truly are: looking at Tax Freedom Days last year shows that countries like Germany, Austria, France, or Belgium all had their judgement date in July and August. Sweden? June 23. Finland? June 19. Denmark? June 1. Not too shabby at all compared to other states.
If one continues with the list of not-too-shabby policies (one has to stay positive, right?), it will be clearer why Scandinavia (and those other Nordic states) is so successful. Minimum wages are largely absent for instance, property rights are well secured, private social security and schooling are widespread and highly successful. In the Index of Economic Freedom by the Heritage Foundation, Iceland ranks 11th worldwide, Denmark 12th, Sweden 15th, Norway 23rd, and Finland, the last on the Nordic ladder when it comes to how market-oriented your economy is, is listed at an “abysmal” 26th place. And heck, in the Employment Flexibility Index Denmark even tops the ranking of all OECD countries – to reiterate, Denmark is number one in how free and unregulated your labor market is among industrialized countries. It sounds like socialism indeed.
Then again, some may say, isn’t that proving the point that Nordic states have found a solution. Are those countries perhaps utopias not from a socialist viewpoint, but rather from a Hayekian one? For instance, a recent study by the Washington DC-based Niskanen Center argued just that, saying that Scandinavian countries show that one can – even should, have a large welfare state as long as one retains economic liberalism when it comes to regulatory policy.
But this again seems to be a myth and several panelists, led by Timbro’s Karin Svanborg, rejected the idea. As with most welfare states, costs are high to maintain Nordic welfarism – that’s why you need those high marginal tax rates – and perverse incentives are created. Sweden for instance, Svanborg argued, has become one of the main hubs of start-ups and new technologies – especially Stockholm, being highly popular as an alternative to Silicon Valley. Then again, high taxes for individuals who want to fulfill their dreams and get the “fair share” of their success, but are unable to do so, will move away – as it has happened in Sweden recently as well. Companies like Spotify have left and many more will do so in the future.
This shows that despite seemingly working right now, the combination of welfare states and economic liberalism might not be enough to continue accumulating wealth and prosperity in the long run. Nordic countries are doing well. But with an even greater focus on freedom, results could be even better.
This, of course, is true for almost all Western countries, and last week’s excellent Liberty Forum by the Atlas Network and CEPOS surely gave most participants much-needed optimism in the wake of global challenges. Those challenges are serious, but looking at the bigger picture the situation might not seem so dire after all. As the Director of the Austrian Economics Center, Barbara Kolm, mentioned in her talk on the current state of European liberalism, for libertarians, “the glass is half full.” The ideas of a free economy and a liberal world are gaining steam. Let’s make the most out of it.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.