Foreign Policy published an article by NIMA Sanandaji on October 27, stating that the Nordic countries are not really socialist countries. It was noted that Denmark, Norway and Sweden should not be touted as socialist utopias.
The Nordic countries are often used internationally to prove the viability of socialism. It is true that the Social-Democrats have succeeded in this part of the world. However, although the Social Democrats of the Nordic countries are partially recovering, their policies are not actually socialism, but a centrist.
The Nordic countries, especially Sweden, did embrace socialism between around 1970 and 1990. Over the past 30 years, however, conservative and social-democratic governments have moved closer to the middle. Today, Nordic social democrats have adopted stricter immigration policies, tightened eligibility requirements for the welfare system, taken a tougher stance on crime, and implemented some pro-business policies.
People like to point to the Nordic welfare system as a thriving example of socialism, which developed around 1970, when the policies of Nordic societies as a whole shifted toward higher taxes and generous public welfare. A century before this shift, the Nordic countries combined the small public sector with free markets to achieve strong economic growth. For example, from around 1870 to 1970, Sweden's per capita GDP grew about 10-fold, the highest growth rate in Europe. It was after this period of rapidly growing prosperity that there was a shift toward high tax rates. The public remains skeptical about direct tax increases, a shift that was implemented primarily through a gradual increase in indirect payroll taxes.
This is not an unusual trajectory. The researchers show that countries with high levels of trust tend to have larger, more generous welfare systems. Trust and social responsibility have traditionally been strong in the region, in part because of the need for cooperation in the unforgiving Nordic climate, and indeed it will naturally be stronger than in other parts of Europe.
However, economic growth has stagnated due to a shift from low-tax policies. For example, in the past 50 years, Sweden's GDP per capita has grown only 2.1 times. What's more, according to the World Value Survey, norms related to hard work and responsibility have begun to erode as welfare has increased. For example, in the early 1980s, 19 percent of Swedes agreed that when someone was not eligible to apply for a public benefit, a benefit was not recognized as reasonable to some degree. That percentage gradually rose to 40 percent in 2011 and fell to 36 percent after a public campaign to tighten controls on the welfare system and warn against overuse.
Today, the Nordic countries still have higher taxes and more generous welfare systems than most parts of the world. But since the 1990s, Sweden and other Nordic countries have once again focused on strengthening these socially responsible norms by tightening controls over the public welfare system, reducing the level of generosity in welfare models, and lowering taxes.
In fact, many Nordic countries now promote free trade and free enterprise in their policies. The Heritage Foundation's Index of Economic Freedom, which measures a country's degree of capitalism by studying regulation and taxation in different economic sectors, ranks Denmark and Iceland as the tenth and eleventh largest capitalist countries in the world. Finland ranked 17th, Sweden 21st and Norway 28th. By comparison, the United States ranks 20th. Thus, property rights, freedom of commerce, freedom of money and freedom of trade are strong in the Nordic countries.
This tendency to move closer to the middle is reflected in electoral politics, even if the Social Democrats win the election again. Nordic social democrats, for example, are increasingly relying on alliances with centrist parties. Take Finland, for example. In the 2019 election, the leader of the Centre Party and current Prime Minister Yuha Sipira lost to the Social Democrats' Anti-Lynn. But Lynn had to form a broad coalition government that included the Centre Party, which, for example, pushed not to raise total taxes.
Sweden, the most populous Nordic country, followed a similar trajectory. Social Democrat Stefan-Lofven has been prime minister since 2014. However, in Sweden's political landscape, only a minority of voters support the three main center-left parties, so Lofven has relied on the support of the Center-right Party and the former Center-Right Liberal Party.
In early 2020, The government of Löfven abolished a 5% tax on the highest earners, significantly reducing the marginal tax rate. Other recent reforms include the partial privatization of the State Employment Service and a crackdown on crime. For example, one of the Main Focuses of the Social Democrats this year is to abolish punitive kickbacks for young criminal offenders, arguing that doing so will result in extended sentences for those who have committed multiple crimes. The Social Democrats have also pledged tax cuts as part of their 2022 electoral platform, which is likely to be represented by Swedish Finance Minister Magdalena Anderson.
The Social Democrats in Norway find themselves in a similar situation to their Swedish counterparts: they have to work with a centrist party opposed to socialist policies to secure power. And, there are more indications that Norwegian Prime Minister Jonas Gar stoll's Social Democratic Labour Party, which has just defeated incumbent Conservative Prime Minister Herna Solberg in the September elections, will govern with a more middle-of-the-road policy than some expected. Stoll is a millionaire who previously belonged to the Norwegian Conservative Party. In addition, he served as Secretary of State and Chief of Staff in 2000 and 2001, when Social Democratic Prime Minister Jens Stoltenberg oversaw a broad privatization policy.
Nordic social democrats have also had to revise their immigration policies as their working-class voters have turned to parties that push for more conservative immigration controls. In Denmark's 2019 general election, Social Democrat leader Mete Fredrickson defeated the current central-right prime minister on a platform that combined traditional social democratic policies with strict immigration policies.
Electoral politics in the Nordic countries reflects a broad trend toward socialism over the past few decades. In Sweden in the 1970s and 1980s, for example, the state had a monopoly on elderly care, health care and education. As schools were taken over by the state and educational models shifted from adult authority, students began to lead their own learning. Student-led education became an important part of Swedish socialist policy and remains one of the main retained elements of that period. However, since the 1990s, the government has allowed the private sector to play a greater role. There are currently 823 private schools in Sweden, mostly operating as for-profit companies and funded by the government. Some schools, such as the Internationella Engelska Skolan chain of schools, offer teacher-led education rather than student-led education, with far better outcomes than public schools.
Health care is also gradually moving away from public monopolies. As of 2019, more than 40% of Sweden's 1,100 health centres are run by private, for-profit actors. While sweden has universal health care, employees in the private sector are increasingly covered by private health insurance paid by employers. In the Stockholm region of the capital, 62% of home visits to elderly care are implemented by private, for-profit companies. In parts of Sweden, where the old state-run system still exists, for example in the Northern Region of Noorbotten, only 2% of home visits to elderly care are conducted by for-profit companies. However, welfare models are increasingly giving way to more centralized models, allowing both the private and public sectors to function.
Sweden's pension system is also gradually becoming more linked to individual work performance. A portion of the citizens' pension is invested in the market, and individuals have the option to invest in the pension savings products of numerous private companies. Supplemental private savings through employers are also becoming increasingly important in future pension incomes. Across the region, pension reforms include stricter early retirement rules, flexible retirement ages, and a closer link between earned wages and accumulated pensions.
These are all trends that once again contribute to the economic and social success of the Nordic countries. It is simply a common misconception that favorable social outcomes, such as long lifespans and even income distribution, are direct consequences of their welfare systems. In fact, these advantages evolved largely before the rise of the large welfare state.
As Swedish economists have shown, Sweden had an unusually even income distribution in 1920, and equality continued until 1980. Thus, the vast majority of equal income growth occurred in the free-market era, much earlier than the rise of the generous welfare state. In another study, economists showed that income equality in Denmark has been growing since the 1920s, with much of that progress occurring before the shift to higher taxes.
Much of nordic societies are powered by advanced free-market systems, which is why they return to their centrist roots. As I previously wrote with Klas Tikkanen, COO of Nordic Capital, Sweden is Europe's leading innovation hub, able to attract foreign capital into growth companies. One of the reasons for this success is its sensible tax policy, in which funds successfully invested in a company can be invested in new companies and taxed only when the gains are realized. As a result, growth capital can be attracted to a country with high taxes.
There are many reasons to promote the Nordic model. Sweden has the highest concentration of "mental work" among EU countries. As Bloomberg explained earlier this year, Stockholm has more "tech unicorns per capita" than anywhere else in the world outside of Silicon Valley. The Nordic countries are successfully combining entrepreneurship with a shift to green energy, with governments working with the private sector to promote environmental sustainability.
Ultimately, the social democrats' comeback in the Nordic countries can be explained by their focus on centrist solutions to the biggest problems facing the country today. It is the centrist pragmatists, not socialists, who should look to the Nordic countries as an example for the whole world.