Why calling Scandinavia socialist is (probably) wrong
Scandinavian countries are often called “socialist”, usually in a negative meaning. People agree that there are many good things in the Scandinavian model, but because it’s perceived as a socialist place it’s not considered as a feasible option elsewhere, especially in the US. This is really not correct anymore since all Scandinavian countries are nowadays free market social democracies that have very little socialist policies left.
What Is Socialism
Socialism is the political and economic model where the state has leadership in running the economy [1]. The state either owns or controls most methods of production and is responsible for creating most goods and services. The important part is that individuals and companies are not free to decide where they work and how they do business. The idea is that the capitalist freedom will lead to exploitation of the poor and as such needs to be tightly controlled by the government.
Historically Scandinavian countries have been quite socialist with the government owning much of the industries due to post-WW2 government-led reconstruction. But since 1980’s most of the government owned companies have been privatized in a consistent move to open the economy.
What Is Social Democracy
Social democracy is a political model that emphasizes social justice and solidarity inside a democratic system [2]. I.e. people believe in a shared responsibility for the well being of the fellow citizens and accept income transfers from those with more to those with less as an essential part of a functional society.
Of course these ideas are partially universal, i.e. every government has some measure of income transfers and social safety nets. The is no real criteria when a government becomes a social democracy and you could say all western countries are some form of social democracies. The Scandinavian style social democracy includes that everyone has free access to healthcare, education and a strong social safety net.
Scandinavian countries are also welfare states where the government will provide you with all basic services you need to survive. It should be noted that these are not equal, i.e. you could have a social democracy without the welfare state for example through universal basic income. I.e. the role of the government could be just to carry out the income transfer and let people decide which services they need and where they get them.
Free Markets
A common argument is also that Scandinavia is not capitalist because there is a lot of regulation in the market. Even though it’s true there are more rules, it’s important to differentiate controlling free markets and needing a governmental permission to take part in the market. Former is merely setting the rules for companies that want to participate in the market (~market specific “laws”) without limiting who can compete. Latter is essentially government dividing the markets e.g. by limiting the number of competitors and is a socialist measure.
When you compare Scandinavia and the US in the Economic Freedom Index by the conservative Heritage Foundation, they have similar results [3]. Both have a rating of ~75% and are positioned in #15–25 range. Scandinavian countries have better results for example in property rights, business freedom, monetary freedom and investment freedom where as the US has better results in tax burden, government spending and labor freedom. I.e. it’s very easy to start and run a business in Scandinavia, but the higher tax rates can mean that it’s more difficult to be profitable.
Public Sector
Social democracies typically have a large public sector, i.e. a large portion of the GDP is used by public governmental entities like defense, healthcare, social security, education and public services like libraries. Scandinavian countries use 50–60% of the GDP on the public sector while the US uses about 40% with other OECD countries at 30–60% [4].
Looking at public sector employment, Scandinavia has 25–35% people working in the public sector (e.g. education, healthcare) with the US at 15% [5].
Predictably in the overall tax rates Scandinavian countries are at the top with 40–45% overall tax rates and the US at 26% [6].
Healthcare is typically the biggest part of the public sector spending and it’s interesting to note that the healthcare costs per capita in Scandinavia are on average OECD levels [7]. The high US costs are an interesting question likely linked higher overall cost levels and the more extensive level of healthcare options available. Having a public option also means balancing available money against most important health issues, i.e. not using every single available option with every single patient.
Personal Freedom
Another common argument is that Scandinavians are less free personally similar to the east European socialist countries, but this is just not true. Scandinavian countries consistently rank very high in measures of personal freedom like conservative Cato Institute personal freedom index [8].
Where Scandinavian countries are lacking in personal freedom is in financial freedom due to the higher taxation. It’s not as easy to buy a car or a television or go on a vacation, as it will be a higher percentage of your disposable income. However it’s important to note that people often conflate these two separate issues.
Conclusions
The important part is that no western country is truly socialist. We have very little limitations in private ownership, free markets, running companies and movement of capital. The differences that matter are mainly in the size of the public sector and taxation, i.e. what are the roles of the government and individuals. It’s a question of cultural priorities, what are the fundamental rights in a “good life” that the society needs to guarantee and what do you need to get yourself. There are no fundamental right answers and each country is free to find the right answer for their culture.
It’s also important to note that there’s no “huge government”-Scandinavia and the rest of the world, but rather a continuous scale of different choices in the role of the government. It’s not a binary option of big/small-government/taxes but lot’s of minor options that can be changed independently. In Europe France is probably more “socialist Scandinavian utopia” than any of the Scandinavian countries and there is very little difference to countries like the Netherlands.
I do hope people would stop talking about Scandinavian socialism since it’s really not based on reality. Especially the important part of the Scandinavian model is not the remnants of socialism but the social responsibility and how to balance that with a free market economy.
Any thoughts, comments, complaints? Leave a reply or write an email to [matias at rational dot zone], I want to hear your opinion.
References
- Socialism: https://en.wikipedia.org/wiki/Socialism
- Social democracy: https://en.wikipedia.org/wiki/Social_democracy
- Economic Freedom Index: http://www.heritage.org/index/ranking
- Government spending: https://data.oecd.org/gga/general-government-spending.htm
- Public employment: https://en.wikipedia.org/wiki/List_of_countries_by_public_sector
- Tax rates: http://stats.oecd.org/Index.aspx?DataSetCode=REV
- Healthcare costs: http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?locations=BW
- Personal freedom: https://www.cato.org/human-freedom-index
