Thursday, October 4, 2012

Nordic, schmordic

So, Tim Worstall has invoked the recurring fascination of Anglosphere progressivists of various stripes with adapting the Nordic model to Anglo societies (in his case, the US).

It is a very bad idea.

A recent report (pdf) by Swedish-Kurdish economist Nima Sanandaji, whose Tino brother runs the excellent -- and very empirical -- Super-Economy blog, goes into considerable detail why, for the report provides some revealing comparisons with the US as it the examines the sources of Swedish success (or not).

For example, Swedish-Americans have a 50% higher per capita income than Swedes but (using American benchmarks) the same poverty rate as Sweden (p.21). So, this "natural experiment" suggests that the American model is better for Swedes than the Swedish model is.

One reason for the better performance is that Sweden had no net private sector job creation from 1950 to 2010.  All employment growth was in the public sector, while the overall employment/population ratio fell (p.14).

The American model is also better for migrants than the Swedish model.  In the words of the report (p.27):
Between 1993 and 2000, the income from work for the average Iranian immigrant was only 61 per cent of that of a native Swede and that of the average Turkish immigrant 74 per cent (...). This contrasts with the situation in the USA. According to the US Census for 2000, those born in Iran had an income that was 136 per cent of the average for native-born residents, compared with 114 per cent for those born in Turkey (US Census, 2000). Clearly, similar groups of immigrants had very different opportunities in the USA compared with Sweden.
The lack of private sector job creation would go a long way towards explaining why migrants generally do much better in the US than they do in Sweden.

The report points out that Sweden was a highly successful society before the expansion of the welfare state, with high rates of economic growth and low levels of income inequality.  The expanded "Swedish model" degraded Sweden's relative economic performance, in part through the suppression of entrepreneurship. The dramatic drop in the creation of new businesses has seen entrenchment of very unequal wealth distribution (more so than the US).

The expanded welfare state has also seen increases in wealth (and income) inequality in recent decades due to welfare dependent households that do not save and often have negative or zero assets (p.20). Migration has also increased inequality.

Sweden was a successful society because it had good institutions, with strong social cohesion and high levels of trust. It has remained, apart from the labour market, a country whose markets are generally lightly regulated (as is also true in the other Scandinavian countries; they generally score persistently high in economic freedom). The issue here is, as so often, secure freedom; the wider the ambit of the secure freedom to transact, the more transactions there will be. High levels of trust makes for more secure and lower cost transacting, hence more transacting and so more economic activity.

If one has an extensive welfare state, then lots of people will learn how to be good at being dependant on the welfare state; this is just natural, since it is likely to offer the best return for their efforts (particularly when the value of extra leisure is taken into account). This then has effects on social attitudes. For example, when Swedes were polled on whether they agreed with the statement "claiming government benefits to which you are not entitled is never justifiable" there was a dramatic shift in attitudes over time (p.25):
1981-84  81.5%
1989-93  74.5%
1994-99  57.9%
1999-04  55.3%
2005-08 61.0%
Clearly, a welfare state where there is strong social consensus that you do not claim unjustified benefits is going to work more effectively (and more cheaply) than one where "get what you can" becomes increasingly the attitude. (The mild shift back towards earlier attitudes coincides with a shift to the right in Swedish politics.).The extensive welfare state -- what progressivists normally point to when talking of the "success" of the Swedish model -- does not explain Swedish success. That is a result of social cohesion, a high trust society and secure freedom to transact (again, apart from a highly regulated labour market). The level of social cohesion likely helped produce the extensive welfare state, due to a strong sense of common identity. It also likely ameliorated its deleterious effects. Consider this comment by economic historian (and Nobel laureate) Douglass North:
The implications of ideological consensus or ideological diversity for our modeling of institutions should be clear. To the degree that the members of a society have the same ideological framework, the formal rules of the society that define the constraints making up institutions will not have to be defined very clearly and enforcement mechanisms and procedures may be minimal or even absent altogether. But to the degree that society has diverse ideologies reflecting the growth of specialization and division of labor, more resources will have to be devoted, first to defining the rules precisely, and second to enforcing those rules. Such definition and enforcement is necessary because, with conflicting ideologies, the individual participants will feel no necessity to constrain individual maximization (cheating, shirking, etc.) at the expense of the other party. Given the costliness of measuring performance, ideological consensus or alienation is a fundamental influence upon the form of institution.
Adjusting that from ideology to culture, relatively small, strongly culturally homogenous societies can achieve outcomes through centralised provision that larger and more diverse societies simply cannot by such means. Even the much greater geographical diversity of a US or Australia makes the Nordic model problematic, without getting into the much greater ethnic and religious diversity.

Indeed, if Sweden keeps importing Muslims migrants at the rate it has, Sweden won't be able to run the Nordic model any more, because the level of social commonality needed to make it work just won't be there. Moreover, the evidence such that trust levels persistent (i.e. the trust levels in various ethnic groups continue to reflect the level of their originating cultures) -- so importing migrants from low trust societies will also have persistent (negative) effects on level of social trust. Which affects what sort of policy regime is sustainable. Even without considering some of the more dramatic issues.

So, it is hardly surprising that Swedish policies are increasingly moving in a more "Anglo" direction; the more socially diverse their country becomes, the more their policy patterns will tend to become more like countries which have always been much more socially diverse. So, trying to adopt the Swedish model to ethnically diverse "Anglo" societies is a very bad idea, one that is a complete misreading of the basis for Swedish success and the implications of social diversity for public policy regimes.

I long ago reached the conclusion -- in large part from observing how disastrously badly extensive welfare policies failed to cross, or deal with, cultural divides in indigenous policy in Australia -- that the Swedish model was grotesquely inappropriate to Australia (and even more so for the US). There has been a persistent delusion that the Scandinavians were somehow "nicer", "more moral", than us retrograde Anglos when the relevant policy regimes were much more explicable as broadly rational responses to quite different social conditions. Australia in particular -- which actually does better than Sweden in the UN's Human Development Index, for example -- has no good reason to adopt the Swedish policy regime and lots of very good reasons not to.

[Cross-posted at Skepticlawyer and at Critical Thinking Applied.]