Pethokoukis: Many progressive Dems here in the states, including Vermont senator Bernie sanders who is running for president, have argued that America should model itself on Scandinavia and its “egalitarian social democracies.” What do you think we are getting right when we in the USA talk about Sweden and Scandinavia, and what are we getting wrong?
Sanandaji: This is a really important argument and it’s not a new argument. I think in the presidential election of 1936 President Roosevelt makes a similar argument, that America should look at Sweden, their work policies, corporatism, and so on. What you get right is that Scandinavia, Sweden, Denmark, and so on have a very high quality of life, low poverty, much lower inequality than the USA, and they are fairly affluent.
What you completely get wrong – progressives, and maybe libertarians as well – is this idea that outcomes in a country in a society are entirely determined by short-term impact government policies. Scandinavia’s egalitarianism is a known fact and it goes back thousands of years … In the 1930s, Sweden had a lower poverty rate than the US did, and has a lower poverty rate than the US does now. Sweden had a higher life expectancy than most other countries in the 1800s, and I’ve written, and my brother Nima Sanandaji has written a book “Scandinavian Unexceptionalism” exactly on this topic, which is conflating outcomes due to very unique social capital, homogenous population, culture, hundreds of years of development and just say “They have a higher tax rate and lower poverty, therefore if we raise our tax rate, we will become Sweden.” This is such an important argument.
One is, why just cherry pick Scandinavia? A lot of countries in Europe have high tax rates, and today it’s no longer the case that Northern Europe has a systematically bigger welfare state than Southern Europe. They have much better outcomes but not a bigger share of the government than France or even Italy. So it’s interesting that Bernie Sanders uses Denmark more than Sweden, because Sweden has just cut taxes and so is not the perfect example anymore.
Anyway, why so sure that you will become Scandinavia? Maybe you become Italy instead, with similar welfare state system but very different outcomes. Maybe you become Greece or Portugal.
The US has been trying to do this since the 1960s; they say, “Raise our taxes, try out social policies” and we will become Sweden. We tried that in the US, and it did not deliver the same favorable outcomes. Economists have a very strong bias in emphasizing policy and deemphasizing culture, historical institutions, social capital, etc., and you have this idea, “We have these models, everyone is identical, we have the state and the market, and if we observe Japan, Sweden, and Albania have different outcomes, that must be due to their tax rate, or details in unemployment insurance.” Whereas I would argue that no, look at culture, work ethic.