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Thursday, July 28, 2016

Nordic Socialism Isn’t the Answer for America

The Left's dream of a Nordic-style welfare system is not the solution for America.

The new American Dream is to be found in Denmark, at least according to the American left. As the support for free markets is falling, many Americans turn to the vision of introducing democratic socialism, inspired by the Nordic countries. It was the quest of introducing a Nordic-style welfare model that propelled Bernie Sanders, an unlikely candidate, to compete with the much more well-funded and connected candidate Hillary Clinton for months in the Democrat primary. However, the aim of introducing a Nordic-style welfare model is also shared by Clinton, who will run against Trump in the coming presidential race. Ezra Klein, editor of the liberal news website Vox, has explained, “Clinton and Sanders both want to make America look a lot more like Denmark — they both want to pass generous parental leave policies, let the government bargain down drug prices, and strengthen the social safety net.”

Out with the Old

Turning towards democratic socialism is a major course change in American politics.Turning towards democratic socialism is a major course change in American politics. For a long time, Americans have favored small governments and free markets over a generous welfare state. However, opinions are changing. A recent Harvard University study shows that a significant share of the American youth has lost faith in the free-market system. Merely 38 percent of Americans in the age group 18-34 support capitalism. This is only slightly higher than the 33 percent who support socialism. As a contrast, amongst the middle age generation (50-64 years), fully 52 percent are in favor of capitalism while only 15 percent prefer socialism. Amongst those over 65, as few as 7 percent support socialism, while 60 percent believe in capitalism.

The same poll showed that Bernie Sanders, the self-proclaimed socialist, was by far the most favorable candidate among young Americans. A majority of 54 percent had a favorable view of Sanders, compared to 37 percent for Hillary Clinton and as few as 17 percent for Donald Trump.

Bernie Sanders, who joined the Democratic Party in 2015 after having been the longest-serving independent in US congressional history, used to be an old-fashioned socialist. His recent popularity owes to a clever shift in rhetoric, wherein Sanders explains that he doesn’t believe in socialism in general, but rather Nordic-style democratic socialism in particular.

Tried, and Failed

These days, it is difficult to generate enthusiasm about pure socialism. The system has failed, leading to human misery on a wide scale in every country in which it has been introduced. The Soviet Union, Cuba, Venezuela, and North Korea are hardly positive role models. China, the last major socialist country, has in many ways transitioned to a capitalist economy. A less radical idea that is gaining ground is democratic socialism.

Will the American Dream of equality, social mobility, and lower poverty be strengthened in such a system?Democratic socialism is becoming increasingly popular amongst the Left in the United States. An important reason is that positive role models exist. In fact, a number of countries with social democratic policies — namely, the Nordic nations — have seemingly become everything that the Left would like America to be: prosperous yet equal and with good social outcomes. Bernie Sanders himself has explained, “I think we should look to countries like Denmark, like Sweden and Norway and learn from what they have accomplished for their working people.”

Is it likely that the US will become more equal, prosperous, and better prepared to face social challenges if democratic socialism is introduced? Will the American Dream of social mobility be strengthened in such a system? Will Americans benefit from longer life spans and lower poverty if they adapt Nordic-style welfare models? According to Bernie Sanders, Democrat activists, left-of-center intellectuals, and journalists, the answer seems to be yes. However, as I show in my new book Debunking Utopia — Exposing they myth of Nordic socialism, much of this is built upon misconceptions about Nordic societies:

  • Yes, it is true that Nordic societies combine high living standards with large welfare states. However, numerous studies show that the high tax systems significantly impede the living standard in these countries. Nordic countries compensate for large public sectors by having strong working ethics and adapting market-friendly reforms in other fields. The lesson for America certainly isn’t that higher taxes will create more prosperity, but rather the opposite.
  • Nordic societies did not become successful after introducing large welfare states. They were economically and socially uniquely successful already in the mid-20th century when they combined low taxes and small welfare states with free-market systems.
  • The root of the high levels of equality, the economic prosperity, the high levels of trust and other advantageous social features of the Nordics seem to be a unique culture rather than unique policies. After all, Spain, Italy, and France also have large welfare states built upon the ideals of democratic socialism. Why doesn’t the American left believe that US society would evolve to resemble Southern Europe after introducing a large welfare state?
  • Over time, the generous welfare states of Nordic nations have created massive welfare dependency, gradually eroding the strong norms of responsibility that undermine the region’s success. This, combined with the growth-reducing effects of a large state, explains why Nordic countries have gradually, over the past decades, moved towards less-generous welfare, market reforms, and tax cuts.
  • The combination of open borders, high taxes, and generous welfare systems has been anything but a success in Sweden. The open-border policies that Sweden experimented with in 2015 led to a massive influx of new arrivals, who are finding it very difficult to integrate into the country. The result is massive social tension and increasing poverty. Countries such as the US, Canada, Australia, New Zealand, and even the UK are much better at integrating the foreign-born in their labor markets.

Lastly, while the idea of Nordic-style democratic socialism is all the rage among the left in the US and other countries, in the Nordic countries themselves social democracy has never been weaker than today. In Denmark, the social democrats themselves have introduced massive market reforms and called for a much slimmer welfare state. In Sweden, the only one of the Nordic countries to currently be led by a center-left government, the Social Democrats are polling their lowest support in modern times.

In a time when the American left — and, for that matter, much of the global left — are enthusiastically pushing for a Nordic-style democratic socialism, perhaps it is worth knowing more about the strengths and shortcomings of the system?

This first appeared at CapX.