Nordic countries are in fact not socialist
Nordic countries are often used internationally to prove that socialism works. It is true that social democratic parties are successful in this part of the world. But while the Nordic countries see a partial comeback for social democratic parties, their policies are in fact not socialist, but centrist.
Nordic nations – and especially Sweden – adopted socialism between around 1970 and 1990. For the past 30 years, however, both conservative and Social Democratic-led governments have moved towards the center. Today, the Nordic Social Democrats have adopted a stricter immigration policy, tightened the eligibility requirements for welfare systems, taken a tougher stance against crime and implemented a business-friendly policy.
The Nordic welfare system, which is often cited as a flourishing example of socialism, developed around 1970, when there was a political change in all Nordic societies towards higher taxes and generous public benefits. During the century before that turnaround, the Nordic countries had combined small public sectors and free markets to achieve strong economic growth. From around 1870 to 1970, for example, Sweden’s GDP per capita increased about ten times, the highest growth rate in all of Europe. It was after this period of rapidly growing prosperity that there was a transition to high tax policy. The public remained skeptical of direct tax increases and the change took place largely through gradual increases in indirect payroll tax.
Nordic countries are often used internationally to prove that socialism works. It is true that social democratic parties are successful in this part of the world. But while the Nordic countries see a partial comeback for social democratic parties, their policies are in fact not socialist, but centrist.
Nordic nations – and especially Sweden – adopted socialism between around 1970 and 1990. For the past 30 years, however, both conservative and Social Democratic-led governments have moved towards the center. Today, the Nordic Social Democrats have adopted a stricter immigration policy, tightened the eligibility requirements for welfare systems, taken a tougher stance against crime and implemented a business-friendly policy.
The Nordic welfare system, which is often cited as a flourishing example of socialism, developed around 1970, when there was a political change in all Nordic societies towards higher taxes and generous public benefits. During the century before that turnaround, the Nordic countries had combined small public sectors and free markets to achieve strong economic growth. From around 1870 to 1970, for example, Sweden’s GDP per capita increased about ten times, the highest growth rate in all of Europe. It was after this period of rapidly growing prosperity that there was a transition to high tax policy. The public remained skeptical of direct tax increases and the change took place largely through gradual increases in indirect payroll tax.
It was not an unusual path: Scientists have shown that countries with higher levels of trust tend to have larger and more generous welfare systems. And trust and social responsibility have historically been strong in this region, partly due to the need for co-operation in the unforgiving Nordic climate – stronger, in fact, than in the rest of Europe.
However, as a result of the transition from low-tax policy, economic growth stagnated. For the past 50 years, for example, Swedish GDP per capita has done just plant by a factor of 2.1. More importantly, the standards of hard work and responsibility have began to erode, according to measurements by the World Value Survey, as welfare has increased. For example, in the early 1980s, 19 per cent of Swedes agreed that it could to some extent be justified for someone to claim public welfare when they were not entitled. This share gradually increased to 40 percent in 2011 and has since fallen to 36 percent after stricter control of welfare systems and public campaigns warning of overuse.
Today, Nordic nations still have higher taxes and more generous welfare systems than most parts of the world. But since the 1990s, Sweden and other Nordic nations have focused on strengthening these norms for social responsibility again by increasing control over public welfare systems, reducing the generosity of welfare models and lowering taxes.
In fact, many Nordic policies now promote free trade and free enterprise. The Heritage Foundation Index of economic freedom, which measures how capitalist a country is by studying regulation and taxation in different parts of the economy, ranks Denmark and Iceland as the 10th and 11th most capitalist countries in the world. Finland comes in 17th place, Sweden in 21st and Norway in 28th place. By comparison, the United States is in 20th place. Ownership, business freedom, monetary freedom and freedom of trade are strong in the Nordic countries.
This movement towards the center takes place in election politics, even when the Social Democrats win elections again. Nordic Social Democrats, for example, are increasingly relying on forming alliances with parties in the center. Take Finland: In the 2019 election, incumbent Prime Minister Juha Sipila, leader of the Center Party, lost to Antti Rinne of the Social Democratic Party. But Rinne had to form a broad coalition government including the Center Party, which has, for example, pushed not to raise the total tax.
Sweden, the Nordic region’s most populous nation, has followed a similar path. The Social Democrat Stefan Lofven has been prime minister since 2014. In the Swedish political landscape, however, only a minority of voters support the three major center and left parties, so Lofven has relied on support from the center-right Center Party and the former center-right party. The Liberals.
At the beginning of 2020, the government of Lofven was abolished warning tax, a tax of 5 percent on the highest incomes, which significantly lowers the marginal tax rate. Other recent reforms include a partial privatization of the state employment service and tougher crimes against crime. One of the Social Democrats’ main focus this year, for example, is to abolish the penalty rebate for young criminals, which would lead to longer sentences for those who commit several crimes. The Social Democrats have also promised tax cuts as part of their platform for the 2022 election, where the party will probably be represented by Magdalena Andersson, Sweden’s Minister of Finance.
Social Democrats in Norway find themselves in a similar situation to its Swedish counterparts: having to cooperate with a center party that opposes socialist policies to secure power. And there are more signs that Norway’s Prime Minister Jonas Gahr Store’s Social Democratic Labor Party, which just defeated incumbent Conservative Prime Minister Erna Solberg in the September election, will rule with more centrist policies than some might expect. Store is a millionaire who was previously affiliated with Norway’s conservative party. In addition, he was State Secretary and Chief of Staff in 2000 and 2001, when the Social Democratic Prime Minister Jens Stoltenberg oversaw a comprehensive privatization policy.
Nordic Social Democratic parties have also had to change their migration policy as their working class voters have switched to more conservative parties pushing for migration control. In Denmark’s general election in 2019, when the Social Democrats’ party leader Mette Frederiksen defeated the sitting center-right to become prime minister, she received support on a platform that combined traditional Social Democratic policy with a strict immigration policy.
The electoral policy of the Nordic nations reflects broader trends away from socialism in recent decades. In the 1970s and 1980s, the state monopolized, for example, elderly care, health care and education in Sweden. When schools were taken over by the state, the educational model was moved away from adult authority, and students began to lead their own learning. Student-led education became an important part of Sweden’s socialist policy and is still one of the foremost in that period. But since the 1990s, the government has allowed the private sector to play a greater role. Sweden currently has 823 private schools, mainly run as for-profit companies with public funding. Some, such as the International English School chain, offer teacher-led rather than student-led teaching, with significant better results than the public schools.
Healthcare is also gradually moving away from public monopolies. From 2019, more than 40 percent of Sweden’s 1,100 health centers are run by private, for-profit actors. At the same time as Sweden has universal health care, employees in the private sector are increasingly covered by private health insurance paid for by their employers. In the capital region of Stockholm, 62 percent of elderly care’s home visits are time performed of private, for-profit companies. Admittedly, the old state systems still survive in parts of Sweden, for example in northern Norrbotten, where only 2 per cent of nursing home visits are made by for-profit companies. But welfare models are increasingly making room for more centrists, with a role for both the private and public sectors.
Sweden’s pension system has also gradually become more linked to individuals’ work performance. Some of the citizens’ pensions are placed on the market and individuals can choose to invest in pension savings products from many private companies. Supplementary private savings through employers will also be more important in future pension income. Throughout the region, pension reforms have included stricter rules for early retirement, a flexible retirement age and a closer link between earned salary and earned pension.
It is these 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 longevity and even income distribution, are a direct result of their welfare system. In truth, these benefits were largely developed long before the emergence of large welfare states.
As Swedish economists have shownSweden had an unusually even income distribution in 1920, and gender equality continued to grow until 1980. The lion’s share of income equality growth thus took place during the free market period, before the emergence of the generous welfare state. IN another study, economists showed that income equality in Denmark has increased since the 1920s, with much progress before the transition to higher taxes.
Much of the strength of Nordic societies lies in the advanced free market system, which is why it is important that they return to their centrist roots. As I have previously written With Klas Tikkanen, Chief Operating Officer of Nordic Capital, Sweden is a leading innovation hub in Europe that can attract foreign capital to growing companies. One reason for this success is its smart tax policy, where funds from a successful investment in a company can be invested in new companies, and taxation only applies when profits are realized. Thus, growth capital can be attracted to a high-tax country.
There are many reasons to admire the Nordic model. Sweden has the highest concentration of “brain business jobs” among EU countries. As Bloomberg explained Earlier this year, Stockholm “nurtured more technical unicorns per capita” than the rest of the world outside Silicon Valley. Nordic nations successfully combine entrepreneurship with a transition to green energy, where governments work with the private sector to push for environmental sustainability.
In the end, the comeback of the Social Democratic parties in the Nordic countries can be explained by their focus on centrist solutions to the biggest problems nations face today. It is centrist pragmatists, rather than socialists, who should uphold the Nordic countries as role models throughout the world.