So You Say You Want Nordic-Style Socialism?

Be careful what you wish for.  Tim Worstall sent me this interesting post about the Nordic countries:

The UK’s centre left just doesn’t seem capable of understanding what it is that makes what they claim to want work: imagine the horror there would be if I suggested that Group 4S took over the majority of fire and ambulance services in the UK? Yet that is what Denmark does (really: it’s actually Group 4S that runs them). We can hear the screams already as Gove tries to bring the Swedish school system with its funding following the pupil, essentially a market, to the UK. Can you imagine the piteous wails if someone suggested importing the Finnish schools system (often ranked as the world number 1)? With its division at 15 into academic sheep and vocational goats?

Compare and contrast the the Swedish health care system with the NHS: taxes are raised in county and spent in county (on average, 400,000 people, it’s as if a PCT raised and spent its own money), there are copayments to see the doctor…no, we couldn’t imagine the British centre left allowing such a system to exist, could we? Nor the localism of Denmark: the national income tax rate is 3.76%: the top national one 15%. The vast bulk of the money is raised by the communes which can be as small as 10,000 people. You and I would think that money so raised will be better spent when any and every taxpayer knows exactly who is spending it and where they have a snifter on a Friday night.

This reminded me of a post I did a while back, which discussed an interesting article in the New Yorker on health care in McAllen, Texas:

In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.
. . .
I was impressed. The place had virtually all the technology that you’d find at Harvard and Stanford and the Mayo Clinic, and, as I walked through that hospital on a dusty road in South Texas, this struck me as a remarkable thing. Rich towns get the new school buildings, fire trucks, and roads, not to mention the better teachers and police officers and civil engineers. Poor towns don’t. But that rule doesn’t hold for health care.

I had this to say about the New Yorker quotation:

Suppose McAllen was an independent country with universal health care.  How much would it cost the government to insure the entire population?  If independent, McAllen would be poor relative to the US, but it certainly wouldn’t be poor in any absolute sense.  My guess is that it would come in somewhere around Portugal or Slovenia.  And I would also guess that it would spend less insuring the entire population than we now spend insuring the relatively small share of the population covered by Medicare.

Many on the left say we should adopt the European health care system.  A good place to start would be federalism.  The EU is roughly the size of the US, but has 27 members, each with their own health care system.  If we are to copy Europe, the first thing to do is to delegate health care to the 50 states.  No more Medicare and Medicaid.  Any public health care should be fully funded at the state level, just as in Europe.  My guess is that the good citizens of Houston and Dallas are not going to be enthusiastic about spending $15,000 per enrollee in McAllen, when the prestigious Mayo Clinic spends $6688 per enrollee.  If those on the left aren’t enthused about this idea, then let’s not hear any more talk about copying Europe’s health care system.  (After completing this post I noticed that Robin Hanson had an even better idea.)

Liberals often tell me that Swedish vouchers wouldn’t work here, our population isn’t as homogeneous and civic-minded.  I’d think that’s a much better argument against the more socialist aspects of the Nordic system, like generous unemployment benefits.  Reading this stuff I can’t help but think back to posts by people like Paul Krugman, praising our Medicare system for its low administrative costs.  He’s right; they spend very little preventing the health care industry in places like Texas and Florida from systematically looting the taxpayers.  By all means, let’s let each county run and pay for its own health care system.  If not, then stop talking about how the Swedes are superior to us.

A few weeks back I complained that Obama was trying to force me to divorce my wife.  According to The Economist, the Swedish government doesn’t do that:

In Sweden 88% of women aged between 25 and 54 take part in the labour market. It helps that the country’s extensive day-care facilities for children are largely reserved for workers, and that couples file their tax returns separately so that households do not get hit by higher marginal tax rates on their second incomes.

A larger share of Sweden’s older people, too, remain in the labour force than anywhere else on the continent, not least because they accrue higher retirement benefits for each year they work after the age of 61. If other Europeans aged between 55 and 64 were as industrious as older Swedes, the continent could reduce the gap in hours with America by almost a quarter, according to the MGI.

The rest of Europe could also learn from Denmark’s efforts to beat unemployment and from the Netherlands’ success in getting youngsters into work. To echo an old joke, heaven is where women and older people work like the Swedes, the young work like the Dutch and the unemployed find jobs like the Danes. Hell is where workers get into unemployment like the Americans and out of it like the Italians.

And we are falling behind them in neoliberal reforms.  Again, from The Economist:

Sweden offers a more encouraging lesson. In the aftermath of its banking bust in the early 1990s it not only cleaned up its banks quickly but also embarked on a radical programme of microeconomic deregulation. The government reformed its tax and pension systems and freed up whole swaths of the economy, from aviation, telecommunications and electricity to banking and retailing. Thanks to these reforms, Swedish productivity growth, which had averaged 1.2% a year from 1980 to 1990, accelerated to a remarkable 2.2% a year from 1991 to 1998 and 2.5% from 1999 to 2005, according to the McKinsey Global Institute.

Sweden’s retailers put in a particularly impressive performance. In 1990, McKinsey found, they were 5% less productive than America’s, mainly because a thicket of regulations ensured that stores were much smaller and competition less intense. Local laws restricted access to land for large stores, existing retailers colluded on prices and incumbent chains pressed suppliers to boycott cheaper competitors. But in 1992 the laws were changed to weaken municipal land-use restrictions, and Swedish entry into the EU and the creation of a new competition authority raised competitive pressures. Large stores and vertically integrated chains rapidly gained market share. By 2005 Sweden’s retail productivity was 14% higher than America’s.

The restructuring of retail banking services was another success story. Consolidation driven by the financial crisis and by EU entry increased competition. New niche players introduced innovative products like telephone and internet banking that later spread to larger banks. Many branches were closed, and by 2006 Sweden had one of the lowest branch densities in Europe. Between 1995 and 2002 banking productivity grew by 4.6% a year, much faster than in other European countries. Swedish banks’ productivity went from slightly behind to slightly ahead of American levels.
.   .   .
Even in America there would be benefits. But, alas, the regulatory pendulum is moving in the opposite direction as the Obama administration pushes through new rules on industries from health care to finance. So far the damage may be limited. Many of Mr Obama’s regulatory changes, from tougher fuel-efficiency requirements to curbs on deep-water drilling, were meant to benefit consumers and the environment, not to curb competition and protect incumbents. Some of the White House’s ideas, such as the overhaul of broadband internet access, would in fact increase competition. The biggest risk lies in finance, where America’s new rules could easily hold back innovation.

I didn’t always agree with President Clinton, but at least he did deregulation, welfare reform, NAFTA and cut the capital gains tax.  I can’t recall a single thing that Obama has done that a classical liberal would approve of.  Even where his private views may be libertarian (free trade with Cuba, gays in the military, ending the abuses of the national security state, medical marijuana, a smaller military, etc) he seems to lack the courage of his convictions.  No wonder he generates so little enthusiasm.

Tea Partiers complain that Obama wants to make us like Sweden.  If only that were true.  I fear we are headed toward Brazilian-style “big government.”  Lots of spending and lots of poverty.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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