Viking Love: The Economist Gets it Wrong

Cornel West has noted that “justice is what love looks like in public.” By that measure, the Nordic countries take the cake. But The Economist magazine, long identified with libertarian economic ideals, lauds the “Nordic model” in its February 2nd cover story as a “centrist” economic path for global capitalism while ignoring the very politics which make it the most humane.

Long hostile to “tax and spend” social democracy, the publication’s change in tack arises from its recognition that austerity policies are deepening the economic crisis and that the inequality and declining social mobility of “free market’ Anglo-American capitalism threatens the very legitimacy of the capitalist system that The Economist holds dear.

The magazine praises Denmark, Sweden, Finland, and Norway for accomplishments often touted by social democrats – low poverty rates, egalitarian distribution, and efficient public services. But the magazine argues that these are now “centrist” societies because they balance their budgets, allow for consumer “choice” within their public services, and nurture risk-taking entrepreneurs.  The Economist sheepishly admits that these countries still funnel over fifty per cent of their GDP through the public sector (versus a meager 30 percent in the US and 36 percent in Great Britain), but the “special report” places inordinate emphasis on the Nordic nations’ trimming their (still) generous paid leave, sick day, and disability benefits; while touting Sweden’s switch from a defined-benefit to defined-contribution public pension plan.

But The Economist never once (!) mentions that the Nordic economic model of growth-with-equity derives from the continued existence of a powerful labor movement (union density is above 70 per cent in each country versus 11.3 percent in the US and 17 percent in Great Britain). Nor does it tell us that the historical dominance of social democracy means that Nordic conservative parties occupy a political space akin to Obama-style Democrats.   

That is, even as social democratic parties move in and out of government, the “Nordic model” draws heavily upon the egalitarian values of its labor movement and social democratic parties. First, the public trusts government because the social democrats built their welfare state upon a vision of comprehensive and universal social rights. Thus all members of society receive high-quality, public-financed health care, child care, and education. The central government insures that these goods are both financed equitably and of high quality – so the upper middle class remains loyal to these services and gladly pays the high taxes to support them.  The Nordic nations long ago recognized that means-tested programs end up being poorly funded and unsustainable because they are often opposed by those just above the poverty line. (The vicious politics of “welfare reform” in Britain and the United States depended upon only the poor being eligible for child care support from the state.)

The Economist does begrudgingly mention that generous and extensive public provision means that 30 percent of the Nordic workforce works in the public sector, while only 15 percent in the average OECD countries (and the US). And it is precisely higher taxes that enable the Nordic countries to balance their budgets in tough times. Also, they spend far less money on defense and on prisons than does the U.S. and U.K., something one would not know from reading The Economist.  In addition, their not-for-profit public health care systems cost only 11 percent of their GDP and yield far superior and equitable outcomes that what American receive by spending 18 per cent of their GDP on an inefficient, unjust, largely private system.

Second, The Economist fails to mention the crucial role that trade union power and policy played in the creation of the Nordic model. The Nordic trade unions from the 1950s onwards adhered to a “solidaristic wage policy” bargaining strategy, in which unions fought for higher percentage wage gains for the lowest paid workers; this aimed both to decrease wage differentials between skilled and unskilled and to force corporations to transition out of inefficient industries. That is, the unions opposed a low-wage “race to the bottom” model of capitalist development in favor of a high-wage, high-productivity model grounded upon union power. 

Why favor a strategy that often led to the closing of uncompetitive industries? Because generous unemployment benefits and public-private job retraining schemes meant that displaced workers ended up being re-employed in cutting-edge industries at wage levels comparable to those of their old jobs. While the United States spends only one per cent of its GDP on job retraining, the Nordic countries regularly spend over three per cent. Thus, the Nordic policies of “flexicurity” have sustained innovative, export-successful machine tool, specialty steel, heavy machinery, and aerospace industries, as well as new ventures in telecommunications, video-games (“Angry Birds”), and computer services.

The third secret to the Nordic model is the feminist character of its social democracy. The Nordic model’s generous funding of universal day care and generous paternity and maternity leave means that women’s labor market participation rate is as high as men’s.  Not only does the labor market draw fully on the talents of women (though disproportionately, skilled women work in the public sector), but nearly half of Nordic legislators and cabinet members are female. 

Yes, Nordic countries have cut back a bit on guaranteed paid sick leaves, paid personal days, and tightened up disability requirements, as younger workers sometimes abused the privileges their older brethren fought hard to acquire. And in 1993 the Swedes did transition from a generous defined-benefit public pension plan to a (very unique) “quasi” defined-contribution plan. They now finance their pension system through an eighteen percent payroll tax (half paid by employer, half by employee) and the benefit is tied to one’s earnings history. But only 2.5 percent of this eighteen percent of wages is a true “defined contribution” plan whose funds are invested by the individual in the stock market. The Swedish state collectively invests the other 15.5 percent in a range of low-risk funds, and the public pension one receives is tied to one’s earnings history and the future rate of growth of the economy — not to the performance of the stock market. The Economist may be dreaming of a standard public pension ‘privatization’ model where all the pension savings would be invested by the individual in private investment firms that charge lavish fees. But this is not the case with a creative public pension plan designed in the early 1990s by the social democrats and trade unions along with four other Swedish political parties.  

The Economist also conjures up a hallucinatory libertarian wet dream about the role of “choice” in the Nordic welfare state. Yes, particularly in Sweden, citizens can choose among competing public, non-profit and even private providers of health and child care services and education. And there is some “voucherization” involved; but these are very unique, egalitarian “vouchers.” The vouchers are of equal value to all citizens; the vouchers cannot be topped up by private funds; and the providers are strictly regulated by the state. Thus, this insures equitable government funding of public services, but avoids a bureaucratic one-size fits all provision of such goods.

But one should not glamorize these nations: corporations are controlled by tight-knit family elites; the solidaristic wage policy has been eroded by the decline of nation-wide collective bargaining agreements; and a serious right-wing backlash has developed against multicultural immigration policies.  Immigrants and refugees constitute nearly ten per cent of Nordic society and, as in the rest of Europe (and the United States), the challenge to social democracy remains to create a diverse, but egalitarian and solidaristic society that encompasses all its members. 

Even so, the Nordic rates of social mobility are twice those of the United States and their distribution of income is much fairer. Their far more generous poverty line finds only six percent of their population (and only five per cent of children) in poverty, whereas a much stingier American official poverty line places 15 percent of our population (and 22 per cent of children) in poverty. While Nordic levels of equality remain the highest in the world, the inequality of United States income distribution is the most unequal of the thirty advanced OECD economies, except (barely) Brazil, Mexico, and Turkey.

By reading out of history the role of labor and social democracy in creating and adapting the Nordic model, The Economist sanitizes the Nordic model for the consumption of enlightened corporate elites. Yes, The Economist can no longer deny that the Nordic “social market” capitalism of universal public provision, financed by equitable taxation;  high-road industrial policy (influenced by powerful unions);  and female empowerment yields a more egalitarian, innovative capitalism than do “neoliberal” policies of deregulation, union busting, privatization, and tax giveaways to corporations and the rich.  But The Economist is not well-schooled in the realities of class conflict; thus they fail to tell their readers that to achieve the Nordic model working people must build powerful unions and strong social democratic parties that challenge the power of capital.

 Joseph M. Schwartz is a National Vice-Chair of Democratic Socialists of America and a professor of political science at Temple University. His most recent book, The Future of Democratic Equality, recently won the American Political Science Association award for the best book in political theory.