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Many “progressive” Democrats, including Hillary Clinton rival Bernie Sanders, argue America should model itself on Scandinavia and its egalitarian social democracies. As Sanders told ABC News, “I think we should look to countries like Denmark, like Sweden and Norway, and learn from what they have accomplished for their working people.”
But is IKEAmerica really possible or even desirable? To find out about whether the US should be Swedenizing — as well as the latest about that country’s immigration crisis — I chat with Tino Sanandaji, a Stockholm — based economist and author who received his graduate degree in public policy from the University of Chicago. He occasionally writes for National Review on immigration, education, and entrepreneurship.
Sanandaji is also the author of several books, including Institutional Entrepreneurship with Magnus Hendrekson, and SuperEntrepreneurs – And How Your Country Can Get Them, co-authored with his brother Nima. He also has a blog.
Here are some excerpts from our conversation, via my Ricochet Political Economy podcast:
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.
Another thing is, how do we know the extent that Scandinavian social outcomes are due to unique social capital norms, work ethic, high trust rate, homogenous population, etc., versus to welfare state policies? Of course some of it is due to welfare state policies.
Well Milton Friedman used the argument, and someone told them in Scandinavia they have no poverty, and he said, “Well that’s interesting, because among Scandinavian Americans, we have no poverty either.” There is US data where people self-identify based on their ancestry. About 2/3 of Americans self-report one or two ancestry groups. Sweden has the highest concentration in Minnesota and North Dakota, Fargo area, and you have Norwegians in Wisconsin, and so on. Finland is in Michigan. And these people will mix mostly with each other, though there is less mixture than you might think. So then you can look at the poverty rate, not among Swedes in Sweden but among Swedes and their successors in the US; you will find they have far lower rates of poverty. Last time I looked, it was exactly the same, 6% or so. They have far higher rates of trust (a measure of social capital) and women are more likely to work, so similar cultural traits between them. A high average income, and so the roots of Scandinavian egalitarianism and favorable social outcomes are very deep; you’re not going to magically transform a country, and we know that from experience.
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.
Sweden in the World Bank survey is one of the countries in the world most likely to emphasize individual responsibility; Sweden is complex. And Scandinavia in general, it’s a mix of liberalism, individualism, progressivism, of course very secular, not religiously conservative, but in other ways they are very conservative. So they have high rates of work ethic … famous idea of the Protestant Work Ethic, the idea God’s eye is always watching you. People would say the most Swedish word is duktig, which doesn’t translate well but the closest is “competent.” In my opinion, it has the connotation that you have the social obligation to be competent. In German, you have very strong intrinsic work motivation. You don’t have that so much among Iranians – I’m Kurdish Iranian.
You’ve mentioned culture, and I like to think policy is the most important lever. If we tinker with the tax rate, or this regulation change, it will have these massive effects. Culture is a lot harder, it’s softer, difficult to figure out, “Why is a culture like this?” In Sweden you’ve had a homogenous society, lots of social trust, so why is that? How does that translate into those positive outcomes?
You’re completely right; the bias exists because it’s hard to quantify culture. We actually have no idea what the roots of culture is. I can speculate because it’s interesting but I cannot prove to you, but if I can prove something has happened, and measure the effect, I don’t have an obligation to explain why it happened.
Why the high trust rate? Speculation is it was caused by the climate; historically, if you did not have social cohesion, you would all die. And with not very fertile soil, you would work in communal villages, and they had to have strong cohesion. There are lots of historical references, going back a thousand years, to the group cohesion among the Vikings, etc, and to egalitarianism. So Byzantium, their military manuals mention that these Northern Europeans were egalitarian and liked freedom. And Scandinavia is the only part of Europe that did not have full-scale feudalism, so the peasants were never made into serfs. These are things we know, and no one can prove why this happened, but we can measure it.
We know that Scandinavians have the highest trust rate; we also know that they have the high trust rate even in the US. And we know that immigrants to Scandinavia don’t immediately acquire it, which also an indirect evidence saying, “It’s not just the system.” Of course the system matters, too, and so it’s not wrong to target taxes and say, “Well we can influence taxes.” But we have no idea – thank God – how to socially engineer culture.
And other historical indirect evidence: When they introduced generous sick leave in Sweden, the rules were for the first 14 years identical. But the numbers who used it went up each year. That tells you, once you change a policy, it will take time to adapt your behavior. People are not robots We use social norms, mechanisms, over time. So you have this country with a very strong work ethic, high level of education, culturally homogenous, and norms not to live off the government – you couldn’t have lots of sick leave in the ‘50s because there were taboos against exploiting the state. That’s still the case in the most socially conservative parts of Sweden that if you go to the store on Tuesday in the afternoon, people will talk behind your back and say, “Why is so-and-so not at work?”
So even in Sweden, people’s norms change once they introduced the system. Initially it worked much better because everyone wanted to work, no matter how much you tax them, and if there is a taboo against using the government for benefits, you can have higher taxes and a more generous welfare state without as much cost. You cannot do the same thing in Greece. Another example is that Swedes pay high tax: morality; for cultural reasons, they don’t cheat on their taxes. The US is complex because you are a mix of different countries; you have your own unique culture, a high work ethic – not perhaps as high as the Scandinavians – and doing this kind of cherry-picking countries is dangerous to design policies, especially when you are projecting utopia. … These things also change; Sweden has had the fastest increase in inequality since the mid-1980s.
When folks on the left talk about Sweden’s economy, then they may be talking about the economy as it used to be, not as it is today. Maybe tell me how the economy has changed over the last generations, from the stereotype of a giant, high-tax state to something a little different?
Milton Friedman writes a letter to Hayek in 1958 and points out that Sweden is not a socialist country; they still have private capitalism in their industries, and they’ve always had that. So when you talk about the mythology of Sweden in the US, you always remember the welfare state part but you forget that it is also a country of capitalism, Lutheran burghers, never a socialized private sector… always had 90% or more private industry, with profit motives, fairly manageable tax rates. The Social Democrats were a center left party; they said they would respect private enterprise. They said “what we want is a really redistributive welfare state” … We want to redistribute a lot but we are technocrats; we have no reason to go and destroy business with legislation, a too high capital tax rate. We have strong respect for private property.
[Now] we have cut taxes a fair amount; we have also cut sharply public generosity of the welfare state. … In the 1990s, households that worked made 25% more [than non-workers], people said “well this is making no incentive to work… and we don’t have money [to fund the welfare state]!” So both Social Democratic and right-wing governments cut tax rates and they cut the generosity. So now working households earn 80% more than non-working households. Maybe in the US they earn 3 times more [than non-working households]… but it went from, “you don’t work and earn 20% less,” to “now if you don’t work, you earn half.”
And if you’re not working, what do you get from the government?
You get healthcare, and school and those kinds of things like anyone else would, but you would have unemployment benefits, maybe early retirement, there are a couple different programs. You more or less have all of this in the US but you have more of it … disability insurance… About half the immigrant population are working age adults and don’t work. My parents never worked and we grew up on welfare, so you have a decent standard of living if you grow up on welfare for a family. But still if you work, you get much more than you used to. It used to not make a difference whether you worked or not.
At that point it just depended what your own personal work ethic was. That was the determining factor.
Yes, a generation or two ago that was not enough; now it is not. So instead of soft power incentives, we use high power incentives and that is cutting benefits and raising and lowering taxes. That’s why Bernie Sanders likes to cite Denmark now, because we don’t have an inheritance tax, we have a lower corporate tax rate than the US by far.
They have other institutions in Sweden. Like the school voucher program. They literally cited Milton Friedman and enacted a school voucher program in the 1990s. Now anyone can start a school and the government will pay for it, and so on. And they did the same for daycare and a lot of the government is tax-funded private enterprise. So it is funded by the government but produced by the market system and so people have choice. That wasn’t always the case.
Let me tell you about something that the US could learn from. George W. Bush used to cite Swedish pension reform because they cut pensions and made pensions private; they put their money in the stock market and get it back once they retire.
Government money is put in the stock market?
The government forces you to do that, but you pick which fund. … They have a big budget crisis. They changed the budget rules in several ways. One key thing they did that caused a huge surplus is you first determine how much you will spend, then what you will spend it on. People can’t just come with 100 different things to spend on. Once you decouple what you spend versus how you will spend it, once you decide what you will spend, if you come forward with a new program you must say what will be cut instead.
So rather than have program after program piling up and worry about paying, you must come up with a financing mechanism. You put the burden on the program creator.
This was enacted by social democrats, who wanted to be seen as fiscally conservative. And these are just technocratic rules really, not ideological, but they gave us the biggest budget surplus in Europe before the immigration crisis destroyed that. At least our government debt is lower. They say jokingly that social democratic financiers love this rule because it protects them against all the other pet-projects of other leftists. So the minister can say, “OK, no problem. Just tell me what I’m going to cut, I’ll cut it, and you figure it out.”
Even if the US had a similar culture to Sweden’s, is the sheer fact of being bigger, does that have an impact?
I think that’s a very sophisticated argument. I don’t know the answer. If you push me, I’d say it’s not the size. Bigger countries tend to be more diverse, and so that’s difficult to decouple … I don’t think it’s the size, but the diversity. Ethnic diversity means income diversity, or what the left calls inequality. If you have a country with Massachusetts and New Mexico, it’s harder to make a one-size-fits-all program. In theory, I guess a massive country that for historical reasons is homogenous, like China or Japan, then it could work. You’re right that size can matter in that, say, Norway has oil reserves. Their economy, they can do whatever they want and oil can save them. That you cannot do in a big country.
Immigration: Sweden, people may not know, has a reputation as a hub for people seeking asylum. It seems like it’s a mess right now from what you write. What is happening for asylum seekers in Sweden right now?
First of all, understand Sweden is experiencing as we speak arguably its biggest crisis since World War II. Or maybe ever, since we weren’t part of World War II.
What’s happened is that Sweden was already number one in taking asylum seekers; then you had the European migration crisis. Europe used a trick to regulate migration policy: we give everyone who crosses national borders very generous asylum, but you do not give visas running from Syria, Iraq or Afghanistan, and your border controls stop people from coming without a visa.
Then the EU dismantled our border controls; we created an internal open borders and then external border controls collapsed, especially in Greece. So for the first time in history, there is a land corridor tying countries to the Middle East and a massive increase in refugees.
So the US is discussing taking ten thousand refugees from Syria. But the US is 35 times the size of Sweden. Sweden is taking ten thousand per week. It’s causing breakdown of infrastructure. They are putting people in tents to sleep in for the winter; they are putting mattresses in immigration offices; they’ve run out of beds and offices across Sweden. It’s causing – no exact numbers – but likely a massive budget crisis. We have two percent of the EU population and we are taking 20% of the refugees because everyone else is closing borders.
But this is a very taboo subject in Sweden, immigration, until recently. It was completely taboo to talk closing the border and you would be immediately branded a Nazi or a fascist or something. Now Sweden is taking half a million asylum seekers a year. That would be like the US taking 50 million a year. And we have no idea what will happen.
But even before this there was a high foreign born population. So what are the roots of this very open attitude? And who have been the immigrants?
Sweden was a very closed society up until about World War II, and most of the foreign-born population were other Northern Europeans. During WWII, there came 150,000 refugees; most went back. After WWII, Sweden started to take guest workers, mostly from other Scandinavian countries. This worked fine. Estimates are that there was a surplus of 1 to 2% GDP as a result; it was a positive. Swedes are tolerant people culturally; they are naïve and think they have a utopia. It is difficult to see them in their rich country that has never experienced war in their history and watch people suffer in other countries. They just want to help.
And we have the demon of racism because of a sub-culture of extreme Nazis, skinheads, violence, Nazi murders, and people react to that. And that has made the anti-immigrant position even more taboo than it is the US. In the mid ‘80s, Sweden starts to take refugees from outside the West- North Africa, and the Middle East. I am one of those people… and this does not work.
I am Kurdish and came to Sweden when I was 9 years old. We were not running from war; the war was over. We did not have a reason for asylum. Anyway it never worked. The European migration always worked but not not-Western migration, but that has always been taboo to discuss. It has become increasingly taboo.
About 85% of ethnic Swedes work, one of the highest numbers in the world, higher than the US but not higher than that of Scandinavian Americans. And this is a prerequisite to have generous welfare state: almost every able bodied person works. Non Western Europeans: 50% work, and these numbers have looked the same for the last thirty years. When they work, it is low-skilled work and they have lower wages. The average market income of immigrants is around half that of Swedes and has been in 1990, 2000, and now they are at 60%, which is not enough. In the US, among Mexicans you have roughly the same employment rate as among US- native born. Sweden has the biggest gap between natives and non-natives in the world today; the third different gap in test scores… it’s a country of extremes. And we have the most refugee immigration per capita.
These are difficult in combination: the country worst at integrating, and you are taking the most.
From the US perspective, one would think that for the US, with our history, it would be easier to take in these people, assimilate them, and turn them into Americans, whereas in Sweden you have a homogeneous, smaller country, and many more immigrants. What is the political scene on the ground? I imagine there’s a huge gap between the political elites and the average Swede.
The situation is indescribable. Never in my life have I seen anything like this; I call it a “disorderly retreat.” The biggest party in Sweden is an anti-immigration, with roots not in Nazism but in racism at least. This party, the Swedish Democrats, once had 3% of the votes; last year they had 9%. Now they have close to 30%. Only 6% of the population has high trust of the government… This is completely chaotic. They are shutting down the borders now. About six months ago, the prime minister said there is no upper limit to immigration; a few weeks ago they repeated that, that taking fewer refugees would be a crime against human rights, comparing it to Auschwitz. The same government is now forced to enact border controls. They are shifting their rhetoric like it’s 1984: “We have always been at war with you,” etc. It’s almost indescribable.
And now I’m getting interviews all the time from British or American or Danish journalists who are like “What is going on? This is madness.” So now we are – I’m not going to use the word collapse because it tends to be overused – but it is a partial system collapse. But not all of it because it’s still a rich country.
To what extent is there a recognition in the country is that Sweden has been so successful for these unique cultural reasons? And if you completely change that culture through a massive influx of people of a different culture, that secret sauce that works to Sweden’s advantage goes away? Do people recognize that it’s a cultural thing and not a policy thing that explains Sweden’s success?
No, they don’t. If you’re talking about a grandfather sitting at home philosophizing, maybe. But if it’s academics, intellectuals, politicians, no. Swedes are fish in the water. They have no idea about their own history. The myth is that any country could become Sweden if they were smart enough to do exactly what they are doing. There is a level of chauvinism in the Swedish self-image, which is they think is thanks to the welfare state. Intellectual Americans are more likely to discuss cultural explanations than Swedes, and they have begun to observe that immigration isn’t working. I don’t think they understand why. They might have some sort of racist explanation, but that’s not why.
Adopted immigrants – adopted into Swedish families – tend to perform identical to Swedes. It’s in my opinion obviously their culture that is the secret sauce, but that’s not something [discussed.]
America has one more thing. The fact that you are a country of immigrants and diverse already means that your identity is more flexible. When I came to US, to Chicago, people told me I was an Iranian-American and ‘Welcome to America.’ I was like, ” Look, no I’m a student, I will go back.” [But I was told], “No no no, you are American” – people sort of treat you as an individual. But in Sweden, you can see who is an immigrant and who is not.
The British have this term “visible minorities” and the people who grow up here, there is no word to differentiate country from ethnicity. Both is called ‘Swede.’ There is no word for it. Italian-American? There is no equivalent that makes sense. If you think you belong to an ethnic group and they think you belong, you belong. But if a big part of the population of Sweden will not accept you as a Swede because you are not blonde, you’ won’t self-humiliate and go around saying ‘I’m a Swede, I’m a Swede.” That is not an attractive identity. The most successful immigrants will move from Scandinavia to the UK, to Canada and the US.
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