Capitalism with Scandinavian Characteristics

Nice piece by Prof Timothy Taylor on Scandinavian economies:

It is a truth universally acknowledged that arguing about the definitions of terms like “capitalism” and “socialism” is a waste of time. So I will simply assert that the world has many flavors of capitalism — U.S./British, Japanese, Scandinavian, German, French/Italian/Southern European and others.

I’ve known some genuine socialists who favor outright government ownership and control of the means of production, which necessarily means government making all the decisions about what is produced, where it is produced, how it is priced, who gets hired and how much workers get paid.

But most people who talk a socialist game, when asked for real-world examples, tend to sidestep the more extreme (and less attractive) possibilities and point to European countries — in particular, to Northern European countries like Sweden, Denmark, Norway and sometimes Finland. The genuine socialists I know view these countries as sellouts to capitalism. The Scandinavians themselves are quick to deny that they are socialists, too. 

There are higher taxes and more equality in lower income percentiles compared to US:

The Scandinavian model of capitalism has more equal economic outcomes. But for advocates for a higher U.S. minimum wage, it’s perhaps worth noting that the Scandinavian countries do not have minimum wage laws. However, rates of unionization are typically 70-90 percent of the workforce in Norway, Denmark and Sweden, as opposed to about 11 percent of the U.S. workforce. Negotiating pressure from these unions is a powerful reason for the greater equality of wages and benefits for labor.

Last fall, New York Times columnist Paul Krugman illustrated the greater economic equality in Scandinavian countries by citing estimates of income levels for people at different points in the income distribution. This comparison looks at income after taxes are paid and transfer payments are received.

Below about the 30th percentile of the income distribution, income levels are higher in Nordic countries. This shows both the greater equality of wages and greater government support for economic equality in those countries. (For perspective, the 30th percentile of the U.S. income distribution is roughly $32,000 per year.)

A low-income person at the 10-20th income percentile in Denmark or Finland has an income about 20 percent higher than an American’s at that place in the U.S. income distribution. But among middle-income people in the 55th-60th percentile of the income distribution, incomes in Denmark and Finland are 20 percent below those of the similar person in the U.S. income distribution. Overall, average income levels are about 20 percent higher in the United States.

(Health care benefits provided through government programs are not included in the estimates cited by Krugman. The omission is interesting to consider. U.S. health care spending per person is much higher than in other countries. Thus, including it would make U.S. income levels look much higher — and would probably close much of the income gap at lower levels of income.)


Last bit:

It seems inaccurate to me to label the Scandinavian model of capitalism as “socialism,” but arguing over definitions of imprecise and emotionally charged terms is a waste of breath. What does bother me is when the “socialist” label becomes a substitute for actually studying the details of how different varieties of capitalism have functioned and malfunctioned, with an eye to what concrete lessons can be learned.


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