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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25 Responses to “So you say you want Nordic-style socialism?”

  1. Gravatar of Morgan Warstler Morgan Warstler
    6. November 2010 at 14:43

    More of this please…

    Krugman has laid out enough rope with you… use it to hang him on Fiscal policy. Be bold. Be confident. Taunt him as the economy recovers from QE and your strong support of Austerity…

    Finish him!

  2. Gravatar of Edwin A Edwin A
    6. November 2010 at 15:16

    I like Dean Baker’s idea of pushing globalization on our health care system. America sucks at health care. Lets have someone else take care of it.
    http://www.boston.com/bostonglobe/ideas/articles/2009/08/02/the_doctor_is_in__bangkok/?page=full/

  3. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 15:25

    Scott,
    Much of my research is deadicated towards this end. EU style public policy (except for the glaring excepton of monetary) is currently in the lead. We need to keep our eye on the EU as much as it might pain some of us.
    Mark

  4. Gravatar of Ram Ram
    6. November 2010 at 15:26

    ‘Race to the Top’ is a pretty good idea, in my view, though I don’t know much of the details. If you consider charter schools to be a reasonable compromise, like I do, then that is progress. On the other hand, the ARRA killed the DC voucher experiment prematurely. And the ACA, its many flaws aside, indirectly caps the employer-sponsored health insurance deduction. It also makes a few market-oriented reforms of Medicare, though these are relatively minor in comparison to the more bureaucratic reforms. The Dodd-Frank bill will probably lead to higher capital requirements for financial institutions who enjoy implicit insurance for being TBTF, which is maybe not free market but then neither is the promise of a bailout. So while there’s a lot to be depressed about, it’s not all bad. And I suspect that the emphasis was on big government stuff because they had for a brief time a unified democratic government. Now that that’s gone, it’s going to have to be things like trade deals, tax reform, etc., if it’s going to be anything at all.

  5. Gravatar of Robin Hanson Robin Hanson
    6. November 2010 at 15:35

    Good points. It would be nice to see a concrete proposal laid out for moving the US a big ways toward the Swedish model, and to see who would actually support it.

  6. Gravatar of Lee Kelly Lee Kelly
    6. November 2010 at 16:06

    There is no such thing as Nordic-style socialism

  7. Gravatar of Richard W Richard W
    6. November 2010 at 16:14

    It is not like Tim to get his facts wrong. His general point that the Danish emergency services are run by the private sector is correct. However, they are not run by G4S. Falck the Danish company who have been providing rescue services since 1906 merged with Group 4. The new company then merged with Securicor. Falck was separated from this new company and was listed as an independent company on the Copenhagen Stock Exchange. They were bought in 2005 by a private equity group and delisted from the stock exchange.

    This is the Danish company providing emergency services.
    http://www.falck.com/Pages/Frontpage.aspx

    This is the private equity group who currently own them.
    http://www.nordiccapital.com/portfolio_falck.asp

  8. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 16:22

    Lee Kelly wrote:
    “There is no such thing as Nordic-style socialism.”

    Naturally, given my background, I agree. But I suspect you may have to defend your viewpoint.

  9. Gravatar of scott sumner scott sumner
    6. November 2010 at 16:33

    Morgan, You said;

    “Krugman has laid out enough rope with you… use it to hang him on Fiscal policy. Be bold. Be confident. Taunt him as the economy recovers from QE and your strong support of Austerity…

    Finish him!”

    I need you to prepare a motivational tape for me, which I can wake up to each morning.

    Edwin, That’s a very good idea. I suppose the protectionists would complain that we are losing our last jobs. But maybe that would help us get back some manufacturing jobs, by lowering the cost of health care.

    Mark, I agree. You should start a blog discussing European neoliberal reforms that we should emulate.

    Ram, That’s putting a positive spin on things, but the controls over employer costs are feeble and far out in the future. The Finreg didn’t really address any of the big problems, except perhaps capital requirements, and Basel III did that anyway. But you have a decent argument.

    I do agree that he may now turn toward the center. Of course the GOP is not exactly full of Brink Lindsey-style liberaltarians either. Will they compromise?

    Thanks Robin, In an earlier post I mentioned that the problem is that people like me and Yglesias could come pretty close to agreeing on something like a simple progressive consumption tax regime, but are probably far apart on the real world issues like extending the tax cuts for the rich. Our system seems to make it hard to even get any sort of debate going on these possible compromises. The Nordics obviously do better, for both cultural reasons and greater decentralization.

    Lee, Yes, I meant to put that in quotations marks, and just forgot.

  10. Gravatar of scott sumner scott sumner
    6. November 2010 at 16:49

    Richard, Thanks for that info. I wish I had more time to delve into this things.

  11. Gravatar of marcus nunes marcus nunes
    6. November 2010 at 17:04

    “Brazilian-style big government…” You are quite right. Remember that Obama said of president Lula: “he´s the guy”!!!
    At that moment I thought “This guy (Obama) is going to f—up”

  12. Gravatar of Mark A. Sadowski Mark A. Sadowski
    6. November 2010 at 17:11

    Scott wrote:
    “Mark, I agree. You should start a blog discussing European neoliberal reforms that we should emulate.”

    Not a problem. After I get a full time job (and I’m fairly confident I will be offered one even if I do not accept one) I may have the time. You can be sure I will advocate such reforms. I certainly have the data to support them (at least with respect to tax policy).

    In fact, remember this date. I shall return.

  13. Gravatar of Full Employment Hawk Full Employment Hawk
    6. November 2010 at 19:19

    “but at least he did deregulation,”

    This created the conditions that permitted the near meltdown of the financial system to take place.

  14. Gravatar of Mattias Mattias
    7. November 2010 at 00:11

    It’s always nice to see the classic Swedish socialist image get some nuances. (Btw, the Swedish sin is also a myth).

    If it’s any comfort, the average Scandinavian has just as many prejudices about Americans.

    :)

  15. Gravatar of Jim Glass Jim Glass
    7. November 2010 at 02:27

    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.

    Let’s not forget how Medicaid, our other national health care system, loots taxpayers from coast to coast.

    This is the program that Obamacare just hugely expanded.

    There was an interesting story in the City Journal about the political incentives that have actually slashed efforts to fight Medicaid fraud.

    “Over half of states now spend less than one-tenth of 1 percent of their Medicaid budgets to fight fraud …

    “New York cut the number of health-department staffers combating Medicaid scams from 200 to 50 [as] expenditures have grown by $30 billion …

    “Federal supervision of these fraud-fighting efforts is almost nonexistent. The GAO reports that the federal agency responsible for overseeing Medicaid employs just eight people, wielding a minuscule budget of $26,000 annually …”

    Yup, that’s one way to cut the administrative cost of health care!

  16. Gravatar of JPIrving JPIrving
    7. November 2010 at 02:41

    You can add to that list a non litigious economy. I am an American living in Sweden I often see little things which cause me to think “Wow you would get sued for that in the U.S.”

    For example most small elevators here do not have inner doors, instead a humors warning sign essentially saying to be careful. I imagine that the economy wide savings add up.

  17. Gravatar of Tim Worstall Tim Worstall
    7. November 2010 at 04:03

    “However, they are not run by G4S. Falck the Danish company who have been providing rescue services since 1906 merged with Group 4. The new company then merged with Securicor. Falck was separated from this new company and was listed as an independent company on the Copenhagen Stock Exchange. They were bought in 2005 by a private equity group and delisted from the stock exchange.”

    I knew the first part but not the second. Thanks for putting me straight there…..the perils of using wikipedia as a research tool……

  18. Gravatar of scott sumner scott sumner
    7. November 2010 at 08:27

    Marcus, Yes, I recall Mrs. Clinton also said something similar.

    Mark, I look forward to reading it.

    Full Employment Hawk. The problem wasn’t deregulation, it was mismanagement of Fannie and Freddie and FDIC. The new Finreg doesn’t address those core problems. The losses now being absorbed by the taxpayers are mostly construction loans from small banks and F&F bailouts. How does dereg affect either of those two categories? The Tarp money is being repaid, it’s the small banks that are the biggest problem.

    Mattias, Sorry to hear that Swedish sin is also a myth. :)

    Jim Glass, And still people scratch their heads wondering why America spends so much on “health care.”

    JPIrving, Yes, when I travel to other countries it is like a breath of fresh air. Everywhere you turn you see freedoms that are denied Americans because of our litigious society. In our state a judge just ruled that tenants who slip on the ice can sue landlords. I’m a landlord, and I can tell you that there is no way to completely prevent ice from forming. Sometimes it happens when I am not home. If I hire someone to clear the snow, they may take 12 hours to arrive. We have cases where bartenders are sued because someone gets drunk. Bentley used to serve wine at the faculty Christmas party. No longer–we are college professors but we are treated like children. Or perhaps I should say treated like 20 year old adults-as America is one of only three countries where the drinking age is 21.

    Tim, Still an excellent post, that didn’t alter any important conclusions.

  19. Gravatar of Tim Worstall Tim Worstall
    7. November 2010 at 13:59

    “that didn’t alter any important conclusions.”

    I’m sure there’s a book in it.

    “What must be done”.

    OK, social democrats. Here’s what you actually have to do to make America like you say you want it.

    First thing you’re gonna’ have to do is slaughter a large amount of the producer protections that you’ve spent the Progressive century building (I could not, as in COULD NOT, believe the Yglesias commenters who, when he said that maybe we don’t need State licencing of barbers, were all over him telling us that of course we did) and bring back in competitive markets.

    It would just be so fun to slaughter any number of sacred horses in such a book.

  20. Gravatar of rob rob
    7. November 2010 at 14:30

    I’m for a combination of “Nordic-style socialism” and Brazilian-style sins.

  21. Gravatar of ssumner ssumner
    8. November 2010 at 18:06

    Tim, Yes, you should do such a book, as I don’t have time.

    Tim, Me too.

  22. Gravatar of ssumner ssumner
    8. November 2010 at 18:06

    I meant rob, Me too.

  23. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    15. November 2010 at 08:04

    > If we are to copy Europe, the first thing to do is to delegate health care to the 50 states.

    All European countries guarantee basic health care, and you can use your guaranteed health care across borders, with national health care systems figuring out how to pay for it between themselves. I’ve tried that between Poland and Germany a few years ago and it worked as if it was a single health care system, which is amazing considering how little integration or similarity there is between the two.

    The main difference between US federalism and EU federalism isn’t amount of it – EU was designed 200 years later, so division of responsibility between federal and (member) state level in EU matches reality far more closely, so you can get a lot more out of much smaller federal administration.

  24. Gravatar of ssumner ssumner
    16. November 2010 at 06:01

    Tomasz, That doesn’t address my argument that delegating the taxation and spending of health care money to local governments would eliminate the massive waste you see in places like McAllen Texas. We would no longer spend anywhere near 16% of GDP on health care.

  25. Gravatar of The Williamson Plan for Economic Prosperity « Of Flies and Fly-bottles The Williamson Plan for Economic Prosperity « Of Flies and Fly-bottles
    22. January 2011 at 05:44

    [...] well worth reading about what is actually the best policy for fostering entrepeneurship. Also read Scott Sumner on the Nordic [...]

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