Progressives objected to my 4 March 2020 column (Why Socialism in the US Scares Me to Death). Most did not object to the academic definition of socialism, in which the state allocates the means of production. Rather, they prefer the Nordic model of “democratic socialism” as practiced in Sweden, Norway, Denmark, and Finland. But the Nordics scrapped the American-style welfare system decades ago because it was an abject failure.
In the post-WWII boom and through the 1960s, the Nordic countries had low taxes, minimal government, free markets, and private ownership until the welfare state was introduced in the 1970s. Healthcare, education, and retirement were nationalized and paid for by increasingly larger taxes. To avoid raising direct taxes, Sweden introduced an “employer’s fee” – a hidden payroll tax based on each employee’s salary. In 1970 it started off at 12.5% of each employee’s salary. By 1979 those taxes were 37% (compared to 12% in the US). Since the employer was paying these taxes, few cared.
As Margaret Thatcher famously said, “the trouble with socialism is that eventually you run out of other people’s money.” The socialist solution had been to double down and have the labor unions take ownership of private companies using “wage earners’ funds” (where the company paid a percentage of their profits to fund the transfer of companies from private to collective ownership). Sweden fell from being the fourth-richest country in the world in 1970 to the fourteenth in 1993, with public spending reaching 67% of GDP.
Entrepreneurs behaved rationally and stopped investing and growing their businesses. Between 1976 and 1995, Sweden’s economic growth was half that of other western nations. Interest rates soared to 500%. The wealthy were taxed at over 100%. Wealth and talent disappeared. In 1976, IKEA founder Ingvar Kamprad fled to Switzerland. Kamprad said
“the high capital tax is extraordinarily oppressive in Sweden. It would bleed IKEA way too much. I think that many of our problems in Sweden are because we punish people who want to venture into business.”
The truths finally became known by the 1990s. Socialism is economic suicide. You cannot tax your citizens into prosperity, and the only thing worse than a monopoly is a government monopoly. By abandoning socialism, Sweden’s economic growth became 50% greater than other Western countries, and family disposable income grew by a factor of four.
What prompted these seemingly magical changes? They reformed their tax system and adopted a hands-off approach to free enterprise, allowing private enterprise into schools, welfare, hospitals, etc. Many of these reforms would give American progressives apoplexy.
Education, for instance, was no longer in the hands of the government. So rather than letting the government assign students to schools, Swedes instituted a school voucher system instead, allowing parents to choose which school was best for their child.
Sweden allows parents to apply their vouchers to independently-run private schools or government schools for their kids’ education. Today, 50% of Swedish high schools are voucher-funded private schools. This competition has raised the quality of both the government and the private schools.
Another idea so repellant to American progressives is that Sweden has no minimum wage laws, and the relationship between labor and employers is not antagonistic. Their Liberal Party even proposed that the right to strike be restricted.
“I know that some people in the US associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”
Nordic countries tried embracing socialism and found it to be a savage master. Dressing up this system as “democratic” socialism might make it more alluring, but Americans would soon find themselves in the same position as Sweden nearly three decades ago: suffering under the rule of socialism and longing for the freedom they so willingly handed over in the name “equality.”