When the U.N. released its latest index of “happiest countries,” it probably came as no surprise to Bernie Sanders and Alexandria Ocasio-Cortez that all of the Scandinavian countries finished in the top ten. They often cite them as models for their far-left policy prescriptions.
Sanders doesn’t point to China, Cuba, or Venezuela when pushing his vision for America, but to Denmark. Surveying its spacious safety net and liberal benefits such as free education and universal health care, the socialist senator says enthusiastically, “We can learn a lot from Denmark.”
Ocasio-Cortez agrees. As the unofficial head of the House’s Progressive Caucus, explains: “My policies most closely resemble what we see . . . in Norway, in Finland, in Sweden.”
Sanders, AOC, and their socialist cohorts laud the Nordic model (comprising Denmark, Sweden, Norway, and Finland) for its supposed management of the market, draconian taxes on the rich, and cradle-to-grave welfare system. Polls show that a large number of Americans, especially those under 30, would welcome the Nordic way.
But there is a problem: Scandinavian “socialism” does not exist, except in the Marxian imagination of radical progressives. It is a chimera wrapped in an illusion inside a dream.
In fact, the economies of Denmark and the other Scandinavian countries are not socialist but capitalist. They depend on the free market to generate the funds that make their extensive welfare system possible. Former Danish prime minister Anders Fogh Rasmussen put it succinctly during a U.S. visit: “I know that some people in the U.S. 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.” According to the Heritage Foundation’s 2021 Index of Economic Freedom, Denmark is the tenth freest country in the world, economically; the United States lags behind at No. 25.
Denmark has long depended on the workings of capitalism. As recounted by the Danish-based Center for Political Studies, Denmark was a wealthy country in the late 19th century and early 20th century while adhering to a free-market philosophy. But it introduced socialism in the post-World War II period, resulting in a serious economic downturn by the 1980s. Shifting economic gears, ensuing Danish governments introduced reforms such as reduced benefits, partial privatization of pensions, and fewer regulations. An attempt to partially socialize industry through wage-earner funds was abandoned.
All along, Denmark maintained a broad-based welfare system financed by heavy taxes on all citizens, including the middle class, which bears a far greater burden than its counterpart in the United States. According to the Center for Political Studies, low-income Danes pay an effective marginal tax rate of 56 percent, the middle class, 57 percent. In addition, there is a value-added tax (VAT) of 25 percent on the sale of every item, plus additional taxes on coffee, beer, and chocolate.
Danes accept the universal high taxes as the price of the country’s universal welfare. Bernie Sanders prefers to skip over the fact that the top 10 percent of wealthy Danes pay “only” 26 percent of all income taxes. In contrast, the top 10 percent of wealthy Americans pay 45 percent of all income taxes, according to the Tax Foundation. Senator Sanders has said that “billionaires should not exist,” but Sweden has 30, Denmark ten. And Scandinavian billionaires can pass along their wealth—there is no inheritance tax in Sweden or Norway. Denmark imposes an inheritance tax of 15 percent.
Inside the Nordic Model
An essential element of the Nordic model is strong unions. About 30 percent of the population works in the public sector. According to Norwegian analyst Erik Engheim, Scandinavian countries have “sectorial bargaining” under which unions exist for specific jobs rather than specific companies. A workplace may have several different unions representing different kinds of workers. “In Scandinavia,” says Engheim, “you pick the union you want.” Unions have learned to cooperate, giving them power in bargaining over wages and hiring practices. The commitment to cooperation is reinforced by government’s generous welfare system, job retraining and relocation assistance. Organized labor matters in Scandinavia: Union density ranges from 50 to 92 percent versus about 10 percent in the United States.
Analysts such as Daniel Schatz of New York University suggest that Nordic success has its roots in cultural rather than economic factors. With a combined population roughly equal to the greater New York City area, Sweden, Norway, and Denmark developed “remarkably high levels of social trust, a robust work ethic and considerable social cohesion.” The Scandinavian pays a price for such cohesion, sacrificing diversity for security, accepting the known rather than gambling on the unknown as in the more competitive United States. Given the sharp debates and wide divisions that characterize American politics, it is doubtful that Americans would imitate such a Nordic model.
American socialists prefer to emphasize the benefits rather than the costs of Denmark’s bountiful welfare system. Danish mothers enjoy 18 weeks of guaranteed maternity leave at 100 percent of their pay. Danish students leave college with no debt. Everyone is covered by a national health-insurance system. The average Danish worker has five to six weeks of paid leave. Yet, compared with Americans, Danes have less disposable income and purchase fewer cars and other consumer goods. Bernie Sanders’s idealistic version of Danish “socialism” is far from the pragmatic reforms of Prime Minister Lars Rasmussen in the 1990s, when his government gave employers the flexibility to hire and fire workers easily without excessive regulation or litigation.
Bringing Denmark’s economic system to the United States would require a wide range of social benefits paid for by significant taxes on the middle class and the poor alike and the creation of a massive bureaucracy to administer and monitor the welfare system. Imagine the Veterans Administration on steroids.
The Swedish Model
Sweden is the progressives’ second-favorite “socialist” country. Its welfare system seems almost without limits, including: universal health care for all; free education from kindergarten to university; social-security benefits including unemployment compensation up to 300 days; a housing allowance; pensions for retired workers; child support up to age 16; and compensation for those who cannot achieve a reasonable standard of living.
At the same time, Sweden is one of the richest countries in the world with a per capita GDP of $52,274, according to the World Bank (compared with the U.S. per capita GDP of $63,593). Like Denmark, Sweden relies on the free market (levying a capital-gains tax of 30 percent) to underwrite its generous welfare system. This was not always the case, though. Starting in the 1970s, the government expanded cradle-to-grave welfare through an increase in tax rates and regulation of free markets. The total tax load peaked in 1990, crushing businesses and driving up unemployment.
As recounted by New York University’s Center for European and Mediterranean Studies, talent and capital moved out of Sweden to escape the tax burden, with furniture giant IKEA moving to the Netherlands. Tetra, the world’s leading food-packaging company, left for Switzerland. In 1970, Sweden was the fourth-richest member of the OECD (Organization for Economic Cooperation and Development); by 1993 and after 20 years of democratic socialism, it had dropped to eleventh.
An aroused populace demanded a reversal of course. The government eliminated many regulations, cut government spending, tightened welfare availability, and shrank the size of government. Ever since, under liberal or conservative government, Sweden has taken the capitalist road.
Its present Social Democrat government has adopted several reforms that would please Ronald Reagan, including abolishing a 5 percent tax on the highest incomes, a partial privatization of the state employment department, and a tougher line on crime. Since the 1990s, the government has allowed the private sector to have a larger role in education; Sweden presently has over 800 private schools. Even health care is moving away from a government monopoly: More than 40 percent of the 1,100 health centers are run by private for-profit companies. According to the director of the European Centre for Entrepreneurship and Policy Reform, private-sector employees are increasingly covered by private health insurance paid by their employers.
Thus Sweden has joined Israel, India, and the United Kingdom in learning that even under the most favorable conditions, socialism does not work.
American progressives are reluctant to mention that Swedish universal welfare depends on a universal tax system. Personal income is taxed at a top rate of 61.4 percent plus a 38 percent social-security tax rate, of which 31 percent is employer covered and 7 percent covered by the employee. Like Denmark, Sweden has a 25 percent consumption tax (VAT), which tends to fall hardest on lower-income earners. Billionaires are welcome, and there is no estate tax, enabling wealth to be passed from generation to generation. (The U.S. estate tax can reach a whopping 40 percent.)
Swedes are accustomed to the demands of the tax man: Consumption, social security, and payroll taxes total 27 percent of Sweden’s GDP, compared with 16.4 percent in the United States. Sweden taxes capital gains at 30 percent, compared with a high of 20 percent in the United States. That Sweden participated in neither World War I nor World War II—which devastated other European countries—contributed significantly to its wealth.
The Other Scandinavians
Finland is “a capitalist paradise,” according to a column in the New York Times by Anu Partanen and Trevor Carson, who along with their three-year-old daughter moved from New York City to Helsinki—and have yet to regret it. Far from being socialist, they say, Finland is a country and an economy “committed to markets, private businesses, and capitalism.” Finnish citizens have discovered, write the young U.S. expatriates, that capitalism works best when employees are paid decent wages, have access to high-quality public services, “and enjoy real equality of opportunity.” Note the word “opportunity.”
Paradise does not come cheap. Finnish citizens from top to bottom pay more than 50 percent in marginal income taxes. There is also a VAT of 25 percent on consumer goods plus corporate taxes of 20 percent. The Nordic way as practiced in Finland depends on a mixed economy. Partanen and Carson argue that the Nordic region is a laboratory “where capitalists invest in long-term stability and human flourishing while maintaining healthy profits.” This is far from the centralized decision-making of Sanders-style socialism.
Norway is the smallest of the Nordic countries with a population of only 5.3 million. It has a “mixed” economy—part socialist, part capitalist, but is more socialist than its sister Scandinavian nations. For example, 30 percent of Norway’s workers are in the public sector (compared with 15 percent of American workers). According to Norwegian analyst Erik Engheim, Norway’s government owns 33 percent of its stock exchange. The government has full or partial ownership of “strategic” industries such as oil, banks, transportation, and national defense. It owns and runs the universities and hospitals. Nevertheless, a fair legal system, transparent regulations, and political stability make Norway “a secure and transparent place in which to do business,” concludes the 2021 Heritage Index of Economic Freedom.
Whether liberal or conservative, says Engheim, the Norwegian government has accepted a neo-socialist arrangement comprising a mostly capitalist economy, a large public sector, high taxes, strong unions, and government ownership of essential industries. Still, even the most radical socialists in Norway accept the role of smaller companies and do not deny ownership of a home or private property.
In short, Scandinavian socialism does not exist. The mixed economies of the Nordic nations are possible only because of their small size, free-enterprise history, cooperative sense, relative homogeneity, and ability to blend socialism and capitalism. America is a far different country—many times larger, more diverse culturally, more divided politically, more entrepreneurial, more skeptical of government.
Bernie Sanders, Alexandria Ocasio-Cortez and her Squad, and the Democratic Socialists of America want to turn America into a giant Denmark or Sweden. To do that they would have to build a gigantic welfare state and a bureaucracy to run it; triple income taxes on everyone, including the middle class, to pay for the welfare; initiate a value-added tax of 25 percent on coffee, beer, chocolate and other goods; convert our $141 trillion net worth into government bonds; eliminate all right-to-work laws and unionize the 90 percent of workers who do not belong to unions; and open our borders to all.
The Democratic Socialists might welcome such a revolution. Most of America never would.