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Wednesday, January 03, 2007

Comments

jon livesey

I admire the Danes and have visited the place, but I don't think that this statement follows "The Scandinavians show that you don't have to have a terrible economy if you have a big welfare state and high taxes". What really follows is that *Scandinavians* can.

Scandinavian countries have a pretty high level of social consensus and they make an effort to make their system work. It does not follow that countries like the US or UK, where there are higher levels of income disparities, and wider variations in educational achievement, can do the same.

It's one of those "How do you get there from here?" issues.

dissent

The USA is afflicted with a declining standard of living for the middle class, characterized by falling wages, increasingly unaffordable or unavailable health insurance, the disappearance of pensions, unaffordable college tuition, and the like. Meanwhile the rich grab everything they can, while the corporations are in a race to send good jobs overseas.

I used to be a neo-liberal. If this goes on much longer I'll be a flaming communist. I've really had it with the rich pigs running this country, and with the corporations who've abandoned it.

Finnsense

Comments to the affect that high tax regimes are problematic stem from what is a psychological point. High taxes act as a disincentive when and to the extent that they do because people see them as such. The anti-tax rhetoric in the US makes people far more suspicious of taxation than they are in the Nordics - where any arguments against taxation tend to be pragmatic rather than ideological. It is rare to hear people here speaking of taxation as though it is theft or is in some way unjust. Where that rhetoric exists it is on the right which is much smaller and less powerful than in the US. It is more common to hear the argument that lowering taxation would not decrease the size of the social safety net and is thus good.

What one needs to be aware of is that people's perceptions about what is high and low tax are relative not absolute. British people who have some of the lowest taxes in Europe constantly complain about them to an extent that Danes who have much higher taxes, do not. Thus, to raise taxes in the US to the level of, say, the UK, is in absolute terms laughably small compared to the Nordics, but the psychological impact of raising taxes from 25% of GDP to 35% of GDP may act as more of a disincentive to work than a rise from 35% of GDP to 45% of GDP.

Any change in the system in the US to increase taxation must be made very slowly to avoid this effect.

Lafayette

JL: "I've really had it with the rich pigs running this country, and with the corporations who've abandoned it."

I have no fondness for rich pigs, either. But, your conclusion is a gross exaggeration. There is handwriting on the walls, but doomsday is not just over the horizon.

Americans were hoodwinked by the lead-head in the White House and his cronies. As a consequence, they lent credence to them. They will soon take it back.

My question, however, is, "Have they learned anything from the experience?" After all, this is the second time in half a century that a sitting PotUS has lied to the country to justify a war.

Lie to me once - shame on you. Lie to me twice - shame on me.

Lafayette

FS: "The anti-tax rhetoric in the US makes people far more suspicious of taxation than they are in the Nordics - where any arguments against taxation tend to be pragmatic rather than ideological."

I take issue with this. I am not sure what "Nordic pragmatism" is and I suspect you are making too much of a play on it. I could also say that the Europeans from Latin-language countries are soooo much more interesting in conversation than the Nordics, but what does that mean? Nothing, really.

The difference in attitude towards taxation is indicative of the nature of the culture. That is, people can be categorized as either individualists or collectivists. Individualist will not accept any hindrance that binds or constrains the individual, who must prevail over the collectivity/community (i.e., city, state, nation).

The collectivity (yes, a French word), on the other hand, places the benefit of the community above that of the individual.

Americans like to think it is their "pioneering" spirit that makes a John Wayne swagger their birthright. This is nonetheless a cliché. It is the culture that inculcates values, and a key American value is one of independence of the individual from the state. So, taxation should benefit the individual and not the state.

European countries tend to be more collectivist. (For a better reading on the subject, google "Hofstede" a Dutch sociologist who has done global studies on the subject of cultural diversity.) They perceive themselves in the context of community values long before they see themselves as individuals. In Europe, the purpose for taxation is to redistribute the monies collected to the less fortunate out of a sense of social harmony.

Hofstede's results, from his study of work ethics and attitudes, show that the English-speaking people are the most individualistic and the Far East nations the most collectivist. This would seem to jibe with popular notions that we have of two peoples.

Europe is squarely in the middle, however, of the range - with two exceptions ... the UK and Holland. That is, its people could go either way when it comes to conceiving and implementing the sort of social system that they perceive to be consonant with their needs.

In terms of income inequality, however, the US is far beyond most countries on this planet, including the English-speaking variety. A plutocracy does not just happen. It is crafted.

Lafayette

"Nor is Sachs the only prominent economist who has taken notice of Scandinavia's success."

The French socialists keep pointing to the Scandinavian countries, and particularly Sweden which has a similar demographic to France.

The Swedes work about the same number of hours annually as the French (1540) per year, among Europe's weakest performances (which also includes Germany at 1440.) I note, in passing, that Japan works 1790 hours, the US 1731 hours, and Spain works 1632 hours - but, of course, no one takes the latter as role models, do they?

The socialists still haven't figured out the riddle of how to work less and enjoy social spending more ... but they are working on it. The mental masturbation must be fast and furious ...

(I note that the French leftist candidate for next year’s presidential elections is ahead in the polls than her opposite right-wing candidate. So, obviously, the French have still understood nothing about a market economy - which surprises no one.)

I am deeply suspicious of the productivity figures. The same OECD study (that reported annual hours worked) showed France’s hourly productivity at the same level as the US - and Sweden's at 89% of the US.

I don't work in Sweden but I do work in France. I’ll believe those hourly productivity figures when pigs sprout wings …

Lafayette

"Reich's argument famously lost out to those of Clinton's more conservative advisers-"

That doesn't make Reich's argument necessarily wrong.

Clinton did try to pass a national health program "safety net" for all individuals. He failed.

So, let's just say Clinton was a bit sceptical that America was ready for social spending of massive proportions.

I cannot understand why. Spending billions on a useless war in Iraq went down well, when presented as a job creator. Well, spending money on hospital services and education creates jobs as well. More so, both investments have a more permanent effect on the country's infrastructure in terms of improvement.

In fact, it is a cultural thing. Until someone/anyone can convince Americans that spending is worthwhile on:
1) Education (guaranteeing it to all those who want one up to university),
2) Health care (pulling up the US from 36th to the top ten ranking by the WHO),
3) Community infrastructure (visit any small town across America to witness pervasive dilapidation for lack of rebuilding);
to name just a few, then America will be mired in a capitalist system that lurches from boom to bust.

Infrastructural projects as mentioned above can be undertaken when an economy is both up and down - so it helps maintain economic activity. It is certainly more effective than welfare.

Of course, what do we do about the colossal Pentagon budget - under a premise that Uncle Sam must protect the world from Ossama. Then we are into a guns/butter trade-off. Guns seem to always win the debate. Once again, the question is cultural and not political.

Politics and politicians, both simply respond to what is sensed as the public will. Changing mindsets is a laborious decades-long effort spanning more than just one presidency.

Arthur Eckart

The Danish model may work in rich U.S. states if they're closed to immigration, i.e. poor people. However, it wouldn't work in any large population country. The disincentives to patriotism, individualism, responsiblity, competition, creativity, etc. would promote immorality. However, society would be much more equal through heavy government regulation.

Lars Smith

The Danish model is based on trust and social solidarity, which in turn is based on the homogeneity and relatedness of the Danish population. It is this trust and solidarity that makes a high tax/high welfare system possible, not the other way around. This solidarity also manifests itself in "willingness to fight for country", see the graph here,
https://conservationfinance.wordpress.com/2006/10/17/does-the-welfare-state-make-you-soft/

Suvi

"I am not sure what "Nordic pragmatism" is"

It's the freedom to act practically, meaning mainly that we don't have the graft, at least not to the extent others appear to have it. If you don't have lobbyists buying off politicians, you aren't overloaded with ideological baggage, and your elections genuinely represent the votes cast, it's a lot easier to reach consensus and that's what makes the big difference.

But FS puts it reasonably well; and if it helps, I would add that it also means making efficient use of limited resources, which includes the bureaucracy, believe it or not. Here's an example: if I move home in a place like Germany, it takes at least a whole day (often longer) to accomplish what I can do with a single phone call in Finland (all authorities notified of move, all post redirected, notable cooperatives informed, etc) - note that both countries have the same objective and achieve the same results, but in one it takes a day or two, and in the other no more than a few minutes (and the one where it takes a day or more has a reputation for efficiency!)

Arthur Eckart

I doubt the Danes are any different than other people. They'll choose what gives them the greatest benefit. I agree, the Danes are more willing to fight foreigners for their social programs, which are reflected in their closed economic and immigration policies. However, is that something to really be proud about?

Lafayette

Suvi: "It's the freedom to act practically, meaning mainly that we don't have the graft, at least not to the extent others appear to have it."

If it pleases you that such is the case, and it is true by all accounts (just look at the World Bank Corruption Index study), then so much the better. Yes, Finland is tops with the least corruption.

But, Sweden, Holland, the US, the UK and even France are all in the top 20% - so it's a feat not necessarily worth writing home about.

But, I haven't the foggiest notion of how this in any way is "pragmatic". Honest, yes, but pragmatic? Only by a stretch of the imagination.

The south of Europe (where I live) may be indeed more corrupt than the north of Europe. Which makes me wonder why so many Nordics live here ...

Finnsense

Lafayette,

I'm not sure what your problem with the term "pragmatism" is. I think I described it pretty well and Suvi expanded on it. The question here is far more about "Will it work?" than "Is it right/just?". If it works then people are quite willing to try it until it's clear that it isn't working. About six months ago I read a discourse analysis comparing the rhetoric in Finland, Denmark, Germany and the UK (unpublished Phd thesis) and the evidence was overwhelmingly supportive of the point I am making.

I'm also not sure why you respond to Suvi's point about efficient beaurocracy by linking it to corruption. They don't do think more efficiently in Finland than in Germany because they are more honest, they do it because they are unencumbered by peripheral considerations - that is, they are pragmatic. The decision-making process is based on what works.

Lafayette

Finnsense, this is how Suvi defines pragmatism: "It's the freedom to act practically, meaning mainly that we don't have the graft,"

What is meant by "practically"? Let's look in the dictionary: "in a practical manner".

Do you honestly think the Scandinavian countries hold a monopoly on acting in a practical manner because of less graft? Or is this just some more nonsense from the north about the south (of Europe). Because, as I said, Finland may be full of graftless angels but the rest of Europe is not populated by corrupt devils either. (Have a look at the Corruption Index here: https://www.transparency.org/policy_research/surveys_indices/global/cpi)

I am getting VERY tired of this sort of denigration from our northern neighbours who seem to think the sun shines out of their backsides. Besides appearing in forums, this arrogance creeps into public discourse in Europe and it is worrisome.

Arthur Eckart

Finnsense, I think, it's a false assumption that Nordics are pragmatic about taxation. To be pragmatic requires a broad understanding of trade-offs. Perhaps, Nordics try harder to make government work better. However, I doubt Nordics are really pragmatic based on your statements.

Finnsense

Lafayette,

You made the same point about what I meant by pragmatism - which I think was arguably clear. This is not a North/South thing. I'm British and I'm constantly astounded by the absence of evidence-based sensible decision-making there and when it is suggested, the level of opposition to it.

Arthur,

I don't know what evidence you have that the Nordics aren't pragmatic about taxation. On quality of life indices they tend to come top in the world and the evidence suggests that this is at least in part to do with making life decent for the worst off in society. This requires taxation. Unless you value economic growth over quality of life, it is hard to see why the high taxes are not a pragmatic solution to the inequalities created by the market system. If there were strong evidence that lowering taxes would not only boost economic growth but increase quality of life, I would bank on the Nordics to do it.

Arthur Eckart

Finnsense, there are trade-offs in taxation. For example, fewer business start-ups for greater welfare income, or less labor for more leisure and fewer goods. Another trade-off is Nordic countries increase domestic contributions at the expense of foreign contributions. So, global quality of life is lower. There are many trade-offs. The Nordics seem to have a narrow focus compared to the American view. The free market system isn't perfect. It creates inequalities. However, it also creates higher living standards. So, another trade-off is a more equal society at the expensive of living standards. The worst-off should be taken care of by society. However, where's the line drawn on who's worse-off?

Lafayette

"I would bank on the Nordics to do it."

Which is why they don't.

By the way, living in the south of France has been an eye-opener about how the other half live. Given the oppressively high taxation in Nordic countries, it is positively amazing the number of rich Swedes, Danes, Fins and Norwegians that I have seen buying palatial estates on the Riviera and St. Tropez. And, since there is no graft, one must assume that each penny was earned honestly.

So, when a Nardelli (last CEO of Home Depot whose severance compensation amounted to over 230M$) walks out the door after only six-years of a lacklustre performance, I wonder if confiscatory taxation of the filthy rich stateside would really, really diminish "American entrepreneurial spirit".

At least the Europeans have a clear understanding of what is morally indecent as regards income inequity. In the US, being rich is just part of the American dream. Amassing wealth has no moral stigma whatsoever.

jon livesey

"In the US, being rich is just part of the American dream. Amassing wealth has no moral stigma whatsoever."

It's very odd to read this from Lafayette. Wasn't it Deng Xiaoping who said "To get rich is glorious"? And aren't the Chinese just a tiny, weeny, trivial, almost un-noticeably bit better off today than they were before he said it?

Finnsense

Arthur,

What you're arguing is that on balance the US system taken on balance actually offers not just better economic growth than the Nordic welfare systems but that it actually makes for a better quality of life. That's a debate we can have. I am merely arguing that the form of decision-making that takes place in the Nordic countries is not ideologically based. High redistributive taxation is not an article of faith but a pragmatic means intended to achieve specified ends (quality of life). This is not to argue that they always get it right, rather that if they get it wrong it is not because of misinformation or ideological bias.

jon livesey

"That's a debate we can have. I am merely arguing that the form of decision-making that takes place in the Nordic countries is not ideologically based."

I'm not sure I understand the distinction that you are trying to make here. Ideologies don't fall from the skies; they emerge from pragmantic decisions that people believe to have been successful. People who were enthusiastic about the Soviet model were so initially because they were misled into believing that it was working - that's an erroneous pragmatism - and only later did they start to say that it was the right model whether it worked or not.

The Danish model was initially pragmantic, when the first Labour-Employer pact was signed in 1933, but it has become its own ideology through its success. I say that because I believe they wouldn't easily give it up even if it worked less well. It is, after all, "Danish".

Arthur Eckart

Finnsense, there are broader value trade-offs, which seem to be ignored or dismissed in Nordic decision making. However, I doubt most of the Nordic population cares anyway.

Hans Hansen

First of all – It’s always nice to have your country paraded as an example for others to follow and as a Dane I’m of course proud of how well my country is doing and that others have taken notice… but there will be a day after tomorrow and there’s no telling what it will bring…

As to the discussion on pragmatism, I find it to be more of a debate about beliefs or more rightly put in a Danish context (expanding this argument to the hole of the Nordic – will only result in an internal fought so please excuse me for limiting myself to Denmark) the lack of beliefs. Ideologies and religion usually stand a very little chance of making real headway in any argument (exemplified by the “cartoon crisis”). But as earlier mentioned the welfare system it self has in a way become a new religion/ideology (I believe it to be as many as 80 – 90% of Danes that support it) non the less it is constantly questioned and adjusted to fit present circumstances.

But as already referred to "Hofstede" is a good place to start if one wants to learn more about cultural differences.

Lafayette
I’m sorry you view this as a North vs. South thing – with the North being better of and better knowing – I can assure you that we at least in Denmark have lost of idiots and I take great pride in each and every one (even counts myself among them ones in awhile).

The many Danes living in Southern Europe is of course due to your magnificent climate and lovely culture – and that state pensions can be taken abroad, cheaper housing and probably some tax evasion as wall…

Suvi

"I am getting VERY tired of this sort of denigration from our northern neighbours who seem to think the sun shines out of their backsides"

Dear Lafayette, we don't think the sun shines out of our backsides. In fact, we know it doesn't. If it did, we'd have no problems with winter darkness.

What I told you was we don't have graft to the extent that others appear to, we don't carry ideological baggage, and we have a fair electoral system which makes consensus easier.

Do you have a problem with that?

Lafayette

JL: "Wasn't it Deng Xiaoping who said "To get rich is glorious"?"

Yes, so? Perhaps he'd had too much whiskey (of which he was fond) that day?

He also said, and more notably, "It doesn't matter if the cat is black or white, as long as it catches mice". This dictum, and his political management, went far to change China from a monolithically, ideologically communist state to one with a touch of economic pragmatism. It is still nonetheless monolithic and communist.

Not many will blame the Chinese for the remarkable transition they have made. They are, indeed, to be congratulated.

Lafayette

Suvi: "What I told you was we don't have graft to the extent that others appear to"

Yes, Suvi, and I am saying that, given the assessments by the World Bank, graft is NOT as big an issue in southern Europe as you may think.

I've done business all over Europe and never had graft as a major business impediment. I have done business in Africa and always had to pay a “bit of baksheesh” to get things done. But, not to worry, Wolfowitz, the Bush neo-conservative that we love to hate, now at the World Bank, is going to change all that … isn’t he.

Consider yourself fortunate, therefore. Graft is pernicious and simply increases costs of doing business or conducting services. But, it is not life-threatening to the economic heartbeat of Europe.

Lafayette

HH: "I can assure you that we at least in Denmark have lost of idiots"

Yes, I understand Brussels is elaborating a per EU-country quota of "certified idiots". So, Denmark may have to add some and France will certainly have to lose quite a few.

Or maybe, France could simply ask that resident Dane idiots be excluded from their quota?

Better yet - the French will surely request what is called a "French exception to the rule", by which idiots sunning themselves in the south of France are entitled to idiotic tendencies through no fault of thier own, since thier brains are over-heated.

Suvi

"I've done business all over Europe and never had graft as a major business impediment"

Lafayette, good to hear it hasn't been a major business impediment for you.

How is it in politics and party fund-raising? It gets a lot of publicity, so what is your opinion?

Arthur Eckart

Lafayette, why should China be congratulated for creating a slave labor force within an inefficient growth at any cost economy? The Chinese government created an economy that's almost the opposite of the Nordic model, with the major exception that government revenue is most important.

Jasper

One wonders (at least from this perspective on the American side of the Atlantic): What exactly does the Danish welfare state offer that is not offered by, say, that of the United Kingdom (or Ireland or Canada or Australia)? The British government guarantees universal healthcare coverage, does it not? Unemployment insurance? Old age pensions? Subsidies to public transport? Universal free education? Income support to the poor? Significant spending on the environment? On the arts?

In other words, although to this Yank's eyes the Danish model seems far more generous than the American system, so, too, does the British (or the Irish or the Canadian or the Australian). These English-speaking social democracies also embrace free markets in a manner similar to the Nordic countries (but unlike those free market hatin' continentals).

So, I guess what I'm trying to ask is: Although I comprehend how both the continental and US models differ from the Nordic flexicurity system, I don't see the big difference between the latter and the non-American English speaking world (which embraces, as the Nordics do, both free markets and a relatively generous and comprehensive safety net).

Suvi

"I don't see the big difference between the latter and the non-American English speaking world (which embraces, as the Nordics do, both free markets and a relatively generous and comprehensive safety net)"

Jasper, our host often posts studies that highlight the differences. This is a very good place to find them, btw.

Although they appear to spend more or less the same on welfare as 'western' states, all English-speaking countries tolerate a very high level of child poverty (incl NZ) and the US even tolerates 45 million or so without health insurance.

Jasper

...and the US even tolerates 45 million or so without health insurance.

Well right, I'm aware of the lack of universal health insurance in the United States. I'll have to hunt around this blog for some more insight, and in the interim I'll assume that child poverty is the main shortcoming of the social welfare systems of the non-American English speaking world.

Arthur Eckart

U.S. citizens receive free high-quality emergency health care, because no one in the U.S. is turned away. Also, poor U.S. citizens qualify for free government paid health care. The vast majority of Americans can afford health care. However, many choose not to buy it. So, I wouldn't say the U.S. tolerates people without health insurance. Of course, lower-quality universal health care is given away in many countries. So, those people don't have a choice, although it's basically a "free lunch," paid by other means.

Finnsense

Jasper,

The British government expenditure is 35% of GDP. Finland has the lowest of all Nordic countries at 45% of GDP rising to Denmark which if memory serves is just over 50%. The UK, in spite of having universal health care, has significantly lower payments of almost all other kinds. Public pensions in the UK are not income linked, meaning many pensioners live in poverty. British maternity and paternity benefits and leave are much worse than in the Nordics. Nordic higher education is free and support is also given. In the UK it is neither free nor is support given. The British labour market is also less flexible than the Danish but more flexible than the other Nordic countries. (Flexicurity is Danish not Nordic).

Arthur,

The US healthcare system has two problems. The first is that 45 million people are left out, at least some because they cannot afford it. There is a widely acknowledged gap between eligibility for medicare/medicaid and the ability to afford insurance. As large a problem is the fact that it is the OECDs most inefficient system. Some 13% of GDP is spent on health in the US compared to around 7% in the Nordics and health outcomes are still worse. This may be in part because around 25% of the cost of private insurance goes on administration compared to nearer 3% when talking about Medicare/Medicaid.

Lafayette

AE: "why should China be congratulated for creating a slave labor force within an inefficient growth at any cost economy?"

You've never been a starving peasant on a farm that barely grows enough food to feed your family in the best of years. If so, a sweat shop would appear to you as paradisiacal.

I worked in a sweat shop ... literally. I worked hot summers in a Massachusetts laundry with a contract to launder and press army greens. I got paid by the unit pressed, and, believe me, I sweat ed like hell.

Nobody died. We had some fun together, on the breaks. And, we all enjoyed the money ... not that starving was the alternative.

Thank God.

BTW,I forgot to ask: The Chinese don’t have the right to work for "slave wages", when starvation is the alternative?

Lafayette

Suvi: "How is it in politics and party fund-raising?"

I haven't had the priviledge of knowing.

But, if you would care to have the St. Tropez addresses of some Finnish Labour politicians, I'll see what I can do. ; ^ )

And, I'll bet you think that sort of animal doesn't exist. Jeesh!

Lafayette

Jasper: "I'll assume that child poverty is the main shortcoming of the social welfare systems of the non-American English speaking world."

If they make it into childhood, they are lucky. America has one of the worst neonatal death rates of any developed country.

Why? One might ask.

Because basic health care for the poor is simply not to be had. And, because the mothers who have such babies are too ignorant to know how to care for them in pregnancy - making neonatal death fairly common.

Stupidity kills.

PS: Of course, if you are black and living in Beverly Hills, no problem.

Lafayette

AE: "U.S. citizens receive free high-quality emergency health care, because no one in the U.S. is turned away."

Then the abnormally high neonatal deaths are due to what? Hormonal deficiency?

You've been watching too much of the ER series.

Lafayette

"This may be in part because around 25% of the cost of private insurance goes on administration"

Do you mean the administration of paperwork or the administration of health care?

Let's ask Arthur how much he pays for a doctor's consultation. I pay, in France, 20€ ($26). Of this, 70% is reimbursed.

When I was stateside and had to see a doctor, I coughed up $60 for ten minutes of his time and an antibiotic perscription.

Arthur Eckart

Finnsense, I doubt public health care is more efficient than private health care. The U.S. spends more on health care for quality. Americans can choose health care or other goods, and poor Americans qualify for free health care. Of course, people would rather receive free goods rather than make trade-offs. U.S. health, education, income, etc. have flattened bell curves, i.e. the two tails are larger than other countries, while "social" countries attempt to make almost everyone average.

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