NationStates Jolt Archive

From the November issue of Scientific American:

The Social Welfare State, beyond Ideology
Are higher taxes and strong social "safety nets" antagonistic to a prosperous market economy? The evidence is now in

By Jeffrey D. Sachs (Director of the Earth Institute at Columbia University)

One of the great challenges of sustainable development is to combine society's desires for economic prosperity and social security. For decades economists and politicians have debated how to reconcile the undoubted power of markets with the reassuring protections of social insurance. America's supply-siders claim that the best way to achieve well-being for America's poor is by spurring rapid economic growth and that the higher taxes needed to fund high levels of social insurance would cripple prosperity. Austrian-born free-market economist Friedrich August von Hayek suggested in the 1940s that high taxation would be a "road to serfdom," a threat to freedom itself.

Most of the debate in the U.S. is clouded by vested interests and by ideology. Yet there is by now a rich empirical record to judge these issues scientifically. The evidence may be found by comparing a group of relatively free-market economies that have low to moderate rates of taxation and social outlays with a group of social-welfare states that have high rates of taxation and social outlays.

Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post–World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.

On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance. Poverty rates are much lower there, and national income per working-age population is on average higher. Unemployment rates are roughly the same in both groups, just slightly higher in the Nordic countries. The budget situation is stronger in the Nordic group, with larger surpluses as a share of GDP.

The Nordic countries maintain their dynamism despite high taxation in several ways. Most important, they spend lavishly on research and development and higher education. All of them, but especially Sweden and Finland, have taken to the sweeping revolution in information and communications technology and leveraged it to gain global competitiveness. Sweden now spends nearly 4 percent of GDP on R&D, the highest ratio in the world today. On average, the Nordic nations spend 3 percent of GDP on R&D, compared with around 2 percent in the English-speaking nations.

The Nordic states have also worked to keep social expenditures compatible with an open, competitive, market-based economic system. Tax rates on capital are relatively low. Labor market policies pay low-skilled and otherwise difficult-to-employ individuals to work in the service sector, in key quality-of-life areas such as child care, health, and support for the elderly and disabled.
The results for the households at the bottom of the income distribution are astoundingly good, especially in contrast to the mean-spirited neglect that now passes for American social policy. The U.S. spends less than almost all rich countries on social services for the poor and disabled, and it gets what it pays for: the highest poverty rate among the rich countries and an exploding prison population. Actually, by shunning public spending on health, the U.S. gets much less than it pays for, because its dependence on private health care has led to a ramshackle system that yields mediocre results at very high costs.

Von Hayek was wrong. In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness.

English-Speaking Countries

Income per working age ($ in purchasing power): 48,500
Unemployment Rate: 5.2
Budget balance as % of GNP: 0.2
Poverty Rate: 12.8
R&D Spending as % of GNP: 1.8

Nordic Countries

Income per working age ($ in purchasing power): 50,700
Unemployment Rate: 6.3
Budget balance as % of GNP: 4.2
Poverty Rate: 5.6
R&D Spending as % of GNP: 3.0

Data are averages across countries, with underlying from the Organization for Economic Cooperation and Development.

Seemed like a decent topic, food for thought, discussion but not, one hopes, ideological flame-wars. *dons flame-retardant suit just in case*

Anybody who bothered to get over their ideology and compare the Nordic states with the US, or the UK (even though we have a more extensive welfare system than the US), on issues such as social equality, standard of living, average income, crime rates...the list really goes on, would clearly be able to see that the enjoy a higher standard of living.

Due to the welfare state?

Probably.

It is, of course, impossible to get a controlled experiment documenting the effects of added social welfare, so any experiment will always be more a product of the person's political leanings than the actual data.

It is, of course, impossible to get a controlled experiment documenting the effects of added social welfare, so any experiment will always be more a product of the person's political leanings than the actual data.

True, but this is not an experiment per se but an analysis of 50 years of development. Of course, one's political leanings will have an effect but I think there are statistics that are politically neutral (I know, I know, lies, damn lies, and statistics, but even so ...).

From the November issue of Scientific American:



Seemed like a decent topic, food for thought, discussion but not, one hopes, ideological flame-wars. *dons flame-retardant suit just in case*

who is this don chap?

It is, of course, impossible to get a controlled experiment documenting the effects of added social welfare, so any experiment will always be more a product of the person's political leanings than the actual data.

All the while realising that the actual data can be twisted to say anything.

Anybody who bothered to get over their ideology and compare the Nordic states with the US, or the UK (even though we have a more extensive welfare system than the US), on issues such as social equality, standard of living, average income, crime rates...the list really goes on, would clearly be able to see that the enjoy a higher standard of living.

Due to the welfare state?

Probably.

Of course, it works best if you ignore the various sociological factors that are also at play in the Nordic states. Small, homogenous societies, with entrenched cultural norms and values are vital in the development of a successful welfare state. As the country gets larger and more heterogeneous, the problems associated with a social welfare state become increasingly difficult.

As I've said before, one size does not fit all in this economically divided world in which we live.

Of course, it works best if you ignore the various sociological factors that are also at play in the Nordic states. Small, homogenous societies, with entrenched cultural norms and values are vital in the development of a successful welfare state. As the country gets larger and more heterogeneous, the problems associated with a social welfare state become increasingly difficult.

As I've said before, one size does not fit all in this economically divided world in which we live.

Could you expand on how a more heterogeneous society is less able to provide social welfare for its citizens?

Could you expand on how a more heterogeneous society is less able to provide social welfare for its citizens?

When a a group of people are smaller and share values, ideas, and ideology, cooperation is an easier goal to attain. As population increases, and values, ideas, and ideologies and interests begin to differ, such cooperation becomes harder and harder to establish or maintain.

(this is why some of us here on the left will argue for radical decentralization and voluntary association in pursuit of cooperative/collectivist goals; small groups consisting of people who share goals and actually want to cooperate are easier to manage and are likelly to be more successful in doing so.)

Could you expand on how a more heterogeneous society is less able to provide social welfare for its citizens?

Well, to start off with, there will be more different focuses on where the funds should be allocated, whereas homogenous societies tend (emphasis on the tend) have a cultural focus more on certain issues.
There's different levels of need for certain issues in different geographic areas as well.
Furthermore, size is a major factor, we can see that social welfare systems in larger countries operate under a much greater strain than they do in the noticeably smaller Nordic countries. Scale that up to the three hundred million people of the US, and it becomes incredibly difficult.
Not to mention, issues of federalism, implementation variations across the different states, and several other factors.

1.1% more unemployment is still a big deal I must add…

I think Flexicurity performs best allowing employers to fire and hire as they please but having strong social welfare for the unemployed (so long as there looking for a job or receiving education) everyone is happy well apart from the word Flexicurity which just pisses me off

1.1% more unemployment is still a big deal I must add…

In a country the size of the US, with something like 120,000,000-150,000,000 workers in the employment pool, I'd say so.

1.1% more unemployment is still a big deal I must add…

I think Flexicurity performs best allowing employers to fire and hire as they please but having strong social welfare for the unemployed (so long as there looking for a job or receiving education) everyone is happy well apart from the word Flexicurity which just pisses me off

If the US (and most other english speaking countries, and a few others, france I'm looking at you) wasn't notorious for messing around with it's unemployment rate to make them look better, I think that you'd have a better point. F'example, Sweden has a participation rate (ie, out of all the people 18 years of older what percent is employed in the labor force) of 80%, historically. The US's participation rate is about 60%. They might have a marginally higher unemployment rate, but they also have nearly 20% more people employed over the entire economy.

It hardly seems fair to compare just the Scandinavian countries against all of the United States. Several reasons, the first being primarily selective sampling.

Such as, the Scandinavian countries aren't likely to have more than 20,000,000 people combined, and it would be more fair to compare them to a cross sampling of states of the US, like Maryland, Minnesota and Washington, to get a near equal number of citizens.

In that case, the comparison would be apples to apples. IF the compare is going to be against ALL of the United States, to stick with the US example above, Then by adding states like Texas and California to the US stats it would be like adding Poland and Romania to the socialist statistics, they too have been formed by "social welfare states"...

To compare the fascist economic monopoly of the USSR, to any welfare state is ludicrous.

POland and ROmania were not born from socialism, let alone the democratic socialism of Scandanavia; they were born of fascism made publicly appealing with a hammer and sickle.

I understand the size issue, but, most of Western Europe functions in a welfare state model and almost all of Western Europe has a higher standard of living than the US.

Lets compare those regions to the US.

It hardly seems fair to compare just the Scandinavian countries against all of the United States. Several reasons, the first being primarily selective sampling.

its not just the United states though they have added Australia and for some odd reason Canada and the U.K (note that they used only the successful states)

With that said there aren’t many countries that use the Nordic model and comparing one of them to a large federal bound state wouldn’t be fair since the state would still be bound to the laws of the U.S and be contributing part of its income to the U.S as a whole

Lets compare those regions to the US.

I wouldn’t do that France, Germany and the south western Europe are in need of serious fixing

It hardly seems fair to compare just the Scandinavian countries against all of the United States. Several reasons, the first being primarily selective sampling.

Such as, the Scandinavian countries aren't likely to have more than 20,000,000 people combined, and it would be more fair to compare them to a cross sampling of states of the US, like Maryland, Minnesota and Washington, to get a near equal number of citizens.

In that case, the comparison would be apples to apples. IF the compare is going to be against ALL of the United States, to stick with the US example above, Then by adding states like Texas and California to the US stats it would be like adding Poland and Romania to the socialist statistics, they too have been formed by "social welfare states"...

To compare the fascist economic monopoly of the USSR, to any welfare state is ludicrous.

POland and ROmania were not born from socialism, let alone the democratic socialism of Scandanavia; they were born of fascism made publicly appealing with a hammer and sickle.

I understand the size issue, but, most of Western Europe functions in a welfare state model and almost all of Western Europe has a higher standard of living than the US.

Lets compare those regions to the US.

Just to clarify, because I think we've wandered off a bit ...

... the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post–World War II era.

No USSR, no France, no Romania, no Poland involved.

its not just the United states though they have added Australia and for some odd reason Canada and the U.K (note that they used only the successful states)

With that said there aren’t many countries that use the Nordic model and comparing one of them to a large federal bound state wouldn’t be fair since the state would still be bound to the laws of the U.S and be contributing part of its income to the U.S as a whole

Sachs used English-speaking countries with high incomes and low taxes that have a direct connection to 19th-century Britain and its laissez-faire economics.

To be fair, the US's population is around 300 million. An American welfare state just doesn't seem as likely to work as a welfare state with just a few million. Plus, with a larger population, you have larger problems. Plus, with all the problems California is having and the fact that it's the closest thing to a welfare state in the Union, I don't think a welfare state would appeal to very many Americans.

To be fair, the US's population is around 300 million. An American welfare state just doesn't seem as likely to work as a welfare state with just a few million. Plus, with a larger population, you have larger problems. Plus, with all the problems California is having and the fact that it's the closest thing to a welfare state in the Union, I don't think a welfare state would appeal to very many Americans.

Granted but in the United States social welfare programs are seldom funded to the extent they are in Sach's Nordic countries, so we really don't know whether a Nordic-style approach would work here. Even in the heyday of the 1960's War On Poverty, we didn't spend as much. And his point, I guess, is that these programs aren't funded as they might be because in an economic (and political) system that descends from 19th-century laissez-faire, that sort of thing isn't done, there's a built-in bias against it. He's saying, though, that in certain categories such as purchasing power, budget balancing, spending on R&D, the Nordic method outperforms the Anglo-Saxon method.

There's supposed to be a fuller article but I couldn't find it on-line.

And I think the US is a great country, by the way, but I'm not so closed-minded as to think we couldn't do better in a lot of areas. I agree that making a change such as might institute a Nordic style social welfare state here is probably not practical in the US, but surely there are things we can learn. Just, erm, no lutefisk!

Why nordic states? :confused:. Do we really have that much in common with them that we can correlate their economy to ours? I'd like to at least see more countries compared before I take this that seriously.

Why nordic states? :confused:. Do we really have that much in common with them that we can correlate their economy to ours? I'd like to at least see more countries compared before I take this that seriously.

I suspect be cause the Nordic states mentioned have very similar social welfare policies, as do the Anglo-Saxon countries mentioned in the article.

Bless Uniformed Metropolitan Police.

Such as, the Scandinavian countries aren't likely to have more than 20,000,000 people combined

Well, 24M. Not that it matters.

Then by adding states like Texas and California to the US stats it would be like adding Poland and Romania to the socialist statistics, they too have been formed by "social welfare states"...

Considering the amount of people who died in Finland alone making sure that we didn't become part of that "social experiment" that statement is not just wrong, it is very insulting. The modern day US has more in common with the old USSR than Finland has.

An on an other point, I think the social blanket is more like a reward for otherwise succesful policies than a cause for them. Completely state-funded education for everyone is a huge boost to economy, with returns many many times more than it's costs, even if you end up spending millions making lots of highly educated people in areas not needed by the economy. It has been so succesful everywhere it has been implemented that I cannot see why it has not been copied everywhere. I's not like you have to be leftist to do that, one could say that in a truly meritocratic society a person should be allowed an equal start regardless of the contents of his/her bank account.

especially in contrast to the mean-spirited neglect that now passes for American social policy.

I'd like to note that this article might have some slight traces of bias included here and there which may not be the best way to achieve the most scientific of results and conclusions.

Well, to start off with, there will be more different focuses on where the funds should be allocated, whereas homogenous societies tend (emphasis on the tend) have a cultural focus more on certain issues.
There's different levels of need for certain issues in different geographic areas as well.
Furthermore, size is a major factor, we can see that social welfare systems in larger countries operate under a much greater strain than they do in the noticeably smaller Nordic countries. Scale that up to the three hundred million people of the US, and it becomes incredibly difficult.
Not to mention, issues of federalism, implementation variations across the different states, and several other factors.

http://gatesofvienna.blogspot.com/2006/05/new-york-times-and-sweden-dark-side-of.html

I take this site's rants with a grain of salt for the most part, but they do have a useful article from time to time - like this. It focuses on Sweden's increasing heterogeneity.

I understand the size issue, but, most of Western Europe functions in a welfare state model and almost all of Western Europe has a higher standard of living than the US.

Lets compare those regions to the US.

So little difference, that in the long run it means nothing, but stilll, technically, your claim is incorrect.

Big Western European States
http://hdr.undp.org/statistics/data/countries.cfm?c=FRA
http://hdr.undp.org/statistics/data/countries.cfm?c=DEU
http://hdr.undp.org/statistics/data/countries.cfm?c=ESP

US
http://hdr.undp.org/statistics/data/countries.cfm?c=USA

But, like I said, the differences are irrelevant to any but the most precise statisticians.

http://gatesofvienna.blogspot.com/2006/05/new-york-times-and-sweden-dark-side-of.html

I take this site's rants with a grain of salt for the most part, but they do have a useful article from time to time - like this. It focuses on Sweden's increasing heterogeneity.

Interesting reading...

Interesting reading...
It's a long article, in some cases too full of subjective value judgements, but it makes some excellent points where it has to. In short, it casts serious doubts on the macro-sustainability of these economies.

Sachs used English-speaking countries with high incomes and low taxes that have a direct connection to 19th-century Britain and its laissez-faire economics.

Seems like quite a weak connection if you ask me. Especially considering most of those states petitioned for their independence due to strong opposition to British economic culture.

Not coincidentally, the low-tax, high-income countries are mostly English-speaking ones that share a direct historical lineage with 19th-century Britain and its theories of economic laissez-faire. These countries include Australia, Canada, Ireland, New Zealand, the U.K. and the U.S. The high-tax, high-income states are the Nordic social democracies, notably Denmark, Finland, Norway and Sweden, which have been governed by left-of-center social democratic parties for much or all of the post–World War II era. They combine a healthy respect for market forces with a strong commitment to antipoverty programs. Budgetary outlays for social purposes average around 27 percent of gross domestic product (GDP) in the Nordic countries and just 17 percent of GDP in the English-speaking countries.
"Low Tax"?! We pay 49 cents in the fucking Dollar! I'm cool with it, it pays off, but still I don't want to go without credit here. Now to be fair, you only pay 49% in the highest bracket. The lowest bracket is about 20%. As far as I know Kiwis have it about the same, if not more tax.

"Low Tax"?! We pay 49 cents in the fucking Dollar! I'm cool with it, it pays off, but still I don't want to go without credit here. Now to be fair, you only pay 49% in the highest bracket. The lowest bracket is about 20%. As far as I know Kiwis have it about the same, if not more tax.
Even England has relatively high taxes.

http://www.heritage.org/research/features/index/country.cfm?id=UnitedKingdom

The United Kingdom's top income tax rate is 40 percent. The top corporate tax rate is 30 percent. In 2004, government expenditures as a share of GDP increased 0.7 percentage point to 44.1 percent, compared to the 1.6 percentage point increase in 2003. On net, the United Kingdom's fiscal burden of government score is 0.1 point better this year.

To call the modern UK anything like 19th century Britain is a joke.

Those Human development stats are pretty interesting.
I knew I had it good here in sunny Oz but had no idea we were sitting at #3 :)

They appear to have stats all the way back to 1975 for HDI for most countries. Would be really interesting to plot the rate of increase (or decrease) in HDI under particular government styles.

Might even be more revealing than comparing different countries as at least you would be in a consistant context.

Those Human development stats are pretty interesting.
I knew I had it good here in sunny Oz but had no idea we were sitting at #3 :)

They appear to have stats all the way back to 1975 for HDI for most countries. Would be really interesting to plot the rate of increase (or decrease) in HDI under particular government styles.

Might even be more revealing than comparing different countries as at least you would be in a consistant context.

I'd imagine you'd see solid, but slow, improvement in most of the developed nations, throughout the years, as can be expected.

I'd imagine you'd see solid, but slow, improvement in most of the developed nations, throughout the years, as can be expected.
What's interesting about this graph is that there are economies both of the Nordic model (Sweden, Norway) and of the Anglo-saxon model (Canada, Ireland, Australia, USA, Belgium*, Switzerland*, Iceland*) in the top 10. The unsurprising bit is that all the economies within the top 10 are developed. I wonder how much Norway's oil wealth has to do with it being the #1...

*Not strictly AS model, but also rather free economies.