Which Way Norway?

REASON's Norwegian correspondent reports on disillusionment with the welfare state.

A couple of years ago, having just spent a week in the far-away city of Hong Kong, I was going home to Norway via London. I needed a reservation for the last leg of my flight—from London to Oslo—and went into a travel bureau and explained my problem to the woman behind the counter, a Chinese woman who was very pretty and spoke excellent English. But she looked me straight in the eye and asked politely, "Why don't you just take the train?"

Somewhat surprised, I protested: "That isn't going to be easy—do you know where Norway is?"

She looked hurt. "Of course I do," she said. "It's just north of London!"

It was the kind of situation you often get into when you travel abroad and hail from a small nation. You get used to bumping into people who know nothing about your country. It's a rather interesting experience: it leaves you with a sinking feeling of suddenly having no national identity, of having to defend yourself against the notion that you have come from outer space.

Much worse, however, than people having no idea about your country is that they very often have wrong ideas about it. One such idea that has been going around the world for many years now is that of a Scandinavian or Swedish or Norwegian "model" of the welfare state and of something called "Scandinavian socialism."

The idea is that particularly Sweden, but also Denmark and Norway, are very successful social experiments. They have managed to make the welfare state work with not only social security, equality, prosperity, and economic growth but also individual liberty, the rule of law, and democratic government.

To social democrats around the world, Scandinavia became living evidence that a mild form of socialism actually would work; it was hailed as proof of the feasibility of the welfare state. To many socialists, Scandinavia became a promising alternative to the rather miserable example set by totalitarian socialist countries. To some disillusioned communists, Scandinavia even became a kind of beacon of hope.

Of course, the Scandinavian model hasn't been met with enthusiasm by everybody. Nonsocialists have viewed it with skepticism if not downright hostility. Scandinavia is a dull and grey place—it must be a result of socialism; and the place isn't what it was cracked up to be anyway.

The interesting thing, though, is that the Scandinavian model has been accepted as a fact abroad, by socialists as well as nonsocialists. Scandinavia became the name of a pale pink flower in the mixed bouquet of socialist weeds and vegetables—Soviet socialism; Castroite, Yugoslav, African, Chinese, and "what not" kind of socialism.

Now, however, something has happened in Norway that, according to this Scandinavian model, shouldn't have happened. In parliamentary elections last fall, a majority of the voters simply walked away from the champions of welfare bliss and democratic socialism. The Labour government lost almost 5 percent of the vote and 11 seats in parliament. The winner was the Conservative Party, which gained nearly 7 percent of the vote and 13 seats in parliament—a strength they haven't had since 1924.

As elections traditionally go under our electoral system, the result was a massive swing. An attempt to form a coalition government of the three leading nonsocialist parties—Conservative, Agrarian, and Christian People's—didn't work, so the Conservatives are governing alone, with parliamentary support from the other two.

It was a revolution of sorts, though strangely enough an expected one, despite Norway's welfarism and steadily increasing oil riches. Month after month for the last two years the opinion polls have been unanimous in reporting the sinking fortunes of the Labour government and the rising popularity of the Conservatives. The people long ago made a clear demonstration of their wish for a change.

But what kind of change? The Conservatives were very careful not to promise—or threaten—to dismantle the welfare state. On the contrary, they sharply dissociated themselves from the little Progressive Party, which is enthusiastically free-enterprise and pointedly antisocialist and which won an astonishing 5 percent of the vote and four seats in parliament, drawing much of its vote from Labour strongholds. What the Conservatives did do was to promise a dose of "Reaganomics"—supply-side cuts in personal and corporate taxes and a reduction in the ever-increasing rate of public expenditure.

What interpretation are we to put on this? Has the Scandinavian model received a mortal blow? Has socialism lost its Scandinavian alibi?

It's a fact that the welfare state, with its promise of government benefits for an ever-larger portion of the population, is everywhere in trouble. This is one reason why Mrs. Thatcher leads the government in the United Kingdom and Mr. Reagan is president in the United States. Last year the Common Market countries held a huge conference with the theme "The Welfare State in Crisis." It was attended by government ministers, academics, trade unionists, employers, and national and international public servants, and naturally they had many wise things to say.

But none of them answered, at least to my satisfaction, the crucial question, Why is the welfare state in crisis? Most of the participants seemed to believe that it has something to do with the worldwide economic recession and the lack of economic growth. That answer, however, begs the question of why the democratic majorities should want less welfare services in times of nongrowth than in times of growth and prosperity. Offhand, one should think that people would want more security and welfare in bad times than in good.

Why then? I think we have to ask how the welfare state has functioned politically. What has actually been the political attraction of the welfare state to people at large, the same people who are now turning its champions out of office?

If the idea behind the welfare state had just been the construction of a minimum social security net in order to help the weak, the sick, and those otherwise struck by life's misfortunes, it would, to be sure, have had considerable humane appeal. Yet it would not necessarily have been accepted: it would have required that the great majority agree to tax themselves for the benefit of a small minority.

But that is definitely not the idea behind the welfare state. The idea is that of an all-embracing state, not merely collecting insurance premiums but equipped by the majority of voters with the power to tax the better-off for the purpose of dispensing maximum welfare to absolutely everyone.

The political attraction of such an idea for the people at large is clear and simple. It is the same attraction that Robin Hood had, when robbing the rich and giving to the poor. Put less brutally, what the voters saw in the welfare state was that it was something that would give them more in return than they put in. It promised them something for nothing.

It worked for a long time—certainly for much longer than its opponents had predicted. On economic grounds, a welfare state can't last forever, they had asserted. On the one hand, it would stimulate private demand and public consumption beyond the means of any economy; and on the other hand, it would punish production and productivity through the taxation and regulation required to implement its programs.

And yet the welfare state lasted, and people voted for it—for Robin Hood—as long as they felt that they got more out of it than they themselves were putting in. That was the political fact that no party could afford to overlook, no matter what its misgivings about the consequences of the welfare state itself. Even the great Churchill was misled into believing, as he put it, that this "national insurance was bringing the magic of averages to the rescue of the millions."

Were the critical economists wrong, then? I don't think so. The creation of the welfare state coincided with a most extraordinary phenomenon: the longest period of sustained economic growth in history, the one we have had since the last world war. And that enabled the welfare state to live up to its political image. People felt that, despite the increasing pressure of taxation, they still got more out of the welfare state than they put into it.

Also, at this point cause and effect became muddled. Many welfare politicians actually believed that the welfare state should be credited with the economic growth. They saw the welfare state as the cause of economic prosperity, while in actual fact, it is economic prosperity that is the indispensable condition for being able to afford welfare services. It was like Robin Hood telling the poor that, not only did they benefit from his robbing the rich, but his robberies actually produced wealth, with a net benefit for people as a whole.

As long as people derived net benefit from the welfare state, it didn't much matter whether they actually believed this. What did matter was that people clearly understood that, if the welfare state got the credit for growth and prosperity in good times, it should justly get the blame for the lack of growth and prosperity in bad times.

Even so, when economic trouble began to develop, the welfare state still seemed to work. The politicians managed to keep things going—miraculously, many thought. In fact, they did it by resorting to inflation. What they were unable to finance by economic growth and surplus, they financed by printing money and issuing credit, a program with the beautiful quality that its short-term benefits are immediately visible while its long-term social and economic costs are at first invisible. And, of course, the biggest beneficiary of inflation is government itself. Not only is its own income inflation-proof; its revenue from progressive taxation actually increases as nominal wages rise.

It took some time before people discovered what was happening, but in the end they did. And they began to ask nasty questions. Who actually benefits most from a welfare state? Undeniably, it is very profitable for the ones who run it—the politicians, the public servants, and the vast numbers of officials dispensing the welfare benefits. It was becoming quite obvious to everybody that this almost feudal superstructure of welfare employees often consumes more of the money going into government coffers than do the intended recipients. The suspicion mounted that the welfare state had become its own purpose; people began to ask whether Robin Hood was robbing them for their benefit or for his own.

So it is clear enough why people are throwing Robin out of office. It shouldn't be a cause of great surprise—you simply can't fool all the people all the time.

Now, back to Norway. What happened with the recent election was clearly a result of disillusionment with the welfare state, with having government take on a greater and greater share of fulfilling people's needs and wants. Its champions were voted out of power, just as they have been in other countries in the West—Great Britain and the United States. In this analysis the Scandinavian welfare model has suffered a fate no different from others.

What about the model then—does it deserve the name "model"? No; not in the sense that it is something that other countries could copy. Scandinavia is Scandinavia, just as Yorkshire pudding is Yorkshire pudding and not souffle Grand Marnier. Scandinavia has characteristics of its own.

The interesting question to ask is therefore not why the welfare state succeeded in Scandinavia, because it did not. The question is, What made it go well for so long?

Well, in the first place these are small, homogeneous countries, with an extensive consensus on both secular and religious values. Thus they are more easily governed than larger and more heterogeneous countries. Many of the problems besetting all modern countries are less pressing in Scandinavia—for instance, those resulting from urbanization: the entire population of Norway is less than half that of London, while in area Norway is as big as England and Scotland put together.

Second, there is, for historic reasons, a considerable degree of economic discipline. Before industrialization, 100 years ago, Norway was very poor. Agriculture provided no more than the bare means of survival; the margin was supplied by trade and export. So there developed a solid work ethic and an awareness of the necessity of saving, social qualities very valuable for a capitalist economy. On the other hand, the long history of poverty made for a need to seek security against misfortune through collective insurance, something that makes people ready to accept egalitarianism and sharing. Those are attitudes very valuable to a welfare state.

Yet this does not add up to socialism, of course. And the fact is that until 8 or 10 years ago the term Scandinavian socialism was totally misleading by standard definitions of socialism. State ownership of the means of production was less extensive in Scandinavia than it was in that miracle of free enterprise, West Germany, and the proportion of publicly owned land is still less than it is in the United States.

The reason why people talked about Scandinavian socialism is, I think, that they saw the high level of taxation and the extensive legislation allowing for regulation and control of the economy. But in practice the controls were sparingly used, and for a very good reason. The Scandinavian countries are extremely dependent on international trade, their standard of living based on export and the division of labor in international markets. No matter what the extent of centralized, bureaucratic regulation on paper, it was much less in practice. Scandinavia functioned as a fairly efficient market economy; the necessities of competing and surviving in the international marketplace disciplined the bureaucrats and even the politicians: the social democrats in Scandinavia stopped talking about nationalization of industries long before social democrats in most other countries.

Taken together, these factors are rather special. They give Scandinavia its own character, but they are quite useless as a model for other countries. The Scandinavian economies may be slightly reminiscent of Japan's, with its paternalistic capitalism; but, East being East and West being West, any further comparison in that direction would be very difficult.

Still, these features of Scandinavia were not sufficient to overcome the people's disenchantment with the welfare state. In the case of Norway, not even the totally unexpected bonanza of oil in the North Sea was enough. Of course, the champions of the welfare state couldn't claim credit for having created this wealth, but they did try to pump as much of it into the welfare state as possible, in order to save their own political lives. That is a tricky thing to do—almost like trying to move the furniture of Buckingham Palace into a two-room flat—and it produced a rate of inflation of 15 percent and a fall in absolute productivity. This means that, oil apart, Norway has become poorer over the last five years.

The burning question everywhere now is, Where do we go from here? What will happen to the welfare state? It can't go on as it is; it must, for a number of reasons, be drastically reformed.

Will it be expanded? Is the way of Mitterand in France, of the left wing of the Labour parties in Britain, Sweden, and Denmark, the wave of the future? Will there be more socialism and less democracy, perhaps with the totalitarian welfare state of Eastern Europe the end result?

Or will the welfare state be reined in? Is it possible for the politicians to trim the welfare state and continue the balancing act?

Or will it be dismantled altogether? Will people be willing, not to return to prewar capitalism, but to go forward to a consistent market economy and all-around free society?

I suspect that these questions, in one form or another, will be the most hotly debated ones over the next years, not only in Norway, but in all the Western countries, which to varying degrees have been trying to combine a program of extensive government involvement in the material conditions of life and considerable laissez faire with respect to political rights.

The economists, having licked their wounds, are back at their drawing boards, trying to find a better model for our economic policies. Their task will not be an easy one. And in any case, the far more important and troublesome question is what the politicians will do, because life for them is not as easy and lovely as the one they have had in the role of Robin Hood.

Ole-Jacob Hoff, REASON's foreign correspondent in Norway, is a former editor of the business magazine Farmand and is now a free-lance writer.