Scandinavian Models


Via Reihan Salam, I see that Ezra Klein is again trumpeting the successes of the Scandinavian social model, arguing that in socialist countries like Sweden people are more likely to embrace globalization when there is a substantial safety net to catch those "unprotected and uncompensated" by the vagaries of the global economy. Here's Klein:

Does big government actually act as a facilitator of globalization, free trade, and open economies? The answer on this one is supposed to be no, of course not. Government mucks everything up, and burns your money in their big money chimney, and blah blah blah. But Denmark, Sweden, and other Nordic countries have, in recent times, acted as contrary evidence to this thesis. Their model, where an expansive social safety net reduces economic insecurity and thus reduces public fear of a dynamic economic system, has acted as a useful social democratic alternative to our system, where the losers of globalization are unprotected and uncompensated, and globalization is kept politically viable mainly through the support of elites.

Klein cites the following study to buttress his argument, which references Scandinavia as an example of a people who support big government and are broadly pro-globalization:

In one econometric specification, an increase in our risk-aversion variable to its maximum value was associated with an increase in the probability of the respondent being extremely protectionist of approximately 6.5 percentage points in Sweden, which is certainly a large effect. However, the probability of the individual respondent being extremely protectionist increased by approximately 16 percentage points in Indonesia, or by more than twice as much. The crucial difference between the two countries, our results suggest, is that while in Sweden the government consumes 26.6% of GDP, the government consumption share in Indonesia is only 6.5%. It is not surprising that those who dislike risk should be less worried by free trade in Sweden, where the government does in fact provide such insurance, than in Indonesia, where workers and families are to a much greater extent left to their own devices.

This seems to me a huge logical leap. So does it follow that all cruel, non-socialist systems like the United States are uneasy about globalization? (The study may indeed have found such a correlation, though Klein's link doesn't mention any figures for the U.S.) And if so, can one attribute that solely to America's supposed lack of a social safety net? And if so, why has Sweden's powerful left-wing labor union, LO, which represents two million members (in a country of 9 million) and spent $130 million in member funds to reelected a socialist government, fought tooth and nail against opening Sweden's labor markets to workers from Eastern Europe? Take the case of the Latvian construction company Laval, who was awarded a contract to rebuild a school in the archipelago town of Vaxholm. When Sweden's labor unions (Byggnads, a builders union affiliated with LO) objected to the lower wages being paid to Latvian workers, they demanded that the company abide by Swedish collective bargaining agreements and forcing the company out of Vaxholm—and, ultimately, into bankruptcy. Indeed, Sweden's former Social Democratic Prime Minister Göran Persson, who supported the union in the Vaxholm dispute, publicly backed "free trade and globalization," though of a type that would likely be unfamiliar to Jagdish Baghwati. In my experience, Swedes tend to be theoretical supporters of "globalization and free trade," though are skeptical and protectionist when quizzed on allowing cheap labor through its own borders .

And what of Sweden's vaunted social system? Klein scoffs at the notion that Scandinavian governments "muck everything up and burn your money in their big money chimney," though as a Swedish taxpayer, I assure him that this is indeed the case (space and time constraints prevent me from listing the government's more preposterous public works projects and social spending schemes). Klein is right that the economy has seen robust growth in recent years, though it is important to point out that the country rebounded after a period of liberalization in the early 1990s when, as Klein surely knows, being that he is a consistent booster of the Scandinavian model, Sweden had a non-socialist government. Today, the right-leaning Moderate Party coalition is further privatizing and liberalizing, though in small steps, after voters chucked out a atrophied, corrupt Social Democratic government on whose watch the unemployment rate topped out at close to 13 percent.