Denmark became a central topic during the Democrats' debate last week. Bernie Sanders calls himself a democratic socialist. Hillary Clinton loves Denmark but is dismissive of the idea that America can be Denmark. This inspired a number of articles by various commentators about the truth behind Denmark economic model (or the Nordic model more generally.) Progressives like the high taxes, low inequality, and high government spending. Conservatives counter by noting that the Nordic countries rank among the countries highest in free trade and low corporate taxes. I've been linking articles on Facebook but I thought this piece in Niskanen was the best. Double-Edged Denmark
Right-leaning arguments about the free-market marvel that is Denmark cut both ways. Denmark shows us that a much larger public sector and a much more robust social-insurance system need not come at the expense of a dynamic market economy. In other words, Denmark shows us that capitalism and a large welfare state are perfectly compatible and possibly complementary.
The lesson Bernie Sanders needs to learn is that you cannot finance a Danish-style welfare state without free markets and large tax increases on the middle class. If you want Danish levels of social spending, you need Danish middle-class tax rates and a relatively unfettered capitalist economy. The fact that he’s unwilling to come out in favor of either half of the Danish formula for a viable social-democratic welfare state is the best evidence that Bernie Sanders is not actually very interested in what it takes to make social democracy work. The great irony of post-1989 political economy is that capitalism has proven itself the most reliable means to socialist ends. Bernie seems not to have gotten the memo. But Bernie Sanders isn’t the only one failing to come to terms with the implications of Danish social-democratic capitalism.
The lesson free-marketeers need to learn is that Denmark may be beating the U.S. in terms of economic freedom because it’s easier to get people to buy in to capitalism when they’re well-insured against its downside risks. That’s the flipside irony of free-market “socialism. ...
... the reason the U.S. is lagging so far behind big-government Denmark on free trade, corporate taxation, ease of doing business, and more may very well be that the American safety net isn’t good enough, and economic insecurity at the bottom and middle makes free-market policies a tough sell to anxious American voters.
I don’t know that this is true. But, then again, libertarians and free-market conservatives don’t know that it’s not. Mostly, ideological American capitalists really badly want to believe it’s not true that we’re falling behind Denmark as capitalists because we’re not redistributive enough. (I mean, the previous paragraph made me feel like I was channeling E.J. Dionne, which was … unsettling. But let us put away childish things.) Because if it is true, and social insurance and capitalism are complementary in this way, then champions of economic liberty will be forced to face up to the possibility that attacking the welfare state undermines support for laissez faire economic policy. Some of us might even be forced to choose between our love of capitalism and dislike of the welfare state. Awkward. ..."
Economic development always includes, in some broad sense, an embrace of trade and freedom from arbitrary interference in market activity. Yet when you look at the various nations that rose to affluence in the last century, diverse paths were taken to get there. The particular path toward trade and freedom seems not to be as important as is the issue of stability. When the various players in the economy and society behave in predictable patterns, they are better able to predict and coordinate their behavior, even if the patterns are not optimal in terms of trade and freedom. Imposition of trade and freedom that generates too much instability may be worse than simply staying with less effective economic models in the short-run and letting things evolve.
This need for security and stability is a piece that is frequently undervalued by most libertarians at both the macro and micro levels. Economic historians will tell you that one of the pivotal developments in history (among several) was the emergence of limited liability. People could pool their resources and form joint ventures without putting their entire assets at risk. Bad choices or unforeseen developments would not leave you destitute.
If the aim is a dynamic risk-taking economy leading to high productivity and economic growth, then we need security and stability for citizens. With a basic safety net in place (here I’m thinking mostly of a guaranteed minimum income as opposed to our wasteful welfare industry), people would become less risk-averse, knowing that trying new stuff doesn’t lead to destitution if you fail.
But if libertarian conservatives are blind to issues of security, then progressives are blind to productivity and economic growth. Take the living wage debate. It is said that Walmart’s low wages are possible because we taxpayers subsidize the workers through the welfare system. Nonsense. Welfare support drives up wages. If the wages aren’t at least comparable to welfare options, then why work?
Furthermore, while each business should have the aim of helping their employees flourish (improving their skills and providing opportunity to gain more responsibility in a safe environment), businesses are neither benefactors nor aid agencies. They are the institutions responsible for transforming matter, energy, and data from less useful forms to more useful forms on a sustainable basis. Sustainability means creating more value than the value of resources being used. Wages artificially set above the economic value contributed by labor are unfavorable to productivity and sustainability.
I know of no country, including the Nordic countries, who presume that every job in every circumstance should provide a “livable” income “unsubsidized” by government. Minimum wage is a temporary introductory wage people earn as they develop skills and experience. Few earn it for more than a period of few months. Excessively high introductory wages compels businesses to adapt in ways that reduce the amount of this labor they use, and decrease the opportunities for the least-skilled to find an on-ramp into the economy.
So while precisely replicating the Danish or Nordic model in a large diverse nation like the United States may not be feasible, there are lessons here. To the degree the Nordic models have worked, they have done so because they have successfully married security and growth. This is a managed polarity for them, much like breathing embraces both inhaling and exhaling. In America, our partisan factions each grasp one pole of the polarity and demonize the other. To the degree either succeeds, we are in deep trouble. That is the lesson I learn from double-edged Denmark.