27 June 2015

Scandinavian Policies v. Scandinavian Human Capital?

The descendants of Scandinavian migrants in the US combine the high living standards of the US with the high levels of equality of Scandinavian countries. 
Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. 
It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. This suggests that pre-existing cultural norms are responsible for the low levels of poverty among Scandinavians rather than Nordic welfare states.
From here via Marginal Revolution.

The short book argues that Scandinavian prosperity is undermined by strongly democratic socialist policies relative to success it would have without them as a result of its beneficial cultural norms, and that we should therefore not try to emulate Scandinavian governmental policies and expect them to work elsewhere.

The fact that my mother was a 100% Scandinavian descendant also makes this rare study of Scandinavian-Americans interesting to me.

I can't say that I'm convinced, however, although the quote above that captures the book's main premise is intriguing.

The fit immigrant hypothesis, which argues that immigrants tend to have a greater abundance of traits that lead to success than people who don't immigrate because they lack the ambition and motivation and confidence to take risks that immigrants do, is more than adequate to explain the disparities.  Also, clearly, the study is looking at pre-social welfare intervention poverty rates, and not post-intervention poverty rates which Scandinavian countries remedy much more successfully than the United States does. The higher Scandinavian, pre-intervention poverty rates may, however, reflect a more urgent incentive to avoid poverty in the U.S. than in Scandinavia.

The forward to the book (by a different author) is as follows:
I am regularly amazed at the persistence of several tenacious fallacies regarding the Nordic countries. In this tightly argued monograph Nima Sanandaji has performed a service by addressing them one by one and marshalling evidence and logic to explain the history of Nordic economic success and the genesis, impact and reform of their welfare states. No one who reads this work will be able to repeat, at least not without a bad conscience, the familiar slogans about Nordic socialism, third-way policies or how high taxes and state-guaranteed incomes beget economic growth and engender and nurture moral responsibility and community spirit.

The lag between perception and reality is especially glaring in the case of the Swedish model. Outside Sweden the serious reforms initiated in the 1990s seem not to have been noticed and ‘third wayers’ continue to act as if Sweden had not liberalised the economy, introduced competition in the production of government-funded services, lowered tax rates and reformed state benefit systems. To most of the ‘Swedish model’ boosters, it is still 1975.

It is an easily overlooked truism that a redistributive system presupposes something to redistribute. The Nordic countries enjoyed robustly productive systems before the welfare states we know today were established. Starting in the 19th century, the peoples of the Nordic countries created vast amounts of wealth, founded new firms and industries, and generated societies with high degrees of social trust and moral responsibility.

They built on foundations that, as a result of their histories (notably the relative absence of feudalism) were comparatively egalitarian and mono-ethnic. That wealth and those social orders preceded the welfare state; indeed, without them, the Nordic experiments in welfare statism would have certainly turned out quite differently, as experiences in other countries suggest. After welfare states were initiated, however, the Nordic countries began to coast on accumulated capital. Even more worrying, the strong social trust that was so widespread among the people and that limited predatory behaviour, shirking and disregard for the interests of one’s neighbours has been undermined by tax rates that punish those who contribute and transfer payments that encourage those who take. The rising percentage of the populations on disability and early retirement, in an age of improving health and longevity, suggests a population in which shirking has become more and more socially acceptable. The long-term prognosis for such a model is not a happy one.

The comparison of Nordic populations with their cousins who decamped for the US, which forms a small but interesting part of Sanandaji’s analysis, suggests that when pundits praise, say, Swedish healthcare by looking at longevity, what they are measuring is not the impact of the Swedish health financing system, but of Swedishness, whether in diet, genetic inheritance or behaviour. Indeed, Americans of Nordic descent exceed their stay-at-home cousins in high degrees of social trust, high incomes and low levels of poverty. It turns out that ‘culture matters’ and ‘culture’ is not merely a placeholder for ‘all the stuff we cannot understand’ but can be measured and studied in terms of behaviour. Cultural capital, and not only physical capital, matters and, like physical capital, cultural capital does not automatically renew itself: it can be eroded over time by perverse incentives.

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