Scandinavian Unexceptionalism by Nima Sanandaji

It’s very common for progressives, especially in the US, to extoll the alleged virtues of left-wing socio-economic policies by presenting Scandinavian social democracies as models to emulate. But the argument based on the success of these countries is flawed for several reasons.

First, this argument focuses on the ways in which Scandinavian social democracies depart from the free market model, but they always ignore the way in which they don’t. Scandinavian social democracies are not socialist by any stretch of the imagination and in a lot of respects are much closer to Anglo-Saxon economies that most people realize. In fact, they are in some respects closer to a free market economy than the US, which is anything but that.

A lot of what people say about Scandinavian social democracies is also completely outdated and ignores the failures of the socio-economic policies that were tried in those countries. In particular, Sweden’s third-way socialism was actually a total disaster and was abandoned in favor of free market policies more than 20 years ago, but people often talk as if that never happened.

But more importantly, when they talk about the success of Scandinavian social-democracies, left-wing wonks always commit the fallacy of equating correlation with causation by assuming they succeed because of their socio-economic policies. Yet the evidence suggests that, not only are Scandinavian countries not successful because of those policies, but the evidence suggests that, in many ways, they succeed in spite of them.

A few months ago I read a short but excellent book by Nima Sanandaji that explains all that very well and even taught me a lot of things I didn’t know. The book is available for free as a pdf on this webpage, which also includes a summary of the main points it makes.

If you’re interested in socio-economic policy, I strong recommend that you read it, especially if you like social-democracy. It won’t take you long and, even if it doesn’t change your mind, it will definitely make you better informed. At the very least, you should read the summary (it will only take you a few minutes), which hopefully will convince you to read the whole thing.

19 thoughts

    1. I just read it and I didn’t find it convincing. He considers the argument that, if Scandinavians are economically successful, it’s because of their culture more than because of their institutions, but rejects it on the ground that, to the extent that it’s true, it’s because their culture explains why they have social-democratic institutions. According to him, it’s the institutions that are doing the proximate work, even though the culture explains why the institutions exist. But, as even he acknowledges, descendants of Scandinavian immigrants are doing even better in the US than people in Scandinavia, a point that Sanandaji also makes. Since there are no social-democratic institutions in the US, this suggests that, despite what he says, it is not the institutions that are doing the proximate work.

      1. There are several independent questions here:

        (1) Would Scandinavian poverty rates be higher if they didn’t have their social democratic institutions?

        (2) Would US poverty rates be lower if we had Scanadinavian-style social democratic institutions?

        (3) Why do Scandinavian-Americans have lower poverty rates than other groups of Americans?

        (4) Why do Scandinavian-Americans have lower poverty-rates than Scandinavians back home?

        Before answering these questions, let me make a few preliminary remarks about poverty. Poverty is a matter of one’s income falling below a certain threshold. In a capitalist mixed-economy, one can derive income from several sources:

        (A) Labor
        (B) Government transfers
        (C) Capital gains
        (D) Interest
        (E) Rents
        (F) Inheritance

        Holding all the others equal, an increase in any of (A)-(F) will make one less poor. If the increase is enough to put one over the poverty threshold, then one will be made not-poor. Since very few poor people are in a position to make significant income from any of (C)-(F), (A) and (B) will be the main sources of income relevant to poverty.

        It follows that an increase in (B) will reduce poverty, unless the increased spending on transfers reduces (A) among poor and near-poor people so much that it completely offsets whatever poverty-reduction effect (B) has. This can only happen in a few ways: e.g., the transfer payments become so large that they disincentivize work so much that labor income is reduced by an amount that offsets the increased transfer income, or the taxes that pay for transfers become so high that the economy slows down and labor income falls by an amount that offsets transfer income. Is there any evidence that anything like this is happening in Scandinavia? I’m not aware of any, and Sanandaji doesn’t present any such evidence. In fact, Sanandaji himself seems to admit in several places that transfer payments have succeeded in reducing poverty: “It is true that welfare systems have reduced poverty” (Unexceptionalism, 119); “Of course some of it [Scandinavian social outcomes, presumably including low poverty] is due to welfare state policies” (AEI interview).*

        So, as far as I can see, and apparently according to Sanandaji himself, the answer to (1) is “Yes.” Now, Sanandaji would insist that social democracy isn’t the only thing responsible for low Scandinavian poverty, and for all I know he’s right. But that’s perfectly consistent with social democracy being partly responsible for low poverty and a good set of policies overall.

        What about (2)? You say in your comment that “there are no social-democratic institutions in the US”, but this is simply false. Bruenig gives an example of one: Social Security. This is a simple redistributive transfer payment from working people to retired people (though some will try to convince you it’s something else). It’s also responsible for a massive drop in elderly poverty since it was enacted in 1935. The staggering fall in elderly poverty obviously wasn’t due to a massive influx of geriatric Swedish immigrants. It’s much more likely that it had something to do with the concurrent staggering increase in Social Security payments. It turns out that giving people money means, in general, that they will have more money, and that having more money means that they will be less poor. Who knew?**

        The so-called “War on Poverty” in the United States is much-derided by conservatives and libertarians for supposedly failing to have reduced poverty. But in fact it succeeded. Conservatives point to the fact that by the official US government poverty measure, poverty rates were as high as they were at the end of the era of liberal social policy (c. 1979) as they were at the beginning of this era (c. 1967). But the official poverty definition does not include in kind payments like food stamps and housing assistance, and has other problems as well. According to the most sophisticated measure of poverty to date, the Anchored Supplemental Poverty Measure, poverty fell until 1980, when it started rising again just as conservative social policies started to be implemented (see figure 2 on p. 12 of the linked paper). Moreover, this happened despite the poor economic performance of the 1970s.***

        So, when the United States adopts policies that are relatively more like Scandinavian social democracy than other policies we have implemented, the circumstantial evidence suggests that they cause poverty to fall. This is also in line with common sense: giving people more money makes them less poor. So much for question (2).

        As for question (3), I’m perfectly willing to allow that Scandinavian-Americans have cultural traits that promote a healthy work ethic, and that garners them high labor incomes that reduce their poverty rates below that of other groups. That says nothing about whether or not their poverty rates and those of other groups would be even lower if we had Scandinavian-style social democratic institutions in the US. Common sense and the evidence reviewed above suggests that they would.

        As for question (4), I imagine that the Scandinavian immigrants to the United States in the 19th and 20th centuries were a relatively self-selected bunch (as immigrants often are) who brought above-average genetic and cultural traits with them from their home countries, and passed them on to their descendants. This would explain why Scandinavian-Americans have lower poverty rates than Scandinavian-Scandinavians: the above average genes and culture they got from their ancestors give them a work ethic that garners them more labor income than the average Scandinavian back home. Does this mean that if the government gave them more money, they wouldn’t have even lower poverty rates? Does it mean that if Scandinavian governments gave their citizens less money, they wouldn’t have higher poverty rates? In either case, I can’t see why you’d think that, and Sanandaji doesn’t give me any reason to, either.

        *Sanandaji also says that while welfare may have contributed to reducing poverty, it’s also caused increases in what he calls “social poverty”. He never defines the term, but as far as I can tell he means “welfare dependency.” This seems to me like nothing more than an exercise in changing the subject.

        **It’s slightly more complicated than this, since Social Security can disincentivize saving and thereby at least partially offset the poverty reduction effect the program has. The authors of the linked paper account for this difficulty and still find that Social Security has contributed to the fall in elderly poverty in the United States.

        ***Charles Murray, in Losing Ground tried to claim that the economy in the 1970s was not as bad as is often thought. His sole piece of evidence for this claim was that GNP per person rose during the 1970s. However, as Christopher Jencks pointed out, this was only “because the number of workers grew as the number of children fell. But this change did not reduce poverty because family size did not decline appreciably among those with incomes below $10,000 in 1980 dollars” (Jencks, Rethinking Social Policy, p. 245n11). Moreover, as Jencks also observes, by other measures the 1970s US economy did quite poorly: unemployment rose, real wages fell, and inflation eroded government transfers.

        1. Bruenig also refers to the apparent drop in UK child poverty under the Blair government, which implemented transfer payments to parents with children. To be honest, I don’t know much about that, but that is another part of Bruenig’s case that you glided over (in addition to the point about Social Security in the US).

        2. His sole piece of evidence for this claim was that GNP per person rose during the 1970s.

          Actually, Murray also notes that total GNP rose faster in the 70s than it did in the 60s. But as Jencks also observes (Rethinking Social Policy, 75), GNP rose in the 60s because output per worker rose, while it rose in the 70s because the number of workers rose (due to immigration and women entering the labor force). Increasing worker productivity can be expected to reduce poverty, but a mere increase in workers can’t.

        3. It has come to my attention that Sanandaji does briefly address the migrant selection issue, but in my opinion he does so inadequately. He points (Unexceptionalism, 63) to a study finding that there was negative selection for Norwegian immigrants from urban areas to the United States. But selection among urban immigrants isn’t what we’re primarily interested in. We’re interested in possible selection among Scandinavian immigrants overall. He neglects to mention that rural Norwegian immigrants were more numerous than their urban counterparts (table 1, p. 1842), and that according to the same study, the evidence was ambiguous as to whether selection for rural Norwegian migrants was positive or negative (p. 1850). So, the study appears to be consistent with the hypothesis that there was negative selection among Norwegian immigrants overall.

          Further support for this hypothesis can be found in the fact that return migration was negatively selected. About 25% of Norwegians went back to Norway. In the paper Sanandaji cites, the authors argue from indirect evidence that there was not much difference between those who stayed and those who returned (p. 1840). However, a more recent study by the same authors concludes that return migration was negatively selected.

          Sanandaji (ibid.) cites only one source, one of his own papers, for the conclusion that “Nordic Americans have lower poverty rates than Nordic citizens.” The only piece of evidence he cites in this latter paper for that conclusion is the fact that the poverty rate for Swedish Americans is 6.7%, whereas Sweden’s poverty rate using the same threshold is 9.3%. But, as Sanandaji admits immediately, “the latter figure also includes immigrants”.

          Given possible positive selection among Scandinavian immigrants, and recent immigration to Scandinavia, a simple comparison of poverty rates among Scandinavian-Americans and poverty rates in Scandinavian countries doesn’t tell me much.

          1. So, the study appears to be consistent with the hypothesis that there was negative selection among Norwegian immigrants overall.

            While true, this isn’t what I meant to say. I meant to write “positive selection…”

          2. I’ll just add one more comment and then let you take your time to respond, because I’m afraid I’ll forget if I don’t put this down now.

            Sanandaji bases his figure of 9.3% for Swedish poverty (including immigrants and their descendants) on Notten and de Neubourg (2011). This is a figure for absolute, not relative, poverty based on the US threshold (this is not the same thing as the Census Bureau’s official US poverty measure, as the authors explain on p. 15n19). The 9.3% figure comes from the year 2000 (Table A1, p. 38).

            I found another paper (Wimer et al. 2013 that also uses an absolute poverty measure based on the US threshold (which, again, is not the exactly same as the Census Bureau’s measure, as Wimer et al. explain on p. 7), and this paper claims that the Swedish absolute poverty rate on this measure was 4.4% in 2004 (Table 1, p. 26).

            It’s possible that Swedish poverty was cut by more than half in just 4 years, but I don’t know very much about changes in the Swedish economy and tax-and-transfer policies in 2000-2004 period, so this difference may well reflect differences in measuring absolute poverty between Notten and de Neubourg and Wimer et al.

            Sanandaji (2012) bases his figure of 6.7% poverty for Swedish-Americans on “the Census Bureau”, but he doesn’t say for what year (and I don’t have time to look it up). It’s also worth noting that Notten and de Neubourg’s measure of absolute poverty (on which Sanandaji relies for his figure for Swedish poverty) is different from the Census Bureau’s.

            In any case, if we assume that Swedish-American poverty in 2004 was 6.7% (and I have no idea if it was), that’s higher than Wimer et al.’s estimate of 4.4% poverty for the country of Sweden. Recall also that the latter figure includes (largely poor) immigrants and their descendants, and that Swedish-Americans may be descended from positively selected migrants.

          3. I’m breaking my previous promise, because this has got me quite exercised.

            I found the Census Bureau document on which Sanandaji is apparently basing his claim that 6.7% of Swedish-Americans live in poverty. In 1990, the Census Bureau asked people to divulge their ethnic ancestry, and then asked them various questions, including how large their incomes are. According to this survey, Swedish-Americans have a 6.7% poverty rate.

            As far as I know, this is the only time the Census Bureau has asked people for both their ancestry and this sort of demographic information.

            Remember that Sanandaji’s figure for Swedish poverty (9.3%) is based on Notten and Neubourg (2011), and is for the year 2000 (ten years later than the Census Bureau survey), is based on a slightly different definition of poverty than the Census Bureau’s, and includes non-ethnic Swedes.

            Notten and Neubourg’s data doesn’t include the 1990 poverty rate for Sweden. But I found a paper that tracks changes in absolute poverty in Sweden through the 90s and 2000s. The measure of absolute poverty they’re using is different from the one Notten and Neubourg use, which makes it useless for cross-country comparisons, but it does allow comparisons of Swedish poverty rates across time. According to Figure 4 on p. 14, Sweden’s poverty rate was appreciably higher in 2000 than it was in 1991.

            As far as I can tell, the claim that Scandinavian-Americans have lower poverty rates than Scandinavians in Scandinavia is based on a spurious apples-to-oranges comparison based on one Scandinavian country/ethnic group, and a dumb joke attributed to Milton Friedman. I don’t think I could make this up if I tried.

            Why do well-endowed think tanks fund this stuff, and why does it get so much attention despite sloppy errors like this? Let me offer a hypothesis: the people who benefit from the dissemination of this nonsense are wealthier and more powerful than the people who are harmed by it.

            Ok, I’m done.

        4. Okay, I have a lot of work to do, so I will just reply to what I consider the most important points. In particular, I want to argue that, despite what you say, Sanandaji is definitely right that Swedish-Americans do better than people of Swedish ancestry in Sweden.

          I’m going to start with the question of poverty, which you have been focusing on a lot. Sanandaji only says that he uses the data collected by the Census Bureau in the US for Swedish-Americans, but he made it very hard to figure exactly which data he used, which is annoying. I don’t have time to figure out what data he used exactly, so I’ll make the case using the data I found.

          The Census Bureau has apparently been collecting socio-economic data about people of various ancestry for a while and I have found a table on its website that has a lot of information about Swedish-American between 2005 and 2015.

          In particular, this table tells us about the proportion of Swedish-Americans below the poverty level, which was 6.8% in 2005. The problem is that, as you pointed out, the Census Bureau doesn’t calculate this in the same way as Notten and de Neubourg, which Sanandaji used for his comparison.

          Note, however, that because the Census Bureau uses pre-tax income to determine if someone falls below the poverty threshold, the figure it gives would presumably have been significantly lower if it had used Notten and de Neubourg’s methodology. (Instead of using pre-tax income to determine whether someone falls below the poverty threshold, one should use consumption but the Census Bureau doesn’t, which is a well-known problem.)

          Anyway, in order to deal with the problem of making a comparisons between the Census Bureau figure and that calculated by Notten and de Neubourg, we can do a little back-of-the-envelope calculation. Although it’s just a back-of-the-envelope calculation, as you will see, it’s sufficient for my purposes.

          First, note that according to Notten and de Neubourg, 11% of the population as a whole in the US lived under the poverty level in 2000, while only 9.3% of people in Sweden did. Now, the figure for Sweden doesn’t include immigrants and their descendants, and that for the US is about everyone and not just Swedish-Americans. So we need to find a way to get a rough idea of what the figure would be for Swedish-Americans in the US and people of Swedish ancestry in Sweden.

          Since the Census Bureau uses a different methodology than Notten and de Neubourg to calculate the share of the population/subpopulation under the poverty threshold, the absolute numbers are not going to be the same. But presumably how a given subpopulation compares to the population as a whole should be roughly the same no matter what methodology is used.

          As I already noted, according to the Census Bureau, 6.8% of Swedish-Americans lived under the poverty threshold in 2005. By comparison, the same year, the proportion of the population of the US as a whole under the poverty threshold was 12.6%. So the ratio was approximately 0.53.

          If we apply this ratio to Notten and de Neubourg’s figure for the share of the US population as a whole under the poverty threshold, we can impute that, had their methodology been used to calculate the proportion of Swedish-Americans who lived under the poverty threshold in 2000, the figure would have been approximately 5.9%.

          Now, although the ratio I used to make this calculation should be rough the same no matter what methodology is used, I’m sure it wouldn’t be exactly the same. So perhaps the share of Swedish-Americans who lived under the poverty level in 2000 according to Notten and de Neubourg’s methodology was a little more than 5.9% or perhaps it was a little bit less. Another problem is that I have calculated the ratio for 2005 (the last year for which there was data in the table I found), but I used it to impute the share of Swedish-Americans living under the poverty threshold in 2000. But that shouldn’t be a problem because, during the years for which I have data, the ratio has stayed remarkably stable, which is exactly what one would expect.

          So let’s err on the side of caution and say that, had Notten and de Neubourg’s methodology been used, the proportion of Swedish-Americans who lived under the poverty threshold in 2000 would have been 7%. This is substantially lower than 9.3%, the proportion of people in Sweden who lived under the poverty threshold in 2000, but this figure includes immigrants and their descendants. So we can’t make a direct comparison, but we can see how unlikely it is that the proportion of people of Swedish ancestry in Sweden living under the poverty level in 2000 was inferior to 7%.

          According to this report by the Migration Policy Institute, back in 2000, 15% of the population in Sweden had a foreign background, which is apparently defined as being foreign-born or having two parents who were born abroad. Thus, in order for the proportion of people of Swedish ancestry living under the poverty threshold to be less than or equal to 7%, the proportion of people with a foreign background in Sweden living under the poverty threshold in 2000 would have had to be at least 22.3%.

          In other words, in order for the proportion of people of Swedish ancestry in Sweden living under the poverty threshold to have been less in 2000 than the proportion of Swedish-Americans living under the poverty threshold, we’d have to assume that people with a foreign background in Sweden were more than 3 times more likely to lived under the poverty threshold.

          But this is completely implausible! Even in the US, according to the Census Bureau (see table 1), blacks are « only » 2.6 times more likely than non-hispanic whites to lived under the poverty level. Moreover, in 2000, the vast majority of people with a foreign background in Sweden apparently came from other European countries and, therefore, presumably had socio-economic characteristic roughly similar to people of Swedish ancestry or at least very different from people who came from e. g. Iraq. (See table 1 in this paper, which gives the geographical origin of foreign born residents in 1998.)

          Again, I just did a back-of-the-envelope calculation here, but I think it makes it clear that Sanandaji is almost certainly right that the proportion of Swedish-Americans who live under the poverty threshold is less than the proportion of people of Swedish ancestry in Sweden who lived under the poverty threshold, because you’d have to make pretty implausible assumptions for that not to be the case. In the worst case scenario, which strikes me as implausible, the proportion is roughly the same, but that would be sufficient for Sanandaji’s point anyway.

          Moreover, when he compares Swedish-Americans to people of Swedish ancestry in Sweden, Sanandaji’s doesn’t just talk about poverty, he also talks about income and, in that case, the evidence is even more overwhelming. I’m too lazy to do the math, but I found this interesting post by Tino Sanandaji, who I think is Nima’s brother, on a now defunct blog.

          He used data from the Census Bureau and from the OECD, presumably the same that his brother used in the book, to impute the GDP per capita of Swedish-Americans and compare it to the GDP per capita in Sweden, excluding immigrants to make the comparison more fair. What he found is that the GDP per capita of Swedish-Americans is more than 50% higher than that of non-immigrants in Sweden. That’s a lot more.

          Now, as you pointed out, there is the problem that Swedish-Americans may have been positively selected. You say that the evidence discussed in the paper used by Nima Sanandaji to reply to this objection is consistent with the hypothesis that they were positively selected. Well, this is true, but a lot of things are consistent with a lot of other things. It remains the case that, on the whole and even though it’s inconclusive, the evidence gives more support to the hypothesis that they were not negatively selected and that they may even have been negatively selected.

          A more interesting point that you make is that a significant number of Norwegian immigrants to the US eventually returned to Norway and, based on the paper you mentioned, it seems those people were negatively selected. (This paper is about Norway, not Sweden, but I think it’s plausible that the same thing was true for Swedish immigrants.) But although the effect is statistically significant, it’s also very weak.

          Moreover, even if the effect were stronger, it’s not clear what import this would have for the hypothesis that Swedish-Americans were positively selected. It’s plausible that the people who returned were socio-economically inferior to those who stayed, but it’s hard to say to what extent and, at the end of the day, it was only 25% of them. Tino Sanandaji says more about the hypothesis that Swedish-Americans were positively selected in the blog post I mentioned above if you’re interested.

          Given how much better than people of Swedish ancestry Swedish-Americans seem to be doing, at least with respect to median income and probably also with respect to poverty, I think it’s completely implausible that positive selection could explain all of this advantage or even a substantial part of it.

  1. “The period character-ised by the most extensive welfare state policies (around 1970–95), when [Sweden] clearly deviated from market policies, is an exception. As it happens, this period was associated with stagnant economic development, in terms of GDP growth as well as job creation and entrepreneur-ship. The history of the other Nordic nations parallels that of Sweden in this regard.”

    Here’s the book’s central thesis. Let’s do a sanity check using the raw data from the Maddison project [1] to see if it’s true.

    1970 GDP per capita (in 1990 Geary-Khamis dollars):
    Norway: $10,000
    Sweden: $12,700
    Denmark: $12,700
    Finland: $9,600
    Western Europe: $10,100
    US: $15,000

    1995 GDP per capita (in 1990 Geary-Khamis dollars):
    Norway: $21,600 (+116%)
    Sweden: $17,600 (+39%)
    Denmark: $20,400 (+61%)
    Finland: $16,000 (+67%)
    Western Europe: $16,900 (+67%)
    US: $24,600 (+64%)

    Looks like it’s not. Sweden did fare slightly worse than the rest of the developed world over this time period (this may just be because the author cherry-picked the last year of a Swedish economic downturn as the terminus), but Denmark and Finland are right in the middle of the pack. Norwegian GDP per capita, meanwhile, more than doubled from 1970-1995, proving (to no one’s surprise) that all of the capitalism in the world is insignificant next to the awesome power of oil.

    It is foolish, I agree, to carelessly infer a causal relationship from a mere correlation. But it is all the more foolish when there was never any correlation to begin with.

    [1]: This is the source for historical GDP data used in the book. You can find it here:

    1. The passage you quote doesn’t make a comparison between Scandinavian countries and the rest of the developed world, so the data you give don’t show that it’s incorrect, except for the fact that, even in the case of Sweden, it’s misleading to say that GDP stagnated between 1970 and 1995.

      Indeed, given the point that the author is trying to make, it would have been stupid for him to make such a comparison, since public spending has increased pretty much everywhere in the developed world during that period.

      The central thesis of the book is that, to the extent that Scandinavian countries are doing pretty well across many socio-economic metrics, this success has little to do with the social-democratic policies that are usually credited for it. The book uses a lot of data, including data about GDP per capita but not only, to make that case.

      Since you’re using data from the Maddison Project, I’ll take this opportunity to also recommend Angus Maddison’s excellent book on the history of the world economy, which I already mentioned in my post about slavery and capitalism.

      1. Sanandaji does go on to argue that the Scandinavian economies fared poorly in comparison with other OECD countries over this time period (on pages 27-31), but he does so, as I note below, ineptly and dishonestly. As it happens, while Sweden’s economy did underperform during the peak socialist years, Denmark and Finland got by just fine, and Norway was so flush with oil wealth that it made no difference what policies they adopted.

        1. To be honest, I read the book several months ago, so I don’t remember every detail. But I do remember that data about GDP per capita, which is what you have been focusing on, is not essential to Sanandaji’s case. Perhaps more importantly, for the reason I have given above (public spending has rapidly increased pretty much everywhere in the developed world since 1970), the fact that Scandinavian countries performed comparably with other developed countries since 1970 doesn’t really do much to undermine the book’s central thesis. But you’re right that, precisely for that reason and for the reasons you pointed out, he shouldn’t have made such cherry-picked comparisons. However, this doesn’t mean that the book is not worth reading, which I think it very much is.

    2. After spending a lot of time harping on Sweden, here’s what Sanandaji has to say about the other Scandinavian countries:

      “Norway has, thanks to enormous oil wealth, climbed in the [OECD income] rankings. Finland almost dropped out of the top 20 ranking during the mid 1990s, until recovering to 14th position in 2010: this recovery coincided with long-term reforms towards more economic freedom. Denmark’s pos-ition fell from 7th position to 10th between 1970 and 1980. Three decades later, Denmark had regained its previous ranking, after an impressive array of market-oriented re-forms.”

      I recommend reading and rereading this passage until you learn to recognize the sound of a man lying to you. There’s no reason to talk about ordinal rankings here (which can exaggerate the effects of trivial changes) except to conceal that the actual data, which I quoted above, tells a different story. The time periods being evaluated are vague, and constantly shifting, and Sanandaji does not even try to show that market reforms were regularly preceded by periods of stagnation and followed by periods of growth. This book is fit for kindling, and little else.

      1. The data you gave above do little to show that the central thesis of the book, which I summarized in my reply to you, is not true. Have you actually read the whole book? As I already pointed out, there is a lot more to it than GDP per capita, which is what you have been focusing on.

  2. Scandinavian social democracies are not socialist by any stretch of the imagination

    This is arguable in the case of Norway. If you define the degree to which a country is socialist by the degree to which the state owns the means of production, then Norway may be among the most socialist countries in the world, as it has among the ninth highest CSS (Country SOE [state-owned enterprise] Share; defined on p. 22 out of a dataset comprising 38 selected countries (see figure 2, p. 23). It has by far the highest CSS (at 47.7%) among the OECD countries on the list of 38. The state oil company, Statoil, is 70% owned by the government (67% owned directly, 3% owned through the government’s pension fund), and by most accounts it is pretty competently run, mostly as a privately owned business would be.

    Norway also has the largest sovereign wealth fund in the world, with 885 billion USD in assets. This is, of course, also a form of state ownership of the means of production.

    There are of course other conceptions of socialism besides state ownership, like worker self-management. I don’t know how Norway measures up on this score, although they have a large worker-owned and -managed software company, Kantega.

    1. The definition of CSS on p. 22 of the paper you cite is extremely unclear, but no matter how I interpret it, it’s a very poor indicator of the degree to which a country is socialist. As I understand it, but again it’s very unclear, it’s defined as follows. Let S be the total sales, A the total assets and M the total market value of the 10 largest companies in a country. Let s be the sales, a the assets and m the market value of the companies in that set which are state-owned. CSS is defined as 1/3.s/S + 1/3.a/A + 1/3.m/M.

      So the fact that the CSS is 47.7% for Norway doesn’t tell us much, beside the fact that the sales, assets and market value of state-owned enterprises constitute a high share of the sales, assets and market value of the 10 largest Norwegian company, which is hardly surprising given how big Statoil — the national oil company you were talking about — is.

      CSS is a poor indicator of the share of the means of production that are controlled by the state for many reasons. One of them is that it’s not all what it measures. Another is that, even if it measured the share of the means of production owned by the state among the largest 10 companies, this would totally overestimate the share of the means of production owned by the state, because large companies are much more likely to be state-owned. This is particularly critical in Norway, given how big Statoil is.

      Indeed, back when oil prices were very high, Statoil’s revenue must have represented something like 25% of Norway’s GDP. But to be clear, this doesn’t mean that the share of Statoil in Norway’s GDP is 25%, because saying that would involve the same kind of double counting I talked about in my post about slavery and capitalism. This means that, if you try to estimate the importance of state-owned companies for the economy of a country, just comparing their revenue to the GDP is going to significantly overestimate it. (For the same reason, although public spending in France is 56% of the GDP, it doesn’t mean that the state is responsible for 56% of the production.)

      Moreover, the share of Statoil’s revenue in the GDP presumably fluctuates a lot, depending on the price of oil and gas. Indeed, I haven’t checked, but I’m guessing it has been divided by 2 or something like that since the price of oil was at its peak a few years ago given how dependent on price fluctuation the revenue of the oil industry is. This also suggests that what percentage of the GDP of Norway the revenue of Statoil represents is not a reliable indicator of its long-term importance to Norway’s economy.

      Another reason why, if you just use this indicator, you’re going to overestimate the importance of Statoil to the Norwegian economy is that the oil industry is a very capital-intensive industry, which requires relatively small quantities of labor. So Statoil presumably employs a very small proportion of the Norwegian workforce.

      Anyway, this was kind of a long digression, which is only indirectly related to CSS. As I pointed out, CSS is a poor indicator of how socialist a country is, if only because the existence of Statoil alone is going to make it very high. But the fact that Statoil is owned at 70% by the state and its revenue probably represents something like 25% of Norway’s GDP on a good year doesn’t make Norway a socialist country.

      Norway is not a socialist country by any reasonable criterion, even though you are right that, on the spectrum, it’s probably much closer to socialism than most other developed countries. (And you’re also right that there are other forms of socialism, but Sanandaji isn’t really concerned with that.) The reason I say that is that, even in Norway, there is a large private sector that controls most of the economy. (This is a vague claim for more than one reason, but I think it’s sufficient for the purpose of this conversation.) I’ll try to reply to the other points you make above on Sanandaji’s book, but right now I need to work!

      1. These are good points. I would add that to the degree that Norway is socialist, its socialism doesn’t have much to do with its low levels of poverty, since the Norwegian government doesn’t use the revenues from its assets to fund transfer programs. It invests almost all of its oil revenues in the Government Pension Fund, and then uses the revenue from that and reinvests it in the stock market. It could use its asset revenue to fund its welfare state, the way that the US state of Alaska uses the Alaska Permanent Fund (based on ownership of oil) to pay for a universal basic income for all Alaska residents, but it chooses not to. If Norway did do this, however, that would presumably allow it to lower taxes, and allay many of the concerns Sanandaji has about the high tax burden in Norway.

        That’s one reason why Republican politicians in the US paradoxically seem to be relatively favorable toward sovereign wealth funds, as it allows them to pay for government services without taxation (as Republican Alaska pays for its transfer program through the Alaska Permanent Fund, and Republican Texas uses two oil-and-land-based funds to pay for primary, secondary, and higher education in the state).

Comments are closed.