24 June 2015

Scandinavian Unexceptionalism #1: Does more welfare mean that you will live longer?

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In the mid-1970s Time Magazine described a country that sounded much like a utopia. “It is a country whose very name has become a synonym for a materialist paradise”, the international magazine wrote and continued to report “No slums disfigure their cities, their air and water are largely pollution free… Neither ill‑health, unemployment nor old age pose the terror of financial hardship.” Wouldn’t you like to live in a similar paradise-like environment? Of course you do. The only thing you need to do is to either move to Sweden, or have Swedish social democratic policies introduced in your own country.

For long time the Scandinavian countries have been regarded as prime role-models the policies of which should be emulated by others. In 1979 for example the political scientist John Logue argued in 1979: “A simple visual comparison of Scandinavian towns with American equivalents provides strong evidence that reasonably efficient welfare measures can abolish poverty as it was known in the past; economic growth alone, as the American case indicates, does not.” The only critique that Logue had was that Scandinavian welfare states were too successfully. He feared that Scandinavian policy would soon eliminate social problems to such a degree that their inhabitants forgot the importance of welfare policies.

At a glance this all seems quite reasonable. Scandinavian societies are uniquely successful. Not only are they characterized by high living standards, but also by other attractive features such as low crime rates, long life expectations, high degrees of social cohesion and even income distributions. Various international rankings conclude that they are amongst the best, if not the best, places in the world in which to live. But as I show in the book “Scandinavian Unexceptionalism”, released by the Institute of Economic Affairs, the worship of Scandinavian welfare state policy is flawed. It is undeniably so that Scandinavian countries are successful in a number of ways – but this success mainly developed during a period characterized by free-markets, strong emphasis on personal responsibility and a welfare system supported through relatively low taxes.

I hope to show this to be true in an article series exclusive for CapX, hoping that the great reach this site has will debunk the leftist ideas about how ideal Scandinavian high-tax politics are. In this first text, let’s look at the issue of longevity. Scandinavians live unusually long and healthy lives. And their policies are characterized by universal health care and large welfare states. This correlation seemingly settles the argument: if you want to live long lives, you should support a massive public sector – otherwise you are prioritizing low taxes for the rich over the lives of ordinary citizens.

But let’s for the sake of argument look at this correlation more closely. The Scandinavian states adopted welfare policies during the first half of the 20th century. Initially, however, the welfare institutions were financed by relatively low taxes. Even in 1960, for example, tax revenues amounted to 25 per cent of GDP in Denmark, 28 per cent in Finland, 29 per cent in Sweden and 32 per cent in Norway. This can be compared with rates of 27 per cent of GDP in the UK and 34 per cent in Germany at the same time. A key point is that also before the Scandinavian nations had large welfare states they exhibited good social outcomes.

In the picture below I show the life expectation at birth is shown for various OECD nations in 1960. Norway had the highest life expectation, followed by Sweden, Iceland and Denmark in third to fifth positions. Finland (still a poor country, recovering from the Second World War) was in 22nd position. The same figure also shows the corresponding ranking for 2005, a year when the Scandinavian welfare states were at their peak. At this time the Scandinavian nations were still characterized by relatively long life expectation.

Nima-2

However, if anything they had fallen somewhat behind the rest of the world.  The gap in life expectation between the UK and the average Nordic nation had been 1.2 years in 1960. In 2005 it had shrunk to a third of that level. The gap to the US had gone from 2.2 to 1.6 years. This simple comparison illustrates the need to separate correlation from causation. High life expectation was not simply caused by large welfare states.

The argument for adopting a Scandinavian economic model as suggested by the left is straightforward: life expectation and other social outcomes are good in this region; therefore, if Scandinavian tax and welfare policies are adopted in the UK or the US, the same result will emerge there. But any deeper analysis shows that these good outcomes existed before the introduction of Scandinavian tax and welfare policies.

Equally interesting is the case of Iceland. In 1960 the life expectation in Iceland was below that of Norway and Sweden, and higher than that of Denmark and Finland. In 2005 Iceland had better life expectation than all the major Scandinavian countries. This was despite the fact that Iceland deviates from the larger Scandinavian countries by having a moderate welfare model, supported by a tax take of around 36 per cent of GDP.

Later data supports this trend. In 2011 the life expectancy in Iceland was 82.4 years, compared with 81.8 in Sweden, 81.3 in Norway, 80.5 in Finland and 79.8 in Denmark.  Evidently, a moderately sized public sector can be combined with long life expectation in Scandinavia. In fact, none of this should come as a surprise. Scandinavians live long lives for three reasons:

  • They have all become prosperous, by adapting free-market systems.
  • They have all introduced smart healthcare systems, that were successful already when the public sector was supported through relatively low taxes.
  • Scandinavians have a healthy culture, eating moderately and loving long walks in nature.

To further illustrate the point, if a large welfare state was the main reason for why Scandinavians live long, we should expect Denmark to have the highest lifespan in Scandinavia. After all, Denmark has the highest tax rate amongst developed countries. In reality, Denmark has the lowest lifespan in Scandinavia. This shouldn’t come as a surprise to any Scandinavians. The Danish love eating and drinking – enjoying themselves to an earlier grave than other Scandinavians, who choose to live longer with a more stiff attitude to partying.

If this wasn’t enough, the Icelanders have the longest lifespan in Scandinavia. This is perhaps what we should expect from the nice, pleasant country they live in? Except that Iceland is a dark, cold country – surrounded by ice as its name suggests. There are few less hospitable places in the world to settle in. And, of course, Iceland has a smaller welfare state than the rest of Scandinavia. So why do Icelanders live long lives? The simple explanation is that the more limited welfare state of Iceland is enough to grant good health, and that these Nordic Vikings continue to eat and live healthy. Perhaps long life span has to do more with a fish-rich diet than previously thought?

 

Dr. Nima Sanandaji is a research fellow at CPS, and the author of Scandinavian Unexceptionalism. The entire book is available through the Institute of Economic Affairs, which has published it.