Pretty awesome, notes Will Wilkinson, although also pretty boring.
This is, for those of you who aren't aware, a hot topic in libertarian economic circles because a largish group of liberals has been touting Denmark as a "nordic" model that other countries should follow. Roughly speaking, the model consists of high income taxes, high social spending, low capital taxation, light business regulation, and what one might call a "teach a man to fish . . . " approach to unemployment.
I'm somewhat skeptical of the Nordic revolution. For one thing, things that work in small homogenous countries don't work in big, heterogenous ones. German unemployment reform caused massive political problems with the east.
But mostly, I'm skeptical of the "next big thing" approach to economic growth. Remember how Japan was going to buy the whole United States and turn us into slaves in their Walkman factories until . . . ooops! Ten year recession. I recall that at around the same time, Germany was going to finally conquer America with its mad engineering skillz. America, you see, couldn't possibly compete against national healthcare and a consensus-based management approach that allowed companies to do real long term planning.
In 1991, German per capita GDP was $19,4651, compared to $23,456 in America--Germans enjoyed about 82% of American income per head.
In 2005, the last year for which figures are available, American GDP was $41,789 per head, while Germany's was $32,039--or 76% of our level.
Yes, yes, I know, this doesn't capture all of the intangibles that make life in a social democracy preferable to the squalor of America's unfettered market capitalism. But the point is, back then, people were arguing that Germany's GDP would smoke ours because of their awesome industrial system. Didn't happen.
I'm also somewhat skeptical of claims about American exceptionalism. I find them more plausible than claims about a Nordic miracle, because America has been pulling away from Europe for a lot longer. And I can tell a plausible story about why it's so. But the consensus based management thing wasn't obviously crazy, and if Germany had posted another ten years of terrific growth, I might even believe it now. So I think one should be cautious about attributing economic growth to any model, no matter how plausible the story behind it. Economies are mysterious things, and if we actually knew how to make them grow, we'd all be rich.
I should also point out that it's particularly dangerous to do this with small countries. The smaller the country, the more its economic growth is likely to depend on a few discrete factors that may be unrelated to policy. A single company, Nokia, accounts for something like 3-5% of Finnish GDP. If they have a boom year, the Finnish government looks like a genius; if they have an off year, the Finnish government looks like a poor economic steward. But the Finnish government has no control over worldwide demand for mobile phones.
1All figures quoted at current prices in PPP.
"what one might call a 'teach a man to fish . . . ' approach...."
I like to express it this way: Build a man a fire, and he'll be warm for an hour. Set a man on fire, and he'll be warm for the rest of his life.
I'm always amazed when people compare small European countries to the US. Denmark's population is about 5.5M, about the same size as Denver.
Don't forget that West Germany had to absorb East Germany and its failed economy in 1991, something they're still struggling with to this day.
Also, by many objective measures, Japan has continued to eat our lunch as was feared in the 80's. For instance, who is the biggest auto manufacturer in the world right now? Who made most of the parts in the new Boeing?
Automobiles and aeronautics have been American dominated since their inception. Ain't so no more.
So many people think simply, that you think the world of categories is made up just of apples, organges and lemons. Instead, you have tangerines, tangelos, mangos, bananas, etc.
It's impossible to accurately measure economic systems across policy borders. It is only if the policies are identical, with no cultural, societal or resource differences, can you get to make a somewhat equivalent economic comparison. About all you'll get from most, is that the one country's GDP is greater than anothers, either in total or on a per capita basis. Even that sometimes is a little hard for most to handle.
When you get all those other fuzzy issues involved in what makes a Denmark run the way they do, versus how an India runs, confusion is sure to follow. About the only way you can really measure is the result, and that isn't true equivalence.
Big and ugly isn't always big and ugly. What you have to do is listen to the sweet sound of a well-tuned machine working away in an almost effortless manner. Kind of like a swiss watch (before electronics) keeping time as regular as nuclear decay, or the deep thrum of a 'hog sitting at a stoplight.
I don't want that little, economic-but-'fair' four cyclinder grinder that makes everyone feel inclusive, but you have to replace it every five years (retool the economy) because it just doesn't meet expectations.
In general, I agree. I would hesitate, though, to put much stock in any analysis of Germany starting in 1991. That's one year after reunification. It was an abnormal stress likely to produce statistics that could be misleading one way or another. It doesn't say much about Germany compared to the US or Denmark or Japan so much as it indicates Germany's ability to cope with the stress of a sudden influx of economic disparity, and take advantage of a sudden new potential for growth.
"Automobiles and aeronautics have been American dominated since their inception."
Well, not really. The French were pretty good at both up through WW I. Mass production turned them into American success stories, aided in no small part by Britain's mishap with the Comet after WWII.
With the current legal and regulatory situation in this country, we couldn't replicate what we have today. The good news is that we are compounding from a much higher base than our energetic (Asian) rivals, and compounding faster than our large (European) rivals.
about 5.5M, about the same size as Denver.
Per Wikipedia:
Denver–Aurora metro region population: 2,408,750
Call be crazy but shouldn't you normalize GDP per capita numbers for unemployment if you're talking about industrial effectiveness? Currently, unemployment in Germany runs around 8.8% while in the US it's about 4.6%. That tells me that those with jobs in Germany are probably generating more GDP than those working in the US. Germany is more focused on higher tech, we seem to be more focused on jobs that fit illiterate high school dropouts. Not that there's anything wrong with dropping out of school and dooming yourself to a life in the service industry or a "career" in the Crossbar Motel.
Having lived in Denmark, I should inform you that it is not *that* homogeneous of a country. It is 5% Muslim, according to wikipedia, probably close to another 5% non-Muslim Turkish, and probably somewhere between 5-10% African American and about 5% Inuit (though they make up less than 1% of the population of mainland Denmark).
Like the United States, Denmark's racial hemegony differs based on locality. Copenhagen is as diverse as any major European city. The rest of the mainland is probably 90% caucasian (mostly Scandanavian and German). Then you have Greenland, which has an Inuit majority and a Danish minority, and the Faroes, which have a Faroe majority and a Danish minority.
Per Wikipedia:
Denver–Aurora metro region population: 2,408,750
Hmm, don't know where I was looking when I got that one.
Let's go with the Miami metro area, population 5,463,857.
Justin,
I'm sure you're in the ballpark on Denmark's racial makeup. I doubt, however, that it consists 5-10% of African-Americans. Blacks, maybe, or (more broadly) native Africans?
Grrr. It's late. I'm tired. That's my excuse.
I'm somewhat skeptical of the Nordic revolution. For one thing, things that work in small homogeneous countries don't work in big, heterogeneous ones.
Well, I think free markets work well in both large and small economies. That's all I think this Nordic buzz is about: if you keep your markets really free and competitive, you can afford a fairly large public sector.
Germany is more focused on higher tech, we seem to be more focused on jobs that fit illiterate high school dropouts.
Although I dearly love my own, well-made German car, when this discussion is made possible by German browsers and German operating systems and German blogging software, get back to us about Germany's high tech economy. While the US generates lots of jobs for people with skills, it also, unlike Germany, generates lots of jobs for people without so many skills.
Is it not time to start thinking of the EU, at least the Euro zone, as one country? Then you have something that compares to the US in all aspects of diversity, cultural and economic.
According to the almighty CIA World Factbook, Denmark is about 2% Muslim and 97% Christian, so I doubt the rather large 5% nonreligious Turkish population. Also there are more Inuit than Turks in the country.
Economies are mysterious things, and if we actually knew how to make them grow, we'd all be rich.
We are, by the standards of most of history.
But we are comparing one capitalist model (the US) with a slightly different one (eg Germany).
We should not expect to see any very obvious differences, after a short space of time.
First of all, tequila, those numbers in the CIA factbook are wrong. I know - I lived there, and immigration debates were all the rage.
Second of all, non-Muslim turks *are* Christian. I didn't realize I had to point that out, but there you go.
As for the inuits, there are a lot of Inuits - in GREENLAND, which is PART of Denmark. 80% or so of the population of Greenland is Inuit - that gets you to 40,000 - and then another 7,000 on the mainland. So 47,000. And there are clearly more than 47,000 MUSLIM turks in Denmark (the immigration riots are the first hint). So while my "living in Denmark" rough guess that somewhat around half of all Danish Arabs are Christian might be wrong, your source is DEFINITELY wrong.
Megan,
The nordic taxation model has something to say to policy makers.
Start a debate: http://worthwhile.typepad.com/
In particular read the study that is linked in the first paragraph "standard textbook rules of taxation"
A single company, Nokia, accounts for something like 3-5% of Finnish GDP. If they have a boom year, the Finnish government looks like a genius; if they have an off year, the Finnish government looks like a poor economic steward.
A single entity, the Pentagon, accounts for something like 3-5% of US GDP. If they have a boom year, the US government looks like a genius; if they have an off year, the US government looks like a poor economic steward.
No idea whether this website is reliable, it does give percentages for ethnic composition though:
http://www.us-english.org/foundation/research/olp/viewGeneral.asp?CID=19
Surely the best way to see how good an economy is is to look at the price of a pint of beer... Scandinavian countries may look pretty but when you're being stung £6/US$12 for a pint you might think again :)
It's my experience, speaking as a Dane, that a lot of foreigners like the way things work here, but very few of them would like to actually live here.
Denmark is a great place to visit.
"Northern Observer":
Megan has mentioned before that she believes Norway should be discarded from analyses such as the one you link to, as her economic performance has very little to do with tax policy and a lot to do with oil prices. If you remove Norway you get a downward slope.
Btw. Denmark is the second largest producer of oil in the European Union...
http://ec.europa.eu/energy/energy_policy/doc/factsheets/mix/mix_dk_en.pdf
Justin: "[denmark is] . . . about 5% Inuit (though they make up less than 1% of the population of mainland Denmark)." & "80% or so of the population of Greenland is Inuit - that gets you to 40,000 - and then another 7,000 on the mainland. So 47,000."
Not to challenge your anecdotal experience, but, even using your numbers, Inuit are only about 1% of the population (47,000/5.5mm=less than 1%). So, even if more Turks than Inuit, not necessarily 10%. Maybe perception was skewed by mix in Copenhagen area (about 20% of Denmark total)?
Also, many Euro countries have lots of temp workers who would not necessarily be included in official counts (been to Dublin lately? seems like it's overrun with eastern europeans). This would create a major disconnect between observation and reported numbers.
There is no flipping way that Denmark is 5% African, let alone 10%. The African-American population in the U.S. is only 13%, and unlike Denmark's, didn't all immigrate here in the last 20 years.
Well, US, I am an American who has lived in Denmark 8 years and I both like the system and living in it. So do most other Americans in Vendsyssel, I can attest. The Danish welfare system allows more people to be risk takers while letting them focus on their business instead of spending all their time on their employee's health insurance and pension systems. The the low regulation and more flexible work rules give Danish companies a lot more flexibility compared to the Euro zone. This is confirmed by the only indicator that really matters to me: the return on my Danish v US and Euro-zone investments over the years.
But to Liz Ford's even more critical point. The Danish beer we are taking out the (more like) 8 dollars a pint for is just a lot better beer. And it may be 8 bucks to you but it only 35 crowns to us.
I think megan is largely right that international comparisons like Denmark vs US are of limited value. However, there is no denying that since Denmark switched to flexicurity, it has done well on unemployment.
I think the main message that people in the Nordic countries would like those on the political "right" to acknowledge, is that there is nothing inherent in high taxation and generous welfare that necessarily affects competitiveness adversely. The old argument is that high taxes and welfare distort incentives so that the economy naturally becomes sluggish and underperforms. Evidently, in the right circumstances this is not true. One must look to culture, to employment practices, to education and so on, to find the explantion for why some countries underperform in the long run.
I should also mention that there is no Nordic model. Each Nordic country is exceptional insome way. Denmark has flexicurity, Norway oil, Finland Nokia, and Sweden has none of these. Nevertheless, they have a common culture and all deliver a very high quality of life. There is something to be explained here.
Well I've been in Denmark the last few years (dragged over by my partner), and I can honestly say I don't like it here, neither do most of the foreigners I meet, regardless of their ethnic or social background.
The socialism is stifling, penalising those who try over those who do not. And the forced confiscation of your income (tax of 68% on anything over £35,000/$70,000) is horrific. Couple that with over 200% tax on a new car!
Now we have the awkward question of where to live next. My partner's Danish, and the kids go to school here...