One of the most abused and misunderstood words in the English language is “socialism.” At one extreme we have the Russian communists who referred to their governmental form as socialism leading to the impression that socialism and communism are essentially the same thing. At the other extreme we have what have been termed “social democracies” which are often assumed to be a form of socialism when in fact they are capitalist systems regulated in an attempt to maximize social justice. Anyone using the word socialist or socialism in the current environment in the United States is most likely referring to a form of social democracy but risks being burdened with a communist-like association. Consider a current dictionary definition of the term socialism.
“a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole”
It is the phrase “or regulated” that makes all the difference. This was an addition made to the classical definition in order to make it consistent with current usage. Under this definition, all nations can be considered “socialist.”
The question then becomes: of all the forms socialism might take, which is the most desirable? Fareed Zakaria considers this issue in his recent book Ten Lessons for a Post-Pandemic World. He provides a brief but succinct political and economic history of the postwar years. Economic growth was large and inequality was diminished up until around 1980 when the US entered the Reagan era and the UK entered the Thatcher period. Eliminating much of the progressivity of tax structures, diminishing the economic and political power of wage earners, limiting the role of government programs and workers, starving social program of funds, and attacking the very notion of society as a collection of individuals with shared interests contributed to slower economic growth and greater inequality, both economic and political. Matters were further muddled in the US as the Supreme Court decided that spending money was a form of speech and the infringing the right to free speech was the one thing that could never be tolerated. This freed up the assets of wealthy individuals and corporations to be utilized in purchasing the allegiance of legislators. The only laws or regulations considered bad are those that one did not get to write.
Zakaria’s focus is provided by the Covid virus pandemic, thus the performance of the US in dealing with that must be discussed.
“At the start of the pandemic, the Norwegian University of Science and Technology made a Facebook post urging any of its students studying abroad to return home, adding, ‘especially if you are staying in a country with poorly developed health services and infrastructure and/or collective infrastructure, for example, the USA.’ The university later deleted the reference to America because it recognized it had made a gaffe—as the joke goes, it had accidently told the truth.”
Clearly, the US performance in dealing with the virus has been dismal. Other advanced countries have viewed the results with a mixture of pity and laughter. The US’s look-alikes are the European nations with whom it compares poorly in nearly all aspects of governmental performance.
“Thomas Philippon, a French economist, arrived in America in the 1980s, amazed by how competitive the economy was, offering an array of choices in products—from airline tickets to banking to phone services—at low prices. Today, however, it is Europe that has the cheaper goods and services and a greater variety of them. Over the last twenty years, Europe broadened its offerings while the United States narrowed them. Philippon’s research shows that some of the forces behind this shift are structural—in the digital economy, any given market tends to be dominated by one or two players, which then have the ability to raise prices. But a crucial cause, his scholarship revealed, is industries’ political power. Companies are able to write the rules in a way that shuts out competition and keeps their profits high.”
“Perhaps it is not surprising that, as Philippon shows, the European Union does a better job at enforcing open competition than America. The ‘Eurocrats’ in Brussels might be arrogant and officious, but they do not sell waivers to regulations in return for campaign contributions.”
Zakaria does suggest a candidate for the most desirable form of social democracy.
“In his ambitious two-volume work, Political Order and Political Decay, Francis Fukuyama writes that the fundamental question for every human society is simple: How do you get to Denmark? ‘By this I mean less the actual country Denmark,’ he writes, ‘than an imagined society that is prosperous, democratic, secure, and well governed, and experiences low levels of corruption.’ Fukuyama is speaking more of a political than an economic system, but the two are deeply connected. Indeed, one reinforces the other. Denmark is successful politically because it is successful economically—and vice versa.”
Bernie Sanders has often referred to Denmark as possessing the type of society that provides a model for the US to emulate. As a self-labeled socialist, the Danes were somewhat upset about the implication that their country was in any way socialist.
“This led the prime minister of the country to publicly contradict Sanders. ‘Denmark is far from a socialist, planned economy. Denmark is a market economy,’ Lars Løkke Rasmussen explained in 2015. The facts bear him out. Denmark ranks higher than the United States in the free-market Heritage Foundation’s Index of Economic Freedom (eighth for Denmark, seventeenth for the US). In general, Denmark, like most Northern European countries, has an open, low-tariff, competitive economy. In some ways it better incentivizes the accumulation of capital than America does, with lower taxes on capital gains and inheritance…”
The manner in which a society adjusts to market changes that create unemployment is an indication of the efficiency with which the economy can operate. Ideally, one would prefer minimum disruption by allowing instant termination of unneeded workers followed by rapid retraining or placement in a new role with no significant loss of income in the transition period. At one extreme some countries respond by making it difficult to terminate workers, while at the other extreme workers can be terminated immediately without cause and left to fend for themselves. The US exists as the example of the latter extreme. Denmark has strived for the ideal with an approach it refers to as “flexicurity.”
“…the first half of the term was key: ensuring employers had the flexibility to hire and fire workers easily, without excessive regulation or litigation, in an economy that’s open to the world and competition—but all within a system that provides the security of a generous safety net.”
Denmark is an example that is representative of what are referred to as the Nordic countries: Denmark, Sweden, Norway, Finland, and Iceland. All are high-tax capitalist economies with broad social policies that encourage equality of opportunity and limit excessive economic inequality. The high tax rates are applied to all citizens, not just the wealthy, but all people benefit because the tax revenue provides high quality services for all people, services which must be purchased by individuals from for-profit venders in the US. Citizens from a country like Denmark will come out ahead economically from this tax regime and will further benefit by having access to the same services that are available to the wealthy.
“What distinguishes Northern European countries from the United States are their high levels of general taxation and redistribution. In other words, the system is designed to make it easy to generate wealth through free markets and free trade. Then the state collects much of that wealth and spends it to ensure that its citizens have equal and abundant opportunities. Denmark’s taxes add up to 45% of its GDP, whereas in the United States the figure is 24%. And Denmark doesn’t just tax the rich. Like other European countries, Denmark collects a large part of its revenues from a national sales tax. Its sales tax rate is 25%, in line with the European Union’s overall average of 20%. In the United States, state sales taxes average just 7%. Denmark’s consumption taxes on everything from beer to eggs to smartphones naturally fall more heavily on the poor, who spend a larger share of their income on purchases. This regressive system of taxation is more than made up for, however, by the fact that the government expenditures and programs disproportionately help the poor and lower middle class. One additional advantage of a commonly shared tax burden is greater solidarity: everyone supports the government programs because they feel that everyone has contributed to them.”
“Imagine that you’re an average family. You and your spouse have a child, and make the mean household income. You could choose to live in either America or Denmark. In high-tax Denmark, your disposal income after taxes would be about $15,000 lower than in the states. But in return for your higher tax bill, you would get universal healthcare (one with better outcomes than in the US), free education right up through the best graduate schools, worker retraining programs on which the state spends seventeen times more as a percentage of GDP than what is spent in America, as well as high quality infrastructure, mass transit, and many beautiful public parks and other spaces. Danes also enjoy some 550 more hours of leisure time a year than Americans do. If the choice were put this way—you can take the extra $15,000 but have to work longer hours, take fewer vacation days, and fend for yourself on healthcare, education, retraining, and transport—I think most Americans would choose the Danish model.”
The services available in the Nordic model also include luxurious child rearing benefits such as generous childcare and family birth benefits that are shared between both parents, pensions, high gender equality and so on. In particular, it should be noted that the Nordic concept of liberty is focused on providing its citizens with the opportunity to become somebody. One can risk a low probability career in the arts, for example, without worrying that one will soon starve. The US concept of liberty is more one of license, the ability to do something: own a gun, refuse to wear a mask during a pandemic, discriminate against a class of people, and so on. One ventures into a career in the arts knowing they will have no support to fall back on—and perhaps never makes the attempt.
It is also worthy to note that the World Happiness Report has identified the happiest countries and as has been a regular occurrence, the Nordic countries dominate the rankings: Finland, first, Denmark, second, Iceland, fourth, Norway, fifth, and Sweden, seventh. The US came in at eighteenth.
Zakaria ends the discussion with an appropriate comment.
“In staying open to the world
and yet arming its people, the countries of Northern Europe, such as Denmark,
have found a path that is dynamic, democratic, secure, and just. They understood that markets were amazingly
powerful, yet not sufficient; that they need supports and buffers and
supplements. We should all adapt their
best practices to our own national realities.
There really is no alternative.”
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