Bob Murphy recently pointed to a misleading remark in a recent column by Paul Krugman. I’d like to point to another:
But what can be done about it? Corey Robin says “socialism” – but as far as I can tell he really means social democracy: Denmark, not Venezuela. Government-mandated employee protections may restrict the ability of corporations to hire and fire, but they also shield workers from some very real forms of abuse.
I actually have several problems with these two sentences. The first is clearly inaccurate; Corey Robin’s column reads like a sustained critique of the Danish economic model. And the second is slightly misleading. That’s because while Krugman doesn’t explicitly make the connection, most readers would naturally assume that Krugman’s comments on employment protections refer back to the previous sentence, which references Denmark.
In fact, among students of comparative economic systems, Denmark is famous for its “flexicurity model“, which means companies are relatively free to hire and fire workers, but those who do lose jobs have the security of generous employment compensation problems programs. Denmark is often viewed as the world’s leading example of an economy that combines highly free markets with extensive social insurance. When I researched this topic in 2008, I found that by some measures Denmark had the most capitalist economy in the world, if you exclude the variable of government spending. At the same time, government spending as a share of GDP was among the highest in the world. The net effect is that (back in 2008) various “economic freedom” rankings put Denmark about even with the US, with its much higher government spending tending to roughly offset its much lower level of economic regulation.
If you read Corey Robin’s piece, it’s pretty clear that he is opposed to the Danish model. He is highly skeptical of deregulation, and even goes out of his way to suggest that the Scandinavian model is not what he’s talking about:
Socialism means different things to different people. For some, it conjures the Soviet Union and the gulag; for others, Scandinavia and guaranteed income. But neither is the true vision of socialism. What the socialist seeks is freedom. . .
In magazines and on websites, in reading groups and party chapters, socialists are debating the next steps: state ownership of certain industries, worker councils and economic cooperatives, sovereign wealth funds. Once upon a time, such conversations were the subject of academic satire and science fiction. Now they’re getting out the vote and driving campaigns. It’s too soon to tell whether they’ll spill over into Congress, but events have a way of converting barroom chatter into legislative debate.
What ultimately gives shape to socialist desire is less the specific policies in a politician’s head than the men and women marching with their feet.
Of course in any complex economy, including both Denmark and the US, you can find examples of “socialism”. But what makes the Danish model distinctive is precisely the extent to which the Danes have pursued neoliberal policies in a wide range of areas, including free trade and capital mobility, freedom to hire and fire workers, no official minimum wage laws, privatization of many services that are traditionally in the public sector, etc.
While I have no doubt that a socialist administration in America would be less inept than the Chavez/Maduro version in Venezuela, let’s not forget than many on the left were praising Chavez’s policies during the period when soaring oil prices propped up his socialist regime. (One example is Jeremy Corbyn, a slightly more left-wing version of Bernie Sanders, and quite possibly the next leader of the UK.) American liberals are deluding themselves if they think the younger generation of socialists is interested in the Scandinavian model. They want high minimum wages, protectionism, nationalization of certain industries, restrictive labor market legislation and many other types of statist policies. For the most part, this is not the Danish model.
PS. I doubt whether many American socialists are interested in the Danish model for fire fighting. A private company named Falck provides 65% of firefighting services in Denmark, at a cost lower than in other countries.
PPS. Brad DeLong explains what’s wrong with the Robin piece, or at least one of the problems.
HT: David Henderson
READER COMMENTS
BC
Sep 2 2018 at 4:40pm
“The net effect is that (back in 2008) various ‘economic freedom’ rankings put Denmark about even with the US, with its much higher government spending tending to roughly offset its much lower level of economic regulation.”
How well do economic freedom rankings account for government spending disguised as mandates? For example, Obamacare requires that people buy all sorts of health insurance coverages they don’t want nor need at prices higher than insurance companies would otherwise voluntarily sell to them so that the excess premiums can surreptitiously subsidize others. All of those excess premiums are equivalent to taxes, and all of the hidden cross-subsidies are equivalent to government spending. Actually, mandated employer coverage is equivalent to taxing employers and spending those taxes on health insurance, so one could arguably count all of the insurance premiums as government spending. Do rankings formulas really count the mandates component of economic regulation the same as direct government spending? What would US total government spending be as a fraction of GDP if we included all spending disguised as mandates?
LK Beland
Sep 4 2018 at 10:16am
For that matter, you could also mention tax credit/deductions that favor certain economic activities at the expense of others.
art andreassen
Sep 2 2018 at 6:07pm
What I find so surprising in all the present discussions of “Social Democracy” is the total avoidance of the most perfect example we have had in the West, i.e., the UK from 1945 to 1976. Every objective of today’s followers was included in the UK program: government ownership of industry, strong unions, high taxes and welfare spending and currency control. The result was an economic disaster. No Labor candidate has ever run on a return to those “golden years” or mentions Arthur Scargill.
Along these lines another ignored fact because it does no credit to the UK is its response to the Marshall Plan. Marshall created the program to invigorate the devastated economies of Post War Europe by supplying each country’s government with funds to use as it saw fit to grow their economies. The choice the UK made was to use it on welfare spending (Keynesianism?). Austria on the other hand lent the funds for production enhancing spending which would enable the borrower to make a return enough to repay the loan which would then be recycled. Today the Austrian government is still using the Marshall Fund to make productive loans.
Mark Brady
Sep 2 2018 at 10:14pm
If we compare either Sweden or Austria with the UK, we should acknowledge that the UK spent far more on military expenditures in the postwar world, both on NATO and the (rapidly dissolving) British Empire, and that these expenditures reduced funds for both private investment in fixed plant and equipment and public investment in infrastructure.
For more than 350 years financing the UK’s naval and imperial ambitions have impoverished most of the working population, directly through taxation and indirectly through the public debt that has siphoned off funds from private and public investment. It is called the fiscal-military state for good reason.
E. Harding
Sep 3 2018 at 1:32am
Does not explain the exceptionally slow real GDP per capita growth in the UK in the 1946-73 period relative to the rest of the Western countries. UK military spending as a percentage of GDP in 1960 was lower than in the U.S., and was about the same as in France, which surpassed the UK in GDP per capita (PPP) in 1967 or thereabouts (the UK surpassed France again only in 2014).
Scott Sumner
Sep 2 2018 at 6:26pm
BC, I presume mandates are included as a factor that reduces economic freedom. I’d guess they show up under “regulation”, not “government spending”, but am not certain. It could go in either category.
Art, Notice that the Scandinavian economies never went as deeply into nationalizing industry, and did better than the UK during those years.
Gordon
Sep 2 2018 at 8:27pm
“American liberals are deluding themselves if they think the younger generation of socialists is interested in the Scandinavian model. They want high minimum wages, protectionism, nationalization of certain industries, restrictive labor market legislation and many other types of statist policies. For the most part, this is not the Danish model.”
Scott, from what I’ve seen in social media, young adults in the US who express admiration for socialism are extremely ignorant of how the Danish economy operates and they assume the things they want are to be found there. They’ve also come to equate socialism with kindness and caring and capitalism with heartlessness and exploitation. And therefor they incorrectly conclude that the only way a society will improve the lives of the vast majority of its population is by embracing socialism.
P Burgos
Sep 4 2018 at 2:41pm
I agree with Gordon. I doubt that the “socialism” of young Americans is rooted in a deep knowledge and commitment to socialism as Prof. Sumner defines it. It is, I think, merely a fashionable way to express frustration with a status quo that is perceived as too plutocratic.
E. Harding
Sep 3 2018 at 1:36am
Strong post, Sumner, correct on all points.
B Cole
Sep 3 2018 at 5:40am
The best way to encourage the employee class (a huge voting bloc) to embrace free enterprise is to maintain very tight labor markets and high and rising wages.
A couple generations of stagnant wages, exploding housing costs in major markets, and exorbitant healthcare costs might induce employees to vote for a socialist.
You can try heavier and heavier doses of propaganda to encourage voters to embrace free enterprise, but some real results make the task easier.
Frank
Sep 3 2018 at 10:19am
Is there a good book for a would-be student of comparative economic systems to read in order to get an overview of various countries’ economic and social welfare policies, and their outcomes, or do you have to read hundreds of articles in the Economist over a period of years and try to keep their contents straight in your memory?
Thaomas
Sep 3 2018 at 11:09am
One problem is factoring in taxation as a measure of “economic freedom.” Decades of denunciation of any program that seeks to transfer income to lower income people — ACA is just the most recent example — as “socialism,” and calling Barack Obama a “socialist” is bound to lead reasonable if not deeply informed people to think that “socialism” is a pretty good thing.
P Burgos
Sep 4 2018 at 2:29pm
I think that Thaomas makes a very good point regarding the use of the term “socialism” in the US. It has been a rhetorical tactic of some people on the right in the US to call any government action that redistributes wealth from the wealthy to those less so as “socialism”. Which means that there definitely is a reason that people in the US whose main political goal is to expand welfare state sometimes call themselves “socialists.”
Scott Sumner
Sep 3 2018 at 2:19pm
Frank, I’m not sure, maybe someone else can recommend one. I do think it make sense to read hundreds of articles in The Economist, and also to look at lots of data.
Bob Murphy
Sep 3 2018 at 5:51pm
Good catch Scott! I never read the two articles Krugman linked to in his piece, so I had no way of assessing whether he accurately represented them.
Lorenzo from Oz
Sep 3 2018 at 6:56pm
(1) Brad DeLong and I have the same response to Corey Robin.
(2) “The term “socialism” refers to an economic system in which human goods are removed from the market mechanism and currency exchange and are instead distributed based on need. To socialize an industry means to remove its products (whether medicine, education, housing, etc) from the market model and instead establish some means through which need is assessed and filled without the expectation of reciprocity. Socialism does not change who pays for necessary social services but replaces the very system of exchanging currency for goods entirely. A socialist viewpoint recognizes the impossibility of moral reform from within capitalism.”
Fredrik deBoer.
https://fredrikdeboer.com/2018/07/14/the-ground-floor/
Lorenzo from Oz
Sep 3 2018 at 6:59pm
A definition which does leave one free to critique everything and take responsibility for nothing. (That’s leaving aside the delusional nature of thinking such a system is possible.)
P Burgos
Sep 4 2018 at 2:31pm
Does anyone have a non-contested definition of capitalism, a la Bryan Caplan? If not, how about socialism?
JK Brown
Sep 4 2018 at 4:40pm
Un-contested, no. Not even tested. A few years ago, I became frustrated that I could find an accepted fixed definition of capitalism beyond the 11th grade econ, and totally uninformative, “private ownership of the means of production” gameshow definition. I went on a journey. One that did cause me to read a lot of Mises works, but I concentrated on writings before what I see as the obfuscation started in the 1920s.
I came up with the following. I’m not sure that capitalism is the best name for the liberty, but I’ve seen no other word for the liberty. Socialism is really just a curtailment and limitation of the liberty on a spectrum.
Alex
Sep 4 2018 at 9:02pm
I couldn’t find a definition of capitalism that I liked so I made my own
Capitalism: a political system that recognizes and protects the right of the people to own and transfer private property.
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