By Kelly McDonald / August 11, 2015 / The Federalist
If you’re looking for a prosperous European country to emulate, don’t look to the high-tax social democracies of Scandinavia. Check out Switzerland, instead.
Many leftists hail Scandinavia as a socialist haven that demonstrates the inferiority of capitalism. Presidential candidate Bernie Sanders recently declared that the United States ought to emulate Scandinavian countries because they provide education and healthcare “for free.”
There are many problems with this line of thinking. For one, it is fallacious to claim that a system that works for homogenous countries like Finland and Norway would also succeed in a massive, diverse country such as the United States. For another, it is incorrect to refer to Scandinavian countries as “socialist,” given that no Scandinavian countries nationalize their means of production.
Scandinavian countries—specifically, Norway, Sweden, Denmark, and Finland—are perceived as socialist because their citizens pay very high income taxes. However, these countries still suffer from many of the social and economic ills that socialism is supposed to prevent. Additionally, the United States taxes wealthy Americans at much higher rates than Scandinavian countries tax their similarly wealthy citizens, yet leftists such as Sanders are still displeased with how our tax system is organized. Finally, another European country defies the liberal “Scandinavian socialist success” narrative so completely that it demonstrates why capitalism is the best economic model in existence.
Scandinavian Countries Aren’t Socialist
One of the reasons it is incorrect to refer to countries like Sweden as “socialist” is that these countries were once far more progressive than they are now. The Economist says Sweden was once a “tax-and-spend” economy in which author Astrid Lindgren (of “Pippi Longstocking” fame) was required to pay more than 100 percent of her income in taxes. This heavily progressive tax rate stunted economic growth, and Sweden fell from the fourth-wealthiest country in the world to the fourteenth-wealthiest country in just 23 years.
The electoral success of moderate and conservative parties throughout Scandinavia is at once a rejection of progressive policies and an endorsement of free markets.
The government recognized the cause of the trouble and instituted several capitalist reforms to resuscitate Sweden’s economy. According to The Economist, following the success of Sweden’s relatively right-leaning Moderate party, “Swedish GDP is growing strongly, and unemployment is falling. The budget is heading into surplus next year.” The article notes that many Swedes support moderate and right-wing reforms: “The centre-right has made welfare payments less generous, cut taxes for the lower-paid and trimmed the numbers on sickness benefit. Voters seem to approve.” The electoral success of moderate and conservative parties throughout Scandinavia is at once a rejection of progressive policies and an endorsement of free markets in what some consider to be the most progressive region in the world.
In some ways, Sweden is now less progressive than the United States. Harvard professor Gregory Mankiw writes that the wealthiest decile of Swedes carries 26.7 percent of the tax burden. In The United States, the figure is a whopping 45.1 percent. Additionally, wealth inequality is more pronounced in Scandinavian countries than it is in the United States. In Sweden, Denmark, Finland, and Norway, the top decile of earners own between 65 and 69 percent of the country’s total wealth, an astonishing figure. Sanders is apparently unaware of this reality, given that one of his primary reasons for praising Scandinavia was their low levels of wealth inequality.
Scandinavia Has High Taxes and High Personal Debt
Despite their rates of wealth inequality, it is true that the citizens of Denmark, Sweden, Norway, and Finland devote more of their income to taxes than American citizens do. According to the Organization for Economic Cooperation and Development, the average American spends 9.8 percent of his income on taxes; Swedes spend 12.3 percent, Danes 26.4 percent, Norwegians 10 percent, and Finns 12.9 percent. Perhaps because of these measures, government debt is less of a problem in Scandinavia than it is in the United States.
Scandinavia’s progressive tax systems fail to protect their citizens from staggering personal debt.
However, Scandinavian rates of household debt are astronomically high. OECD figures also show the average Dane has a household debt equal to 310 percent of his disposable income; the number is 173 percent for Swedes. In America, the average is 114 percent. While America’s economic problems cannot be ignored, it is noteworthy that Scandinavia’s progressive tax systems fail to protect their citizens from staggering personal debt.
Finally, and perhaps most surprisingly, Sweden’s public education system is ranked lower than that of the United States. According to the OECD, Sweden ranks 30 of 37 in math and 24 of 37 in reading. The United States, meanwhile, is 27 of 37 in math and 25 of 37 in reading. Norway and Denmark are both ranked better than the United States, but not by much. These realities destroy the pervasive myth that “socialist” Scandinavian schools are the best in the world. Despite what Sanders might believe, educational institutions in Sweden are not superior to those in the United States. Sweden’s high tax rates have not ensured educational excellence, and many Swedes likely pay the equivalent of college tuition for their children in the form of taxes anyhow.
The Non-Socialist European Success Story: Switzerland
This evidence is quite as compelling as the success story that is Switzerland. Unlike its neighbors, Switzerland is one of the most capitalist countries in existence. Its citizens only pay 8.6 percent of their personal incomes in taxes annually, and its economic climate is particularly well-suited to entrepreneurship. The Huffington Post writes that 99 percent of Switzerland’s economy is made up of small and medium-sized enterprises, which also employ three-quarters of the country’s workforce.
Many leftists extol the limited successes of Sweden and Finland without ever acknowledging Switzerland.
Switzerland is ranked best in the world on many categories related to economic development, including “innovation, on-the-job staff training, attracting talent from elsewhere, and for government-provided training.” Ultimately, The Huffington Post claims, “Switzerland is home to one of the world’s most thriving economies and also one of the happiest populations on the globe.” Many leftists extol the limited successes of Sweden and Finland without ever acknowledging Switzerland, although it outperforms much of Europe in various economic and social metrics.
Although it is very capitalist, Switzerland boasts many of the advantages that socialist Scandinavian states are supposed to claim exclusively. Switzerland’s unemployment rate is just 4.5 percent, which is one of the lowest rates in the world. The country’s poverty rate is similarly low (XLS). Those who immigrate to Switzerland have an average employment rate of 76 percent, which is much higher than the European average of 62 percent.
Furthermore, the Swiss educational system is ranked third in the world by the OECD. Only Korea and Japan are ranked higher, which means Switzerland’s educational system is the best in the Western world. Many claim this distinction belongs to Finland, but Finnish schools are in fact ranked 10/37 in math and 4/37 in reading.
Additionally, income inequality and debt are both quite low in Switzerland. This reality persists although Switzerland’s wealthy have the lowest tax burden in the world; the richest decile in the country pays only 20.9 percent of the country’s taxes. Remarkably, even though the tax burden on the wealthy is minimal, Switzerland’s national debt as a percentage of its gross domestic product is lower than Finland’s, Sweden’s, and Denmark’s.
Switzerland is the closest to “paradise” of any European country, yet it remains one of the most capitalist economies on Earth. Its success is a powerful antidote to socialist claims about the benefits of progressive taxation, and all but destroys the assumption that Scandinavia as a bastion of socialism shows that only collectivism can produce success.
Regardless of the facts presented here, socialists like Sanders are sure to continue citing Scandinavia to support their narratives. If you happen to encounter such a person in real life, however, consider reading them this from The Economist: “Yet three deeper factors should give Social Democrats everywhere pause for thought. The first is that [Swedish] voters seem to value competent government above ideology.” Perhaps it is time for Americans to do the same.
This article originally referred to Switzerland as part of Scandinavia – it has been corrected.
Kelly is a college junior majoring in political science. She enjoys studying political events as well as philosophy, and has won several writing awards for her fiction and nonfiction work.