The Nordic Myth: A Criticism of the Loki that is “Democratic Socialism”

The Nordic Myth:
A Criticism of the Loki that is “Democratic Socialism”

By Erich Greiner

The debate surrounding “Democratic Socialism” has entered again into the headlines in light of the recent entry of United States Senator Bernie Sanders into the race for the Democratic Party nomination for the President of the United States[1] and the historic election of Congresswoman Alexandria Ocasio-Cortez, a “self-declared Democratic socialist” to the House of Representatives during the 2018 midterms.[2] Embodying the left-wing populism[3] that has surged in response to the rise of right-wing populism under President Donald Trump[4],  both Senator Sanders and Congresswoman Ocasio-Cortez have campaigned on Medicare for All, tuition free public college, a fifteen dollar an hour minimum wage, and advocated for the “Green New Deal” to combat climate change. [5]^,[6] Both have also pointed to Scandinavian social democracy—the welfare states of Norway, Sweden, and Denmark[7]—as model for the United States to follow.[8]^,[9]  Advocates of the model cite that Scandinavians, and more specifically Danes, “are more likely to have jobs than Americans,. . . in many cases. . .earn substantially more, . . . take more vacations. . .,” and that “income inequality is much lower, and life expectancy is higher.”[10] However, this analysis belies certain truths.

First is the false premise that Scandinavian “third-way” model is, in fact, socialist. It would be more accurate to say that the economies of Norway, Denmark, and Sweden are social-democratic than democratic-socialist. ^[11] Danish Prime Minister Lars LØkke Ramussen himself disavowed the label at a speech at Harvard’s Kennedy School of Government, stating, “The Nordic model is an expanded welfare state which provides a high level of security to its citizens, but it is also a successful market economy. . .” [12] In fact, none of the Nordic states could be considered traditionally socialist under the definition of socialism: “any of various economic political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods”—unlike a country such as Venezuela where the government “nationalized” the oil industry.[13]^,[14]

Furthermore, the goods associated with the social-democratic system cited in support of the Nordic model are largely misconstrued as products of the system, instead of existing before the creation of the expansive welfare state, or, in some cases, actively being hobbled by the enactment of the social-democratic system. Due in large part to the necessity of innovation demanded by the harsh climate and limited natural resources of the region, the peoples of the Nordic countries adopted liberal economic policies, relying on optimizing “ ‘maximum profitable agricultural activity’ and taking greater advantage of international trade.”[15] The adoption of these policies, the enforcement of property rights that enabled the transfer of land from landlords to farmers, the creation of small, localized banks that would extend credit to entrepreneurs with little or no collateral, and competition between firms of all sizes enabled Denmark’s economy to outpace better-resourced countries such as Ireland in the late nineteenth century.[16] During this time Denmark had a larger population than Ireland, higher levels of agricultural output, a greater level of trade, a lower national debt, a higher level of income, and a demonstrably higher standard of living than Ireland and Western Europe.[17] Moreover, over the span of a century, some of the Nordic state’s most famous brands, on which the welfare state greatly relies as a source of tax revenue were developed: Ikea, H&M, Volvo, Alfa Laval and Tetra Pak, all of whom have come to symbolize the brilliance of the Scandanavian free-market approach.[18] In fact, the brands’ home country of Sweden experienced the highest growth rate in per capita GDP in the world from 1870-1936.[19]

However, Sweden’s growth, like that of her sister Nordic countries, has been handicapped by the creation of the social-democratic welfare state in the early 1930s. Over nearly another century, from 1936-2008, Sweden’s growth rate fell to 13^th out of 28 industrialized nations, while Denmark’s economy, which had experienced the 6^th largest growth rate in the world prior to the adoption of similar social democratic policies in 1924, fell to the 16^th largest growth rate from 1924-2008.[20] This stagnation is the natural outcome of a market reaction to the policies of radical social democrats that were adopted in the 1950s and 1960s in an attempt to seek a social-planned “third-way” economy, somewhere between communism and capitalism.[21] Attempting to support what Swedish Prime Minister, GÖran Perrson, deemed the “bumblebee” of massive entitlement and welfare programs on the wings of the Nordic economies’ capitalist underpinnings, Sweden and other Nordic countries have clipped those same wings by creating oppressive tax regimes.[22] With an effective marginal tax rate on Swedish businesses that at times exceeded 100 percent of profits, a private business owner could pay a marginal effective tax rate of 137% on capital gained through the issuing of new shares, costing himself money.[23] Additionally, when long-established companies such as Nokia are relied upon for nearly a quarter of Finnish growth from 1998 to 2007 despite being established over a century before, it is little wonder that innovation has been hobbled and entrepreneurship disincentivized.[24]

The adoption of the social-democratic model has also created deleterious effects that extend far beyond mere economic output. While the application of free-market principles, innovation and trade led the Nordic states to lead the industrialized world in terms of GDP and standard of living, it was the underlying social fabric and political stability that enabled the states to create such high levels of wealth. “High[] levels of trust and social capital” enabled the Danish to establish cooperative creameries that were founded by dairy farmers, whereas in the better-resourced but highly partisan Ireland, no such organizations could be founded.[25] The extraordinary level of trust is also why the aforementioned community banks could make low or no-collateral loans to entrepreneurs that provided the capital necessary to engage in business.[26] However, the adoption of social-democratic policies has also torn at the social fabric and increased mistrust. For example, though the supporters of social-democracy point to the high levels of health of citizens of Nordic states, it is interesting to note that “only the Netherlands spends more on incapacity-related unemployment than the Scandinavian countries” and that “forty-four percent believed that it was acceptable to claim sickness benefits if they were dissatisfied with their working environment.”[27] Additionally, in recent years, absence of men at work claiming sickness increased by forty-one percent during the 2002 World Cup.[28]

Even more problematic is that while distrust among the domestic population of the Nordic countries grows, immigrants face an even greater struggle. In response to the ongoing Migrant Crisis, the Nordic countries have increased restrictions and tightened access to benefits, including those that provided to health services, financial benefits, and stipends for food.[29] Further, due to the strained labor markets, even those who are highly skilled migrants face an unemployment rate 8 percentage points higher than that of native-born citizens, such as that of Finland and Sweden.[30]

In Norse mythology, Loki is the “trickster god. . . [who] often runs afoul of societal expectations”.[31] In Icelandic, loki as a common noun translates to “knot” or “tangle”.[32] Though we may look to the Scandinavian countries as a model for economic success and egalitarianism, we should not be tricked into misattributing their success to, nor become illusioned about, the entanglements and snares of the social-democratic system.

[1] Bernie Sanders Announces Presidential Run, Calls Trump an ‘Embarrassment’, Bloomberg (Feb.  19, 2019), https://www.bloomberg.com/news/articles/2019-02-19/bernie-sanders-announces-candidacy-in-2020-presidential-race.

[2] Meet Alexandria Ocasio-Cortez, the millennial socialist political novice who’s now the youngest woman ever elected to Congress, Business Insider (Jan. 8, 2019),  https://www.businessinsider.com/all-about-alexandria-ocasio-cortez-who-beat-crowley-in-ny-dem-primary-2018-6

[3] Bernie Sanders is Back, The New Yorker. (Feb. 19, 2019), https://www.newyorker.com/news/current/bernie-sanders-is-back

[4] Populism and Nationalism in the Trump Era, Cato Institute (Jan. 25, 2017), https://www.cato.org/events/populism-nationalism-trump-era

[5] Bernie Sanders is running for president—and his policies would have a huge impact on business, CNBC (Feb. 19, 2019), https://www.cnbc.com/2019/02/19/bernie-sanders-is-running-for-president-in-2020–here-is-his-platform.html

[6] This is the platform that launched Alexandria Ocasio-Cortez, a 29-year-old democratic socialist, to become the youngest woman ever elected to Congress, Business Insider (Jan. 4, 2019), https://www.businessinsider.com/alexandria-ocasio-cortez-platform-on-the-issues-2018-6

[7] Scandinavia, Encyclopedia Britannica (Jan. 10, 2019), https://www.britannica.com/place/Scandinavia

[8] “I think he’s scared: Alexandria Ocasio-Cortez celebrates Trump’s criticism of socialism in the State of the Union, Business Insider (Feb. 26, 2019), https://www.businessinsider.com/alexandria-ocasio-cortez-celebrates-trumps-slam-of-socialism-2019-2

[9] Bernie Sanders’ American Dream is in Denmark, CNN (Feb. 17, 2016), https://www.cnn.com/2016/02/17/politics/bernie-sanders-2016-denmark-democratic-socialism/index.html

[10] Something Not Rotten in Denmark, The New York Times (Aug. 16, 2018), https://www.nytimes.com/2018/08/16/opinion/denmark-socialism-fox.html

[11] Nima Sanandaji, Scandinavian Unexceptionalism: Culture, Markets, and the Failure of Third-Way Socialism, 18 (Institute of Economic Affairs, 2015)

[12] Denmark’s prime minister says Bernie Sanders is wrong to call his country socialist, VOX (Oct. 31, 2015), https://www.vox.com/2015/10/31/9650030/denmark-prime-minister-bernie-sanders

[13] Socialism, Merriam-Webster (Dec. 29, 2018), https://www.merriam-webster.com/dictionary/socialism

[14] How Venezuela Ruined Its Oil Industry, Forbes (May 7, 2017), https://www.forbes.com/sites/rrapier/2017/05/07/how-venezuela-ruined-its-oil-industry/#612e494f7399

[15] See Supra. note 11 at 12-13, (Quoting Irish economist James Beddy)

[16] Id., 13-15

[17] Id., 12-13

[18] Id. at 15

[19] Id. at 15-16.

[20] Id. at 17-18

[21] Id. at 20-21

[22] Id. at 11, 22

[23] Id., at 22-24.

[24] Id..

[25] Id., at 13 (Quoting Irish economist Kevin O’Rourke)

[26] Id.

[27] Id., at xv

[28] Id.

[29] Overwhelmed by Refugee Flows, Scandinavia Tempers its Warm Welcome, Migration Policy Institute (Feb. 10, 2016), https://www.migrationpolicy.org/article/overwhelmed-refugee-flows-scandinavia-tempers-its-warm-welcome

[30] See Supra. note 26.

[31] Loki, Norse Mythology for Smart People, https://norse-mythology.org/gods-and-creatures/the-aesir-gods-and-goddesses/loki/

[32] Id.