How Capitalism Will Save Us (23 page)
Read How Capitalism Will Save Us Online
Authors: Steve Forbes
Denmark, Sweden, and Finland have enjoyed economic growth levels
higher than European nations such as Germany and France. Prior to the 2008 recession, Mitchell wrote,
Average annual growth rates over the past 10 years range from 2.1 percent in Denmark to 4.3 percent in Iceland. Unemployment rates are all below 9 percent, with Iceland enjoying a jobless rate of just 2.6 percent. [This was before the country’s economic collapse.] Per capita GDP also is reasonably impressive, especially compared to most parts of the world, ranging from nearly $43,600 in oil-rich Norway to slightly more than $34,400 in Sweden.
What the numbers don’t show, however, is a Scandinavian standard of living far below that in the United States. The average Nordic citizen has about half the disposable income of the average U.S. resident. Mitchell cites a 2003 study by the Organisation for Economic Co-operation and Development (OECD) showing that
the average person in the United States had more than $27,000 of disposable income while the average person in Nordic nations (no data available for Iceland) had disposable income of barely $14,300, less than 53 percent of the U.S. level. Even Norwegians, bolstered by oil wealth, had per capita disposable income of less than $16,800, barely 62 percent of the American level. Danes and Finns are at the bottom, with less than 50 percent of the disposable income of the average American.
Mitchell elaborates:
Americans have twice the household wealth of Swedes, Finns, and Norwegians…. Americans also own more consumer products, particularly durable equipment such as automobiles and household appliances. Americans also enjoy more housing. Indeed, poor people in the United States have as much housing space as the average European.
What does this mean in terms of daily life? Writing in the
New York Times
, Bruce Bawer, an American freelance journalist living in Oslo, Norway, reports that evidence of a lower living standard is everywhere:
Library collections are woefully outdated, and public swimming pools are in desperate need of maintenance. News reports describe serious shortages of police officers and school supplies. When my mother-in-law went to an emergency room recently, the hospital was out of cough medicine. Drug addicts crowd downtown Oslo streets, as the
Los Angeles Times
recently reported, but applicants for methadone programs are put on a months-long waiting list….
After I moved here six years ago, I quickly noticed that Norwegians live more frugally than Americans do. They hang on to old appliances and furniture that we would throw out. And they drive around in wrecks. In 2003, when my partner and I took his teenage brother to New York—his first trip outside of Europe—he stared boggle-eyed at the cars in the Newark Airport parking lot, as mesmerized as Robin Williams in a New York grocery store in “Moscow on the Hudson.”
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Writing before the recession, Bawer was amazed at how many Norwegians—”from classroom to boardroom”—brown-bagged their lunches.
It is not simply a matter of tradition, or a preference for a basic, nonmaterialistic life. Dining out is just too pricey in a country where teachers, for example, make about $50,000 a year before taxes. Even the humblest of meals—a large pizza delivered from Oslo’s most popular pizza joint—will run from $34 to $48, including a delivery fee and a 25 percent value added tax.
Bawer says his experiences bear out studies reflecting the glacial economic growth of both Scandinavia and the European Union. According to one study, “Economic growth in the last 25 years has been 3 percent per annum in the U.S., compared to 2.2 percent in the E.U. That means that the American economy has almost doubled, whereas the E.U. economy has grown by slightly more than half.”
Another study from the international accounting and consulting firm KPMG “indicated that when disposable income was adjusted for cost of living, Scandinavians were the poorest people in Western Europe.
Danes had the lowest adjusted income, Norwegians the second lowest, Swedes the third.”
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Dan Mitchell of Cato writes, “If Sweden were part of America, it would be the sixth poorest state.”
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The key culprit behind this wealth gap—taxes. Scandinavians have less disposable income because they have to fork over so much to their welfare states. According to the Brussels
Journal
, “Between 1990 and 2005 the average overall tax burden was 55% in Finland, 58% in Denmark and 61% in Sweden. This is almost one and a half times the OECD average.”
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Dramatically higher personal income taxes are combined with a VAT (value-added tax) on consumer goods of as much as 25 percent, much higher than any U.S. state sales tax. The only bright spot—and one that is helping to sustain economic growth—are corporate tax rates, which are lower than in the United States.
Unemployment has been lower in Scandinavia than in other EU nations such as France and Germany, with their rigid worker-protection laws. But jobless rates have generally been higher than in the United States because of the high cost of hiring workers. And long-term unemployment has been far higher. Even before the recession, Dan Mitchell writes, “more than 18 percent of the unemployed in Nordic nations have been out of work for more than 12 months. In the United States, by contrast, fewer than 12 percent of the unemployed [had] been jobless that long.”
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Per Bylund, a Swedish libertarian writer, reports that concern over joblessness was so great in the the middle of this decade that
the national trade workers’ union demanded the state “redistribute” jobs through offering people in their 60s state pensions if they step down and their employers employ young, unemployed people in their stead. In the labor union’s calculations, such a stunt would “create” 55,000 jobs. What this shows is that the only perceivable way of finding jobs for the young seems to be to “relieve” older people of theirs.
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In fact, Scandinavia generated much of its vaunted wealth in the 1960s, before it instituted its high taxes and massive social-welfare bureaucracy. For example, according to Dan Mitchell, unemployment in
Sweden averaged 2 percent twenty years ago. It has since more than tripled. He quotes an analyst at a Brussels-based think tank who observed, “Not a single net job has been created in the private sector in Sweden since 1950.”
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Mitchell and others report that—despite its attractiveness to some Americans—Scandinavia’s high-tax welfare is driving away entrepreneurs and businesses. Mitchell writes, “Many productive people have departed for lower-tax jurisdictions. Others remain, but they move their assets so they are hidden from tax authorities.”
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Sweden has lost much of its pharmaceutical industry, which has moved abroad. Volvo and Saab, its automakers, were taken over by Ford and GM. Even IKEA, the giant furniture retailer that to many is a symbol of Swedish enterprise, relocated to the Netherlands. Company founder Ingvar Kamprad moved to Switzerland. According to one estimate, emigration since 2000 has grown at five to seven times the growth rate of the population as a whole. At least half—or more—of those leaving are college graduates.
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No wonder Sweden’s per capita income has fallen to about 80 percent of that of the United States. When the Swedish Tax Authority recently produced TV commercials to promote paying taxes online, it outsourced them to low-tax Estonia to save on labor costs.
Scandinavia’s own citizens have become increasingly disaffected with the economic stagnation that afflicts their economies. Sweden, as we noted in our introduction, has recently adopted pro-market policies. What about Denmark? Fans say that even though the country has a high income-tax rate of 63 percent the economy still prospers. It is true that the country has lower unemployment because businesses are allowed to shed redundant workers, thus giving its economy greater flexibility. And because of its small economy, government job-retraining programs are more focused and successful than similar programs elsewhere.
What they don’t mention is that there is growing dissatisfaction with the tax burden. Many Danes find ways around high tax rates, such as incorporating themselves so that some of their income is taxed at lower rates. They overlook the fact that, like other Scandinavian countries, Denmark has experienced emigration to lower-tax nations.
Even accounting for Scandinavian countries’ national health-care programs, their overall economic well-being still isn’t a match for those of
many other western European countries, or indeed many parts of the United States.
Ironically, free-market bashers in the United States are touting the virtues of the “third way” just as its own practitioners are discovering that, when it comes to producing true prosperity, it’s not the best way at all.
REAL WORLD LESSON
Nordic countries’ lower living standard is the little-known price paid for high taxes and social protections
.
“Aren’t the Rich Getting Richer at Other People’s Expense?”
THE RAP
The rich are a privileged group that prospers at the expense of everybody else, exploiting employees and customers to stay on top, while getting special treatment and tax breaks. Meanwhile, the poor get poorer and the middle class struggles to keep from falling behind.
THE REALITYRich people make their fortunes by creating opportunity and wealth for others. They do this by launching businesses that generate jobs, by investing in new ventures, or by spending money on other people’s products and services. The rich are not a fixed aristocracy. Who is rich and who is poor is always changing. You can’t have a prosperous or innovative economy unless people are allowed to become rich.
I
t’s true: the rich have been getting richer. Recent decades have seen an unprecedented expansion of worldwide prosperity. Until the credit crisis, there was an extraordinary explosion in asset values. Between 1982 and 2007, for example, the stock market went up more than fifteen-fold. The typical price of a house went from $69,000 to $247,000. In 1982 it took a mere $125 million to get you on the
Forbes
list of richest Americans. In 2008 it took $1.3 billion. Even in the current recession we see breathtaking displays of personal wealth—from ten-thousand-square-foot “McMansions” to privately owned jets to luxury cars that cost more than many single-family homes. The 2008–2009 downturn is most likely an interruption, not the end, of this long boom.