More Sweden, less tidbits

Well, I just lost a long post about the so-called Swedish model due to my own stupid carelessness the combined malevolence of Windows XP and MS Word.

Anyway, the main point was to say that the article on the subject (free for non-subscribers) in last week’s issue of The Economist was really a dishonest hack job. And my critique went roughly like this :

1. There sure is a lot of Timbroites in that piece: Johnny Munkhammar, a programme director at Timbro, is there; Mauricio Rojas, a former president of Timbro, is there too; the comparative study about Somalis in Minneapolis and in Malmö was done by Benny Carlson, a associate professor of economic history at Lund university (and avowed catlover) who had two of his previous books published by Timbro. Johan Norberg doesn’t seem to be there until you realize that the similarities between his recent piece on the Swedish model for the National Interest and the article in The Economist are really striking. Apart from the Timbro guys, the only other “external” observers (as opposed to Swedish politicians) quoted in the article are Assar Lindbeck, who do not strike me as especially leftist and Magnus Henrekson, a proponent of the “more state, less growth” thesis. I’m not advocating perfect balance here, just pointing out the fact that a bit more diversity of opinions would possibly have prevented things like 2. or 3. or 4. from happening.

2. You just cannot compute your own estimate of the real unemployment rate in one country and then compare it with other countries’ official unemployment rate. Or, if you believe you can do that, I can sell you a nice study showing that unemployment is really higher in Britain than in France. Frankly, I’m disappointed that The Economist even tries to make their readers fall for such a cheap statistical sleight of hand.

3. Even if more self-employment were always a good thing (and I don’t see why – see a comment by David Blanchflower on this), it is just not true that “Sweden has the lowest rate of self-employment in the OECD“. According to the latest available figures (OECD Excel file), the three “worst” performers in this category are Luxembourg (6,7%), followed by Norway (7,1%) and -I’m not kidding- the United States (7,2%). At 9,6%, Sweden is only 8th. Presumably, then, that means that the “chilly regulatory and tax climate” is even chillier in the U.S. Or something.

4. What’s fascinating in the article is that while it goes to great lengths to try (with mixed success) to rebut the idea that a big welfare state is compatible with a decent rate of economic growth (the well-known “welfare state as a free lunch” hypothesis) and a functioning labor market, it never tackles the main argument usually advanced in favor of Nordic social-democracies: that a huge dose of public intervention can bring about a lot of socially desirable outcomes that are not fully reflected in the GDP per capita. Like, for instance, a low level of poverty (OECD figures), a high level of subjective satisfaction, a less unequal society or a reduced gender pay gap (though see this and this on the glass ceiling). Indeed a composite index of 16 social indicators computed by the OECD finds Sweden well-ahead of the other developed countries (pdf, p 27). Now, I know that not all these results would necessarily sway a card-carrying libertarian (what’s wrong about income inequality anyway?), but surely some should, like the fact that social mobility is a lot higher in Sweden (and in the other Nordic countries) that in the U.S. or in Britain.

5. The conclusion of the article is just awful:

Different countries have different strengths. Mr Bildt puts forward his own tongue-in-cheek recipe for the perfect “Nordic model”, stretching the geography: Finland’s education, Estonia’s progressive tax policy, Denmark’s labour market, Iceland’s entrepreneurship, Sweden’s management of big companies and Norway’s oil. The right conclusion, in other words, is that it is wisest not to look for a single-country model at all, but just to take best practice wherever you find it.

This being, I believe, one of the worst piece of economic advice ever given*. Of course, looking for a “single-country model” is silly. But the reason it is silly is that while you can fairly easily import a tax structure, or a law subsidizing SMEs**, or a particular type of stick and carrot approach towards the unemployed, it is awfully hard to replicate the institutions and the cultural traits that make them successful. For instance, some economists argue that the Danish flexisecurity we all (except some grumpy leftists and libertarians) love and cherish is really not transferable to Mediterranean countries, since it relies heavily on certain civic attitudes that are much less prevalent in Southern Europe. That’s not say that there is nothing to learn from foreign experiences. Just that the idea that you can cherry pick the best institutional features of different countries, assemble them and get a coherent, functioning and successful system is really as dumb as it sounds.

* And also a childish taunt to all the progressives reading the piece, what with the reference to the “progressive Estonian tax policy”.

** French employers have been campaigning for years to get a French Small Business Act (and then, when they realized that could get France into some EU legal trouble, a European one), presumably on the account that one of the explanation for Europe’s poor economic performance is a lack of corporate welfare.

5 thoughts on “More Sweden, less tidbits

  1. For 2. “real unemployment measure”, I think offical unemployment rate is a meaningless measure because the frontier between inactive and unemployed is mostly a question of psychology and state/social pressure.

    That leaves you with employment/population ratio, but then you cannot pretend a higher one is better because 100% employment for 15-24 is obviously not a good thing, same for 55-64.

    In practice the only measure I find reasonable for comparison is employment rate of men aged 25 to 54 (to remove women rate which is still tied to social conventions, although converging these days), when you look at that, there’s no huge difference if you also look at part-time workers.

    YMMV.

    I don’t understand how economists still use unemployment numbers for anything but water cooler jokes, this is real ideology.

    (also posted at Beat The Press who analyzes about a NYT article.)

  2. Good stuff. I presume that the Timbro-ites put together a press release as the same basic story has now appeared in the IHT, London Times and The Economist.

    I wonder how many Swedes Timbro are convincing? They seem to be claiming to the Anglo-American press that they’ve convinced everyone who doesn’t vote SocDem in the current election. If only instinctively, I have to guess the picture is more complex than that.

  3. Speaking of Timbroites, look who’s coming to DC to sound the alarm about anything other than the current US healthcare system:

    The Dangers of Undermining Patient Choice
    Lessons from Europe and Canada

    ….
    FEATURING:

    SWEDEN
    Fredrik Erixon, Chief Economist, Timbro

  4. A great post!

    I think you are absolutely right that one cannot cherry pick institutions. Institutions work in concert and changing single parts of a country’s institutional framework can make a terrible mass even though the new institutions work fine in some other country’s environment.

    Keep on the good work!