Tim Harford, the Financial Times economics leader writer and author of ‘The Undercover Economist Strikes Back’, won the Royal Statistical Society’s 2010 award for statistical excellence in broadcast journalism.
He raises an important subject, comparing the tax-raising regime in Scandinavian countries with that in Britain: Denmark, Norway and Sweden receive taxes worth about 45% of GDP according to economist Henrik Jacobsen Kleven – 10 points higher than the British take. The following text follows Harford’s theme, supplemented by an Economist article and Wikipedia entry on the Nordic countries.
Scandinavian “universalist” welfare states aim to enhance individual autonomy, promote social mobility, ensure the universal provision of basic human rights and stabilise the economy. They rank highest on the metrics of real GDP per capita, healthy life expectancy, interdependence, perceived freedom to make life choices, generosity and freedom from corruption.
Jon Kvist: Institute of Society and Globalisation, Roskilde University, Denmark
The Nordic model emphasises maximizing the labour force, promoting gender equality, extensive benefit levels, income redistribution and maximisation of public participation in social decision-making. This also operates in the workplace as employers, trade unions and the government, negotiate terms as a social partnership, rather than having conditions imposed by law. Other strengths:
- free education,
- universal healthcare,
- strong property rights,
- contract enforcement,
- overall ease of doing business,
- public pension plans or
- union-run unemployment funds.
Comprehensive tax reporting in Scandinavia makes evasion very difficult. Norwegian tax returns are published for all to examine. An Economist article amplifies: “The performance of all schools and hospitals is measured. Governments are forced to operate in the harsh light of day: Sweden gives everyone access to official records. Politicians are vilified if they get off their bicycles and into official limousine.”
The Nordic welfare systems are mainly funded through taxation: Sweden at 56.6% of GDP, Denmark at 51.7%, and Finland at 48.6% reflect very high public spending. A large number of public employees work in various fields including education, healthcare and the civil service. They often have lifelong job security and make up around a third of the workforce (more than 38% in Denmark).
Harford points out that the UK system needlessly excludes swathes of the economy from tax. Rather than charge a 10%t rate of VAT on everything, the UK government charges a 20% rate of VAT on roughly half of what consumers spend.
He concludes that the simplest way to broaden the tax base is to dismantle barriers to getting a job, putting entitlement programmes on sound economic foundations: “Scandinavian governments subsidise education, transport and care for children and the elderly, all of which help people to work who might otherwise find themselves stuck at home. As a result, even high taxes do not keep them out of the labour market”.
True free trade
Though they employ 30% of their workforce in the public sector, compared with an OECD average of 15%, they are true free-traders who resist the temptation to intervene even to protect banks (following the lessons learnt in the ‘90s) and iconic companies: Sweden let Saab go bankrupt and Volvo is now owned by China’s Geely.
The Economist notes that Nordic countries look for ways to temper capitalism’s harsher effects. Denmark has a system of “flexicurity” that makes it easier for employers to sack people but provides support and training for the unemployed, and Finland organises venture-capital networks.
The anonymous author concludes: “A Swede pays tax more willingly because s/he gets decent schools and free health care. The generous Nordic welfare states have negotiated far-reaching reforms with unions and business lobbies to sharpen performance”.
A prescription for Britain? So near and yet so far below par
The Nordic culture has been arrived at by rooting out corruption and vested interests and a readiness to forage for good ideas across the political spectrum. It would be good to believe the Economist’s conclusion: “The world will be studying the Nordic model for years to come” and – even better – to see action under way for beneficial change.