Much-mooted Scandinavian welfare state has much going for it, but could Scotland afford to adopt it, writes Peter Jones
Mention Milton Friedman in any Scottish political debate and people start reaching for cloves of garlic and making signs of the cross. Professor Friedman was, you may recall, the academic guru behind Margaret Thatcher’s monetarist economic policy, which cured inflation but, many Scots believe, destroyed Scottish industry. So how come Sweden, a bastion of social democracy, has embraced what in Scotland is seen as an idea at the semi-crazed end of the Friedmanite crack-pottery spectrum?
Scandinavia is now in vogue among progressive thinkers north of the Border. Yesterday the CommonWeal project, run by the Jimmy Reid Foundation, launched an “All of Us First” website-based campaign. To cite a Sunday newspaper encapsulation, it seeks to make a “historic shift” away from low-tax neo-liberalism and “looks to Scandinavian countries for inspiration, particularly in moving to a high-wage economy based on a well-skilled workforce”.
Interest in the Nordic model is not confined to the left. In February, the Economist, an economically free-market but socially progressive journal, published a survey lauding Scandinavia as “The Next Supermodel – Why the world should look at the Nordic countries”.
Well, I’m all in favour of looking at other countries to see what they do differently, whether there are lessons to be learned and perhaps copied. But we need to have a critical eye. Some things look superficially attractive, but turn out to be not importable – often because they are based on deep-seated cultural attributes that we don’t have.
Above all, we need to avoid what seems to be a growing curse of internet-based searches and discussions – the seeking out only of things that confirm a particular viewpoint or prejudice (which is then hailed as evidential “proof” of an argument), while simultaneously sweeping aside other evidence that questions or even disproves a particular claim.
This point is particularly relevant when looking at Scandinavian social democracy, for it has changed a lot over the years. Rather strikingly, academic studies identify the high point of the model – a well-funded welfare state and public services, plus secure employment – as being in the past, about 1970-75.
Lennart Schön, professor of economic history at Lund University, writes of the 1950-75 period in Swedish history as a “golden age”. By the early 1970s, Swedish governments were spending more than 60 per cent of GDP (the UK now spends about 45 per cent) on public services. Then Sweden was hit by the same de-industrialisation (despite left-wing governments) as was Scotland and the industrial pillars of the Swedish model crumbled.
Prof Schön writes: “At the same time, the disadvantages of the old model became more apparent. It put obstacles to flexibility and to entrepreneurial initiatives and it reduced individual incentives for mobility.” The high taxes needed to pay for lavish social policies were also an increasing disadvantage.
“Centralised negotiations and solidaristic wage policy disappeared. Regulations in the capital market were dismantled under the pressure of increasing international capital flows simultaneously with a forceful revival of the stock market. The expansion of public sector services came to an end and the taxation system was reformed with a reduction of marginal tax rates,” says Prof Schön.
With variations, much the same story can be told of Norway, Finland, and Denmark. Each country had some sort of economic crisis in the 1970-95 period, and each changed the prevailing social democratic model. The change is most dramatic in Sweden, where public spending as a proportion of GDP has been cut from 67 per cent of GDP in 1993 to 49 per cent in 2012.
One of the most extraordinary manifestations of this trend was the introduction in 1991 of vouchers to pay for school education. This idea, conceived by Prof Friedman, is that instead of funding state schools, either directly or via a local education authority, the state gives every parent of a school-child an annual voucher equivalent to the value of a state education. The parent then chooses the school, gives it the voucher, and the school cashes it with the government.
Prof Friedman reasoned that by exercising choice, parents would favour good schools over bad, and the bad schools would either have to improve or close. In Sweden in the late 1980s, according to one academic account: “Education was often cited as a glaring example of all that was wrong with Sweden’s welfare system: it was too rigid, too expensive, and horribly inefficient.”
A right-wing government elected in 1990 introduced vouchers and allowed private schools to be set up to compete with state schools. The change, it has to be said, is not a glorious success. It doesn’t work in the way economic theory said it would. Poorer people don’t exercise their choice as effectively as richer people, resulting in sink schools, and in many rural areas there is no effective choice.
Though there is also a growing view that the system is creating greater inequality (abhorrent to Swedish thinking) and, rather surprisingly, no political party proposes to abolish vouchers. Instead, the policy emphasis is on tweaking the system, for example by paying gifted teachers more to work in the worst schools.
You can find these departures from the idealised model of Scandinavian social democracy in all of the four Nordic countries. In each, you can find things to admire. Extensive childcare, advocated by the Scottish Government as a post-independence prize to be grasped, does allow for high female participation rate in the workforce.
But, in all the Nordic countries, public spending as a proportion of GDP is on the way down. Pension ages are being increased and welfare payments are being pruned back. As the Economist survey quoted Gunnar Viby Morgensen, a Danish historian, as saying: “The welfare state we have is excellent in most ways. We only have this little problem. We can’t afford it.”
Could an independent Scotland afford it? Maybe. If you include North Sea GDP, Scottish public spending in 2011-12 was 42.7 per cent of GDP. But if North Sea taxes are to go into a sovereign wealth fund as proposed, you should really look at spending as a proportion of onshore GDP. That turns out to be 51.7 per cent. Perhaps it isn’t so affordable after all.