Northern Future Forum Stockholm 2012

”Den nordiska modellen är löst definierad men kan kort beskrivas som en ekonomiskt framgångsrik välfärdsstat med omfattande trygghetssystem, höga skatter och starka fackföreningar. Vissa lägger till jämställdhet mellan könen och ambitiös miljöpolitik.

Modellen har alltid förknippats med socialdemokratin och särskilt Stockholm betraktades av internationell vänster länge som ett nytt Jerusalem. Men den tiden kan vara på väg att rinna ut.”

Göran Eriksson writes this in Svenska Dagbladet today. I find a problem with such a definition since “ekonomiskt framgångsrik”, or economically successful, is what pays for all this security. So, what in reality is interesting is how the Nordics can pay for all this, if you exclude Norway with its oil and gas. Why are they economically successful? Civil society not the state is the key. I think my generation grew up with the idea that the state does everything and it still sounds like this. This will probably have to change.

A key issue then is whether this “model” is interesting for Germany and Britain or if we should move in either of their directions instead. Assuming that it will be possible in the future to be friends with both sides, as Reinfeldt suggests. Reinfeldt has brought up the issue of whether there will be money for the Nordic welfare state in the future but this ultimately depends on the business sector performance rather than on the state performance.

PJ Anders Linder at Svenska Dagbladet writes today that the journal Expressen had polled only 2% in favor of Reinfeldt’s 75 year retirement initiative. I guess Reinfeldt wanted to see what the response is to this economic problem. It seem like the message is not taken in properly. Daniel Alling at the Swedish Radio said that Germans had calculated that today 3 people work for one retired person and in a not too distant future 1 person would work for two retired persons. Such examples amount to catastrophe for the welfare model in general. The question then arises if the age of the Nordic model, as it is described above, isn’t at its end?

From The Nordic Way report from Davos 2011 that was distributed at the Northern Future Forum in Stockholm 2012:

“Many people see the Nordic countries as some kind of compromise between socialism and capitalism. This is not at all the case, according to Berggren-Trägårdh. Instead, it is the combination of extreme individualism and a strong state that has shaped the fertile ground for an efficient market economy: Less tied down by legal, practical or moral obligations within families, individuals of both sexes become more flexible and available for productive work in a market economy. Gender equality has resulted in both higher fertility rates and higher female participation on the labor market than in other parts of Europe”.

This report can be taken as evidence for the benefit for Swedes to align to Anglo-America rather than Germany and the Eurozone. However, I am not sure how the authors combine individualism and equality. This seems to be the magic in what they call the Nordic Model, although the economist does not think there is anything to export in this model. The historians talk about trust being important. In Fukuyama’s book, Trust, there seems to be a relatively weak argument for trust being important for economic progress. The historians say that individuality does not have to lead to social fragmentation and it is interesting to note that Hayek used the same argument in 1944 in The Road to Serfdom. Nordic individualism differs from the American by being more friendly to the state. If this report is authentic, there must be some factor that makes individualism coexist with equality in spite of the Law of Jante which would work against it. Milton Friedman said: if you put equality before freedom, you will get neither one. The question is if this rule is valid in the Nordic countries?

Reinfeldt's Point

A while ago the Swedish prime minister took up the problem of the projected increases in eldercare and pension costs in a speech. Yesterday he went out prime time with the message that we should start thinking of working to an age of 75. This message comes when the Northern States of Europe including Great Britain is convening in Stockholm for discussions. He is probably saying that it should be possible to work that long, not something all people have to do. The current average retirement age in Sweden is 63 years and that is high in Europe.

Swedish TV gave Reinfeldt a critical response with the selection of interviews down town. He took a little beating but it was a brave move. Most interesting is the comparison with Southern Europe and a large country like France which have a 35 hour week and early retirements with riots occurring when talk about raising the retirement age a couple of years. Reinfeldt is talking 10 years and speaks from a position of having among the best government finances in Europe. He is also quite tough with the comment that if you have had a heavy job, physical or psychological, you should aim to reeducating to a lighter one instead of retiring in a burnt out position.

On top of this Anders Borg, the Swedish finance minister lectured banks on not taking profit from people with mortgages when the interest rate had been lowered by the Central Bank. The question is how much profit is needed to increase growth and if private consumption or jobs in the banking sector is what is most important. Borg threatened with tax increases on the banks if the margins were not lowered. I am not sure but it seems like the government is creating a conflict with business also in Sweden. The prime minster has called business for a “särintresse” as if business doesn’t seem to have a responsibility for the country.

The mood is rapidly changing. Mario Monti, the non-elected prime minister of Italy, is talking about increasing growth after two years of austerity. The problem is that macroeconomically this is straight forward problem. Germany has to increase consumption to boost foreign demand in the Southern European countries for growth to establish itself. However, Germany is split between those who want to integrate the Eurozone, and perhaps all of Europe with the new 25 country pact, and those who want to opt out of the Euro while there is time. They are against transfers like those made in the US between rich and poor states and they don’t believe in monetary expansion due to the risk for inflation although the ECB just printed some money for banks that were not called quantitative easing. A round sum of some €500bn.

Mitt Romney Won Again!

The American presidential election selects for both personal character and track record. It is amazing what an ordeal the candidates are going through. Their character is tested over and over again on all kinds of questions. Take the question on the Florida CNN debate on how they would describe their wife. Quite different answers!

So, Mitt Romney won comfortably last night. What irritates me is that most pundits describe him as dull and as the default candidate. I have heard him speak on some six 1hour 50min effective time debates by now. Personally, I think he stands a good chance of beating Obama and that he stands for the right America, the one I like and the one that makes me agree with Romney: “Believe in America”. America is indeed still the hope for mankind as I know it. Romney actually says this himself now and then.

Interestingly, Romney with his whole being stands for an economic system that is currently under “siege”, as someone just said. It is liberal capitalism on a religious basis. China is state capitalism, autocracy and non-religion. Romney actually stands tall and says he does not like autocracy when even the liberal The Economist is wavering. That is not dull. Rather quite exiting! This is a top 5% graduate from Harvard Business School and former governor that wants to change how Washington operates and he might just do that.

The Economist is running a debate on liberal capitalism versus state capitalism and they are getting a frightenly even result, 40/60 for the proposition that state capitalism is a viable alternative to liberal capitalism, respectively. Someone at the journal said that they find it easier to do business with the Chinese than with the Germans so the position would be understandable in this light. Yes, the City of London could benefit. However, this is important for the future if Romney wins.

Ian Bremmer who argues for liberal capitalism says that state capitalism is not viable because it is a politically governed adventure that uses the economy for its purpose. The rules of the game would change completely and they operate currently without transparence unlike Norway. I would worry for the R&D in such an economic system that is less natural.

Inequality?

The insight of Adam Smith was to find a path running the economy that aligned itself with human character but he had indeed first written a book that was published prior to 1776 that involved morals. Already in this age it was clear that human character is important for capitalism to work. Smith’s first book The Theory of Moral Sentiments from 1759 was considered by himself to be his magnum opus.

Greed and corruption is a problem in all economic systems and would not be a reason for dismissing the most natural way of driving an economy. One important issue is how meritocratic societies allocate their talent—in civil society or in the state. It will be very difficult to cooperate between the US and China if they differ in this way. The reason for allocating differently might be the degree to which people are willing to risk their wellbeing. The state or the party offers a more secure job.

Another important issue is the dignity involved in earning your keep and receiving redistributions. It is linked with where you find most of the competence in society. The Chinese might actually think that the state should establish companies and run the economy whereas this is most efficiently performed by civil society in the West. Could redistribution turn the need for human dignity around in China against the grain of normal psychology?

In Scandinavia redistributions are popular, relatively speaking. Part of the reason for this might be the Law of Jante which says that you should not try to stand out, stay in line, don’t think you are something from a society described by Aksel Sandemose in a book called En flykting korsar sitt spår. Inequality is bad, something that is making a splash internationally currently. The fact is that you say that Anglo-America with its relatively higher inequality is much worse than Scandinavia in this fashion. You would then claim that the culture of Anglo-America is worse than that if Scandinavia and that all British and Americans should become like the Swedes, Norwegians and the Danes. I’m not so sure.

The Tax Thing?

When they attack Mitt Romney and Warren Buffet for not paying enough taxes because they are taxed around 15-20%, I began thinking about what Obama said tonight: it is common sense that everyone should pay the same percentage? Many tax systems are even progressive and require higher income earner to pay proportionally more. I realize that what I’m going to write is like swearing in the church in Sweden but I don’t agree with the common sensicality with such progressive tax systems. A wealthy person does not cost society more than a less wealthy. Thus lack of common sense in same tax rates because the total amount paid by a wealthy person on a lower percentage could very well be higher than that for a less wealthy person. Rather they provide vital investments with their fortunes that benefit society apart from costing society the same per capita. They often sit on more information that society benefits from as well.

So what is going on in Scandinavia where people think you should pay more if you are richer. Does a rich person get anything for this, like for example power and influence? In this case people that have other talents than becoming rich should in some fashion be rewarded likewise for justice to reign? SCB.se has data on where tax money comes from. The bulk does not come from the richest fraction but from the middle classes. However, in the US the top 1%, earning more than $500,000 per year, control 40% of the wealth. The bulk of the tax probably still comes from the middle classes in the US. The question then is if it is fair that the richer pay a higher percentage? Milton Friedman advocated a flat tax rate as did some of the Republican presidential candidates lately. Such a tax system has the advantage of being simpler and supposedly bringing in more money per tax rate per person. In other words it is supposedly more efficient. It is possible to think that lower income takers can have less tax but higher income takers the same as the middle class or less? The US has, according to Wikipedia, the most progressive tax system among OECD countries but on a lower average level. Progressivity is derived from the “ability to pay” and as I suggested that is good at the lower incomes but does not necessarily make sense in the higher range. Why should rich and successful individuals give their money to the state instead of managing them themselves? As Lincoln said: government should only do what the individuals cannot do themselves. What is flying around right now in the debate is the notion that it is necessary to tax the rich higher percentages for the state finance s to function. What would this mean? It would mean that we could not live without the rich—an interesting thought.

State of the Union Address 2012

It is a nice tradition to participate in the dissemination of US intent for the year. Obamas talk was focused on the issues of the presidential election and he covered the majority of Republican concerns and tried to sound as a Republican. He still talks heartedly about joining across the aisle. He quoted Lincoln, the GOP president, that government should only do what the citizens can’t do by themselves, thus seemingly taking initiative from the Republicans. Since the military is very popular, he used the military as an example of nonpartisan work.

He did not speak about balancing the budget though and aggressively lowering the debt as the Republicans. He paraphrased Romney and Santorum on bringing the jobs back, however. It was clear from the response of the audience that this is a very important issue. Globalization is dead and fragmentation is here, as I argued earlier. There was clear fighting spirit from the audience on this issue. “With a level playing field, nobody beats the US”. He said that the coming boom in shale gas was due to government research. This is a major issue too but he raised a caveat for disclosure of the chemicals used for environmental safety.

The talk and the response from the audience gave a clear impression of a unified US on the move again. In the Financial Times today there is an article describing that the Davos conference has been placed during the celebration of the Chinese New Year which makes China not sending high level people. Obama almost sounded like Romney in claiming following the rules for trade he also said he had passed less regulatory law than George W Bush. He almost sounded Republican for the sense of unity.

Swedish Opposition Politics?

The Swedish prime minister, Fredrik Reinfeldt, said the other day that there is no relevant opposition and Dick Erixon, a blogger, suggested that the opposition should fuse the Left Party and the Social Democrats under the new leader of the Left Party. The reason is that Håkan Juholt, the former leader of the Social Democrats, resigned today and left the Party in shambles. One of his last public statements was “It is not me, it is the Party”. The Social Democratic Party is in some kind of funk, everybody agrees, but no one talks about what the problem might be. Not long ago they rid themselves of the competent Mona Sahlin, who was better than Juholt, and now who.

So what ails Swedish Social Democracy? The Danes just elected a coalition led by Social Democracy and in France it is very likely that Francois Hollande of the Partie Socialiste will take over after Nicholas Sarkozy. SPD in Germany might be a strong contender in the next election against Merkel and her CDU.

Welfare might be in trouble that is making Social Democrats wonder if the good years of the West will be replaced by leaner years where it will be more difficult to afford the level of welfare people have gotten used to? Another problem might be the neo-fascism some people have established in Sweden and that there should be problems accepting the continuous development of the guiding control state that massacre individualism that otherwise is more and more important for entrepreneurism and innovation on all levels of society. Then I don’t know if Social Democrats are worse than other politicians to use this sort of techniques.

Social Democrats then seem to hold on to the equality parameter which is talked about even in liberal environments like the US. Belief in capitalism is down to 60% from 80% in the US and this country was known for not demonstrating envy of wealth but rather admire those that do well. Not so really in Sweden. The Financial Times is running a series of articles on the “Crisis of Capitalism”. The consensus seems to be that there is no other system and that we have to endure the downsides. There is also a sense that honor should reenter the game—less greed. The political opposition in Sweden doesn’t seem to discuss this however. Most people agree on equality of opportunity but the crucial question that separates Europe from the US is equality of outcome. Together with security it anchors Europe at a lower GDP growth and higher unemployment.

Using partly the same welfare idea as the Social Democrats the Alliance parties, The Moderates, The People’s Party, The Center Party and the Swedish CDU, have annihilated the idea of Social Democratic opposition. My humble question is, however, if it would not be better leaving focus on the welfare state on the opposition and advocating a more American republican line that would address problems in the future with focus on individuality, liberation of labor laws, and freedom. It seems like Europe is suffocating itself compared to North America. Europe has a great advantage though. It pays less than half for comparative health care but the US economy still seems to be more alert, adaptive and dynamic.