Social Democracy for Centrists

Social Democracy for Centrists

The Economist, long identified with libertarian economic ideals, lauded the “Nordic model” in a cover story last month as a “centrist” economic path for global capitalism.

The Economist, long identified with libertarian economic ideals, lauded the “Nordic model” in a cover story last month as a “centrist” economic path for global capitalism. Long hostile to “tax-and-spend” social democracy, the publication’s change in tack arises from its recognition that austerity policies are deepening the economic crisis and that the inequality and declining social mobility of “free-market,” Anglo-American capitalism threatens the very legitimacy of the capitalist system that the Economist holds dear.

The magazine praises Denmark, Sweden, Finland, and Norway for accomplishments often touted by social democrats—low poverty rates, egalitarian distribution, and efficient public services. But the magazine argues that these are now “centrist” societies because they balance their budgets, allow for consumer “choice” within their public services, and nurture risk-taking entrepreneurs. The Economist sheepishly admits that these countries funnel over 50 percent of their GDP through the public sector (versus a meager 30 percent in the United States and 36 percent in Great Britain). But Adrian Woolridge’s “special report” places inordinate emphasis on how the Nordic nations’ have trimmed their (still) generous paid leave, sick day, and disability benefits, while touting Sweden’s switch from a defined-benefit to defined-contribution public pension plan.

The Economist never once mentions that the Nordic economic model of growth-with-equity derives from the continued existence of a powerful labor movement (union density is above 70 percent in each country, versus 11.3 percent in the United States and 17 percent in Great Britain). Nor does it tell us that the historical dominance of social democracy means that Nordic conservative parties resemble Obama-style Democrats. Even as social democratic parties move in and out of government, the “Nordic model” draws heavily upon the egalitarian values of its labor movement and social democratic parties.

The publics in these countries trust government because the social democrats built their welfare state upon a vision of comprehensive and universal social rights. All members of society receive publicly financed health care, child care, and education. The central government ensures that these goods are financed equitably and are of high quality—so the upper-middle class remains loyal to these services and gladly pays the high taxes to support them. The Nordic nations long ago recognized that means-tested programs end up being poorly funded and unsustainable because they are often opposed by those just above the poverty line. (The vicious politics of “welfare reform” in Britain and the United States depended upon only the poor being eligible for child-care support from the state.)

The Economist article does begrudgingly mention that generous and extensive public provision means that 30 percent of the Nordic labor force works in the public sector, compared to a 15 percent average in OECD countries. And it is precisely higher taxes that enable the Nordic countries to balance their budgets in tough times. Also, they spend far less money on defense and on prisons than does the United States or the United Kingdom, something one would not know from reading the Economist.

The feature also fails to mention the crucial role that trade union power and policy played in the creation of the Nordic model. From the 1950s onward, Nordic unions adhered to a “solidaristic wage policy” bargaining strategy, fighting for higher-percentage wage gains for the lowest-paid workers. The aim was both to decrease wage differentials between skilled and unskilled workers and to force corporations to transition out of inefficient industries. Unions opposed a “race to the bottom” model of capitalist development in favor of a high-wage, high-productivity model grounded upon union power.

They could pursue a strategy that often led to the closing of uncompetitive employers because generous unemployment benefits and public-private job retraining schemes meant that displaced workers ended up in cutting-edge industries at wage levels comparable to those of their old jobs. While the United States spends only 1 percent of its GDP on job retraining, the Nordic countries regularly spend over 3 percent. Thus, Nordic “flexicurity” policies have sustained innovative, export-successful development in machine tool, specialty steel, heavy machinery, and aerospace industries, as well as new ventures in telecommunications, videogames (the popular “Angry Birds” was developed in Finland), and computer services.

The other secret to the Nordic model is the feminist character of its social democracy. The Nordic model’s generous funding of universal day care and generous paternity and maternity leave means that women’s labor market participation rate is as high as men’s. Not only does the labor market draw fully on the talents of women (though skilled women work disproportionately in the public sector), but nearly half of Nordic legislators and cabinet members are female.

Yes, Nordic countries have cut back a bit on guaranteed paid sick leave, paid personal days, and tightened up disability requirements, as younger workers sometimes abused the privileges their older brethren fought hard to acquire. And in 1993 the Swedes did transition from a generous defined-benefit public pension plan to a (very unique) “quasi”-defined-contribution plan. They now finance their pension system through an 18 percent payroll tax (half paid by employer, half by employee) and the benefit is tied to one’s earnings history. But only 2.5 percent of this 18 percent is a true defined-contribution plan whose funds are invested by the individual in the stock market. The Swedish state collectively invests the other 15.5 percent in a range of low-risk funds, and the public pension one receives is tied to one’s earnings history and the future rate of growth of the economy—not to the performance of the stock market. The Economist may be dreaming of a standard “privatization” model where all public pension savings would be invested by the individual in private firms that charge lavish fees. But this is not the case in Sweden.

The Economist also conjures up a libertarian dream about the role of “choice” in the Nordic welfare state. Yes, particularly in Sweden, citizens can choose among competing public, nonprofit, and even private providers of health and child care services and education. And there is some “voucherization” involved. But these are unique, egalitarian vouchers. They are of equal value to all citizens, they cannot be supplemented by private funds, and the providers are strictly regulated by the state. This system ensures equitable government funding of public services while avoiding a bureaucratic, one-size-fits-all provision of such goods.

One should not glamorize the Nordic nations: their corporations are controlled by tight-knit, elite families; the solidaristic wage policy has been eroded by the decline of nationwide collective bargaining agreements; and a serious right-wing backlash has developed against multicultural immigration policies. Immigrants and refugees constitute nearly 10 percent of Nordic society. As in the rest of Europe (and the United States), the challenge for social democracy is to create a diverse but egalitarian and solidaristic society that encompasses all its members.

Even so, the Nordic rates of social mobility are twice those of the United States and their distribution of income is much fairer. Their far more generous poverty line finds only 6 percent of their population (and only 5 percent of children) in poverty, whereas a much stingier American official poverty line places 15 percent of our population (and 22 percent of children) in poverty. While Nordic levels of equality remain the highest in the world, U.S. income distribution only lags behind that of Brazil, Mexico, and Turkey as the most unequal of the OECD economies.

The Economist has sanitized the Nordic model for the consumption of enlightened corporate elites. They can no longer deny that the “social market” model of universal public provision, financed by equitable taxation; high-road industrial policy, influenced by powerful unions; and female empowerment yield a more egalitarian, innovative capitalism than do “neoliberal” policies of deregulation, union busting, privatization, and tax giveaways to corporations and the rich. But the Economist is not schooled in the realities of class conflict. To achieve the Nordic model, working people must build unions and social democratic parties that challenge the power of capital.

 Joseph M. Schwartz teaches political theory at Temple University and serves as a national vice-chair of Democratic Socialists of America. His latest book, The Future of Democratic Equality, won the 2011 American Political Science Association’s Easton prize for the best book published in political philosophy.