The Ingredients of Success

What ingredients are part of what makes a country a success or failure?

Thanks for you feedback Jose, your points highlight why discussing these issues are so difficult. There are so many components to making a society succeed. And I don’t think specifically selecting a political and economic system alone is a silver bullet.

Not a single mention to Venezuela I see.

Venezuela is a very interesting case because it is an oil country like Norway and also prides itself as socialist. Yet it is a basket case unlike Norway. The question is of course why. Because it gets mentioned so often by detractors of socialism I did in fact write an article specifically about Venezuela: Socialism and Capitalism in Venezuela and Norway.

I can try to summarize what I write in that article. Venezuela unlike Norway suffers from several problems:

1. Very weak institutions. Norway became a solid democracy much earlier. Venezuela has been plagued by military coups, election fraud etc for countless decades.
2. Political populism. Populism is a corrosive force whether it comes from the left or the right. A populist government whether left-wing or right-wing will likely not be able to deliver strong results over time.
3. Presidential system. Presidential systems unlike parliamentary ones tend to create very polarized societies. This had added to Venezuelas problems.
4. Meddling by the US. Many of Venezuelas problem also stems from meddling by the US over many decades. Sure they create enough of their own problems, but the US isn’t exactly helping.

Every time the socialist party got to rule, we got an increase in unemployment (you can look it up).

This is likely down to the particulars of the policies of the PSOE and the situation in Spain. E.g. we have quite different experience in the Nordics.

Nowadays Spain’s unemployment is usually twice the percentage than the average in Europe. You can say it is because us “Spanish people are lazy and useless”. I for one do not think that racist explanation cuts, it.

No, I don’t think Spanish people are inferior. I don’t believe in racist theories. But I do believe in the influence of historical legacies on the developments of a country. Spain suffers from many problematic historical legacies:

1. Catholicism.
2. Colonial Empire.
3. Late development of Democracy. E.g. the Dictatorship of Franco.
4. Late development of full literacy.

Catholicism vs Protestantism

The first part is very important. If you analyze European history since the protestant and catholic divide it is remarkable how much this difference mattered. You can compare individual provinces and towns in Switzerland, Germany and the Netherlands where people are basically the same expect for whether they are protestant of catholic. In other words there is no genetic difference or historical, cultural difference. The only difference is religion.

Almost without exception the protestant parts did considerably better economically. In this regard Spain suffers from being entirely and very strongly Catholic, which Nordic countries reaped the opposite benefit. Nordic countries saw a complete transition to protestantism very early on. There are no catholic enclaves.

The strong emphasis on reading and writing in protestantism meant that at a time when Spain was actually richer and more developed than Norway, Norway had something like 90% literacy rate while Spain had 40%. Stuff like that has a knock on effect.

As industrialization began, Nordic nations where able to grow much faster than the Souther ones leaving countries like Spain much further behind.

Colonial Empire

The effects of having a large colonial empire like Spain had seems to have had similar effects has having lots of oil. Have you heard about the Dutch disease? It happens when a country suddenly gets massive influx of income from some resource such as oil. If not managed it leads to rapid growing inflation. Local industry becomes uncompetitive because salaries rise quickly. Spain got flush with Inca gold. Wages rose and this lead to Spanish industry not being competitive with other industry. Of course I don’t mean factories, but more like workshops of the time. A lot of that gold ended up in France from what I read, because French craftsmen started to take over a lot of Spanish business.

Thus ironically the massive wealth from its colonial Empire doomed Spain. It lead to the destruction of domestic Spanish industry. When the gold dried up, Spain was in a worse situation than before, with a weaker domestic industry/business to carry the country forward.

Late Democracy and Rule of Law

Economist Adam Smith writes in 1776 about weak Spanish and Portuguese institutions affecting Spanish and Portugese colonies. E.g. rule of law was not properly developed. Rather it was the rule of men. Spain had not gone through the kinds of transformations Britain and the Netherlands had gone through, that led to a more modern state with divisions of power of independence judicial system etc. E.g. when the Netherlands was developing into a more capitalist economy with markets and specialization, Spain was still operating in a very feudal manner, where large estates produced a variety of goods for local consumption rather than for a market.

Spanish development was further delayed by Franco dictatorship. By the time Spain had a shot at developing properly, Nordic countries had seen democracy entrenched since the early 1800s. In fact Nordic countries was known to have effectively run states since the 1600s or so.

All of these things gave Nordic countries advantages Spain did not have. Spain would have been at a disadvantage regardless of whether Spain picked a socialist or conservative government.

Nordic Countries Had Aspects of Socialism For Almost 1000 Years

Here is a key difference. Nordic societies have had a relatively flat power structure matching the ideal of social democracy ever since Viking times. Unlike Spain, Nordic countries did not develop really strong aristocracies. The common people often stayed strong. For a long part of our history kings where actually elected by the people. Early Viking constitutions gave the people a legal right to revolt against crappy kings.

Nordic countries where simply more economically equal and had flatter power structures early on. This again fed into a high trust level Nordic countries enjoyed early on. These factors play a significant role in making social democracy work. Socialism at its core is about people working together and towards a common goal. For that to work effectively you need deep levels of trust between people.

In societies which have been highly unequal for centuries, such as Spain, that is much harder to accomplish. It is actually very easy for me to see. I studied abroad with people from all over Europe. What I noticed the most was how people from Southern Europe would often view me as exceptionally naive. While I would often view them as too cynical. I had several Portuguese friends I loved to bits, and which taught me a lot about friendship. But their view of society and strangers was far more cynical and distrustful than I am accustomed to. A lot fo the reasons why business works quite effectively in Nordic countries is because people have a lot of trust in each other. Decisions can be made quickly when you trust that the other guy will not screw you over. Building that kind of trust takes a very long time. You can read about accounts from travelers in the early 1800s who remark on how honest people in Nordic countries are. It is not to suggest we are inherently better. As I hope I made clear, we got more lucky with our history. Lower level of inequality for hundreds of years led to higher trust levels.

In fact as social democracy has developed, trust levels have actually kept growing here. People trust each other more now than ever.

There are no quick fixes for this. You cannot put a socialist government in charge for 4 years and expect miracles. You have to keep in mind that Spanish socialists are hampered by low trust levels. In Norway when socialists where revolutionaries they still had high trust levels in their opponents. They would hire conservatives to head the finance department. They where pragmatic, aiming to use highly competent people regardless of ideology for important jobs. Keep in mind this was a time when Norway almost followed a Soviet style economic policy with 4-year plans.

Maybe Spanish socialist cannot keep the economy running effectively. But I will suspect that if they are given enough time to lower inequality in Spain, they can succeed in improving trust levels which will again make social democratic policies work more effectively.

In fact, I have the impression that going full nordic socialist for Spain would actually feel like going libertarian for a bit. Eg. IKEA goes nuts with the requirements and delays to open a shop in Spain, and they come from Sweden, for f… sake!

Well, as I said Nordic countries have a history of running effective government. There is not a lot of red tape. You can start a business very quickly. There is not a lot of forms to fill out etc. But does that make us capitalist? I guess it depends on what you deem as the most important markers of capitalism.

Nordic countries likely has higher taxes, stronger employee protections, stronger unions, more employee power in the workplace etc than in Spain. However Nordic markets are not hampered by a lot of red tape. Rules are fairly simple.

Outliers

You talk about the capitalism success outliers… well I think that nordic socialism success is a much clear outlier. It is not replicated ANYwhere in the world.

I will strongly disagree with that. Many of the features of social democracy has been implemented in other countries in part such as Germany, Austria and even partly the Netherlands and the UK. The post war US implemented many social democratic ideas and saw major success from that. Problems got worse after the Regan revolution.

I don’t know how to characterize Asian countries, but Japan, Korea and other have certainly built systems that have some of the same group thinking as found in social democracies. Still I would not call it the same. But there has been active industrial policies by the state very much matching social democratic thinking with great success.

And is probably explained by those countries becoming rich AND not entering neither WW or WWII,

Norway, Denmark and Finland where all very much part of WWII. For Norway it was a huge burden. We had a population of 2 million people and had to house 400 000 German soldier consuming 40% of our resources. When the war ended the burned half the country down. It was the Northern part of the country. You can imagine the harsh climate in those parts and trying to survive the winter without a house. People turn rowing boats and anything up side down to sleep under just to survive.

Finland experience crushing blows from the Soviet Union, and had a bloody civil war.

and now being relatively less socialist that what failed solcialist states (like mine) think.

Nordic countries have been far more socialist than Spain for much longer. This path began in the 1920s. Most of our governments have been social democrat since then. I would argue that Spain is still not socialist to the degree Nordic countries are today. If you look at things like unionization rate, labour power, tax rates, consumer rights etc.

China? well China has not even scratched their full potential yet, if you ask me. Why? because, although they have allowed some degree of capitalism, they are still a socialist dictatorship (if you only have one party, you are a dictatorship, I guess we can agree on that, great chine firewall rights a bell?)

Plenty of developing countries have been far more capitalist than them, and have still not had anything close to their success. Look at India. They began with the same GDP in 1940s. China had a communist revolution and ended up over time having 3x the GDP of India per capita. I think the symbiosis of capitalism and socialism has proven far superior to whatever India’s system can be called.

Another example of nordic socialist misconception. Last time I checked fiscal effort… yes that one in which you take into account the per capita income, the real important one, not that other that only takes int account GDP vs tax income… Spain and basically most of the “PIGS” in the last financial crisis where competing in or ahead in tax effort against the nordic countries, even compared to Sweden.

The numbers I look at suggest Nordic countries generally have higher taxes relative to GDP than Spain. Also keep in mind that Swedish taxes went down for a period due to a long period of conservative government. But that has also left a mark on Sweden. Inequality and social problems have been growing. The benefits from a higher taxation past is something Swedish conservatives could coast along on.

I look forward yo your counter-explanations.

I hope I was able to give some sensible answers. It is a huge topic to get into. My personal belief is that economic development of any country is highly dependent on things that have developed over very long time. There are no quick fixes. Sure you can temporarily boost economic output by slashing taxes. But the problem is, do you sacrifice future growth for quick returns.

Think about it this way. We always see these business guys come in at companies and “save them, returning them to profitability.” How do they do that? Often they slash product development and research so much that in the short term, sure the company makes a lot more money. Over long term however the company is doomed because product development is now shit and sooner or later they will get outcompeted due to pushing out inferior products.

Hence I don’t think you can only view the effects of a policy short term. E.g. if say Spanish conservatives produce better jobless numbers, I think one has to look at the specifics of how that is achieved. I don’t know about Spain enough to comment on that. But it is completely possible to borrow money and cut taxes to cause a temporary boost.

But it is is my belief that long term solid economic growth and employment is based on solid fundamentals such as:

• High trust levels. Here equality plays a role. But you need long term equality. Not just short term. You cannot make a person trustful from one year to the other.
• Effective government.
• A population which has the right skill level and education.

Most of these things cannot be fixed on one term. You built that stone by stone over many decades. Populist policies whether from the left or right will often just hamper such developments.