The Success of Social Democracy
Making the case for why social democracy should be the system to implement and not freewheeling capitalism.
I am both a political idealist and pragmatist. I want us all to try brave new ideas while at the same time be humble enough to accept that those ideas may in fact never work out.
At the same time I am a pragmatist. I believe in learning from what has worked and what has not worked. When I have strong faith in social democracy as a political and economic system, it is because I have grown up in such a system (Norway) and seen with my own eyes that it works. Personal experience is of course one thing. But I have also spent a lot of time pouring over statistics, looking at history and comparing with other countries I have visited and studied.
Reality Bias Towards Social Democracy
I believe the evidence is soundly in favor of social democracy. If you are not convinced just look at a host of UN surveys and statistics over human development, happiness, health, education or almost any other index used to measure how well a society is doing, and this statistics will always have social democracies at the top or near the top.
The success story has not only been replicated across all Nordic countries. But it has to a high degree in multiple other countries. Germany, Austria and the Netherlands are some obvious examples of successful countries with significant influence from social democratic values.
In some areas Germany e.g. if significantly ahead of the Nordics. In their powerful coal and steel industry workers have 50% of the voting rights on corporate boards. This isn’t some newfangled thing. It has been there since the end of WWII. The whole German economic miracle has been powered on the backbone of industry running to a large degree on social democratic values such as labour participation in important economic decision making processes.
Equality, Happiness and Opportunity
It is not merely about making people happier and healthier but also gives people opportunity. Conservatives love to say they are about giving equal opportunity rather than equality. Well if that is what you truly care about then the best evidence we got thus far suggests you should aim for social democracy if you want high social mobility. Free wheeling capitalism is probably the last choice you would want to make.
Capitalism Has Something To Prove Not Social Democracy
One can never know anything for certain. If we truly wanted to learn what system works best, we would need to turn the clock back multiple times and change the political and economic system of each country multiple times and look at the final results for different starting points. We don’t have that luxury. But it doesn’t mean we are all in the blind.
The statistics and findings we do have generally puts social democracy in a very favorable light. Social democracy should not have to defend itself. Quite the contrary those advocating free wheeling capitalism are the ones who need to be able to make their case.
Most really big capitalist success stories are outliers in many regards. The popular ones such as Hong Kong and Singapore are city states at enormous trading hubs. Hong Kong function as an entry point between the West and the over 1 billion people producing and buying goods in China. When trade between such enormous economies primarily go through a city of just about 7 million people, then obvious it will enjoy major economic benefits.
Singapore itself isn’t even much of a poster-boy for capitalism. If anything it is the original China. An example of successful state capitalism:
Government-linked corporations play a substantial role in Singapore’s domestic economy. As of November 2011, the top six Singapore-listed GLCs accounted for about 17 percent of total capitalization of the Singapore Exchange (SGX).
These fully and partially state-owned enterprises operate on a commercial basis and are granted no competitive advantage over privately owned enterprises.
State ownership is prominent in strategic sectors of the economy, including telecommunications, media, public transportation, defence, port, airport operations as well as banking, shipping, airline, infrastructure and real estate.
And 32% of the workforce in Singapore work in the public sector. In many ways this supposed capitalist poster-boy has more in common with Nordic social democracies than American free wheeling capitalism.
Places like Dubai, Ireland and Switzerland are similar kinds of stories. They have in many ways been anomalies. Dubai is a hub to the middle East much like Hong Kong is to China. Westerners would prefer to go through them rather than the often archaic justice systems in places such as Saudi Arabia.
Dubai and Ireland engage in what you may call parasitic behavior in world markets. They set company taxes below everybody else so that large corporations move their headquarters there. Whenever you review a strategy for development you need to ask yourself: Could this strategy work for every country on Earth?
Could every country on Earth attract HQs of big multinational by lowering taxes? No, it is a zero sum game. Dubai and Ireland’s win is somebody else’s loss. Switzerland long played the same role in banking. This is not to suggest that these countries don’t do a lot of right things.
If cutting taxes was that easy, every small country would do it. However this is also to counter this frequent narrative where success of Nordic countries gets explained away. How often have I not heard “Oh it is the oil.” Yes that may be fair to level against my native Norway, but certainly not against Finland, Denmark, Iceland and other Nordic. Yet frequently it is.
Also one has to consider that Norway was significantly more prosperous and developed before oil was discovered than say Ireland or Hong Kong. In 1970 Norwegian GDP was 3 306 USD per capita. Norwegian oil production began in 1971. Back then Hong Kong had a GDP of 960 USD, less than one third of Norway. Before the enormous Chinese economic engine started pushing out products through Hong Kong, it was not that big of a success. Ireland had a GDP of 1488 USD, less than half of that of Norway.
Switzerland which benefitted from never having been in a war in hundreds of years and being favorite place for rich people to store their doe had a GDP per capita of 3927 USD in 1970. About 18% higher than Norway. Hardly a big win for capitalism.
The American Anomaly
Ironically people always want to disparage Norway’s success by pointing at oil production but somehow seem to imply America’s success was all down to hard work and good old capitalism. Really?
America is hardly a resource poor country. It began oil production all the way back in 1859, 112 years before Norway. It was long one of the largest oil producers in the world and today it is the largest oil producer.
America likes to style itself as a country that people flocked to for freedom and capitalism. Reality is that was all about resources. A humble Norwegian farmer in the 1800s could emigrate to the US and basically get for free a farm 20x the size of the largest farm in Norway. Add better soil and better climate into the mix as well.
America was a country with an abundance of resources and still is. The population relative to natural resources is small. And for what has mattered most for economic prosperity through human history, rich agricultural land, nobody could compete with the US.
Hence much like Hong Kong and Dubai, America is an outlier. It has unique advantages not readily available to any random country.
Denmark, Sweden and Finland though are countries without any clear natural advantage. All Social democracies which despite this has done very well both economically and in terms of human development.
What the US would have looked with a different system we don’t know. But we do know the US is not some obvious slam dunk case for the wonders of capitalism. Quite the contrary in terms of actual human development, social mobility, poverty, health care and many other factors it lagging far behind despite impressive GDP numbers.
This isn’t to dunk on the US and intentionally hurt the feelings of patriotic Americans. Rather it is to challenge those who claim free wheeling capitalism is best system and somehow America is supposed to prove it.
China and the Asia Economic Miracles
While China may not top all the human development indices, it must be given some credit for its rapid economic development. The capitalism crowd will immediately take that as a win for team-capitalism.
But let us not jump ahead of ourselves. Social democracy is not a purist system. It is not an attempt at running everything by the government. It is a pragmatic middle road between socialism and capitalism. The claim here is that a mixed system rather than a purist system demonstrates superior real world performance.
China showed success as it turned its back on trying to build some kind of socialist Utopia at gunpoint. It did not go from one extreme to another. The Chinese state is still very much in the drivers seat. For anybody who thinks more capitalism is always better, should look at Russia as cautionary tale.
The neoliberal crowd pushed Russia to engage in a shock doctrine. A complete and rapid transition to capitalism. The result was an unmitigated disaster. Russia experienced the largest economic collapse in world history. Ironically neoliberals like to talk about this collapse as the collapse of socialism. In fact it was a capitalist collapse. Interestingly we had similar experiences in Nordics. When social democrats lost power and conservatives took over in the 1980s they quickly deregulated the economy and it overheated and collapsed. Social democrats in many cases had to come back and clean up the mess. In these cases we also keep hearing stories about how the Nordic experiments with socialism failed and so they had to deregulate to save themselves. No… like Russia there certain had been problems, even though Nordics where always mixed economies. But the big problems was actually caused by rapid deregulation.
China went the other way. They went for gradual reforms while keeping the state as a major player in the economy. This caused the biggest economic rise in world history. But this wasn’t really a new formula. Counties from Japan to South Korea had previously shown great economic success through an active state engaged in building out the economy. Yes, sure that was capitalism, but it was a mixed system. The state played a significant role.
While these countries cannot be said to be social democracies, they still employ some of the same ideas: An effective well run state playing and active role together with a healthy private sector.