Scandinavia's Surprising Turn From Socialism
By Eli Lehrer, Jeremy Hildreth
Since the early 1990s the four nations of Scandinavia have opened their economies to international competition, chopped taxes, and pruned regulations. In Denmark and Norway, market-oriented parties now control the government. Parties of the Right won the largest single chunk of the vote in the most recent Finnish elections, and they make up a vigorous and growing opposition which nearly wrested away political control in Sweden this year. All around the Baltic, a small but lively movement committed to market economics and individual liberty has mounted a challenge to Scandinavia's long socialistic status quo.
Even as the European Union bloats welfare bureaus and launches regulatory regimes that strangle individual initiative and free enterprise, the countries in Europe's north are headed in a different direction. All the Scandinavian nations except Norway rank among the world's 25 most free economies (ahead of nations such as France and Austria), according to the Heritage Foundation/Wall Street Journal Index of Economic Freedom. Denmark's economy is actually ranked freer than the United Kingdom's.
The Nordic countries first established strong welfare states in the 1920s and 1930s. Benefits for the middle as well as lower classes became lavish, and Social Democrats raised income taxes until they became the world's highest. Despite this,
Scandinavian socialism was in some ways less intense than other European varieties. Unlike governments in France, England, and Germany, Scandinavian states owned and ran very few companies other than public utilities and railroads. Companies like Saab, Ericsson, Nokia, and Volvo have always belonged to stockholders.
Sandinavia's marginal tax rates on wages, and the value added taxes (which are assessed like sales taxes) remain the highest in the world. But capital gains taxes and real estate assessments are low or non-existent. And the region is actually ahead of the United States in a few areas of market reforms: All four countries have school vouchers and allow or will soon allow individual control over some social security taxes.
When it comes to European integration, Scandinavians have shown an independent streak. Norway has stayed out of the European Union's formal structures--although it does have a free trade agreement with the E.U.--while Denmark and Sweden both joined only after reserving the right to opt out of certain parts of the Union (neither has adopted the euro). Only Finland has wholeheartedly embraced the E.U. Not coincidentally, it is also the only Scandinavian country without a politically influential free-market movement.
The Swedish think tank Timbro serves as the epicenter of classical-liberal thought in the region. Under the leadership of journalist Mattias Bengtsson and Marxist-turned-libertarian Mauricio Rojas, the institute (which is funded mostly by large Swedish corporations) has pushed for welfare reform, free trade, and more capitalism. "We are working for a long-term shift in the public opinion in favor of free markets, entrepreneurship, private property, and an open society," Bengtsson describes his organization's goals.
Johan Norberg, 29, has emerged as Timbro's most visible activist. His book In Defense of Global Capitalism sold well in Sweden and, in translation, has become a minor classic of the American Right. Through a mixture of personal anecdote, political philosophizing, and number crunching, Norberg makes a convincing moral and economic case that global capitalism helps the world's poor. He shows that global trade has improved people's lives the world over. While Norberg says that he would have voted for George Bush over Al Gore, he hardly compares to a conventional American conservative. He says that he doesn't particularly care if government policies promote traditional families and (like almost everyone I talked to in the Scandinavian market-liberal movement) supports legal abortion and gay rights. (The handful of American-style social conservatives in Scandinavia generally support a lavish welfare state.)
Across the Baltic, another unconventional thinker has made waves in both hemispheres. Danish statistician Bjørn Lomborg's book The Skeptical Environmentalist is an ambitious exposé of distortions by radical environmentalists (see TAE, March 2002, p. 40). On topics from species extinction to global warming, Lomborg refutes nearly every Green scare story, and his data-driven work has drawn significant interest in America. Lomborg, however, is uncomfortable being associated with the Right. "I'm rather a new kind of left-wing that tries to get back to the original redistributive goals," of the Left, rather than a belief in a gloomy state of the world he tells TAE.
As a nation, Danes have probably moved more toward markets and individual freedom in recent decades than the citizens of any other country. Danish prime minister Anders Fogh Rasmussen is, arguably, the world's most ideologically libertarian head of government. In his 1993 book From Welfare State to Minimal State, Rasmussen compares welfare recipients to drug addicts, and argues for a radical scaling back of the Danish state's responsibilities. While the book's first half relies heavily on market thinkers like Ayn Rand and Ludwig von Mises, the prescriptions in the second half are far more modest: He proposes a gradual phase-out of many welfare programs rather than their immediate abolition.
As prime minister, Rasmussen got off to a slow but promising start: He appointed Lomborg to head a new research institute dedicated to cost-benefit assessment of government regulations, privatized a national TV station, and began a major overhaul of the nation's tax and social security systems. Rasmussen has also enthusiastically supported the war on terror and sent Danish troops to Afghanistan.
While market-oriented activists admire the prime minister, he has not pursued the purist agenda some of them dreamed of. "I wouldn't say we're disappointed in him," says Nikolaj Gammeltoft, editor of the Danish libertarian journal Libertas. He was elected, after all, on the platform that "he wanted to save the welfare state by reforming it."
Norway has the most regulated economy in Scandinavia today, yet is embarking on the most radical privatization plan in the region. Thanks to strong oil revenues, Norway may actually become the first nation to fully privatize its social security system (by purchasing annuities for all beneficiaries). While Christian Democrat prime minister Kjell Magne Bondevik is not a market-oriented reformer at heart, his coalition partners--including the Conservative and Liberal parties--have pressed him in that direction.
Norway's pro-market movement remains underdeveloped, however. Jan Arild Snoen, an Oslo-based journalist who was once active in the Progress Party, says that "right now, there are plenty of Norwegians who understand that markets and personal freedom are important, and even more who just don't want to pay enormous taxes." But there remain few formal institutions to promote economic freedom. The Progress Party--which once promoted a free-market agenda--has moved in a populist direction, renouncing its opposition to the welfare state and attacking immigration as the source of many of Norway's problems; this has increased the party's electoral success. It now serves as a linchpin of prime minister Bondevik's coalition.
Scandinavia's shift toward open markets and individual liberty is balanced by some countervailing forces. "There is almost no center amongst people my age," explains Norberg. "You see a great appeal of market-oriented ideas among the young, but also an equally great appeal of the Green Left." It's clear, though, that the generational shift has brought new debates to the northern reaches of Europe. Snoen believes the pro-market movement will continue to grow among the young. "They grew up when socialism was holding them back. They've been to the United States and seen what life is like there," he says. "They want more freedom."
—Eli Lehrer is a TAE senior editor.
The Road to Serfdom in Estonia
By Jeremy Hildreth
The resurgent nation of Estonia is at once immensely modern and impressively ancient. Located on the Baltic Sea right below Finland and about even with Stockholm, Estonia covers the same area as New Hampshire and Vermont combined, and has a population of 1.4 million. Its smallness, however, belies the magnitude of its resurgence.
Forget startup companies. Emerging after two generations under the thumb of the Soviet Union, Estonia is an entire startup country, and opportunities abound. In the capital of Tallinn, I visited my friend Oliver, a native Estonian who had spent seven years in the United States--four at university and three as a management consultant--before returning to pursue entrepreneurial ventures here rather than in America.
The Soviet occupation that began violently in 1940 concluded abruptly on August 20, 1991. Many scars remain. There is poverty, and the memory of it, and the accompanying habits of austerity, particularly among the older generation. There is physical damage: rundown buildings, lackluster public works, and blemished landscapes, especially visible beyond the famously gorgeous medieval downtown. There are psychological scars, too. Former Communist Party members lost privileges or jobs even as they gained their freedom. "Some in the older generations have had a hard time adapting to a market-based economy," Oliver says. "There can be some bitterness." After the Berlin Wall fell, he notes, Germans sometimes behaved as if it were still there. "They called it 'The wall in the mind.' People have been shaped under different systems and sometimes have trouble understanding each other."
On the whole, however, Estonians have turned rapidly toward markets and democracy. "Regulation is a tricky thing. It's better to have no regulation than to have bad regulation," says Oliver's friend Heikke, a principal at a top Estonian investment bank. A surprising number of 20- and 30-something Estonians that I met expressed similar sentiments against economic intrusion by the state. Some picked up free-market notions from American sources. Oliver's girlfriend Anneli told me how important Voice of America radio had been to her family during her childhood. ("At the time, my parents said not to tell anyone at school that we listened," she explained.)
In the 2002 Index of Economic Freedom, Estonia has leapt into the number four slot, right up with the U.S. The former Soviet republic is cited for its 26 percent flat tax on personal income, non-existent corporate income tax, and near-zero import duties. Estonia's GDP has grown an average of 5 percent per year, in real terms, over the last half decade.
And what have Estonians done with their newfound prosperity? For one thing, they've bought lots of computers and cell phones. The country is so thoroughly wired it has been dubbed, somewhat breathlessly, "e-stonia." The government even announced plans to hold future elections on line. Considered by many to be the brain center of the former Soviet Union, Estonia now devotes more money to information technology, as a share of GDP, than Western nations like Germany and the U.K., and has more Internet hosts per capita than Germany, the U.K. and France. Hansapank, the country's largest bank, has 280,000 retail customers who bank on line. That's a fifth of the entire population.
What's more, Estonia possesses an indispensable asset for substantial long-term growth that some of its counterparts lack: a working financial sector. Although rooted in the bank-centric German model, Estonia is broadening its stock markets. The Tallinn Stock Exchange, in business since 1996, is completely electronic. I paid it a visit, hoping to see the floor, and instead saw a small room with a big computer in it; all of the traders were in offices elsewhere. Exchange CEO Gert Tiivas, educated at Bentley College in Massachusetts and George Washington University in Washington, D.C., told me the key to nurturing an equity market: honesty. "If we cannot say that we are an open and transparent market...investors will flee, as has occurred in countries ranging from Russia to the Czech Republic."
In regard to Estonia's joining the European Union, an event set to occur around 2004, there is little doubt about its ability to fit in. Despite its Soviet past, Estonia has enduring and close cultural ties to Western Europe, particularly Scandinavia. And while there's room for further development (its per capita GDP is one seventh that of the U.S.), Estonia remains perhaps the most dramatic national success story of the post-Cold War era. Indeed, Estonia's is one of those precious and inspiring stories in which the good guys--freedom, property rights, and technology--triumph against odds that are always far too long.
—Jeremy Hildreth is completing a graduate degree in international business at Oxford University.
