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Can we just scale up Denmark?
The ever-inquisitive Matt Yglesias asks why the successful social welfare policies of smaller countries cannot be scaled up to a larger level. I don't know of serious work on this question (there are papers on whether smallness is an advantage for economic growth, but that is not the same issue), so we should not jump to hasty conclusions. Nonetheless I can think of a few factors:
1. Perhaps homogeneity is the advantage, not smallness per se. So a Denmark of 150 million people might work quite well, if only there were 150 million Danes. There aren't, and if we imagine the Danish population growing they might not stay so homogeneous in nature. Peer effects dissipate or perhaps turn negative at some scale.
2. Perhaps the ability to dispense with federalism helps government efficiency in small countries. I favor federalism for larger units, such as the United States, but I think of it as a necessary evil. Singapore and New Zealand don't have much federalism, nor should they.
3. Concentration of power in a major city may account for some of the special properties of small countries. It is often striking how many of the small-country elites went to the same high school, and they can strike efficient political bargains relatively easily; postwar Austria has been cited as an example. Larger size makes these Coasian bargains impossible. Note that Stockholm, Copenhagen, Helsinki, and Oslo are all far more important than the second cities in those countries.
4. Feelings of social solidarity are limited across space and across numbers, and this simply won't change.
5. Orderly countries aren't very interested in larger political units. The Nordic countries have in the past existed in larger political confederations, but somebody always was persnickety enough to break away. Many of the Nordic countries, even today, are relatively skeptical about the EU.
Addendum: Comments on this post seem to be working now...
Posted by Tyler Cowen on January 2, 2007 at 06:18 AM in Political Science | Permalink
Comments
I'd be interested in hearing Professor Cowen discuss highly decentralized Switzerland in the context of why federalism is unhelpful and inefficient for small countries, and discuss Japan dominated by Tokyo and France dominated by Paris as relates to the "Nordic countries dominated by their capitals can strike efficient bargains" hypothesis. It is well-known that in France the leaders of all the parties and indeed most elites go to the same handful of grandes écoles; has this led to "efficient political bargains," do you think?
Posted by: John Thacker at Jan 2, 2007 10:58:17 AM
Since essentially every French CEO and leading politician goes to Sciences Po and most then to the Ecole nationale d'administration, one would think that it would at least bring something to bear on hypothesis 3.
Posted by: John Thacker at Jan 2, 2007 11:01:16 AM
The UK is now 60 million, mostly in England - but England is in many ways less federal, more centralized than ever; and like these Scandinavian countries we are dominated by one city (and have been for many centuries). Indeed, London is by far the most economically successful region of the UK and so is continually pulling-away from the rest of the country.
The current Labour administration intended to introduce gradual federalism (regionalism) to England, but when this was tested in a referendum in the North East (where I live) the proposal for devolution was so massively defeated that the idea has been dropped. And there are no alternative ideas.
So... with the UK population currently growing rapidly (due to unprecedented levels of immigration and migration); the UK is testing the limits of how big a single, integrated but diverse, heterogeneous but stable modern country can grow without federalism.
Posted by: Bruce G Charlton at Jan 2, 2007 11:02:18 AM
Is Oslo _That_ much more important than Bergan for Norway? I really don't know, so maybe it is. But, it would surprise me if it were massively so. As for Nordic unions, the Nords I've spoken to (not a representative sample at all, just talking to some friends, so take it for what it's worth) said that Norway opposed union w/ Sweden because the Swedes dominated it and gave unfair terms to the Nords. Now, maybe that's false but apparently that's how it was seen by the Nords. Since the Swedes were stronger it wouldn't seem unlikely. If so, I think many of the conclusions often drawn from this case are not as clearly right as might seem at first.
Posted by: Matt at Jan 2, 2007 11:11:37 AM
Since essentially every French CEO and leading politician goes to Sciences Po and most then to the Ecole nationale d'administration, one would think that it would at least bring something to bear on hypothesis 3.
Even in the United States, with 5x France's population and a far greater number of colleges and universities, a surprisingly high percentage of the movers and shakers attended a surprisingly small number of universities.
Posted by: Peter at Jan 2, 2007 11:46:16 AM
Its also the same reason that small groups such as communes and kibbutzim can often work as fully socialist systems (although they may still have some of the same economic problems) while larger but otherwise identical systems will have diffulty functioning at all and may require stricter, more centralized, more totalitarian structures in order to achive any reasonable per-capita level of productivity. Similarly, a firm of 25 needs very little structure compared to a firm of 1000 or 10,000 workers.
It is an organizational problem. Getting information from the source that gathers it all the way up to the decision making unit, getting orders from the deciding unit down to the units which implement them, taking the myriad information and calculating an efficient plan (even if we are not talking about a fully planned economy) are all easier on a smaller scale.
Posted by: liberty at Jan 2, 2007 12:04:15 PM
Perhaps it is true that federated organizational structures ultimately fall into sizes that lie along some Zipf distribution at some level of efficiency and stability. And depending on the shared values and norms and purposes of the population, at the higher and lower ends of the distribution, the unit size will become irrelevant or impractical. So in some areas, Danish policies may in fact be extensible and scalable into a global but federated structure (e.g. climate change) but not in others (e.g. social policy).
Posted by: Nitin at Jan 2, 2007 12:39:57 PM
The question “Can we just scale up Denmark?” has already been discussed at considerable length right here at Marginal Revolution. See the How good is the Nordic Model?. One poster suggested comparing several states of the upper Midwest (WI, MN, ND, SD) with the Scandinavian countries. Several folks, including myself, replied with a wide range of facts and figures.
The bottom line is that these states perform very well measured by education, life expectancy, health care coverage, per-capita income (MN is number 1 for the country), etc. Some of the comparisons were versus other states, others versus the nations of Scandinavia. Of course, these states have the American social system, not an expansive welfare state like Denmark, Sweden, Finland, etc.
This comparison shows that the successes of the Scandinavian welfare state are more likely to be attributable to the character of the people, rather than the actual social and economic systems. Conversely, it is not reasonable to expect that the Danish/Nordic model can be extended to other groups with comparable results.
Indeed, the model is already failing in Scandinavia for some immigrant groups. For example, parts of Malmo are so dangerous that ambulance drivers require a police escort. Indeed, police cars require a police escort. See Swedes Reach Muslim Breaking Point for an article about Muslim immigration and crime in Malmo. See Crime in Sweden for some Malmo crime stats.
The Danes have recognized the truth of this and have imposed the toughest immigration restrictions in Europe (The Netherlands is number two). A commonly heard expression in Denmark is that the welfare state and mass immigration can not be combined and therefore immigration must end.
Posted by: Peter Schaeffer at Jan 2, 2007 12:47:54 PM
To various degrees and in all sorts of areas, it is easier for small countries to be free riders.
Posted by: Sebastian Holsclaw at Jan 2, 2007 12:56:07 PM
Tyler hints at, but does not emphasize (in 3/4) the benefit of knowing the people around you. Just as a family or small town has higher solidarity, people in countries with small populations (or homogenous populations, eg, Japan) are more likely to work together on a good social system. Taking a page from Rawls, people vote for a better/more expensive system when they can see themselves (or people like themselves) benefitting. Note that heterogeneity per se is not a problem, if familiarity can overcome it (eg, as new members to kibbutzim/immigrants to Israel are often welcomed*)
*caveats apply
Posted by: David Zetland at Jan 2, 2007 1:16:19 PM
Milton Friedman believed that immigration and the welfare state are incompatible.
I'm inclined to agree with him, which is yet another reason I favor immigration.
It is worth noting by the way that the Nordic countries have low corporate tax rates compared to most of the rest of "Old Europe". Most of "New" Europe, i.e. the former communist countries, at least those in the EU, have low corporate tax rates too, as does Ireland, their "hero".
Perhaps the key to the Nordic countries being viable welfare states is due to their lower corporate tax rates more than anything else.
Investment taxes of various ilks are likely the most damaging to economic growth. Therefore in order to get both "acceptable" economic growth, unemployment rates, as well as government welfare in large amounts, having low investment tax rates may well be a necessary precondition.
Posted by: happyjuggler0 at Jan 2, 2007 1:27:38 PM
Even in the United States, with 5x France's population and a far greater number of colleges and universities, a surprisingly high percentage of the movers and shakers attended a surprisingly small number of universities.
True, but I'll never forget how flabbergasted some French grad students at a conference were when I told them that President Reagan had attended Eureka College and Gerald Ford Michigan. (And that John Major didn't attend college.)
Actually, I'd say that it's probable that the percentage of movers and shakers coming from a handful of elite colleges has been rising recently, thanks to the trend of the "best and brightest" leaving their hometowns to go to the exclusive colleges. That really started accelerating in the 50s and 60s, which is why it didn't hit so much until we had presidents educated then. (The Bushes are an old political family, but in that a rarity for 20th century presidents.)
Posted by: John Thacker at Jan 2, 2007 1:39:46 PM
Perhaps the key to the Nordic countries being viable welfare states is due to their lower corporate tax rates more than anything else.
Certainly a point that's been argued. The typical formulation I've heard ascribes to the Nordic countries a combination of low taxes on capital and corporations with relatively light regulation. Government which stays out of the running of business, but highly redistributes income is often called the Nordic model. According to this hypothesis, Sweden ran into trouble when it started regulating more, but the early 90s non-socialist government restored some flexibility (and introduced other things like school choice which remain today.)
The Nordic model is frequently pointed to both by redistribution-friendly economics-aware neolibs and by reformist-minded people in France as ways to try to achieve the best of both worlds.
Posted by: John Thacker at Jan 2, 2007 1:44:40 PM
It seems to me that the questions that shoud be aked here have nothing to do with whether or not Denmark's socialized medical system can be upscaled to work in the US, but rather how well does it actually work, and can it continue to work in an EU riddled with economic disincentives, tax increases, top-down bureaucracy, and zero-population growth. As someone who has grown up inside socialized medicine I can testify that it is great for broken bones, childhood cavities, and free eyeglasses. However, care is delayed and backward--sometimes crminially so--for cancer, longterm dental care, and any state-of-the-art advance in optical treatments. I have lost teeth to early British and Swedish national health care (a friend lost all his teeth after a French root canal became infected), I have waited months for appointments in France, Sweden, and Denmark--and then been forced to find free-lance doctors on an emergency basis. While the US model is seriously flawed, it is partly because we have already adopted the worst of the European model and allowed HMOs and private insurers to apply them in their mandate.
Medicine is precisely like any other commodity; it works best in a free market, free of the corruption endemic to socialism.--and the greed and collusion of our present system.
Posted by: KIERKEGAARD at Jan 2, 2007 2:08:58 PM
Denmark's policies work pretty well because Denmark is full of Danes, who trust each other because they tend to behave in trustworthy manner, such as not cheating the government. (See the study of NYC parking tickets given to UN diplomats with immunity -- Nordic diplomats followed NYC laws even though they didn't have to.)
The same policies don't work as well in, say, Sicily, which is similarly sized and similarly homogenous, because Sicily is full of Sicilians. They don't trust each other because they don't behave in a trustworthy manner those not in the family. As Luigi Barzini wrote in "The Italians," only a fool would be a minority shareholder in Sicily, so nobody is.
Posted by: Steve Sailer at Jan 2, 2007 2:25:04 PM
55 years ago many thought the US was the homogeneous nation--European nations were all riddled with class conflict, saddled with outmoded aristocracies and in danger of going red. By contrast we had left our aristocrats behind us when we emigrated. See Louis Hartz and the rest of the consensus school.
I'm not sure why the change in our presuppositions (as witnessed in this post and its comments)--maybe the reopening of immigration in 1965 or maybe we're just all wiser than the "greatest generation"?
Posted by: Bill Harshaw at Jan 2, 2007 3:09:25 PM
Who says the welfare policies are successful? There's more crime than before the welfare state came to Denmark. A lot of people are dependent on income from the government instead of providing for themselves. And a lot of things are very expensive.
What is good about Denmark vs. a lot of other countries? Here are a few points:
* It's easy to hire people and fire them again (making it safer for employers to hire)
* Not a lot of corruption
* Relatively few regulations on capital
* Predictable property rights. Your company won't be nationalized tomorrow. Some taxes are high, but you know that in advance.
A few bad things:
* High taxes. 25% VAT. 180% tax on cars (in addition to the VAT). 62% marginal income tax in the top bracket. Around 40% in the lowest bracket.
* Public health care system. Hope you don't get cancer and have to wait for months and months before you get treatment. (private hospitals are available though, but not everyone can afford that, especially with the high taxes)
* A big welfare state
Do be inspired by the good points. But don't think that the employment rate is low because of high taxes (hint: look at the relatively relaxed labour laws).
Posted by: Lau (a Dane) at Jan 2, 2007 3:23:44 PM
"Milton Friedman believed that immigration and the welfare state are incompatible.
I'm inclined to agree with him, which is yet another reason I favor immigration."
You seem to think that immigration will destroy the welfare state, but Friedman's quote can just as easily be taken to mean that the welfare state will destroy immigration. A third interpretation is that the welfare state and mass immigration are incompatable in the "mixing-medications" sense. One won't necessarily totally abolish the other, but when they are both present in the system, bad things happen.
Posted by: pjgoober at Jan 2, 2007 3:32:25 PM
Good to hear that you lost a lot of teeth to the (private) Swedish dental care system, kierkegaard - we don't have universal dental care in Sweden for adults. Our new right-wing government have loose plans to change that, or so I've heard. Misinformation is, as always, widespread at MR when the topic is Nordic models - yes, Sweden is fairly diverse (15 % of the population is first or second generation immigrants); no, ambulances in Malmö don't need police escort (unfunniest joke I've read in a long while, if so intended). To be on-topic: since the Nordic models basically are Social Security on steriods, there is no reason to believe that it can't scale. After all, as pointed out by Ezra Klein and Matt Yglesias, there is amazing institutional homogeneity in the US today. Just add some well-designed social programs (universal health care and parental leave springs to mind) and it will just work. Since the American dream is such a powerful myth in the US, there is no reason to believe that decent social insurance would disincentivize people from working hard. If anything, it would rather provide means for second and third chances.
Posted by: Dan Karreman at Jan 2, 2007 4:16:21 PM
happyjuggler0, do you think immigrants will vote against the welfare state, or for the same failed politicians and policies they voted for and fled from in their home countries? All the opinion polls I've seen indicate the latter.
Posted by: TGGP at Jan 2, 2007 4:24:45 PM
“Denmark's policies work pretty well because Denmark is full of Danes”
Danmark’s policies do not work well at all. There are 1.4 million with Danish ancestory in the US. This is a good comparison group with the 5 million Danes in Denmark:
http://factfinder.census.gov/servlet/SAFFFactsCharIteration?_submenuId=factsheet_2&_sse=on
(klick Danes)
Danes in America GDP per capita*: 53500$, (poverty rate 4.98%)
Danes in the welfare state GDP per capita: 34500$
Life expectancy white (and Hispanic) Americans: 78 years (2003)
Life expectancy in Denmark: 77 years (2003)
(I don’t have figures for Americans of Danish ancestry, but we can note that the age-adjusted mortality rate is markedly lower in Scandinavian heavy states such as Minnesote, the Dakotas than the US average
http://www.cdc.gov/nchs/data/hus/hus05.pdf#027 table 28
3. US has 37% with territory level of education or higher, Denmark 27%. The Danes in the US of course do much better than the average; they are 46% more likely to have a bachelor degree than average Americans.
http://www.oecd.org/dataoecd/7/31/1962541.xls
So Danes with the welfare state are much poorer, live slightly shorter lives, pay more taxes, and are have less education than Danes with the American system. How exactly is the Danish model successful? Why are intellectual standards so low when it comes to accepting the superiority of the welfare state?
Denmark only does well when compared either to other poor and unemployed European welfare states, such as France or Sweden, or when compared to ethnic minorities in the US (in which case they have less poverty and crime, but not much higher average income).
*GDP per capita equivalent calculated by taking per capita income level from Census, 28% above US average, and comparing with US and Danish GDP per capita level in 2005, where the US was 21% above Denmark).
Note: Self selection is not likey to be a factor, since a large percentage of the population moved. The only real bias I see is if more successful people “remember” that they are Danes when the Census conducts interviews. However as someone noted the whites who live in states to which Danes move will give you similar figures of superiority of outcome in the US system that the Danish one.
Posted by: Tino at Jan 2, 2007 4:53:06 PM
Dan:
You are (arrogantly) providing misinformation. Sweden does not have a private dental system, it has a partially privately financed system mainly OPERATED BY THE STATE.
http://www.tandlakarforbundet.se/eng/jobb/_pdf/dentistry%20in%20sweden_03.pdf
40% of the financing and 55% of the employment of dentist in Sweden is public. The figure is even higher for dental hygienist etc. In addition the system is under the supervision of Swedish local government. Either you are ignorant about your own system or you are lying to the Americans in order to make them believe in the Scandinavian dream.
“there is no reason to believe that decent social insurance would disincentivize people from working hard”
No reason at all, except massive amount of research and a scientific consensus that shows that social insurance makes people work less. But hey why let facts get in the way of promoting Scandinavian leftist myths?
http://www.nber.org/digest/dec02/w9014.html
Posted by: Tino at Jan 2, 2007 5:07:52 PM
Dan Karrerman,
I don’t live in Malmo… So my information is by necessity, second hand. However, other folks have some personal experience with Malmo. Check out The Color of Swedish Grass for a debate on this subject. A useful quote from NoDhimmitude:
“ok anders, since you seem to be so conecerned about the comments being made by fellow scandinavians not living in malmoe, allow me to assist then.
I spent my childhood in malmo, and an additional 6 years in my twenties. I moved out of sweden 19th of december 1997, and return 2-3 times every year, my father, 2 brothers and a sister still lives there, and I have almost daily contact with many friends still living there. Does this qualify me for speaking of the situation?
fjordman is 100% correct in his assessments, and if you really are a journalist, then you know this to be true as well. if you have not "no actions against society from any Muslim group", then you sure as hell cant be reading the news a lot either, a bit strange since you calim to be a journalist. sydsvenskan has published numerous articles about bus lines to rosengard, police escort for firefighters and ambulance services, police fearing to leave the police cars unsupervised(!), not to mention the 3 robberies in daylight average per day(!) in triangelen (i lived 5-600m from there by the way). You have obviously also missed the "exodus" of young couples out of the city when they get children..”
NoDhimmitude provides quite a bit more information about the situation in Malmo along with his assessment of journalists (and others) who are in denial about what is going on.
Posted by: Peter Schaeffer at Jan 2, 2007 5:16:33 PM
What mass unskilled immigration does is makes less feasible fairly rational social insurance policies like universal health care, while it makes almost inevitable the spread of the less logically defensible ethnic spoils system of payoffs to minority elites, both in its older versions (see Tammany Hall and the Daley machine in Chicago) and in its new politically correct version (see affirmative action and "civil rights activist" shakedowns of deep-pocketed corporations).
Posted by: Steve Sailer at Jan 2, 2007 5:22:39 PM
"Just add some well-designed social programs (universal health care and parental leave springs to mind) and it will just work."
Very slowy, like Canada.
"there is no reason to believe that decent social insurance would disincentivize people from working hard."
Afterall, look at the success of public housing.
Posted by: mishu at Jan 2, 2007 5:33:56 PM
