Once again, Bacon sallies forth into the debate over the rising income gap… The latest piece to catch my eye is a new paper, “The Swedish Model Reassessed: Affluence Despite the Welfare State,” by a Finn, Nima Sanandaji, and published by the Helsinki-based Libera Foundation (which, as far as I know, is not funded by the Koch brothers, although you never know for sure, because they do have a global reach!)
Sweden is American lefties’ favorite country because it is living proof that the socialist welfare state works. The Swedes, for all their high taxes and wealth redistribution, have maintained a high standard of living. However, Sanandaji argues that the Swedish model worked briefly only because it was living off the prosperity created by decades of entrepreneurial, wealth-creating capitalism, a strong work ethic and a value structure that inhibited Swedes from gaming the system.
By the early 1970s, the socialist welfare state reached its apogee — and economic growth slowed dramatically. By the 1990s, the Swedes realized the system wasn’t working and embarked upon a dramatic about-face. While taxes remain high and the labor market rigid, Sweden enjoys among the greatest economic freedoms of any country in the world. The private sector is highly competitive and globalized, school vouchers create competition between schools, the national pension system has been partially privatized and tax rates have been cut. As a result, economic growth has rebounded.
The most intriguing aspect of Sanandaji’s paper is the emphasis given to social norms. Until recently, Sweden was one of the most homogenous societies on the planet. “For a long time, the religious, cultural and economic systems in Sweden fostered strong norms related to work and responsibility,” he writes. “Since the norms relating to work and responsibility were so hard, Swedish citizens did not usually try to avoid taxes or misuse generous public support systems.”
But as Swedes came to feel increasingly entitled to generous government benefits, those norms declined. In 1981-84, almost 82% of Swedes said that “claiming government benefits to which you are not entitled is never justifiable.” In a 1999-2004 survey, the percentage had declined to 55%. Since the partial rollback of the welfare state, that sentiment has moved back up to 61%.
Sanandaji cites Swedish scholar Assar Lindbeck’s theory on the self-destructive dynamics of the welfare state: Welfare erodes norms relating to work and responsibility. As dependence upon welfare state institutions increase, the work ethic declines… and dependency increases.
Now, let’s bring that back to the ongoing discussion over the income gap in the United States. We are approaching nearly a half century of the Great Society. We’ve had two or three generations of Americans born into welfare-state dependence. Has there been erosion in the work ethic? Many would say that, yes, the work ethic is weaker across the board, affecting all strata of society. (I know how hard my wife and I try to instil a work ethic in our 13-year-old son — trust me, it’s hard work!) But I would hypothesize, subject to empirical verification, that the erosion of the work ethic has been most acute among those raised in the multi-generational culture of poverty, e.g., a culture of welfare dependence. Insofar as the lowest-income Americans regard financial support from the government as a right and entitlement, they feel less motivated to make the sacrifices needed to acquire an education, work hard and find better jobs and make more money.
If the bottom 20% of American tax filers are earning no more in inflation-adjusted dollars than they were 30 years ago, it’s not because America’s market-based economy is inherently biased against the poor. (The crony-capitalist system that we are embracing may favor the rich, but that’s a different issue.) Tragically, the disparity in income is used to justify even more of the wealth redistribution schemes that helped create that disparity. But the redistributionist schemes will only perpetuate the culture of dependency and poverty.