The Myth of Democratic Socialism

The Nordic countries show the limits, not successes, of Bernie Sanders’s plans.

By Nima Sanandaji, the director of the European Centre for Entrepreneurship and Policy Reform. He has written more than a hundred policy papers on subjects ranging from integration and women’s career progress to the changing geography of successful enterprise and the future of jobs.
Sen. Bernie Sanders speaks at a protest rally in Washington, D.C., on Oct. 4, 2018.
Sen. Bernie Sanders speaks at a protest rally in Washington, D.C., on Oct. 4, 2018. Drew Angerer/Getty Images

In a recent piece for Foreign Policy, Erlend Kvitrud, a member of the Norwegian Green Party, links democratic socialist economic policies and Nordic countries’ prosperity. “Take Norway for example. According to the World Bank,” he writes, “Norway and the United States have nearly identical GDP per capita.” That points to the conclusion, Kvitrud argues, that Norway-style government involvement in the economy is not just viable—it is preferable. The country’s success, he continues, “is inconvenient for critics of progressive, big-government economic and social policies”—like me, whose workScandinavian Unexceptionalism, he calls out.

Kvitrud is not alone in such arguments. Internationally, the left has for decades showcased the Nordic nations as proof that socialism can work not only in theory but also in practice. In his years in the U.S. Senate and through multiple campaigns for president, Bernie Sanders has based much of his political ideas on introducing Nordic-style democratic socialism in the United States.

Inconveniently for fans of the Nordic welfare model, though, Norway’s actual economic success rests on its wealth of natural resources. With a population of only 5 million inhabitants, it has abundant natural resources in the form of forestry, mining, fishing, oil, and natural gas. Norway’s oil fund is the world’s largest sovereign wealth fund, worth around $200,000 per citizen. It wasn’t Norway’s social democratic economic policies that created the country’s wealth. It was nature.

Indeed, more impressive than Norway’s success is that the United States—which exports 4 barrels of oil per individual per year compared to Norway’s 87—still manages to nearly match Norway in living standards. The other Nordic countries, which lack Norway’s oil and natural gas riches, have lower living standards than the United States. U.S. GDP per capita was $62,480 in 2018, nearly on par with the $65,603 in Norway and higher than Denmark’s $55,019, Sweden’s $52,767, and Finland’s $48,248.

To Kvitrud’s point about state ownership of major industries, Norway does have about 231,000 individuals employed in state enterprises, due to the country’s massive oil industry, which is controlled by the state. But the norm in the Nordics as a region as a whole is actually of limited state ownership. In Sweden, with a population twice that of Norway, the number of employees in the state sector is half of the level in Norway (124,000). In Finland, with roughly the same population as Norway, only 72,000 individuals are employed in state enterprises. Denmark, whose population is slightly larger than Norway’s, has merely 19,000 employees in state enterprises.

What’s more, the Nordic countries’ social successes predate their high-tax, high-social spending policies. A 2016 paper by the economists Anthony Barnes Atkinson and Jakob Egholt Sogaard shows that most of the progress toward income inequality in Norway and Sweden happened before 1970, at a time when the two countries had low tax regimes and less redistributive policies. Similarly, the Nordic countries’ social successes were more pronounced in those years. Relative to the rest of the world, for example, they had a greater advantage in life span and child mortality in 1970 than they do today. In other words, the Nordic model arose after those countries were already prosperous and egalitarian.

Today, Nordic countries are even moving away from socialism. Although they do still have high levels of taxation, they have introduced free market regulation. Numerous state-owned enterprises have been privatized, taxes have been reduced, and the generosity of welfare systems curtailed. In the largest Nordic nation, Sweden, Prime Minister Stefan Lofven, a social democrat, has promised to cut the 5 percent highest marginal tax rate. The reduction, according to numerous studies, may stimulate the economy enough that the cut won’t even cause tax revenues to fall. That wouldn’t be the case if the Nordic model worked in the way its champions argue.

As the downsides of democratic socialism have become more evident, the Nordic countries are moving away from government involvement in the economy, cutting taxes, and reducing the generosity of their welfare states. For observers in the United States and elsewhere hoping to copy the model, it is worth remembering that the real Nordic experience is about the limits, rather than successes, of democratic socialism.

Nima Sanandaji is the director of the European Centre for Entrepreneurship and Policy Reform.