Social democracy isn't socialism By Scott Sumner

Bob Murphy recently pointed to a misleading remark in a recent column by Paul Krugman. I’d like to point to another:

But what can be done about it? Corey Robin says “socialism” – but as far as I can tell he really means social democracy: Denmark, not Venezuela. Government-mandated employee protections may restrict the ability of corporations to hire and fire, but they also shield workers from some very real forms of abuse.

I actually have several problems with these two sentences. The first is clearly inaccurate; Corey Robin’s column reads like a sustained critique of the Danish economic model. And the second is slightly misleading. That’s because while Krugman doesn’t explicitly make the connection, most readers would naturally assume that Krugman’s comments on employment protections refer back to the previous sentence, which references Denmark.

In fact, among students of comparative economic systems, Denmark is famous for its “flexicurity model“, which means companies are relatively free to hire and fire workers, but those who do lose jobs have the security of generous employment compensation problems programs. Denmark is often viewed as the world’s leading example of an economy that combines highly free markets with extensive social insurance. When I researched this topic in 2008, I found that by some measures Denmark had the most capitalist economy in the world, if you exclude the variable of government spending. At the same time, government spending as a share of GDP was among the highest in the world. The net effect is that (back in 2008) various “economic freedom” rankings put Denmark about even with the US, with its much higher government spending tending to roughly offset its much lower level of economic regulation.

If you read Corey Robin’s piece, it’s pretty clear that he is opposed to the Danish model. He is highly skeptical of deregulation, and even goes out of his way to suggest that the Scandinavian model is not what he’s talking about:

Socialism means different things to different people. For some, it conjures the Soviet Union and the gulag; for others, Scandinavia and guaranteed income. But neither is the true vision of socialism. What the socialist seeks is freedom. . . In magazines and on websites, in reading groups and party chapters, socialists are debating the next steps: state ownership of certain industries, worker councils and economic cooperatives, sovereign wealth funds. Once upon a time, such conversations were the subject of academic satire and science fiction. Now they’re getting out the vote and driving campaigns. It’s too soon to tell whether they’ll spill over into Congress, but events have a way of converting barroom chatter into legislative debate. What ultimately gives shape to socialist desire is less the specific policies in a politician’s head than the men and women marching with their feet.

Of course in any complex economy, including both Denmark and the US, you can find examples of “socialism”. But what makes the Danish model distinctive is precisely the extent to which the Danes have pursued neoliberal policies in a wide range of areas, including free trade and capital mobility, freedom to hire and fire workers, no official minimum wage laws, privatization of many services that are traditionally in the public sector, etc.

While I have no doubt that a socialist administration in America would be less inept than the Chavez/Maduro version in Venezuela, let’s not forget than many on the left were praising Chavez’s policies during the period when soaring oil prices propped up his socialist regime. (One example is Jeremy Corbyn, a slightly more left-wing version of Bernie Sanders, and quite possibly the next leader of the UK.) American liberals are deluding themselves if they think the younger generation of socialists is interested in the Scandinavian model. They want high minimum wages, protectionism, nationalization of certain industries, restrictive labor market legislation and many other types of statist policies. For the most part, this is not the Danish model.

PS. I doubt whether many American socialists are interested in the Danish model for fire fighting. A private company named Falck provides 65% of firefighting services in Denmark, at a cost lower than in other countries.

PPS. Brad DeLong explains what’s wrong with the Robin piece, or at least one of the problems.

HT: David Henderson