Are Scandinavian countries capitalist or socialist? And why is there even such a question?

Danish PM Lars Lokke Rasmussen told students at Harvard’s Kennedy School of Government in 2015: “Some people in the US associate the Nordic model with some sort of socialism. Denmark is far from a socialist planned economy. Denmark is a market economy”. He added, “The Nordic model is an expanded welfare state which provides a high level of security for its citizens, but it is also a successful market economy with much freedom to pursue your dreams and live your life as you wish”.

Although this statement was widely disseminated across the world, it has obviously not closed the discussion. That’s because these countries did undertake socialist experiments from the 1960s and people remain confused about the reality of these countries.

Currently the Nordic or Scandinavian countries (I will use these terms interchangeably) rank highest in the world on private property rights. Further, the means of production in these countries are primarily owned privately. Since socialism involves confiscation of private property and state control over the means of production, these countries don’t qualify as socialist. The Economist magazine describes Scandinavian countries as “stout free-traders who resist the temptation to intervene even to protect iconic companies”. This commitment to free trade and free markets suggests that they are capitalist, not socialist.

Next, in the 2018 Economic Freedom Index, Iceland (11) Denmark (12) and Sweden (15) rank higher than the USA (18), while Norway (23) and Finland (26) rank only slightly lower. India – the true full-blooded practicing socialist economy – ranks 130, as expected. That also confirms that these are not socialist countries. And finally, some more evidence: these countries do not have minimum wage laws and their banking system is largely in private hands; Sweden uses the free market school voucher system; and Equinor, Norway’s largest oil company, was privatised in 2001. So technically they must be classified as capitalist.

In fact, these countries had been ultra-capitalist from around 1870 to the 1960s. They had therefore become rich with low levels of inequality. Their welfare state was modest and total taxes were around 30 per cent of GDP. They resisted introducing welfare programs during the Great Depression and so, unlike the USA, they recovered very quickly from the downturn.

But socialist politicians became influential in these countries from the 1970s and increased state control over the economy and expanded the welfare state. For a while the harm being caused by socialism was not immediately obvious and so it appeared to the rest of the world that a country could be rich even with a large welfare state. Today the haze has lifted. Nima Sanandaji’s 2015 book, Scandinavian Unexceptionalism (available free of cost online) documents the disastrous effects of this socialist experiment and how these countries have been forced to pull back from the brink.

Sweden rapidly stagnated as a result of the socialist interventions and the work culture among the youth rapidly deteriorated, particularly in Norway which has the largest welfare state of them all. It would be fair to say that had it not been for its oil wealth, Norway would have been facing a major social disaster today. In addition, their populations are aging and the proportion of working age taxpayers is reducing relative to the proportion of social program dependents. The socialist experiment can’t be called a success by any stretch of imagination.

By the 1990s, even these countries had begun to realise their folly and started to scale back the worst elements of their socialist experiment. They privatized many government-owned enterprises and cut business red tape. Today, all sides of politics in these countries are committed to bringing back free markets – but they still don’t speak honestly about the harm caused by the large welfare state.

The welfare state is different from socialism only in that the theft in the name of redistribution takes place in the welfare state through the tax system instead of through direct confiscation of property under socialism. In the end this difference doesn’t matter since work incentives are severely distorted in both systems. Welfare or socialism – both end up creating poverty and reducing opportunities for the poor. Our party firmly opposes the welfare state, even as we are committed to equality of opportunity for all.

A political party in Assam called the Liberal Democratic Party (LDP) is smitten by this failed Scandinavian model. The LDP calls itself “liberal” and pays lip service to markets but then promotes the concept of social justice. Keynes is their key thinker. But Keynes was a terrible economist who did not understand the Say’s law and the price system. Instead, like the Marxists, he went on about “inequitable distribution of wealth and incomes”. He maintained privileged access to the Russian communists and wrote: “the only course open to me is to be bouyantly Bolshevik”. Surely, a closet communist can’t be the role model for a party that has the word “liberal” in its name.

I invite the Liberal Democratic Party and other socialists to study the repeated and inevitable failures of socialism, whether big failures like the USSR or the smaller failures like the Scandinavian welfare experiment. In the end, only a classical liberal approach that respects markets and supports them through minimal regulation can ensure prosperity, while ensuring equality of opportunity through direct transfer of funds and vouchers for the poor. Freedom, not big government, is the answer.