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America has a

4.3 percent in Iceland.5 Unemployment rates

Introduction

are all below 9 percent, with Iceland enjoying a

medium-size

jobless rate of just 2.6 percent.6 Per capita GDP

welfare state and

also is reasonably impressive, especially com-

Economic policy debates frequently revolve

the Nordic

pared to most parts of the world, ranging

around the experiences of other nations.

from nearly $43,600 in oil-rich Norway to

Conservatives often cite Hong Kong when

nations have

slightly more than $34,400 in Sweden.7

they advocate the flat tax, Ireland as evidence

large welfare

for lower corporate tax rates, and Australia

Before drawing conclusions about the

and Chile to show the benefits of personal

desirability of the Nordic model, however, it

states. That

retirement accounts. Liberals often invoke the

is important to answer three relevant ques-

explains, at least

Nordic nations as evidence that it is possible

tions:

in part, why the

to have a large welfare state without sacrificing

too much growth.

1. Why are Nordic nations relatively rich?

U.S. economy

Proponents of this view argue that the

2. Has the welfare state has helped or hin-

generally

United States should emulate Sweden, Den-

dered these countries' economic perfor-

outperforms the

mark, Norway, Finland, and Iceland. The so-

mance?

called Nordic Model (alternatively known as

3. Does the Nordic Model create more

Nordic Model.

the Swedish Model or Scandinavian Model) is

prosperity than the (relatively speaking)

often cited by those who want an alternative to

limited-government model in the United

the supposedly Darwinistic free-market sys-

States?

tem of the Anglo-Saxon world. For instance:

The answer to all of those questions is that

· A study published by a government-sub-

Nordic nations are reasonably successful in

spite of the welfare state. Nordic countries ben-

sidized think tank in Brussels asserts,

efit from institutions--such as property rights,

"The `Nordic' and the `Anglo-Saxon'

stable currencies, and the rule of law--that

models are both efficient, but only the

facilitate economic growth. And although they

former manages to combine both equi-

ty and efficiency."1

have large welfare states and concomitantly

· Foreign-aid advocate Jeffrey Sachs claims,

high levels of taxation, their economic systems

in other respects are very market-oriented.

"The Nordic countries outperform the

Combined with the fact that before the mid-

Anglo-Saxon ones on most measures of

economic performance."2

1960s the burden of government in Nordic

· An article in the International Herald

nations was modest, these factors help explain

why those countries today are relatively pros-

Tribune states, "European leaders want to

perous.

know how Sweden and its Nordic neigh-

But relative prosperity does not imply that

bors, so heavily laden with cradle-to-

grave welfare systems, float high."3

the welfare state is good for growth, and it

· The head of the Tax Policy Centre for the

certainly does not suggest that the Nordic

Model should be adopted by nations with

Organization for Economic Cooperation

smaller governments. The United States can

and Development recently bragged that

learn something from the Nordic Model, but

taxes are twice as high in Sweden as they

the main lesson is that a large welfare state

are in the United States, but that eco-

nomic growth is twice as fast.4

reduces economic performance.

The main difference between the American

system and the Nordic Model is that America

Some praise for the Nordic Model is under-

has a medium-size welfare state and the Nordic

standable. Compared to most other European

nations have large welfare states. That explains,

nations, Nordic nations are doing well.

at least in part, why the U.S. economy general-

Average annual growth rates over the past 10

ly outperforms the Nordic Model. Income is

years range from 2.1 percent in Denmark to

2