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Before the 1960s,

vatized fisheries. Sweden, meanwhile, has an

the Nordic nations and America have sound

extensive school choice system and personal

institutions, including stable currencies, rule

Nordic nations

retirement accounts.

of law, and property rights. Both the Nordic

had modest levels

nations and America have relatively open mar-

of taxation and

kets. Indeed, if the "size of government" factor

Prosperity and

is removed from the Economic Freedom of the

spending. Once

the Welfare State:

World indicators, Nordic nations score an aver-

their countries

age of 8.35, ranking above the 8.25 score for

Understanding Causality

the United States.36

became rich,

Other measures indicate the Nordic

Many prosperous nations in Western

politicians in

nations have sound institutions and pro-

Europe have large welfare states. This leads

Nordic nations

growth policies in areas other than fiscal poli-

unsophisticated observers to sometimes assume

cy. The World Bank publishes comprehensive

that high tax rates and high levels of govern-

focused on how

rankings of national business environments.

ment spending do not hinder growth. Indeed,

to redistribute

The United States is near the top of the list,

they sometimes even conclude that bigger gov-

the wealth that

ranked third, but all the Nordic nations rank

ernment somehow facilitates growth. After all,

among the world's most open economies for

government in Sweden is larger than it is in

was generated by

business activity. Finland has the lowest rank-

many nations that have lower living standards.

private-sector

ing, but is still 14th out of 175 nations.37

This analysis puts the cart before the horse.

It is possible for a nation to become rich and

The World Bank rankings are not an out-

activity.

then adopt a welfare state. There is even a rela-

lier. Reviewing 11 different competitiveness

tionship studied in academic literature, known

scorecards, the United States has an average

as Wagner's Law, which revolves around the

ranking of 6.6, compared to 10.6 for Nordic

nations.38 America scores slightly better, but

tendency for policy makers to expand the size

of government once nations obtain a certain

the United States and the Nordic nations are

degree of prosperity.41 A poor nation that

all considered among the world's most com-

petitive nations. There are even some areas

adopts the welfare state, however, is unlikely to

where Nordic nations score above the United

ever become rich.

States. In the first international ranking of

Before the 1960s, Nordic nations had mod-

property rights, for instance, the United States

est levels of taxation and spending. They also

trails the four Nordic nations in the survey.39

enjoyed--and still enjoy--laissez-faire policies

and open markets in other areas. These are the

Norway is number one, Sweden and Denmark

policies that enabled Nordic nations to pros-

are tied for third, and Finland ranks number

per for much of the 20th century. Once their

11--all above the number 14 ranking for the

countries became rich, politicians in Nordic

United States.

nations focused on how to redistribute the

The Nordic nations also have excellent rep-

wealth that was generated by private-sector

utations for honest government. According to

activity. This sequence is important. Nordic

Transparency International, the five Nordic

nations became rich, and then government

nations rank among the eight least corrupt

expanded. This expansion of government has

nations in the world, with Finland and Iceland

tied for first place.40 The United States also

slowed growth, but slow growth for a rich

nation is much less of a burden than slow

does well, with a ranking of 20 out of 163

growth in a poor nation.

nations, but the higher scores for the squeaky-

clean Nordic nations presumably help offset

the larger burden of government.

Conclusion

The Nordic nations also deserve attention

for important reforms. Iceland, for instance,

has a flat tax (albeit with a 36 percent rate),

Residents of Nordic nations sometimes

personal retirement accounts, and quasi-pri-

express public pride in their model, but their

17