Book Review – Viking Economics by George Lakey

The 2016 election cycle seems to have awakened a large number of Americans to the economic stagnation that afflicts much of the US working class, whether in former industrial centers of the Midwest, rural areas, or large cities. This stagnation amounts to a system crisis brought on by de-industrialization, automation, declining real wages, under employment, and growing work insecurity for many middle class Americans. These trends, which go back decades, have led to increasing inequality and diminishing opportunities as well as a politics of extremism. How can we get out of this trap?

One of our problems is that received wisdom–namely the idea that there is no alternative to unregulated markets in a globalized economy–has enjoyed a stranglehold on mainstream economic and political debate. But in the past year, most notably with the presidential campaign of Bernie Sanders, this monopoly of ideas has started to break down. Recent polling shows that fewer Americans than in the past–especially younger citizens–fear socialism while increasing numbers are critical of capitalism. Further evidence of this opening was seen in the debate about healthcare that accompanied the republican attempt to repeal and replace the Affordable Care Act (Obamacare). Whatever one thinks about Obamacare, it appears to have solidified the idea that affordable healthcare is a right, not something that Americans should only access through what is euphemistically called the “free market.”

For those paying attention to the debate about healthcare options, other countries’ systems are important reference points, because of their success compared with the US in keeping costs down while achieving universal coverage and much better health outcomes overall. But European countries–particularly the Scandinavian countries–are doing much better than the US in other spheres as well, including educational achievement, economic productivity, the maintenance of a vibrant middle class, and the minimization of poverty. How have they achieved this success? George Lakey’s book, Viking Economics, provides some answers.

The overarching point that takes shape through the course of the book is that the Nordic countries–Norway, Sweden, Denmark, and, Iceland–place great emphasis on the value of the individual. A healthy society needs everyone to contribute and for everyone to contribute there must be opportunities and support to help individuals achieve their maximum potential.  All policies, whether they have to do with education, healthcare, entrepreneurship, poverty, or culture, follow from this basic assumption.

The economic design in the Nordic countries (“design for living” in Lakey’s words), is based on returns to people (we can also use the more academic term “human capital”) rather than returns to capital as practiced in the US. This design for living is visible in all areas that touch the economy.

Large financial institutions are prohibited from doing things that put the economy at risk. Although all of the Nordic countries experimented with financial deregulation in the early 2000s, these experiments only produced economic shocks that ultimately resulted in the re-regulation of the banks.

Unions are accepted as full partners in government and other decision making spheres with the result that union density is far beyond what the US experienced even during the heyday of union organization and power. There is also a diverse cooperative economy, including  large and influential housing, consumer, and banking cooperatives as well as cooperatives for various types of manufacturing enterprises. These institutional arrangements direct economic savings and surpluses towards social goods enjoyed by all, whereas in the US, profits are accumulated by large corporations and the top 10 percent of the population.

Beyond unions and cooperatives, other policies support broad economic participation and dynamism. Investment in education is perhaps the most obvious. Once they reach their mid-teens, students can choose from among many vocational options and multiple career paths as well as more standard academic curricula. There are also many vocational training, adult learning, and retraining opportunities, outside of the public schools for people who wish to change their careers or learn new skills. The result is that something like one-sixth of Norwegian adults are taking continuing education of some sort.

All of these education and training opportunities have broad economic benefits because they make labor markets more responsive to economic realities and help workers upgrade their skills. If a certain industry weakens because of global competition or technological change, workers can learn new skills and are supported while they retool. This support comes in the form of free or nearly free healthcare and various income supports such as affordable childcare and a decent standard of living upon retirement.

The cumulative effect is one of economic dynamism. Labor productivity per worker-hour is higher in the Scandinavian countries than in the US. The chart just below (not in the book) shows the US lagging behind  the Scandinavian countries for much of the 2000-2015 period.

Norway has more startups per capita than the US and Sweden has more patents. No doubt, this sounds counter-intuitive to most Americans who learn about the wonders of the “free market,” but it makes perfect sense. In the US, the large number of students who enter the workforce saddled with debt are hardly in position to take the risks associated with entrepreneurialism and they cannot be too selective about their job options. For employed workers, whose  health insurance is tied to their jobs, there are large financial disincentives to moving to part-time work or to going back to school. In sum, in countries where a minimum standard of living is guaranteed including healthcare, food, family leave and child support, and housing, people have much more freedom to pursue creative endeavors of all types.

The obvious question that most Americans would ask is aren’t the taxes required to pay for these programs a drag on the economy? The answer is unambiguously “no.” The previous productivity and startup data are one confirmation. So is the average GDP growth of the Scandinavian countries, which is often better than that of the US. The reason is that the taxes are invested in healthcare, education, training, and other programs, all of which put people in position to succeed and help businesses remain competitive internationally (see chart below).

Data from World Bank [data.worldbank.org]
Do people, including businesses, resent the high taxes? Yes and no. Some successful entrepreneurs leave to set up operations in tax havens like the Cayman Islands. But the vast majority believe that the high tax rates are an acceptable cost of doing business. How about ordinary citizens? Yes, Lakey tells us, they do complain about the taxes, which include value added taxes in addition to income taxes. But they welcome the trade-offs. Lakey explains that the Nordic view is: “to get a lot, we pay a lot.” And it helps that the tax system is very transparent. Everyone in Norway can go online to see what everyone else paid in taxes. While, per Lakey, Norwegians describe themselves as a “nation of complainers,” they wouldn’t have it any other way.

The fact that everyone benefits from these programs is an important element of political support. Unlike in the US, where many social programs are designed primarily for the poor or disadvantaged, in the Nordic countries (and many others as well), social programs such as low-cost education, healthcare, family leave, and elder care are designed for everyone. This protects social spending from potential opponents decrying support for “those other people” who might be seen as lazy and undeserving.  In the end, even conservative political parties throughout Scandinavia support core healthcare, education, and other programs.

The Nordic model works for the Nordic countries. Can it work in the US? From a strictly economic point of view, there is no reason why we could not have universal healthcare, free education as far as learners want to go, and other supports that help people find a place in the economy and contribute more than they contribute now. Just about every major industrialized country follows the Scandinavian model to some extent. It is the US that is the outlier. With greater support for people as creators and innovators rather than treating them as worker bees, significant gains to productivity could be expected to the benefit of the overall economy. Lakey cites a McKinsey study from 2009 that estimated US losses from “under investment” in education at between $1.3 and $2.3 trillion a year.

Lakey observes that the US actually has a few Nordic-like programs, including Social Security, Medicare, and Medicaid. Although they were fiercely opposed by conservatives in their formative periods, they are immensely popular and work well. There is no technical or economic reason why additional components of the Nordic model could not be adopted, although the implementation of major new systems in a large complex country such as the US would pose some challenges.

The main problem, of course, is political. For the US to take significant steps toward the Nordic model, significantly greater taxes would have to be imposed on the wealthiest 20-30% of Americans and major financial institutions would have to be regulated. A new principle for CEOs and other executives that “well off is good enough” would have to be accepted or, more likely, imposed. This goes against well-entrenched myths in American culture about “self made men” and the drive to amass millions and billions. In addition, the immense national security state, which expends massive resources for minimal social or economic good, would have to be downsized.

All of this amounts to a very steep uphill campaign that would have to be waged over the span of decades and multiple election cycles. Rural and urban working classes would have to be mobilized in an all-out effort. Given disunity within these classes and the continuing role of race as a divider in the US, it is hard to foresee such a sustained effort. Nonetheless, like all other countries, including the Scandinavian countries, the US has gone through periods of great social mobilization that gave rise to political transformation. It would be unwise to assume that it could never happen again.

Alternatively, a massive crisis could create an environment where major changes could take place in a much shorter period of time. Another Wall Street meltdown could finally demonstrate to a future president and Congress that the public good requires greater democratic control over the leading financial institutions of our economy and that the welfare of all is the responsibility of all. Just this week in the wake of Hurricane Harvey, there is almost no opposition in the US Congress to the government stepping in to support people in an emergency.

No doubt, we are a long way from achieving anything like what the Scandinavians have. But Lakey’s Viking Economics provides some broad outlines for imagining and creating a much more democratic economy in the US that works for everyone, not just the rich.

 

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