Sweden vs. America: Economic freedom in the right places

[Indy Texas]

Matt Yglesias pointed out that Sweden, despite its reputation in these parts as a socialist hellhole where innovation and ideas go to die, has more billionaires per capita than the United States does. And he points out that Sweden does this in part by letting the invisible hand guide its markets, simply not in the way that the United States does.

You must be logged in to read this quote.

You must be logged in to read this quote.

Compare the Swedish model with the "pro-free market" agenda advocated in conservative circles in America. The Tea Party wages protracted war on the EPA and the various other federal alphabet soup agencies, but has little to say about licensing requirements that directly impact the "ordinary Americans" they claim to speak for - things like the absurdly high training requirements for hair stylists or municipal governments' limitations on food trucks and small restaurants. In North Carolina, Texas and other states, Republicans reliably vote to keep Tesla from implementing its direct-selling business model, lest it threaten entrenched car dealerships. American conservatives complain about burdensome labor regulations, despite the fact that the size and revenue requirements for them to be binding ensure that they mainly fall on large, established firms, not on small start-ups.

Combined with a fervent devotion to keeping taxes and public spending as low as possible, the cumulative effect is to allow incumbent-protecting regulations to limit competition, while allowing the incumbent firms to keep even more of their economic rents by paying little in taxes. In that context, it's no wonder that inequality in the United States is so much higher than it is in Sweden.

[DC Al Fine]

Here here!

[Franzl]

Here's a little secret on public policy: Scandinavia is best at (almost) everything.

[TheDeadFlagBlues]

I can't believe I'm the one advancing this argument but it should at least be considered. Acemoglu, Robinson and Verdier wrote a paper asserting that nations can't all follow Scandinavia's model because Scandinavia takes advantage of technological advancements in other nations like the US, which only occurs because of the increased incentive that inequality engenders.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2132939

I'm severely misrepresenting the breadth of the argument by distilling it to one sentence, you should check it out for yourselves.

note: I abhor this claim and find Acemoglu & Robinson to be horribly misguided.

[Redalgo]

Though I do not agree with Swedish policy in all respects, in a broader sense it taught me that being pro-labour does not necessitate being anti-business, just as being pro-business on issues does not necessitate being anti-labour. It freed me from having to adhere to the prescriptions of Old Labour democratic socialists. That is to say, "big government" doesn't have to be dangerous and burdensome all the time for one to pursue leftist goals if public policies are cleverly designed.

[Gustaf]

Essentially, yes. Though Acemoglu et al do raise a generally fair point in that the US actually does subsidize the rest of the world in a number of ways.

[Link]

I definitely appreciate someone posting a more accurate picture of Sweden.  This is a far more thoughtful thread that most on this forum.

The one thing I would caution about is that people often cite wonderful about small homogenous countries and wonder aloud why we don't do those things here.  Sweden has a population of 9 million people.  It is a much older country with more entrenched traditions.  We are a young large diverse nation so I am always hesitent to try and transfer things directly over from other smaller more established countries.  This is the argument I have regarding the tax haven stuff we always hear.  No one has ever shown me a first world tax haven with hundreds of millions of people.

Here's just one tidbit...

You must be logged in to read this quote.

http://en.wikipedia.org/wiki/Sweden

Almost half their power generation comes from hydro.  50% of their power is clean renewable.  Almost all of the other 50% is nuclear.

[Beet]

It is interesting that most of the visible advances on the technology frontier have come from the U.S. It's a bit unfair to compare the U.S. with Scandinavia, since the U.S. has a much larger population and economy in aggregate; however compared to Europe as a whole, I once saw an Economist chart that indicated that the vast majority of large European companies were founded before World War II, whereas large American companies are split about 50-50. The development of the Internet, for instance, or the iPhone and iPad, all originated in the U.S. Europe does not have its own Facebook, it uses the U.S. company's product. The same, of course, could be said of Japan: During the 1970s and 1980s they were highly innovative, creating the Walkman, the Nintendo, and Betamax, but over time they have stopped being so. Of course every country wants to be innovative and receive the prosperity that comes from having a market pioneering company, but there is also something generous and giving about it. You are creating a product that might improve the lives of many others.

[Link]

The same, of course, could be said of Japan: During the 1970s and 1980s they were highly innovative, creating the Walkman, the Nintendo, and Betamax, but over time they have stopped being so.

Doesn't Japan make every single digital camera and camcorder that is worth anything?  I can't think of a single brand of digital camera that isn't Japanese.  Sweden has Hasselblad but I wonder where the innards come from.  Well one camera for sure is just a dressed up Sony.  Don't know about the rest.

And of course cars.

Korea has been on a tear.  Doesn't Korea have a lock on the TV market?  And Samsung is the biggest cell phone maker in the world.

Granted a lot of those things have gotten pretty commoditised.

[Beet]

Digital cameras? Whete's the time portal back to 2003?

In 1989, Akio Morita was talked about as much as Bill Gates and Steve Jobs. Now, no one under 30 even knows who he was. The difference is that the U.S. kept (and keeps) innovating at a faster pace than everyone else. That's something to be said about the U.S. model.

[Link]

Digital cameras? Whete's the time portal back to 2003?

National Geographic photographers and war correspondents aren't shooting those pictures with iphones dude.  And you do realize that they have shot multiple TV shows with DSLRs.  Yes the picture cameras now shoot video too.  And they do things traditional video cameras simply couldn't do.  They are doing so many things with them now that you couldn't even imagine back in 2003.  There is a whole cottage industry on the internet that has sprung up around hackers that have modified stock cameras with code to make them do some pretty unbelievable things.  The mass market low end point and shoot garbage has given way to the iphone garbage.  But for everyone else that cares about image quality the democratization and evolution of the slightly higher end technology is astounding.

The difference is that the U.S. kept (and keeps) innovating at a faster pace than everyone else. That's something to be said about the U.S. model.

That's a fair point.  The staying power is remarkable.  That's why I commented on the commoditisation of the areas I mentioned.  TVs will hit a wall eventually.  3D was a consumer flop.  They are pushing 4K now.  I don't know how much of a need there is for that.  Smartphones are closing in on saturation in certain markets and I believe Samsung gets a disproportionate amount of its revenue from smartphones.  Once TV and phone margins come under pressure I don't know what Samsung can do to replace that lost revenue.

[Hatman 🍁]

Income equality is far more important than technological advancement, especially if said advancement is nintendos, facebooks or digital cameras.

I do think that there are some ridiculous regulations on business, that are supported by big business to prevent competition.  It's what makes the US a corporatist nation rather than a capitalist nation. It appears that Sweden has it right on that front, but their tax structure sounds less than ideal.

[Antonio the Sixth]

No taxes on inheritance? Now, that's highly disappointing.

[Space7]

It's worth noting that Scandinavia consistently has the happiest people on Earth, on average.

http://www.huffingtonpost.com/2013/09/09/world-happiness-report-happiest-countries_n_3894041.html

[Redalgo]

The earlier discussion of innovation got me curious, so I decided to do some stat digging. This revealed to me that, back in 2011, these were the twenty-five countries who filed the most patents:

PR China - 415,829
Japan - 287,580
United States - 247,750
South Korea - 138,034
Germany - 46,986
Russia - 26,495
United Kingdom - 15,343
France - 14,655
India - 8,841
Italy - 8,794
Canada - 4,754
Turkey - 3,885
Poland - 3,879
Spain - 3,430
Ukraine - 2,649
Netherlands - 2,585
Australia - 2,383
Austria - 2,154
Sweden - 2,004
Belarus - 1,725
Finland - 1,650
Switzerland - 1,597
Denmark - 1,574
New Zealand - 1,501
Romania - 1,424

Those numbers on their own are misleading, so I took the liberty of calculating the ratio of patents filed to labour force size, then multiplied 'em each by 100k so I could present them in the form of an easy-to-compare set of scores. By that measure, the countries from before rate as follows:

South Korea - 546.6
Japan - 431.3
United States - 155.8
Germany - 111.1
New Zealand - 63.2
Finland - 61.2
Denmark - 53.4
PR China - 50.9
Austria - 49.5
France - 48.7
United Kingdom - 47.9
Sweden - 39.9
Belarus - 38.3
Switzerland - 35.1
Italy - 34.8
Russia - 34.7
Netherlands - 29.0
Canada - 24.8
Poland - 21.2
Australia - 20.1
Spain - 14.7
Turkey - 14.6
Romania - 13.9
Ukraine - 11.4
India - 1.9

Among the top five, South Korea and Japan have corporatist economies while the U.S. has a liberal capitalist model, Germany a coordinated capitalist one, and New Zealand has a mostly liberal one with an exceptionally business-friendly regulatory system. Yet there are countries with similar characteristics much lower in the list. And though Sweden certainly isn't putting out new inventions the way the U.S. is these days, it is interesting to see the U.S. lag behind the two leaders by such enormous margins.

So what would contribute to these results? Quality of education, number of university grads, work ethic, cultural values, economic model, ease of doing business, extent of socioeconomic inequality, stability of tax rates and costs of regulatory compliance, and/or something else? Or perhaps this is entirely the wrong way to go at the question altogether - the number of patents do not tell us about how much they advance human development, whether the discoveries involved resulted from basic research / original ideas versus modification/honing/reapplication of existing technologies, and using national tallies obscures which areas within each country were most innovative (i.e. perhaps in China certain urban centres are phenomenal for generating new ideas but having hundreds of millions of poor folk living on farms in the countryside conceals the former possibility). Or perhaps my method of calculating was just exceptionally ignorant to which statistics are relevant... seeing as there are no obvious, strong correlations here.

...

On a separate note, Space7, I love seeing how happiness indices rate amongst countries and trying to figure out why. They interest and more important to me than relatively conventional measures of national development, such as GDP, its rate of expansion, or GDP per capita (PPP).

[Lurker]

No taxes on inheritance? Now, that's highly disappointing.

Sweden has in many ways never been the Socialist Paradise it has been portrayed as by foreign left-wingers - or alternatively, the socialist hellhole it has often been described as by Swedish conservatives and Anglo-saxon right-wingers (apologies for the strawmen).

Interestingly even in the "golden era" (particularly the 60's and early 70's), with Social Democratic Rule for 40 consecutive years, Sweden had a very low level of nationalization of industries, even compared with many traditionally "non-socialist" countries in Western Europe.

Of course, since 2006 the policy of the Swedish government has not been any kind of left-wing ideal at all - the country has the fastest growing income gap of any OECD country, for one thing. While Sweden has been (and is) obviously very succesful in many ways, the socialist element has often been overstated.

[Swedish Rainbow Capitalist Cheese]

No taxes on inheritance? Now, that's highly disappointing.

Socialist likes to pretend we're everything they want, but as Lurker said, we never really were, and especially not for the last decade.

Also to break the idealist idea of SAP, it was a SAP government that got rid of the inheritance tax.

[Link]

The earlier discussion of innovation got me curious, so I decided to do some stat digging. This revealed to me that, back in 2011, these were the twenty-five countries who filed the most patents:

PR China - 415,829
Japan - 287,580
United States - 247,750
South Korea - 138,034
Germany - 46,986
Russia - 26,495
United Kingdom - 15,343
France - 14,655
India - 8,841
Italy - 8,794
Canada - 4,754

There is a lot of trolling in the patent world so that can definitely skew numbers.  Also a big chunk of the US economy is high tech services.  IBM is a good example.  They sold the PC business to a Chinese firm and kept the high tech services business.

[Beet]

Yeah sorry guys, the patent industry is a joke. It's just another way for corporations and lawyers without scruples to collect rents via the legal system. In this one case in California for instance, an energy company developed a new technology standard, published it public ally, then convinced regulators to adopt it as an industry standard. Then, years later they unveiled a patent and are trying to charge all their competitors license fees! An appeals court ruled they were within their rights. Patents also hurt innovation because sometimes its hard to know whether a new idea falls under someone else's patent or is in the patent application process ahead of you. Some companies do nothing but go around acquiring unused patents and sitting on them, only to come out of the woodwork to charge huge rents if some company wants to use the underlying technology. For years in the 1990s and 2000s Japan had the most patents but they weren't the most innovative. It's hard to measure actual innovation. You want quantitative data for the sake of objectivity, but the very nature of what you ate trying to measure tends to defy simple quantitative measurements.