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November 12, 2007

Towards a Better Globalization

Does big government actually act as a facilitator of globalization, free trade, and open economies? The answer on this one is supposed to be no, of course not. Government mucks everything up, and burns your money in their big money chimney, and blah blah blah. But Denmark, Sweden, and other Nordic countries have, in recent times, acted as contrary evidence to this thesis. Their model, where an expansive social safety net reduces economic insecurity and thus reduces public fear of a dynamic economic system, has acted as a useful social democratic alternative to our system, where the losers of globalization are unprotected and uncompensated, and globalization is kept politically viable mainly through the support of elites. Among these two alternatives, the Nordic model has been painted as quirky and unsustainable. New research, however, suggests that the Nordic model is actually the historic norm for globalizing countries, while our approach is actually something of an aberration.

Which makes sense. Individuals are risk averse. When offered a new economic system which will increase their risk, but offer random and concentrated economic gains to people who likely aren't them, they're not generally terribly interested in switching over. If those economic gains however, were channeled into programs or institutions that protected them, and even made their lives better, things might be a bit different. That's what the Nordic countries have found, where social spending creates the political environment that facilitates a dynamic economy. America's found that elite support can trump popular anxiety, and so globalization can be furthered that way. But it' sprobably not the most sustainable approach.

November 12, 2007 in Economics | Permalink


Good luck with that. Things will likely keep going as they are, the elite will force their views onto us until we kill them. That is the historical norm, where sustainable and stable civilizations slowly give way to over increasing corruption until they collapse from withing or are so weakened that they are destroyed from without.

Posted by: soullite | Nov 12, 2007 11:00:43 AM

This is pure garbage. Individuals aren't risk averse - they're diverse, that is different from each other. That's why we are individuals.

Secondly, "globalisation" in the sense of unrestricted imports leads to benefits to everyone who buys things, because their purchases are cheaper.

"The nordic model's" sustainability in current conditions, with current demographics is not likely dependant on the same factors that obtained with much younger populations, in an era that also had fixed exchange rates (gold standard) and culminated in the biggest war in history (1914-1945 with a break in the middle). Currently those countries enjoy huge mineral wealth which allows them to benefit greatly from global trade and subisidise the less fortunate or hard working of their compatriots.

Posted by: Marcin Tustin | Nov 12, 2007 11:06:32 AM

Marcin Tustin is generalising wildly. Denmark and Finland have relatively small amounts of mineral wealth, less per capita than the US.

Posted by: Meh | Nov 12, 2007 11:57:14 AM

"But Denmark, Sweden, and other Nordic countries have, in recent times, acted as contrary evidence to this thesis"

Did they take into account that small population countries tend to have more free trade for very obvious reasons?

Posted by: Floccina | Nov 12, 2007 12:46:01 PM

I'm with Soullite, above. I see absolutely no evidence that the elites' power to ram their agenda down our throats has been weakened. Indeed, this is the most obvious explanation for Dem failure to successfully oppose Bush: they're elites too, and dependent on other elites (i.e. corporate contributors). Writers such as Kevin Phillips and David Kennedy have shown how this is a typical historical pattern: the elites gorge themselves at the trough, until the rotting society falls apart. I'm afraid I see no other outcome for the US at this point (I think Krugman's too optimistic too, for the same reasons). The 2000 and 2004 elections were our last chance (the odds weren't good even then) and we blew it.

Posted by: beckya57 | Nov 12, 2007 1:19:15 PM

...while our approach is actually something of an aberration.

I am regularly taken aback at just how abberant we have been or
seem to be..coming...in so many ways.
Another data point here for 'American Exceptionalism',
the pejorative.

And so, Why can't we just get along?.
Like... In your dreams , amigo.

Posted by: has_te | Nov 12, 2007 5:05:50 PM

I'm with our Klein on this one, and between Soullite and Marcin.

First of all, rational humans are risk averse. Proof points abound: the fact that we created social security is the best one, although these days, I also love the fact that we now drive 5000lb trucks to protect our offspring.

Bottom line, one of the great disconnects between the elite and the middle right now is that the elite believes that in the long run, all of us benefit from "pure" economic theory, while us working stiffs know that in the short run, most of us die if we go 5 minutes without oxygen, 3 days without water, and 1 month without food. Not only that, but we only have 15 ideal earning years, from 30 to 45, and we have to pay for our children's education. So we cannot just jump into some entepreneurial adventure (that's for frat boys who can rest up at Dad's place in Cabo if the venture fails), or go back to school if we lose our jobs.

How big is the disconnect? George Bush wants us to spend our SS money in the stock market. Alan Greenspan wants us to pay for our house with adjustable rate mortages. Congress has allowed corporations to drop their pension obligations to retirees and employees while not forcing the complete elimination of shareholder equity first. These are all strategies that work well over any measured 70-100 year span, but could wipe out a family in any 5-10 year period. And we live our careers and raise our children in those 5- 10 year windows.

Our elites will never lack for food and water. So they just don't care about a steady supply of oxygen, food and water for working Americans. I for one will never forget the incredible callousness of Greenspan's advice. And witness now how evil his words were.

What is shameful is not that the Republicans show their contempt for our fellow citizens in this way. What is shameful is that so many Democrats have forgotten the very lessons that put them in power for 50 years. The idiots.

Posted by: dollared | Nov 12, 2007 8:02:52 PM

There are indeed things about the Nordic model which are worth taking note of.

For example, in Sweden:
1) No inheritance tax.
2) No national minimum wage.
3) A pure voucher scheme to pay for education.
4) Healthcare is organised and paid for by the county.

Denmark, as another example, also organises health care via the county: taxes are locally raised and locally spent.

All hail the Nordic model, eh?

Posted by: Tim Worstall | Nov 13, 2007 7:16:10 AM


you're obviously a smart guy. So you support your listed items 1-4, I take it? And of course, since you are not an idiot, you also agree to the other conditions:

5. dramatically higher and longer unemployment compensation (making the minimum wage moot, since no responsible parent would work for less than the welfare payment);
6. marginal income tax rates well above 50%, making the inheritance tax moot;
7. Merit-based college access, with tuition and fees paid by the state, so that children who don't perform well under the voucher system don't take up valuable university slots that could go hardworking lower middle class children; and
8. Single payer health care, paid for by those counties.

All hail, right? I know that I'd sign up for that....

Posted by: dollared | Nov 13, 2007 1:52:25 PM

Another part of Nordic model, at least in Sweden: national church funded by the state.

Lutheran pastors actually may be very good social workers.

Actually, it may have some importance. While not particularly religious, Nordics are as a rule Lutherans and there is a certain combination of work ethics and social responsibility.

Some claim that high tax rate make sense with Lutheran work ethic because people work because, you, well, work when you can, not because you have such phenomenal incentives. Still, they had to decrease sick leave benefits because too many people were getting sick.

Work ethics is very differently than in USA. In a high tech company, you are supposed to work hard till 5 pm, and then in couple of minutes everybody is gone. Then hop on the bicycles, pick children from schools or preschools and SPEND TIME WITH THE FAMILY. The latter is deemed very important.

So social and religious conciousness requires to support families, but it means totally different things than here. They retain some blue laws so families would have time to spend together on weekends. Mothers have to have sufficiently generous support to take care of babies (so single mothers are doing actually quite well). Pornography is a non-issue, school prayer? I actually have no idea, there could well be, abortion? supporting families includes supporting family planning.

Last remark: inheritance tax is a bit pointless because with high taxes, bussiness tycoons register their property as foreign corporations.

And an anegdote: a Swedish lady told briefly about changes that a conservative government was introducing, commenting "it is awful! soon it will be as terrible as in Austria!". She has a highschool friend in Austria so there had to be some basis in that claim.

Posted by: piotr | Nov 13, 2007 3:27:27 PM

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