Matt Zeitlin: Impetuous Young Whippersnapper

Megan McArdle countermuses on how the Scandinavian welfare state could be sapping the cultural foundation of its dynamic and very open economy.

I wonder if this will continue to be true. It occurs to me that Scandinavia, with its homogeneous population, may have been spending down the accumulated social capital of its pre-welfare state society. Before the widespread welfare state, people who attempted to free ride by collecting benefit when they could be working faced both internal guilt and considerable external social pressure; the neighbors essentially functioned as the fraud police.

But as the generations who grew up before the kribbe-to-grav safety net die off, and are replaced by a newer generation perfectly comfortable with broad public charity, this is clearly breaking down. Sweden’s rates of long term disability, sick leave, and so forth, are very high. The Scandinavians I know generally report that the once-famous work ethic is not really all that impressive any more, and there’s little stigma attached to malingering on long-term sick leave.

I think we generally underestimate how much culture matters to economic success. It isn’t even a matter of getting the rules just right; it’s a matter of cultivating a hidden law, a sort of cultural operating system, that limits abuse of public and private trust. Hayek understood this very well; his intellectual heirs on both sides of the political spectrum, less so. We’ve made amazing strides in allowing people to trust perfect strangers enough to transact with them multiple times every day. But I’m not sure how well we’re doing at supporting the safety net.

This is certainly a concern – if the welfare state makes the type of risk taking that an open, growing economy requires, it would clearly represent something of a crisis. But there hasn’t been any crisis yet, for the last 60 or so years, the Scandanavian welfare state has been remarkably sucessful. Sure, it may require some tinkering and some reform (much of which is already happening) but it’s not at all clear that the basic structure of the Northern European welfare state is particulalry in danger. Lane Kenworthy has a great run down of the Swedish political economy, and finds that its unemployment rate is roughly the same as the US, incredibly high levels of foreign trade, high competitiveness and has a 13% immigrant share of the population.

All of this good news is particularly important to note when we’re talking about Hayek’s critique of such social-economic arrangements. The argument made in the Road to Serfdom is an extreme one that is disproven by the Scandanvian welfare state, despite the long term adjustments that need to be made. As far as Megan’s concern that people are going to stop working as hard as they need to drive the economy, I’m not particularly working. The basics of the Scandanavian model are still incredibly strong – like their high social mobility – that things would have to get a lot worse before anyone needed to get seriously worried. Anyways, it’s still a very stable, highly sucessful social-economic model that raises serious questions for the doctrinaire declinism of Hayek.

As for the idea that culture matters to economic sucess, especially trust, there’s some evidence from Sweden that high levels of inequality actually damage trust between people. I guess the real question – and the one that could really win the debate for the Scandanavian model – is whether the high levels of inequality that the American system encourages (or at least seems helpless to stop) discourage people from participating in market exchanges because they feel like they’re getting screwed by the man. I’m not saying that I know the answer one way or the other, but it sure seems important.