Not real socialism: Scandinavia’s free market credentials

The on-going collapse of Venezuela has once again highlighted the failure of socialism as an economic system, with the South American basket case added to the scrap heap of failed socialist experiments, which already includes more than 100 countries and more than 100 million people dead at the hands of a repressive economic and socials system. However, rather than discuss Venezuela – which, according to a cornered socialist will be denounced as “not real socialism” – the left likes to highlight Scandinavia when it comes to examples of how socialism can be implemented: successfully, leading to prosperity.

And indeed, these are rich countries. Norway is perhaps an anomaly, due to its oil riches, but Denmark and Sweden are, broadly, both examples of successful economies, without either being endowed with commodity riches. They are, however, hardly socialist. The fact is that Denmark and Sweden, like most other countries, can be described as “mixed economies”, in the sense that they are fundamentally market economies, but the state plays a big role in regulating economic activity and levy significant taxes on both businesses and persons. No different in principle to the US. But maybe they are much more socialist than the US, in which case Americans with good conscience can go ahead and elect a Bernie Sanders-like candidate as their next president and implement leftist economic policies? Only, how does one measure if the US is indeed much more capitalist than Sweden or Denmark? Well, first, we must define capitalism. Capitalism is characterised by free trade and division of labour, which are the basic tenets for economic progress and which have been spontaneously developing wherever people are free; The Oxford dictionary defines capitalism as “An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state”. But whichever way you define it, the degree to which a country conforms is not necessarily easily measured.

However, the Heritage Foundation publishes an index of Economic Freedom, which is a useful guide. Capitalism is underpinned by exactly that: freedom for economic actors to engage in the markets without state interference. In direct opposition, socialism is defined by state direction of the economy. So, looking at a country’s economic freedom seems like is a good way of approximating how “capitalist” the economy is. Does it work? Well, according to the index, the three least economically free countries in the world are Cuba, North Korea and Venezuela – all self-declared socialist republics. The freest are Hong Kong, Singapore and New Zealand, all generally recognised as being amongst the most purely capitalist economies in the world.

So far, so good. But what does the index tell us about Denmark and Sweden? Are they near the bottom, indicating that the left is correct when they look to Scandinavia for examples of successful implementation of socialism? Not quite: they occupy places 18 and 19 respectively, out of the 180 countries in the list. In fact, they rank just below the US, which sits in 17th. The Heritage Foundation labels all three economies as “Mostly Free”.

The two Scandinavian countries outscore the US in many categories, like Business Freedom, Property Rights, Financial Freedom and Investment Freedom, and the only reason the US beats them overall is that it comprehensively outscores both when it comes to tax burden: the US scores in the “Mostly Free” range, while the Nordic tax models make Denmark and Sweden “Repressed” in this category. Also, Sweden flunks in the Labour Freedom category (the degree to which labour markets are unregulated), ranking as “Mostly Unfree”, whereas both the US and Denmark score very highly and are classed as “Free”.

Across the data, the numbers simply don’t back the left’s argument that Denmark and Sweden are examples of socialist economies, quite the opposite: they are among the freest – most capitalist – economies in the world, outranking even the US on many measures. It is clear: Denmark and Sweden are very far from “real socialism”. Socialist must look to Venezuela rather than Scandinavia to study the consequences of their failed ideology.

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