SAS: Scandinavian socialism?

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By Olivia Lever, Volunteer

The most common argument I hear from left wing commentators about why socialism is such a grand idea is that Scandinavia is a socialist utopia. However, after attending an event at the Institute of Economic Affairs with Martin Ågerup, economist and the CEO of Danish Free Market think tank CEPOS, I discovered that this was far from the truth!

During his talk, Martin addressed the topic of whether or not Denmark is socialist.

Undoubtedly, there’s some evidence to suggest that has serious elements of socialism. Though Denmark may be a wealthy country, the tax burden is much higher than that the UK. In 2017 Denmark’s tax burden took up 45.5% of GDP, in contrast to the UK where the tax burden took up 34.3% of GDP in 2018 - which is already a 50 year high.

The Danes actually liberalised their economy well before the introduction of the welfare state. Martin reasoned that this allowed the Danish people to accrue a high level of wealth, so that they could bear the burden of their massive welfare state. Denmark provides its population with lots of welfare, with 63.5% of the population being reliant on benefits. This makes it difficult for politicians to reduce public spending, and leaves little option but to increase taxes evermore - in a sort of self-fulfilling prophecy. More public spending, more taxes, ever-greater public reliance on the state.

However, this direction has had some repercussions. Denmark has high capital gains taxes, but low corporation taxes. Moreover, businesses in Denmark tend to be very old companies; the barriers to entrepreneurship make it very difficult for small businesses to grow beyond a certain size due to restricted access to capital. According to Martin this is a serious issue in Denmark, and one way to fix this would be taxing income rather than investments.

But Denmark has over time actually become less “socialist” in some respects. According to Martin, the economic success of Denmark can be attributed directly to an embrace of free markets and free trade.

In 1982 Denmark pegged their Danish Krone to the German Deutsche Mark, and then to the Euro from 1999. They liberalised their finance sector, privatised, and cut taxes. And then in 2009, taxes were cut alongside unemployment benefits. This had the purpose of incentivising people into work. According to Martin, had Denmark not made these economic changes, they would have fallen into a similar debt trap as Greece.

As this has become more apparent, the Danish are more becoming willing to reduce the size of the state. After all, the country may have high welfare benefits, but only thanks to neo-liberal fiscal policies and free trade. Danish people have to work long and hard in order to fund the welfare state but are rightly beginning to get fed up, and the so-called Nordic model is struggling to meet the demands placed upon it.

So does the lesson from Denmark say we should become more socialist? No. If anything, Denmark is becoming less, not more socialist. If a country the size of Denmark, with its high levels of GDP per capita, is struggling to bear a giant state, then Britain would not be able to replicate it. And nor should it want to.

Denmark is certainly not a utopian socialist state, and the last thing we should do is take inspiration from their mistakes. We should learn from their successes, and liberalise our economy even further.