Models From Abroad

One upside to America's rather sketchy and underdeveloped welfare state is that when we consider what sorts of things we'd like to do, we can easily look around the world for examples of different approaches to these issues. Isaac Chotiner and Paul Krugman, for example, note that Tony Blair's targeted anti-poverty initiatives have been very successful in the UK. At the same time, Britain has a health care system that's not very well regarded compared to other European examples, so we can look elsewhere for models for that.

Jonathan Cohn, similarly, takes a fairly comprehensive look at the successful Danish economic model, which has generated a GDP per capita close to American levels with much less structural inequality. The basic shape of things here is to combine US-style flexible labor market rules with a series of measures designed to make labor market fluctuation much more tolerable -- health care and child care services that will always be there come what may, extremely generous short-term unemployment insurance, and very aggressive high-quality retraining and placement services.

UPDATE: Note that Denmark, like Iceland, rates higher on the Heritage Economic Freedom Index, through the Scandinavian combination of massive welfare states and relatively light regulation. The thing to say in response to this is that the Scandinavian countries are really little and it might not work as well in a big country, but I don't understand what the causal mechanism for non-scalability is supposed to be. I'll happily grant that it's politically easier to put a Scandinavian-style system together in a small, homogeneous country, but that's different from saying it wouldn't work on the merits.

12/26/06 9:50AM del.icio.us this incoming links

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my recent discovery, via mark thoma's economist's view blog, of hayek's support (hayek! the free-market god!) for a social safety net to offset and make more tolerable labor market fluctuations, is apropos here:

http://economistsview.typepad.com/economistsview/2006/10/tim_duy_in_defe.html

Posted by: howard on December 26, 2006 10:58 AM

Even the Wall Street Journal has cited the success of the Danish model. Still, Denmark's a very small country, and I can't help but wondering if there might not be some diseconomies of scale in trying to apply its model in the vastly larger United States.

Posted by: Peter on December 26, 2006 11:11 AM

Matt writes "extremely generous short-term unemployment insurance." This got me thinking. Has any country ever used a front-loaded unemployment insurance scheme? Say they up the unemployment insurance in NYC to $600/week from the current $400/week, but make that rate only last a month rather than the current 13 weeks. Then in month 2 it goes down to $400/week, then in month 3 it goes down to $200/week. This would incentivize finding a job quickly.

I'm just throwing out simple numbers for illustrative purposes, of course. Has something like this ever been used? Just multiply the total $/week by the # of weeks to get the total $, and then use some formula to determine the starting amount and rate of decrease. If a person failed to find a job by the time it ran out, the total money would be the same, but if a person found a job before then, s/he would get more money. This would provide a boost in unemployment insurance to those who found it quickly (in effect being more generous to those people), incentivize finding a job quickly, but would not increase the government's total unemployment insurance risk, though I imagine it would result in an increase in unemployment outlays.

I'm not an economist and confess to not knowing the details of unemployment models. This just occurred to me. Can someone with some expertise comment?

Posted by: Mitch Schindler on December 26, 2006 11:14 AM

See, what you want is less regulation and more welfare. A smaller state and more wealth redistribution.

This is quite reasonable on libertarian grounds, given centuries (millenia?) of primative accumulation.

Posted by: WK on December 26, 2006 11:21 AM

You can't have Danish corporatism without the Danish centralised state. So you will have to look for a welfare state model compatible with the fragmented US political system.

Posted by: otto on December 26, 2006 12:12 PM

Denmark has a tax-to-GDP ratio of 50 percent. I would be very curious how you get the US to accept a 150% increase in federal revenues.

Posted by: Nicholas Beaudrot on December 26, 2006 12:16 PM

Not to mention the 190% Danish tax on automobiles.

Posted by: John I on December 26, 2006 12:42 PM

Those tax rates are derivative of the Danish centralised state.

Posted by: otto on December 26, 2006 01:20 PM

Can I just say that this is not the calibre of discussion I expect to find when I click on a blog post titled "Models From Abroad", and a discussion of "Danish Models."

I am extremely disappointed.

Posted by: dbt on December 26, 2006 02:46 PM

By the way, for the last half decade, Denmark has been cracking down on immigration, with an immigration-restrictionist party, the Danish People's Party, as part of the ruling coalition. (The surprising degree of backbone shown by the Danish government during the Mohammed Cartoon crisis derives from this.) Danish opposition to immigration stems in sizable part from the desire to preserve its Nordic welfare state. As David Goodhart has pointed out in Prospect (UK), European welfare states and massive immigration are not compatible in the long run.

Posted by: Steve Sailer on December 26, 2006 03:01 PM

Ah, someone noticed my home country. Here I can speak with a clear sense for authority (working in the danish government (student job)) and studying public administration.

The anti-immigration wing of the danish political spectrum is not very helpful to promote further development of the danish economic model or welfare system. One part of the danish model that has always been important is the high degree of openess in terms of trade and such. There is no reason to assume that immigration of labor should upset or destroy the danish model. There are two reasons for this:

First, the so-called flood of foreign labor had already stopped by the time the current xenophobic mood started (1990+). The percieved problems stemmed from 1) the marriage of danish resident (danish citizens!) of foreign descent to partners from their home countries 2) refugees.

The "flood of labor" fear is actually more related to the new EU countries, who are very much poorer than the traditional members than the to the xenophobic culture war waged by the current goverment. The policies enacted was not really related to the core of the danish model, the flexible labour market with ample public reeducation programs and generous unemployment benefit. And the feared "flood" has never happend. With the intergration of such countries as spain, portugal, poland ect. no great movement of people happend.

Second, I dont really see the mechanism that destroys this type of welfare state. The argument is, i think, that the solidarity that needs to be there to legitimize the welfare institutions is diluted, because danes wont pay taxes to finance unemployment benefits for immigrats. This argument is about perception and perceptions can be changed, its is not a ironclad causial link. Its definantly not about the economics of the system.

What americans can learn from Denmark is not to copy the system, but that the benefits of flexible labor markets need not be lost to provide a generous welfare system.

Posted by: Tomas on December 26, 2006 04:00 PM

For answers to Tomas's questions, I would suggest reading the famous 2004 essay "Too Diverse? Is Britain becoming too diverse to sustain the mutual obligations behind a good society and the welfare state?" by David Goodhart, editor of the centre/left "Prospect."

http://www.prospect-magazine.co.uk/article_details.php?id=5835

Posted by: Steve Sailer on December 26, 2006 04:30 PM

Great article...Matt needs to give us his thoughts on its thesis...

Posted by: v on December 26, 2006 06:54 PM

Denmark's a very small country, and I can't help but wondering if there might not be some diseconomies of scale in trying to apply its model in the vastly larger United States.

It's good to see that someone notes that a system which works well in a small, relatively homogenous (recent migrations notwithstanding) country, might not be a good solution for a large, relatively diverse nation?

Posted by: TW Andrews on December 26, 2006 09:46 PM

I do wonder, if it would not work on the macro (national) level in the US, if it would work at the state level here? Also, Denmark is a near 180 from France, Britain, etc. in terms of social openess. It was the king of Denmark who wore the Star of David during the Holocaust to show solidarity with fellow Danes, including Jewish Danes. When the survivors came back, they found their homes intact and that their neighbors had left everything in place, unlike other parts of Nazi occupies Europe where the locals took the opportunity to loot Jewish property. Friends who have dealt with racism in France in recent years have remarked to me how refreshing it is to go to Denmark.

Posted by: Reality Man on December 27, 2006 04:06 AM

I also wonder what I'm supposed to read between the lines about the homogenous nature of the Danish nation and its connection to the welfare state. Are people arguing that people are more willing to support welfare for people of their ethnicity and less likely to support it for people who look different? Is this an argument that we are too racist to have a decent welfare state? If so, then just say it. If not, what does that mean exactly?

Posted by: Reality Man on December 27, 2006 04:10 AM

@reality man:
"It was the king of Denmark who wore the Star of David during the Holocaust to show solidarity with fellow Danes, including Jewish Danes."

It's a myth, especially popular amongst americans, probably spread by Exodus (the movie and book). The Danish Jews never wore yellow stars, because there was never any racial laws in Denmark. Denmark was governed by its own government until 1943, and as soon as the Germans took over power, the Jews were helped out quickly, with the implicit help of the German occupiers, although that was not very clear at the time.

"Are people arguing that people are more willing to support welfare for people of their ethnicity and less likely to support it for people who look different?"

It's not about race.But it IS easier to relate to people who you are closely related in terms of ethnicity, language, level of education, religion, cultural background, etc., like in extended clan structures. Denmark has prospered because we trusted each other, keeping the costs of transaction down. When you trust virtually everybody else not to misuse the system, the systems can have less costly control and be more generous.

The Nordic countries are generally extremely homegenous, Denmark going from 1% immigrants in 1980 to 5% today, still with an overwhelming (90%+) majority of white lutherans.

/Limagolf

Posted by: Limagolf on December 27, 2006 06:05 AM

Yeah that myth about the david star is amazing.

As I recall it is no accident. Danish-americans promoted that myth during the war where Denmark hardly could be called hard resisters of the german occupation. The lack of racial laws in Denmark

I am glad it worked (to some degree) or else Denmark might have ended up like austria, divided amoungst the allied powers and the soviets (regarded as a vassal state of the reich rather than a occupied country).

Posted by: Tomas on December 27, 2006 07:15 AM

Germany's GDP per capita would probably be a lot higher had it not been for the disastrous re-unification terms that "conservative" Helmut Kohl insisted on in 1991. If Kohl had let East Germany go its own way, West Germany's economy would be much better than it is today.

Posted by: raj on December 27, 2006 08:52 AM

"The thing to say in response to this is that the Scandinavian countries are really little and it might not work as well in a big country, but I don't understand what the causal mechanism for non-scalability is supposed to be."

Um... greater heterogeneity in ideology and a massively larger number of obstructing interest groups? Hope that helps!

Posted by: Will Wilkinson on December 27, 2006 10:17 AM

Um... greater heterogeneity in ideology and a massively larger number of obstructing interest groups? Hope that helps!

Those are political impediments to implementing those kinds of policies which, I acknowledge, are very real. As I wrote, "it's politically easier to put a Scandinavian-style system together in a small, homogeneous country, but that's different from saying it wouldn't work on the merits." What I'm wondering is: Is there are a reason to think Danish-style policies, if implemented, wouldn't produce Danish-style results in a big country?

Posted by: Matthew Yglesias on December 27, 2006 11:10 AM

So what you're asking is: if you can tax a population of 10 million people at rate X% to provide services A and B, could you not tax a population of 300 million (with the same average income) at X% to provide the same services, with equivalent benefits for society? I'd agree that there's no reason to think it wouldn't work. One additional variable would be income distribution - if a good deal of your population is making a marginal wage, the percentage that would stay on the dole rather than working could be much higher.

Nevertheless, the political problem creates practical problems however the math works out. In a heterogeneous society, any large-scale income redistribution will be seen as taking money from some "us" and giving it to some "them" (in the USA, immigrants and racial minorities, but the specific groupings really aren't important). Even if you could implement Danish-style policies, there would be a backlash of epic proportions; the next election would see 100 Tom Tancredos sent to the House.

That's why successful programs, like Social Security, have to be seen as giving something to everyone. Universal healthcare, very short-term unemployment insurance - those can be supported. Child care and/or long-term unemployment benefit? Not as long as there are variations in birth and employment rates across population groups.

Posted by: five toed sloth on December 27, 2006 03:19 PM

The Scandinavian countries are no longer as homogenous as the myth says (if they ever were). At least Sweden, and to a lesser degree Denmark, have a fairly high rate of immigration and admittance of refugees. As a result in Sweden 12 percent of the population is foreign born. The corresponding number for USA is 12.2 percent (OECD Statistics).

I think the success of the Scandinavian welfare states is to be found elsewhere. A major factor, in Sweden at least, is the very high level of trust the people have for the government. And that trust is not just naïveté on the part of the Swedes. This is a trust built from a very long-standing tradition from medieval times forward of the farmer class forming an alliance with the king against the aristrocracy.

Like Matthew I would like to know what the supposed diseconomies of scale are. My gut instinct, as a Swede quite happy with our system, is that there could actually be some economies of scale involved as well. A Danish welfare model could actually work even better in such a huge economy as that in the US.

Posted by: rdjonsson on December 27, 2006 04:52 PM

American idealism is gone. Racism has killed welfare. Whites will not allow any of 'their' money to be 'given' to 'black' people, even if that means that they die homeless of uninsured disease.

How hard is it to get a danish residency visa?

Posted by: miguel on December 27, 2006 05:27 PM

You got it. Race is the problem. As I recall one of the big objections to Medicare was that Southerners were afraid it would lead to socialized medicine, which would in turn lead to integration. Look at everyone going on about 'black welfare queens', etc. back in the 1980s.

Additionally, when you have racism, out-groups will receive most of the welfare, which starts all sorts of problems...

Posted by: SFG on December 27, 2006 08:44 PM

Google "Sweden muslim immigrants" and you will rapidly see that the dwindling homogeniety in Sweden is causing huge problems that are probably worsened by the welfare state. I suspect that in the next twenty or so years, it will prove to be unsustainable unless they dramatically curtail immigration.

Posted by: Justin on January 2, 2007 10:35 AM

Since Tyler revived the thread...

You say: "What I'm wondering is: Is there are a reason to think Danish-style policies, if implemented, wouldn't produce Danish-style results in a big country?"

Political obstacles I cite for implementation are also obstacles for continuity, which is one reason why why, even if implemented, Danish-style policies wouldn't have Danish-style results.

Posted by: Will Wilkinson on January 2, 2007 12:35 PM

If anyone is seriously interested in this topic, I recommend the thread over at Marginal Revolution. See Can we just scale up Denmark?. You will find lots of well informed posts. Quite a few from folks who grew up or live in Scandinavia.

Posted by: Frank Youell on January 2, 2007 05:45 PM

The question “Can we just scale up Denmark?” has already been discussed at considerable length over at Marginal Revolution. See the How good is the Nordic Model?. One poster suggested comparing several states of the upper Midwest (WI, MN, ND, SD) with the Scandinavian countries. Several folks, including myself, replied with a wide range of facts and figures.

The bottom line is that these states perform very well measured by education, life expectancy, health care coverage, per-capita income (MN is number 1 for the country), etc. Some of the comparisons were versus other states, others versus the nations of Scandinavia. Of course, these states have the American social system, not an expansive welfare state like Denmark, Sweden, Finland, etc.

This comparison shows that the successes of the Scandinavian welfare state are more likely to be attributable to the character of the people, rather than the actual social and economic systems. Conversely, it is not reasonable to expect that the Danish/Nordic model can be extended to other groups with comparable results.

Indeed, the model is already failing in Scandinavia for some immigrant groups. For example, parts of Malmo are so dangerous that ambulance drivers require a police escort. Indeed, police cars require a police escort. See Swedes Reach Muslim Breaking Point for an article about Muslim immigration and crime in Malmo. See Crime in Sweden for some Malmo crime stats.

The Danes have recognized the truth of this and have imposed the toughest immigration restrictions in Europe (The Netherlands is number two). A commonly heard expression in Denmark is that the welfare state and mass immigration can not be combined and therefore immigration must end.

I appreciate that this is not PC. However, the truth is not bound by the limits of Political Correctness. As Galileo one said, in response to the Political Correctness of his time “Eppur si muove” (And yet it moves).

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