The real cause of the low poverty rate.
There is nothing like a good stock market bear run to get all the media wags out and chattering about the “death of capitalism.” Invariably the same folks take to lecturing the rest of us about how the only hope for humankind is “social democracy” in the form of Scandinavian-style “socialism.”
It would be hard to understate the extent of romanticizing and fantasy concerning Scandinavia’s economic and social systems to be found among the Western “intellectual classes,” and that clearly includes the left wing of the Democrat Party. Scandinavians themselves are often not as convinced that Scandinavian socialism is all it is cracked up to be, and Sweden’s own ex-Prime Minister Carl Bildt (current Foreign Minister) has pronounced it a failure.
Scandinavian countries are “socialist” in some senses and vibrantly capitalist in other senses. They are “socialist” in the sense that they have very high taxes with very generous social welfare services provided by the state, the famous “cradle-to-grave” welfare state. They are vibrantly capitalist in the sense that they have low levels of interference in markets by the government, low levels of regulation, low levels of nationalization of industry and capital, and almost no protectionism. Interestingly, Scandinavian countries, especially Sweden, manage to maintain those levels of taxes and expenditures while achieving high levels of national wealth and production, and a standard of living among the world’s highest. As a result Western groupies of Scandinavia hold its “socialism” up as the model for the rest of the world and certainly for the bastions of capitalist inequality and class conflict, especially the English-speaking nations.
The wealth and riches of Sweden of course are at least in part the byproduct of Swedish cowardice and moral depravity. Sweden sat out both World Wars, and emerged from them with its economy completely in tact. In fact, “neutral” Sweden made money trading with Hitler’s Germany and providing the Nazi war machine with war materials, even while its fellow Scandinavian nations were being overrun, brutalized and devastated.
Be that as it may, Sweden in particular and Scandinavia in general are hailed as the great champions of humanism and egalitarianism, as the countries that have cured poverty and eliminated hardship and material suffering. Here is not the place for an overall assessment of Scandinavian societies, which – like all countries – have their positive points and also their problems. The question here is whether Scandinavian “socialism” is really the panacea for poverty.
Sure enough, poverty rates are comparatively low in Scandinavian countries compared with most of the rest of the world. In fairness, it should be noted that they are not the ONLY countries with low poverty rates. Ultra-capitalist Switzerland, which no one would mistake for a socialist country and which has a population similar in size to that of Sweden, appears to have poverty rates lower than those in the Scandinavian utopias. But there is a serious analytic issue that must be addressed and it is this: Are poverty rates in Scandinavian countries low because Scandinavian-style “socialism” works, or are they low because Scandinavians work?
Let us begin by noting that while the dimensions of poverty are relatively small by international standards, Scandinavian countries definitely do have poverty. Scandinavian “socialism” has not eliminated it.
Poverty rates of course are highly dubious things to compare across countries.
The definition of “poverty” and its measurement are both highly problematic, and both vary dramatically, making inter-country comparisons difficult. In all countries there are serious problems with the measures. Wealthy people are sometimes counted as part of the population below the poverty line, as long as their current income happens to be low. Examples are retired people and students. The poverty statistics are based on reported incomes, meaning that lots of people living high on the hog are counted as poor because they do not report their income at all to the tax authorities, earning income from the “shadow economy.” Poverty is generally measured by income, not consumption. It is often measured as a percent of median income, not by material hardship, or by the rather silly “Gini coefficient.” If every single person discovered a petroleum well in his yard, poverty rates would not change much.
Even if we accept the definitions and measures within each country at face value, there are still problems in making comparisons across different currency zones. And some countries, including some Scandinavian ones, just do not report an official poverty rate of any sort.
Having noted all of that, by most estimates the Scandinavian countries are in relatively good but not remarkable positions relative to the rest of the world in terms of the dimensions of poverty. Denmark’s poverty rate, with its bloated welfare state, is 12%, the same as the poverty rate in the US according to this source. And poverty in Denmark is growing – it was estimated at 6% back in 1997 in a EU study. (It should be noted though that Denmark has no official poverty measure. Neither does Norway.) Most other estimates put the US poverty rate higher than 12%. Other estimates of poverty rates for Sweden, Norway and Finland run at about 6%, although some sources put it much higher. The sources that estimate the US poverty rate as 18% also estimate the rates for Sweden and Norway at 9%. A Finnish source estimates Finland’s 2010 poverty rate at 14%. We will leave Iceland out of the comparisons, since the entire population of that country has been driven into insolvency by events in recent years.
While Scandinavian countries have relatively low poverty rates, Switzerland’s, as noted, is evidently even lower. (I say evidently because Switzerland has no official measurement of poverty. This web site puts it at 6.9%, slightly more than half that of Denmark’s.) A summary of other estimates of poverty rates from different sources can be found here. “Child poverty rates” are a separate story, but are low in Scandinavian countries, in large part because there are so few children there being born.
So Scandinavia has not eliminated poverty. The interesting question is whether the low poverty rates there are thanks to the economic system or thanks to Scandinavians being hard-working thrifty disciplined people. That Scandinavians are hard-working is evident from the fact that in spite of enormous benefits in Sweden for the unemployed and for those who do not work, creating incentives to avoid work, Sweden has a labor force participation rate that is one of the highest in Europe.
One way to test our question is to examine Scandinavians who do not live in Scandinavia. There is a large Scandinavian population that lives in the bad-old-selfish-materialist-capitalist United States. Well, it turns out that Scandinavians living under its selfish capitalism also have remarkably low poverty rates. Economists Geranda Notten and Chris de Neubourg have studied Scandinavians living in the US and in Sweden and compared their poverty rates. They estimate the poverty rate for Scandinavians living in the United States as 6.7%, half that of the general U.S population. Using measures and definitions of poverty like those used in the US, the same analysts calculate the poverty rate in Sweden using the American poverty threshold as an identical 6.7% (although it was 10% using an alternative measure). So low poverty among Scandinavians seems to be because Scandinavians work, whether or not Scandinavian “socialism” can be said to work.
But an additional reason for the low poverty rates in Scandinavian countries is that these are countries that have very few immigrants. Poverty rates are high almost everywhere in Europe among migrants into those countries. Scandinavian countries with the exception of Sweden have very few immigrants, both in absolute numbers and in terms of the portion of the overall population.
Here are the numbers:
Foreign born as a percent of total population by country:
|Country||Migrants as Percent of Population|
Source: OECD data (based on period close to 2000)
International Migrants in Developed, Emerging and Developing Countries: An Extended Profile – December, 2010
Because the US, Canada, UK, France and Germany are large countries, the absolute numbers of their immigrants are also very high, not just in percentages.
So is poverty low in Scandinavian countries because their “socialism” works, or because they have relatively few poor immigrants entering? And if poverty is low because Scandinavian “socialism” works, should it not be working for migrants in those countries as well?
Separate poverty data for the migrant populations in Scandinavian countries are available and there are numerous indications that these are quite high. According to one study, “While first and second generation immigrants constituted 44% of the poor children in 1997, they were 65% of all poor children in Sweden in 2008. Only 5% of native Swedish children live in poverty. For immigrant children with both parents born outside of the Sweden, the child poverty rate is 39%.” Poverty rates have also been shown to be high for immigrants in Denmark. According to a recent study of poverty rates among immigrants in all Scandinavian countries, “While native children face yearly poverty risks of less than 10 percent in all three countries and for all years investigated the increasing proportion of immigrant children with an origin in middle and low income countries have poverty risks that varies from 38 and up to as much as 58 percent.”
So Scandinavian “socialism” is doing a remarkably poor job in eliminating poverty among non-Scandinavians living in those Scandinavian utopias.
The conclusion can only be one thing. The low poverty rate among Scandinavians in Scandinavian countries is thanks to the fact that Scandinavians work. It is NOT because socialism works!