Continuing the theme from Tuesday's newsletter: At the top of any 'World's Best Places to Live' list tends to be one or more of the Scandinavian countries. In spite of having strong safety nets throughout society, there appears to be no compromise in quality of life. In fact, the strong safety net is a feature of the system, rather than a flaw. The criticism of high taxes is a distraction since many of the costs that are accounted for in the revenues these taxes generate are simply shifted to the individual in the U.S. Often, these costs end up being higher in the U.S. (healthcare at 17 percent of GDP is only the most obvious example), without any compensating benefit that the promised 'freedom of choice' is supposed to provide (e.g., better outcomes on health and wellbeing metrics). What matters is the return on any $1 spent (the quality of outcomes created), irrespective of whether that dollar goes to the government or private companies.
Of course, comparing completely different countries with different histories is not easy. In particular, I think there are two challenges with promoting the Scandinavian model out of context. First is the issue of size. It is much easier to run a country the size of Denmark than one the size of the U.S. I am not sure there are any examples of the Scandinavian model run at scale. Second is the issue of innovation, which I discussed on Tuesday. If you look at the largest, most innovative companies in the world, most of them were formed in the U.S. There are exceptions, of course, but a disproportionate amount of innovation comes from the U.S. and, by implication, the economy where the pursuit of profit is most blatant.
As a European living in the U.S. (U.S. citizen since 2019), I struggle with these contrasts in thinking through how best to structure society. What is interesting is that the Scandinavian countries are more capitalist than the U.S. or almost any other country you can think to mention, in spite of the higher taxes. This is supported by evidence suggesting that, today, there is more social mobility in many European countries than in the U.S. In other words, if you are born poor in the U.S., you are more likely to die poor than the same person born into the same situation in Europe. Yet, there are many benefits to living in the U.S. and it is something I decide actively to continue.
The way I have come to think about this is in terms of normal distributions (bell curves). That is, the average (on many metrics) is probably similar in Europe and the U.S., but the standard deviation is much higher in the U.S. That is, in the U.S. there are much higher highs and much lower lows – the distribution is flatter. In Europe, there is much lower upside (e.g., not as much innovation), but also much lower downside (e.g., the strong safety net). One positive externality resulting from this imbalance is that the innovation generated in the U.S. is enjoyed by other countries who do not incur the associated costs.
Having said all that, there is clearly much to be said for the European lifestyle in general, and the Scandinavian model in particular. The challenge, therefore, and something Strategic CSR is dedicated to addressing, is whether an economy can be created with stronger protections at the bottom end of the distribution, while retaining the freedom to innovate at the top. One possible example of this is illustrated in the article in the url below. As the tag line to the headline suggests:
"Forget Scandinavia. Switzerland is richer and yet has a surprisingly equal wealth distribution."
As the article describes in detail, Switzerland is larger, happier, and more egalitarian than its Scandinavian neighbors. I would add The Netherlands to the mix – particularly noteworthy for its democratic engagement (also a feature of the Swiss cantons) and its progressive assignment of rights equally throughout society. Switzerland, of course, is small, but is also a wonderfully prosperous society (in the broadest sense):
"This $700 billion European economy is among the world's 20 largest, significantly bigger than any in Scandinavia. It delivers welfare benefits as comprehensive as Scandinavia's but with lighter taxes, smaller government, and a more open and stable economy. Steady growth recently made it the second richest nation in the world, after Luxembourg, with an average income of $84,000, or $20,000 more than the Scandinavian average. Money is not the final measure of success, but surveys also rank this nation as one of the world's 10 happiest."
The article features a number of positive attributes that suggest Switzerland is doing many things right. Two characteristics stand out to me – both related to building an informed citizenry that have specific expectations of the country's firms (and its politicians). First is immigration:
"Switzerland has been welcoming more immigrants than any Scandinavian country since the 1950s. It is on track to accept more than 250,000 immigrants between 2015 and 2020, expanding its population by 3 percent. That immigration rate is nearly double the Scandinavian average, and one of the highest among large, developed countries."
The second is education:
"The Swiss labor force gets an added boost from a meritocratic public school system that starts steering students as young as 12 toward their academic strengths. The world-class universities charge average annual tuition of only $1,000 and leave graduates thousands of dollars less in debt than many Scandinavian schools."
It seems to me that the issue of education, in particular, is central to many of the problems we face – specifically, decades of under-funding in education. I have often found it frustrating that we invest so much money in the final 5 years of life (which almost every article I've read on the subject suggests are not 'good' years), but do not spend nearly as much on the first five years of life. This is primarily because older people vote reliably, which skews the political distribution of funds. But, in spite of this, why do we not see it in our best interest to give every child the best opportunity to realize their potential? They are the future, after all.
Having just come through yet another overly-long and shallow presidential campaign, it is difficult to see how any politician could be elected in this country on a platform of higher taxes in exchange for sustained investment in education. And, given we have had decades of under-funding, that can only be fixed with decades of over-funding. Yet, in every discussion I have about CSR, business ethics, and/or the problems facing society, education seems to be the solution. It is not the system that is the problem so much as what we ask of the system. The system is neutral, but good inputs lead to good outputs. We need informed and engaged citizens in order for liberal democracy (and, for that matter, market-based capitalism) to work at its best. In the absence of either, we get discord and dysfunction.
Take care
David
David Chandler
© Sage Publications, 2020
The Happy, Healthy Capitalists of Switzerland
By Ruchir Sharma
November 3, 2019
The New York Times
Late Edition – Final
SR5
