Looking Backward On Socialism: A False Appeal To Nordic Countries

with No Comments

Looking Backward On Socialism: A False Appeal To Nordic CountriesMany socialists try to use the Nordic or Scandinavian countries as proof that socialism can work in practice. They point to these countries’ attempted policies that are admired by socialists as evidence that socialism can work in practice.

There is no criteria or official process for a country to be considered a socialist country. This creates much ambiguity in this discussion. Can these countries even be considered socialist?

A closer look at the countries of Iceland, Denmark, Sweden, Finland, and Norway which are most frequently cited reveals that they aren’t actually good examples of socialism. Taken as a whole, these countries are robust capitalistic economies.

On Tuesday, June 11, 2019, David John Marotta appeared on Radio 1070 WINA’s Schilling Show to take a close look at the Nordic countries most frequently appealed to as examples of successful socialism.

Listen to the audio here:

Socialism is normally defined as “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.”

Today, those with socialistic tendencies vary to the extent that they feel the need to eliminate private property. However, most modern socialists hope to bring about a completely equal, classless society.

They want the government or unions to “level the field” by taking from those who have and giving to those who don’t. Additionally, they share a disbelief in the fairness of the free market. Instead, they believe that centralized planners will need to be given the power to direct goods and services to where they will do the most good. Unfortunately, that power is often implemented through force.

That being said, there is a difference between socialism and a welfare state even though there are ideological similarities between the two. A welfare state tends to have more in common with fascism. Whereas socialism abolishes private ownership, fascism retains the appearance of private ownership but intervenes in the free markets to bully nominal owners to act in the so-called greater national interest.

Economic freedom, on the other hand, is the free market ability of people to produce, trade, and consume goods and services free from such restraint. Countries governed by a socialist organizational theory would almost by definition score very low in terms of economic freedom.

Luckily, there is an objective methodology for determining the economic freedom of a country. This provides us with a relatively straightforward methodology of answering the question: “Are the Nordic countries socialist or are they economically free from government restraint?”

The Index of Economic Freedom uses 10 measures of economic freedom to rank countries each year. The analysis scores each country out of a possible 100 and categorizes the countries into free (100-80), mostly free (79.9-70), moderately free (69.9-60), mostly unfree (59.9-50) and repressed (49.9-0) based on their score. In 2019, the United States received a score of 76.8 or mostly free.

Here is how the United States compares to the Nordic Countries:

2019 Score
Iceland 77.1
United States 76.8
Denmark 76.1
Sweden 75.2
Finland 74.9
Norway 73.0

 

As you can see, these 5 Nordic Countries are currently very similar to the United States in Economic Freedom with Iceland and Denmark receiving the most similar scores. Although four of the five Nordic Countries are indeed less economically free than the United States.

Luckily, we can take our analysis farther. The Index of Economic Freedom develops its overall score from twelve underlying freedoms each scored and analyzed separately.

By reviewing each of these underlying scores, we can measure how socialist or economically free these Nordic countries actually are as well as comparing their freedom to that of the United States.

Rule of Law

The first three freedoms are collectively called Rule of Law. In these three categories, the Nordic countries either show more freedom than or the same amount of freedom as the United States. In all these categories, capitalists would enjoy emulating the Nordic countries while socialists likely overlook these details when they say they admire them.

Property Rights

The property rights component assesses the extent to which a country’s legal framework allows individuals to acquire, hold, and utilize private property, secured by clear laws that the government enforces effectively.

The United States’ most recent property rights score was 79.3. According to the Index, “Property rights [in the United States] are guaranteed, but protection has been uneven. For example, civil asset forfeitures by law enforcement and an expansion of occupational licensing requirements have encroached on property rights.” In the United States the Institute for Justice does excellent work filing landmark cases to defend property rights against government infringement.

Meanwhile, all five Nordic countries scored higher than the United States on property rights with Norway at 86.1, Denmark at 86.2, Iceland at 87.4, Sweden at 89.5, and Finland at 89.6. According to the Index, “Finland maintains one of the world’s strongest property rights protection regimes and adheres to many international agreements that aim to protect intellectual property. Contractual agreements are strictly honored.”

In this way, the Nordic countries are a far cry from socialism. Their property rights are stronger than the United States. If we wanted to emulate Nordic countries, we should strengthen our private property rights, which is a movement towards capitalism.

Government Integrity

Corruption erodes economic freedom by introducing insecurity and coercion into economic relations. Of greatest concern is the systemic corruption of government institutions and decision-making by such practices as bribery, extortion, nepotism, cronyism, patronage, embezzlement, and graft. The lack of government integrity caused by such practices reduces public trust and economic vitality by increasing the costs of economic activity.

The United States most recent score was 77.4 in government integrity. According to the Index, “Corruption is rare, but the Pew Research Center reported in late 2017 that only 18 percent of Americans trust the government always or most of the time.” Such mistrust of government in the United States is warranted. The 2008 Financial Crisis was caused by the government and yet they blamed it on the financial markets. Then, there was no public accounting for where the bailout money went. Government programs continually favor institutions that support their own power and reelection including Cash-For-Clunkers, GM Bailout, and the Affordable Care Act. The TSA engages in nothing but security theater, and the government habitually lies about everything from NSA surveillance to the efficacy of regulation.

In the 2008 Corruption Perceptions Index, the United States “dropped four points since last year to earn its lowest score on the CPI in seven years. This decline comes at a time when the US is experiencing threats to its system of checks and balances as well as an erosion of ethical norms at the highest levels of power.”

The report explains the importance of having governmental systems and procedures that are transparent, unbiased, and therefore trusted by those they govern:

“Our research makes a clear link between having a healthy democracy and successfully fighting public sector corruption,” said Delia Ferreira Rubio, chair of Transparency International. “Corruption is much more likely to flourish where democratic foundations are weak and, as we have seen in many countries, where undemocratic and populist politicians capture democratic institutions and use them to their advantage.”

Meanwhile, all five Nordic countries scored higher than the United States on government integrity with Iceland at 83.8, Denmark at 85.8, Sweden at 88.0, Norway at 92.3, and Finland at 92.5.

According to the Index, “Corruption is not a significant problem in Finland, which was ranked 3rd out of 180 countries surveyed in Transparency International’s 2017 Corruption Perceptions Index.”

For Sweden the Index reports, “Corruption rates are low, in part because of deregulation, budgetary self-restraint, and a stable political environment. Effective anti-corruption measures discourage bribery of public officials and uphold government integrity.”

In other words, corruption rates are low in Sweden because government does not have as much power. When you give regulatory agencies power, you give them incentive to hold that power over people and you give people an incentive to bribe them. Similarly when the government’s budget is flush you give people an incentive to sway how government funds are spent. These types of practices are called rent seeking.

If the United States wanted to be more like Sweden, we would deregulate and show budgetary self-restraint. The World Bank’s report “A Contemporary Approach to Public Expenditure Management” describes the strengthening fiscal discipline in Sweden (emphasis added):

The Swedish Government (and the public sector) have had recurring budget deficits since the mid 1970s. The typical response has been for the Government to adopt austere budgets which, through a combination of spending cuts and revenue adjustments, reduce the deficit to manageable size or eliminate it altogether. For example, in 1982, the Government implemented a “crisis program” that progressively reduced the deficit and briefly eliminated it by the end of the decade.

However, a recession in the early 1990s, combined with upheavals in financial markets, resulted in a budget deficit that reached approximately 13 percent of GDP, far higher than the imbalances experienced previously. At about the same time, a comparative study of budget practices (led by Jorgen von Hagen) concluded that Sweden’s budget process was very weak compared to that of other European Community governments. It further found that lax budget procedures are closely correlated with higher deficits and a growing public debt.

Sweden introduced a reformed budget process in 1996 that has more than doubled its score on the von Hagen fiscal stringency scale from 25 to 58.

Sweden got worried when their budget deficit reached 13 percent of GDP. They instituted a two-step budget procedure which crafts a 3-year spending plan. As a result, Swedish budget surpluses have averaged 0.9 percent of GDP. Public debt is equivalent to 40.9 percent of GDP.

In the United States, however, our government suffers from lax budget procedures and as a result has budget deficits averaging 4.1 percent of GDP and a growing public debt of 107.8 percent of GDP.

If Nordic countries are the model, liberals in the United States should be budget hawks, advocating for budgetary self-restraint and deregulation.

Judicial Effectiveness

Well-functioning legal frameworks are essential for protecting the rights of all citizens against unlawful acts by others, including governments and powerful private parties.

The United States most recent score was 78.6 in judicial effectiveness. According to the Index, “The judiciary [in the United States] functions independently and predictably.”

Finland (81.2), Norway (81.3), and Sweden (84.0) all scored higher than the United States in this freedom score. The Index says of Sweden, “The judicial system is independent, impartial, and consistent.”

Iceland (63.8) and Denmark (77.8) scored lower. The Index says of Iceland, the lowest score, “The judiciary is independent, and accountability and transparency are well institutionalized.” The Index says of Denmark, who was only slightly lower than the United States, that they have “a trusted, independent, and fair judicial system institutionalized throughout the economy.”

All of these countries have independent judiciaries and are wary of excessive government power and overreach. These are sentiments common among capitalists but not among socialists.

Government Size

These next three freedoms are collectively called Government Size. These are the areas where socialists in the United States want us to emulate the Nordic Countries. These three freedoms are the only three economic freedom scores where the United States ranks higher than all five Nordic countries. This means if we were to grow more similar to the Nordic countries in only these ways, our economic freedom score would only go down.

Government Spending

The government spending component captures the burden imposed by government expenditures, which includes consumption by the state and all transfer payments related to various entitlement programs.

The United States most recent score was 57.1 in government spending. According to the Index, “The overall tax burden equals 26.0 percent of total domestic income.”

Meanwhile, all five Nordic countries scored even lower with Iceland at 44.0, Sweden at 26.7, Norway at 25.3, Denmark at 14.4, and Finland at 7.2.

The scores of all six countries are particularly low.

In the Nordic countries, government spending as a percentage of GDP has been: Iceland (43.2%), Sweden (49.4%), Norway (49.9%), Denmark (53.4%), and Finland (55.6%).

Some assume that government spending and private sector spending are equivalent. They are not. Government spending cannot be spent unless it is first collected from the private sector. This drain on the private sector slows economic activity.

The Nordic countries reduce some of the harmful effects of government spending by structuring their taxation such that government spending does not redistribute assets from the rich to the poor. Nordic spending comes by a flatter and at times even regressive taxation of workers.

The “The Opportunity Costs of Socialism“, a study recently released by the President’s Council of Economic Advisers (CEA), explains:

Although they are sometimes cited as more relevant socialist success stories, the experiences of the Nordic countries also support the conclusion that socialism reduces living standards. In many respects,the Nordic countries’ policies now differ significantly from what economists have in mind when they think of socialism. For instance, they do not provide healthcare for “free”; Nordic healthcare financing includes substantial cost sharing. Marginal labor income tax rates in the Nordic countries today are only somewhat higher than in the United States, and Nordic taxation overall is surprisingly less progressive than U.S. taxes. The Nordic countries also tax capital income less and regulate product markets less than the United States does. However, the Nordic countries do regulate and tax labor markets somewhat more; thus, American families earning the average wage would be taxed $2,000 to $5,000 more per year net of transfers if the United States had current Nordic policies. Living standards in the Nordic countries are at least 15 percent lower than in the United States.

Having a workforce that pays heavily and more equally into the system provides less disincentive for productive people to continue to choose to produce.

Unlike the United States, Nordic countries do not try to redistribute from the rich. They also do not means-test government benefits. Although socialists like the level of government spending of the Nordic countries, I imagine they still disagree with the ideologies and details in practice.

Tax Burden

Tax burden is a composite measure that reflects marginal tax rates on both personal and corporate income and the overall level of taxation (including direct and indirect taxes imposed by all levels of government) as a percentage of gross domestic product (GDP).

The United States most recent score was 75.1 on tax burden. Meanwhile, all five Nordic countries scored even lower with Iceland at 72.7, Finland at 66.8, Norway at 57.4, Sweden at 43.2, and Denmark at 42.0. Here’s why:

The top personal income tax rate for each of these counties is Iceland (31.8%), Finland (31.8%), United States (37%), Norway (47.8%), Denmark (56%), and Sweden (57%). This measure alone makes them look similar, but what is interesting is that the top rate in the United States is reached at a much higher income level.

Top Single Bracket Starts At
Sweden 662,300 SEK or $70,243 USD
Finland 76,100 EUR or $85,723 USD
Iceland 10,724,553 ISK or $86,600 USD
Denmark 648,000 DKK or $97,732 USD
 Norway 964,800 NOK or $111,046 USD
United States $500,000 USD

 

In the United States, politicians love to promise to shift the tax burden on increasingly higher incomes. This movement towards a progressive tax code is also what helps keep our overall tax burden low. Nordic countries have a flatter tax burden than the United States while still having similar (or higher) top tax rates. In this way, their overall tax burden is much higher.

The average Nordic country has the top single income tax bracket start at just $90,286 instead of the $500,000 of the United States.

In the United States the bottom 50% of households pay only 3% of all income taxes. Meanwhile, in the Nordic countries, “even those with medium and low incomes are taxed at relatively high levels.”

In the United States, our large progressive tax code has been put into place by politicians who support redistribution. However, studies have suggested that highly progressive taxation does not produce a more equal income distribution. Cathie Jo Martin and Alexander Hertel-Fernadez writing for Vox explain:

There seems to be an obvious solution to rising inequality: higher taxes. But there’s an inconvenient fact here. The way most advanced, industrial countries have made real gains on inequality is through relatively regressive taxes that fund programs that reduce inequality. In fact, America’s tax system is already unusually progressive by international standards. …

The lesson for the United States is that relying on the wealthiest citizens and corporations to fund the public sector will not create the revenue necessary for large-scale initiatives to reduce inequality. Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.

As we have written previously, a progressive tax code is economically destructive.

Oddly enough, Nordic countries collect more because they do not heap the burden on the productive. They place taxes more equally on all those who benefit from their social services. They also have very high Value Added Taxes (VAT). The tax burden of these six countries as a percentage of total domestic income has been:

Tax Burden on Total Income
Finland 20.0%
United States 26.0%
Iceland 36.4%
Norway 38.0%
Sweden 44.1%
Denmark 45.9%

 

You can see from this table that most of the Nordic countries collect significantly more of their citizen’s wealth in taxation than the United States. As a result of all of the tax, Scandinavian countries are some of the most expensive places to live.

In the United States, many government assistance programs are means tested. This produces well known poverty traps that can provide large rewards for not being productive. We have analyzed the finances for hundreds of households and found many instances where the best financial advice suggested not earning additional money on account of some government assistance programs. In the Nordic countries, such assistance programs are not means tested which at least eliminates some of the unintended ways that such programs can warp behavior.

If Nordic countries are the model, the United States should be advocating for a flatter or more regressive tax where everyone pays equally for shared benefits that they all receive.

Fiscal Health

Widening deficits and a growing debt burden, both of which are caused by poor government budget management, lead to the erosion of a country’s overall fiscal health. Deteriorating fiscal health, in turn, is associated with macroeconomic instability and economic uncertainty.

The United States’ most recent score was 53.1. According to the Index, “Over the past three years, government spending has amounted to 37.8 percent of the country’s output (GDP), and budget deficits have averaged 4.1 percent of GDP. Public debt is equivalent to 107.8 percent of GDP.”

Meanwhile Finland (86.4), Sweden (96.6), Iceland (96.7), Denmark (96.7), and Norway (97.3) all scored higher than the United States in this freedom score.

In the Nordic countries, government spending as a percentage of GDP has been: Iceland (43.2%), Sweden (49.4%), Norway (49.9%), Denmark (53.4%), and Finland (55.6%).

And budget surpluses or deficits as a percentage of GDP has been: Iceland (4.5% surplus), Denmark (0.7%), Sweden (0.9% surplus), Finland (2.0%), and Norway (4.9% surplus).

And public debt as a percentage of GDP has been: Denmark (36.4%), Norway (36.7%), Iceland (40.9%), Sweden (40.9%), and Finland (61.4%).

If Nordic countries are the model, liberals in the United States should seek to lower deficit spending, run a budget surplus, and reduce our national debt.

Regulatory Efficiency

These next three freedoms are collectively called Regulatory Efficiency. When countries have a lot of economic freedom in these three categories, citizens are able to easily do the economically productive things they would like to do within the regulations of government. When countries have low economic freedom in these three categories, it means that bureaucracy or regulations of government deter, hinder, or even prevent citizens from productive actions.

Business Freedom

The business freedom component measures the extent to which the regulatory and infra-structure environments constrain the efficient operation of businesses.

The United States most recent score was 83.8 in business freedom. This is up 1.1 from last year but still well under the Nordic countries. According to the Index, “Significant regulatory reform has resulted in the delay or withdrawal of 2,253 pending regulatory actions since January 2017.”

Meanwhile, all five Nordic countries scored higher than the United States on business freedom with Sweden at 88.0, Iceland at 88.4, Finland at 89.4, Norway at 89.4, and Denmark at 90.7.

As Dr Steve Davies, Head of Education at the Institute of Economic Affairs, explains in “The Myth of Scandinavian Socialism“:

By a number of criteria Scandinavian countries such as Sweden are more free market and more capitalist than say the United States.

Sweden, to take the quintessential case, has an extremely efficient free market economy.

The state does not own much in the way of productive enterprises or companies. The economy is significantly less regulated than either the United States and the United Kingdom both in terms of number and scope of regulations that the Swedish government issues but also in terms of the kind of regulations that it issues which is even more important in some ways.

Scandinavian social democracies typically tend – and this is particularly true in the case of Finland, Sweden, and Norway – to issue regulations which are very general principles rather than the very detailed minutely fine grained regulations that U.S. government regulatory agencies or U.K government tends to issue. Regulations of that kind have a much less damaging effect on economic activity because they are much easier to comply with.

And so essentially what you have in Scandinavia is actually more of a free market economy in many ways than you find in countries that are thought to be quintessentially capitalist countries such as the United States.

Many people wrongly assume that regulations make us safer. They do not. As suggested by the Cato Institute, “Today, there is no greater impediment to American prosperity than the immense body of regulations chronicled in the Federal Register, and academic analysis has documented the economic inefficiencies engendered by the regulatory state.”

If the United States wanted to follow the Nordic model, we would eliminate most of our regulations and regulatory agencies.

As just a small example, the Sarbanes-Oxley Act of 2002 introduced complex and costly regulations that make it more difficult for American companies to compete globally. Passed after the Enron scandal, it burdens all publicly traded companies with added accounting tasks. It was supposed to put CEOs who falsified corporate documents in jail. The expense of complying with the law, however, costs more than three Enrons annually.

And while the law has put zero CEOs in jail, the federal government has made good use of the law in other contexts. It has been used instead of campaign finance laws to prosecute political campaigns. And it has even been used to “prosecute a commercial fisherman in Florida over the destruction of six dozen undersized red grouper.”

The cost of Sarbanes-Oxley is so burdensome that Initial Public Offerings have fled the United States and register instead on foreign exchanges. In 2006 “the U.S. raised only 5% of the value of global IPOs last year. That’s compared to 50% in 2000.

Labor Freedom

The labor freedom component measures various aspects of the legal and regulatory framework of a country’s labor market, including minimum wages, laws inhibiting layoffs, severance requirements, and measurable regulatory restraints on hiring and hours worked. It also considers the labor force participation rate as an indicative measure of employment opportunities in the labor market.

The United States’ most recent score was 89.4. According to the Index, “Successful challenges to compulsory unionization have expanded the right to work, but new minimum wage laws have curtailed low-income job opportunities in some areas.” Nevertheless, the United States ranks as the third best country in Labor Freedom.

Meanwhile Finland (50.3), Norway (53.7), Sweden (53.9), Iceland (64.1), and Denmark (86.4) all scored much lower than the United States in this freedom score. In these countries, “The labor market, characterized by broad wage settlements and high unionization, lacks flexibility. The non-salary cost of employing a worker is high, and dismissing an employee is costly and burdensome.”

Monetary Freedom

Monetary freedom combines a measure of price stability with an assessment of price controls. Both inflation and price controls distort market activity. Price stability without microeconomic intervention is the ideal state for the free market.

The United States’ most recent score was 76.6. According to the Index, “Subsidies for agriculture, health care, green energy, and corporate welfare continue to add billions of dollars per year to the U.S. national debt.”

Meanwhile Iceland (81.7), Sweden (82.0), Denmark (84.1), and Finland (84.8) all scored higher than the United States in this freedom score. The Index says of Denmark, “Monetary stability is well established, and the government hopes to phase out subsidies on renewable energy by 2030.”

Norway (75.4) scored slightly lower than the United States. According to the Index, in Norway “monetary stability has been well maintained, although generous tax incentives and subsidies to encourage home ownership have contributed to high and rising house prices.”

If Nordic countries are the model, we would be lobbying to eliminate subsidies for healthcare, green energy, agriculture, and corporate welfare.

Open Markets

The last three freedoms are collectively called Open Markets. When countries have a lot of economic freedom in these three categories, capital is able to move freely at the whims of its citizens.

Trade Freedom

Trade freedom is a composite measure of the extent of tariff and non-tariff barriers that affect imports and exports of goods and services.

The United States’ most recent score was 86.6. According to the Index, “The average applied tariff rate is 1.7 percent. As of June 30, 2018, according to the WTO, the United States had 2,228 non-tariff measures in force.”

Iceland (87.0) scored higher than the United States in this freedom score while Denmark (86.0), Sweden (86.0), Finland (86.0), and Norway (83.2) scored slightly lower than the United States. The average applied tariff rate for each of these countries was Iceland (1.5%), Denmark (2.0%), Sweden (2.0%), Finland (2.0%), and Norway (3.4%). Populist forces in the Unites States threaten some of the trade freedom in the United States.

Investment Freedom

According to the Index:

In an economically free country, there would be no constraints on the flow of investment capital. Individuals and firms would be allowed to move their resources into and out of specific activities, both internally and across the country’s borders, without restriction. Such an ideal country would receive a score of 100 on the investment freedom component of the Index.

In practice, however, most countries have a variety of restrictions on investment. Some have different rules for foreign and domestic investment. Some restrict access to foreign exchange. Some impose restrictions on payments, transfers, and capital transactions. In some, certain industries are closed to foreign investment.

The United States’ most recent Investment Freedom score was 85.0.

The United States’ score is good, but so are the Nordic country scores. Iceland (85.0), Sweden (85.0), Finland (85.0), and Denmark (90.0) all scored equal to or higher than the United States in this freedom score. Only Norway (75.0) scored lower.

The highest scoring countries were Luxembourg, Hong Kong, Denmark, Netherlands, United Kingdom, Austria, Estonia, and Ireland. Both the United States and the Nordic countries could emulate these countries to improve their investment freedom.

Financial Freedom

Financial freedom is an indicator of banking efficiency as well as a measure of independence from government control and interference in the financial sector. State ownership of banks and other financial institutions such as insurers and capital markets reduces competition and generally lowers the level of access to credit.

The United States’ most recent score was 80.0. According to the Index, “The Foreign Investment Risk Review Modernization Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act (which amends certain aspects of the Dodd–Frank bill) were signed into law in 2018.”

When Dodd-Frank was passed in 2010 I wrote the article, “Dodd-Frank Bill Concentrates Financial Power” in which I explained:

The bill creates a Financial Stability Oversight Council. The ten regulators in this group have the task of monitoring any system-wide risks in our financial system. They have also been given nearly unlimited power to address these risks by forcing financial firms to sell assets or close a portion of their business. …

In the chapter on politics in his book, “The Blank Slate”, Harvard psychologist Steven Pinker says, “We are all members of the same flawed species. Putting our moral vision into practice means imposing our will on others. The human lust for power and esteem, coupled with its vulnerability to self-deception and self-righteousness, makes that an invitation to a calamity, all the worse when that power is directed at a goal as quixotic as eradicating human self-interest.”

The United States has tried to control domestic banking for decades. One unintended consequence of this type of legislation is the inability of U.S. citizens to become customers of non-U.S. banks.

The largest bank in the United States is J.P. Morgan Chase, which is only the sixth largest bank in the world. The five larger banks refuse to do business in the United States because it would subject them to U.S. regulations and allow the U.S. government nearly complete control over their banking practices. Additionally the Foreign Account Tax Compliance Act (FATCA) passed in 2010 requires all foreign financial institutions to report the assets and identities of any U.S. citizen to the Internal Revenue Service (IRS) annually. A Washington Post article by Sanat Vallikappen entitled, “Foreign banks freezing out U.S. millionaires” explains:

Go away, American millionaires.

That’s what some of the world’s largest wealth-management firms are saying ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as FATCA, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC, Deutsche Bank, Bank of Singapore and DBS Groups all say that they have turned away business.

“I don’t open U.S. accounts, period”, said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

Meanwhile Denmark (80.0), Sweden (80.0), and Finland (80.0) all scored the same as the United States in this freedom score. Iceland (70.0) and Norway (60.0) scored lower.

The countries that score highest in Financial Freedom are Hong Kong, Switzerland, and Australia. According to the Index, Hong Kong “has no restrictions on foreign banks.” Switzerland is known for its highly developed and open banking practices. And in Australia, “foreign firms compete on equal terms with domestic banks.” Both the United States and the Nordic countries could improve their financial freedom.

Summary

Nordic countries are not actually examples of socialism at all. They are capitalist free markets coupled with flat tax structures. For the United States to move toward the Nordic model would require the United States to lean libertarian instead of liberal.

In 2016, presidential hopeful Bernie Sanders, who is happy to be called a socialist, commented at a presidential debate hosted by CNN that, “we should look to countries like Denmark, like Sweden and Norway, and learn what they have accomplished for their working people”, as an example of what democratic socialism looks like.

The Danish Prime Minister replied to this, “I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”

CNN comments on the topic:

…there are aspects to the Danish model that you would never see on Sanders’ policy platform. As a small country heavily reliant on trade, Denmark imposes minimal tariffs on foreign goods. Businesses here are only lightly regulated. The corporate tax rate is much lower than in the United States, which has one of the highest in the world. There’s not even a minimum wage in Denmark.

Sweden also took exception to Bernie Sanders’s implication that it was a socialist state. As reported by the Acton Institute in “Former Swedish prime minister warns Bernie Sanders about socialism“:

After video footage surfaced of Senator Bernie Sanders extolling the Soviet Union’s cultural and youth programs, the former prime minister of Sweden threw cold water on the idea that socialism builds sound societies. The tweet by Carl Bildt is the latest intervention by Nordic nations to divert the United States from adopting Marxist policies.

As the 77-year-old Vermont senator announced his presidential ambitions, a string of videos emerged showing Sanders supporting Castro’s Cuba, Ortega’s Nicaragua, and the existence of breadlines.

Among them was a 1988 clip showing Sanders and his wife, Jane, returning from their 1988 honeymoon … in the USSR.

Sanders, then the mayor of Burlington, found it delightful that the Soviet Union had, “a whole variety of programs for young people, and cultural programs which go far beyond what we do in this country.”

His wife similarly approved of the fact that, “instead of compartmentalizing their lives into a job and hobbies, it’s all interrelated and all under the banner of community involvement.”

Another way of expressing this might be that a totalitarian state directed the full attention of the youth from birth, inserting itself between members of the family and encouraging children to inform on their parents.

Into the fray entered Carl Bildt, the prime minister of Sweden from 1991 to 1994 and minister of foreign affairs from 2006 to 2014.

Bildt responded, “Sanders was lucky to be able to get to the Soviet Union in 1988 and praise all its stunning socialist achievements before the entire system and empire collapsed under the weight of its own spectacular failures.”

The appeal to the Nordic countries from socialists is a false one. Iceland, Denmark, Sweden, Finland, and Norway are examples of market economies, not socialism.

For an example of socialism, look to one of the world’s last communist dictatorships, Cuba, where most means of production are owned by the state and although private property exists it is strictly regulated.

Photo by Anton Karatkevich on Unsplash

Follow David John Marotta:

President

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)