THE STRANGE MINDS OF ARDENT FREE-MARKETEERS

'The Economist' hails the demise of the 'Nordic Model'.

Anybody with objective, evidence-based tendencies cannot fail to notice that the world is full of zealots. In the politico/economic domain, it used to be those of a left-wing orientation who filled the space available with their quasi-religious beliefs in planning and controlling the economic 'commanding heights' on behalf of the people. At the fringes of left wing politics were activists in fascinating organisations such as the Socialist Workers Party. The writer, when an innocent first year undergraduate at the LSE, had the privilege of drinking with two left wing activists called Murphy and Follett, who met in a pub called the Orange Tree to plan the next hit against the capitalist fabric. These two lived in a sort of revolutionary fantasy world - as far as was discernable, their strikes and radical action never seemed to quite work out.
Hopefully Messrs. Murphy and Follett completed their Industrial Relations Diploma courses, eventually grew up and married, had kids, made a little money and lived happy lives.

More than forty years on, the political landscape has changed, but the constant is that we are still privileged to have zealots in our midst - only these days, most of the noise is made by right wing proponents of free markets. And like their predecessors of the Left, who greeted yet another disaster with the mantra that with 'just a little more central planning' all would be well, so do right wing free-marketeers regale us with the cure-all properties of market forces. One noticeable and annoying habit of such zealots is their tendency to present their beliefs as unassailable truth and to attack all who may disagree with vitriolic violence. (See American neo-con John Bolton, who described financier and philanthropist George Soros as "An extreme left-winger"(!!!)
A milder example of such a tendency seems to be the 'Economist' magazine, which, if the author is not mistaken, has moved steadily in a neo-liberal 'market-forces-will-solve-all-ills' direction since the 1970's. The author's wife sadly describes the current magazine as "The economic Readers' Digest".
To illustrate how the proponents of the free market will turn any event into a polemic for their brand of economics, here are extracts from an article taken from an Economist publication, 'The World in 2007'.

"Farewell Nordic Model. The end of another European Dream" - John Peet.

....In recent years Europeans who are eager both to defend their creaking social model and to avoid the supposed ruthlessness of Anglo-American free markets have often looked longingly northwards.
It is widely thought that the Nordic countries have found some magic way of combining high taxes and lavish welfare systems with fast growth and low unemployment.
And it is certainly true that, over the past decade, the region's economies have been doing a lot better than most of the rest of Europe's.
Yet the belief in a special Nordic model, or 'Third Way', will crumble further in 2007.
.....The most telling evidence for this was the Swedish election in September 2006.
The ruling Social Democrats, who had been in power for 12 years (and for 64 of the past 74 years), took a drubbing, scoring their worst result since 1914.
....The new centre-right government led by the Moderate Party's Fredrick Reinfeldt is likely to bring in more liberalisation, privatisation and deregulation. Mindful of Swedes' underlying fondness for their welfare state, the new government's tax and benefit cuts will be moderate.
....Consider the most popular pair right now: Finland and Denmark. The Finns come at or near the top in practically all the world league tables in such areas as education, health care, competitiveness and the use of high technology.
Denmark is exceptional in Europe for its employment record and for the ease of setting up new business.

....The truth about the Nordic model is that, whenever it has worked best, it has done so chiefly by embracing liberalisation and freer markets.
....And although the large public sector in most Scandinavian countries frequently offers greater consumer choice, more competition and less corruption than elsewhere in Europe (and the US/UK), the high taxes needed to pay for them remain a heavy burden.
Europe in 2007 will learn, not for the first time, that there is no magic formula that will make it possible to keep the famous European social model intact and still to regain the continent's past economic dynamism. In short, there really is no alternative to the tough business of economic reform.

Mr Peet sounds very much like a follower of John Knox propounding the virtues of mortification of the flesh.

The facts

1. The 'drubbing' in the election

Red/Green Alliance, led by the Social Democrats - 171 seats, 46.08 % of the electorate - minus 6.8%
Alliance for Sweden, 4-party alliance, led by the Moderate Party, 178 seats, 48.24% of the electorate - plus 4.25%.
Hardly a 'drubbing'.

2.'Nordic Model' versus US and UK - the 'dynamic free-market' economies, rankings in a number of international league tables.

Countries that tend towards 'Nordic' values include, as well as the Scandinavian nations, the Netherlands, Switzerland, Canada and to some degree Germany, Japan and some South East Asian nations.

There are many other indices, all of which indicate that the 'Nordic Model' countries do quite well in relation to the free-market model.
In fact, they are nearly as rich, nearly as enterprising and have excellent education systems, greater life expectancies, lower infant mortality and much less inequality and poverty.
Except for the fact that they seem to offend the dogmatic sensitivities of free-marketeers and tax-avoiders, Nordic Model countries seem to be brilliant places for people to live.
So, perhaps there are other factors at work when the Economist and other free-market organs write about national economic and cultural differences. Perhaps ideology is behind the hectoring and schadenfreude? What might the ideological issues be?

Free Markets and Social Markets - the key issues.

Let us try to dig deeper than the usual assertions and noisy rhetoric produced by dogmatists.
Here is our take on the fundamental differences of belief and values that differentiate the 'Nordic Model' and the 'Free-market' type best exemplified by the United States.
Free Market Assumptions

* Margaret Thatcher famously said: "There is no such thing as society. There are individual men and women and their families". This interesting statement would seem to be connected with her strong belief in markets as being better mechanisms for fulfilling individuals' needs than community or government. Behind this view, lies the bizarre science of Game Theory - see next point.

** The deep assumptions lying behind the belief that markets are the most effective means of fulfilling peoples' deepest wants and needs arises from the assertion that human beings are selfish individuals, inexorably driven by a simple desire to fulfil their own interests, adjusting their behaviour to counter others' attempts to do the same. Game Theory, which supports this idea, is backed by complex mathematical models that purport to explain human behaviour. This theory has been adopted by some biological scientists, who postulate that humans, like all animals, are receptacles for and driven by, the selfish need of their genes to reproduce. In this sense, human behaviour is determined by genetics, people will follow a set of rules which can be understood by complex mathematical modelling. This theory was developed to predict adversaries' behaviour in the Cold War and eagerly taken up by some geneticists and economists.
In case you think economic science has gone mad, all the above is fact. These theories have been enthusiastically adopted by many economists and politicians who assert that, given that people are driven simply by selfish individualism, then the market is a more effective means of giving them what they need than membership of society or democratic politics. The economics of Reagan, Thatcher, Blair and Bush have all been driven by Game Theory and its derivatives, even if they didn't understand that! The high priests of these wondrous theories are an economist, James Buchanan (who, when it was put to him that people had a social conscience and cared about others, said that he "couldn't compute" that) and mathematician John Nash, who made a recovery from the paranoid schizophrenia from which he was suffering when he developed his theories.
These constructs are now being seriously challenged in both economic and biological domains and John Nash later described his own theories as being grossly simplistic and not at all representative of the complexity of human beings.
Adam Curtis, who has produced a brilliant series of BBC TV documentaries on these themes, sums it up nicely: "The only people who still believe these theories are (some) economists - and psychopaths" And maybe the Economist magazine??

'Nordic Model' Assumptions

The basic assumptions about people are different in more communitarian cultures. It is assumed that individuals can relate to a wider community than themselves and their families and, whilst doing the best for themselves can willingly give up some part of their own advantage to benefit others and the whole community. It is therefore possible to achieve a satisfactory alignment between community and individual interest.
People are willing to trust others to act in their interests and also regard institutions as representative of the common will. This culture is quite strong in the 'Nordic' countries.
An interesting example of this culture is the decision by the Finns to donate 25% of their land to refugees expelled by the Russians.
There is not one iron law that dictates what should be done, a healthy society, whilst retaining its basic values, can intelligently adapt to changing circumstances.

Underlying realities.

Human behaviour is determined by a wide range of influences. But, one of the most important is the cultural environment within which individuals develop. In the Nordic and some other countries, it goes without saying that individuals are an integral part of a wider community and owe a duty to it. In free-market cultures, the cultural assumptions are that individuals should serve their own interests and the strong will be successful. These assumptions of rugged individualism dominate in the US - Britain stands uneasily between the two - more and more people are beginning to question whether "Greed is good".
Free market economics are based on the assumptions that individuals who are free to pursue their own interests will somehow act in ways that will cancel out the negative aspects of their behaviour and that the wealth they create will, in aggregate, be sufficient to benefit all, including the less successful. A short consideration of what really happens will reveal that those who accumulate wealth also accumulate power and will almost invariably use that power to further their own causes, often to the detriment of others. The naïve economic belief that it is possible to create perfect markets is continually distorted by human greed and manipulation, which, alas, flourishes unless there is very strong institutional intervention.
The creation of a 'free market' in Russia post the Soviet era is a chilling case study of what can happen. A similar pattern is emerging in Britain and the US (see New Orleans, Enron etc), as the powerful are able to assemble grotesque wealth and the gap between them and the rest of society inexorably widens.
So, the underlying intent of those who are able to ride the free market system is to get as rich as possible, with little or no regard for the interests of others. The practicalities of free market societies are that they tend to reinforce social segregation, so that the rich can comfortably live with their fantasies about "trickle-down" benefits, precisely because they are unlikely ever to have close contact with the social consequences of their economic position. Individuals are encouraged to believe that fulfilment comes from consumption (and shopping!). A culture of immediate gratification is encouraged and individual indebtedness is consequently high.
The so-called Nordic Model is different. First, the intent is to create a good society, which furthers the interests and well-being of all its members to the greatest degree possible. This means that societal policy is aimed at achieving a continual adjustment between the freedom of individuals to act as they like and the good of the whole. This means that there is a vital role for government and other institutions to work out the best strategies to achieve this balance. Nordic Model countries depend upon human intelligence to enable them to work, as opposed to pure free-market models, which depend on self interest and a set of economic rules.
In this regard, the Swedish election result is most likely to represent an adjustment, rather than the end of the Nordic Model.

So what of 'The Economist's' assertions?

First and foremost, it would seem that the 'Nordic Model' countries are very successful, and especially so when we climb above a narrow economic perspective and take in wider considerations of societal health and public well-being.
But, it seems to us that comparing 'Free-market' and 'Nordic' models as though they are the only alternatives in a simple, bi-polar way is crass and ridiculous.
The fact is that the Nordic and near - Nordic countries are capitalist market economies - only they strive intelligently to make markets serve the interests of the community rather than obey the dictates of blind dogma.
In this regard, they are constantly grappling with maintaining a healthy balance between the interest of the individual and those of the wider community.
The so-called Nordic Model is quite diverse and extremely dynamic - more so, it can be argued than the neo-liberal approach to economics, which seems to depend upon the application of a few immutable rules.
So, which do you prefer as the strategy for creating healthy societies? Rigid dogma or the application of sophisticated human intelligence?

Farewell, Nordic Model???

Returning to our starting point, it seems that the demise of the Nordic version of a social market economy is unlikely - especially as the 'model' itself is rather flexible. In fact, the Swedish election result is most likely to be an example of such a dynamic adjustment process - no way are the Swedes going to abandon their basic values - and not a fundamental departure.
Instead, maybe the Economist might reflect on the logic of the model that it advocates and its impact on the lives of ordinary people.

THE ECONOMIST AND SWEDEN - continued

Economist puzzled at continuing success story.

One year after bidding farewell to the Nordic model as the result of the election of the Swedish Moderate Party to power, the Economist reports that this centre- right government has done little to bring about the neo-liberal free-market reforms that the magazine so craves.
Instead they report that Fredric Reinfeld, the new prime minister has spent much of his time listening to what Swedish people want. They report that he, "As a good liberal economist", has reduced unemployment benefit somewhat, reduced taxes on the low paid and brought in a tax credit to encourage people back to work. But, they say: "He is not about to embark on substantial labour market reform or attack "The bloated public sector". Doesn't sound like a neo-liberal revolution, then.

The reasons that Mr Reinfelt has not attacked the ' Nordic Model' with revolutionary zeal?
Growth in 2006 was 4.5% and will probably be 3.7% this year. Unemployment is about 5%.

The Economist seems puzzled by these results - certainly they do not equate with its view of what a 'good' economic model should be. Somewhere in the back of their collective mind seems to be 'free-market' economies like the US and UK, which will certainly perform far worse than Sweden.
In addition, the Economist has not yet spoken of the Swedish education, health and social security systems. Nor have they spoken about the flexibility of the Swedish labour market and the openness of the Swedish economy to global business. It has not spoken of the fact that relative poverty in Sweden is about half that of Britain and the US. Neither have they spoken of comparative balance of payments figures or the fact that Swedish R&D and patent formation is higher by far than Britain's. They have also not mentioned the fact that the rate of new company formation and general entrepreneurial activity is high, despite (or maybe because) of government support and a social security safety net for failures.
What seems unthinkable to the Economist is that Sweden and the other Nordic economies are successful because the Nordic model, seen in the round, is far superior to the neo-liberal versions in creating successful, fair and adaptable economies.
There's a revolutionary thought!

PS - More about intelligent ways to run economies later.......

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