Imagine life in Switzerland: an idyllic alpine country in which gun ownership is legalized, immigration and multilateralism are frowned upon, healthcare is privatized and costly, and military service is compulsory. Staunchly independent and conservative, Switzerland is a right wing paradise. Yet, it is often liberal politicians and voters that yearn for a more European America, citing the success of “democratic socialism” in European societies. However, given the example of Switzerland, albeit extreme, the notion that Europe is necessarily “socialist,” and the success of existing “socialist” policies, should be challenged.
Bernie Sanders, former presidential candidate and arguably the most celebrated socialist in America, stated that the future of American democratic socialism “should look to countries like Denmark, like Sweden and Norway.” The Danish Prime Minister retorted that Denmark “is far from a planned a socialist economy,” and “it is a market economy.” The dissonance here relates to two different definitions of the word socialism. Socialism can connote a system of increased government administration of public goods, rather than private sector administration of public goods, as well as a robust social safety net. Infrequently, socialism can be used to refer to communism, a system of complete government control over the economy. This article will contend with the former, focusing on socialism as European government intervention in the market and social services.
When it comes to economic policy, the Nordic countries of Sweden, Norway, and Denmark, actually have greater economic freedom than the United States and are in this respect even more market driven or “capitalist” economies. A study by JP Morgan Chase, using data from the World Bank, found that on average these nations have a greater degree of business freedom. Greater business freedom means these economies protect property rights more aggressively, exercise less control over private enterprise, allow for greater concentration in the banking sector, and distribute a smaller share of total earnings to workers than the U.S.. As well, the Nordics have minimal corporate taxation and no wealth taxes. The U.S. in comparison boasted the highest corporate tax rate in the developed world, 40%, prior to the 2017 Trump tax cut, at which point the corporate tax rate was slashed to 21%, still above the European average. The reputation of high taxes in Nordic countries comes from the high value added taxes (VAT), similar to sales taxes, which are in their nature, regressive taxes. VATs disproportionately impact the lower and middle classes because these groups spend a higher proportion of their income than the upper class does. Thereby, it is the lower and middle classes which finance the generous social safety nets present in these countries. The essential takeaway here is that operation of the economy is extremely market friendly, and social benefits are being paid for not by the wealthy or corporations, but by their beneficiaries.
Yet these bountiful social safety nets, rather than actual economic policy, are generally what politicians and everyday people mean when they refer to European socialism. It is undeniable that in the Nordic countries, as well as Europe more generally, there are greater government transfers as a share of GDP. This takes the form of free or low-cost college, healthcare, child care and favorable unemployment benefits. However, these policies come at a cost. Not only are they financed primarily by the middle class as aforementioned, but these social programs are sometimes inefficient or even ineffective in comparison to alternatives.
For example, the European healthcare system, enviable for it’s widespread accessibility, is unfortunately often not the same quality or even necessarily always more cost effective than the U.S.. The healthcare policies in Europe range from country to country, from nationalized systems to health care mandates similar to the Affordable Care Act (ACA). However, the perception of healthcare as “free” is a fallacy across the board. In Sweden, where healthcare is significantly nationalized, average out-of -pocket cost is 15%, the U.S. average in contrast is 11%. In other European nations, such as the Netherlands, which have mandates similar to the ACA, they end up paying less than nationalized systems, 11% out of pocket as well. Moreover, the problem with single payer healthcare, especially in larger and more diverse economies, is that the health systems do not reach a satisfactory quality, so citizens end up bearing a double burden of paying for the nationalized system through taxation and private healthcare when they get sick. In France for instance, 95% of the population has private insurance to help pay the deductibles and copayments of the public system. In the UK, 11% of citizens have private insurance in addition to public insurance in order to gain faster access to specialists and elective procedures such as hip replacements. Commendably, nearly all European countries provide some form of universal basic coverage, yet to say a “medicare for all” system reflects the European model is inaccurate.
European universities present a similar story. While they are more authentically “free” than healthcare, they sometimes can not provide the same quality of education or versatility of degree as an American university. American universities’ high tuition (though arguably exorbitant), allows them the financial resources to attract the best faculty, research, technology, and top students from around the globe. Eight of the ten best universities in the world according to 2021 U.S. News’ edition of Best Global Universities, are in the United States. The London-based Times Higher Education, placed 16 of the World’s top 25 universities in America and the Shanghai-based Academic Ranking of World Universities placed 18 of the top 25 universities in America. The high costs of healthcare and education in the United States, while admittedly having distinct disadvantages, make U.S. institutions world class.
And can the United States afford these costs? Yes. The American middle class is comparatively richer than the European middle class. Even after the significant costs paid in the United States for healthcare, education, child care, etc. the average disposable income of Americans is much higher than Europeans. In fact, the United States has the highest average disposable income of any OECD country. The United States is also among the most highly ranked when it comes to housing and employment opportunities, not to mention more consistent and robust GDP growth, while Europe lags with stalling competitiveness.
Europe could possibly improve GDP growth and international competitiveness through decreasing state spending and encouraging the private sector; the direct antithesis to their “socialist” reputation. Sweden has successfully done this before. In the period the 1970s to the 1990s, Sweden had a much more “socialized” economy. During these years the country’s growth lagged far behind most other OECD countries. In 1990 and 1991, Sweden introduced tax cuts and business incentives to boast the economy, which was highly effective and allowed for the regionally impressive growth and economic strength that is present today. However in this period inequality in Sweden also rose significantly, the highest percentage growth in inequality in the world at the time, yet it was matched by a boast in the overall economy. This is not to say that cutting social programs and taxes will always increase productivity and growth, or that the increase in growth will be distributed fairly, but simply that there is a trade off with growth and productivity on one side and government social benefits on the other. Each country must decide where they feel comfortable within this trade off and what sacrifices they are willing to make. It seems that Americans want the lifestyle of southern Europe, the social benefits of northern Europe, at the level of prosperity of the United States, which is unrealistic.
However even if the U.S. wanted to accept the bargain of low growth for benefits, many European countries are able to maintain these systems based on historical and institutional reasons that would not apply to the United States. Europeans are capable of having expensive social programs in part because of their reliance on American defense spending. As of 2017, the United States contributes a greater proportion of GDP to NATO than any other country at 3.3%. 23 of the 28 countries in NATO fail to meet even the 2% of GDP goal. Many former presidents inducing George W. Bush and Barack Obama took issue with this, with Obama stating “Free riders aggravate me.” As well the comparatively smaller size of European countries allows for more centralized and efficient government distribution of benefits. Not to mention some countries, like Norway, have become very wealthy through natural resource extraction.
All of this is not to reflect a personal political agenda, in fact quite the opposite. I do not advocate for cutting social safety nets, but it must be acknowledged that these safety nets, aside from their many quality of life benefits, often fuel costly and inefficient bureaucracies and hurt international competitiveness. It is even more important to remember that the U.S. is not, and never will be, Europe. We shouldn’t strive to blindly emulate an imperfect system especially in a country facing such different conditions.
Additional Discussion….
A quick digression to social and political issues; it is often argued that Europe’s political spectrum is shifted further to the left than the U.S.. However, on social issues such as the legalization of gay marriage many European nations lagged behind the U.S.. Germany didn’t legalize gay marriage until 2017, and gay marriage is still illegal in large European countries such as Italy and Greece. Abortion similarly is not universally accessible in Europe, and some countries have only just recently legalized it. Ireland, a county with a strong religious tradition, most notably legalized abortion in 2018.
Politically, Europe has suffered from the same issues with right wing populism and xenophobia as the U.S.. From the infamous Brexit protest vote, to the rise of right wing governments in Austria, Italy, and other large countries, attitudes in Europe have been increasingly conservative. The illusion that the far left holds control in Europe may be attributable to many countries’ parliamentary systems giving fringe political parties a voice. Overall, Europe has a diverse array of political landscapes from country to country and region to region. Just like the U.S., Europe as a monolith cannot be characterized as necessarily liberal or conservative.
