Now to Shuffle Off the Neo-liberal Coil

Having won Congress, will the Democrats now begin to break the yoke the neo-liberal economists, led by their champion, Ronald Reagan, have successfully placed on them? So many Democrats seem to be at least partial believers in the Reagan economic model, I am skeptical. Many of them have been convinced that social spending is a deadweight on the economy, and if social justice may occasionally require government intervention, we pay the price in lost prosperity. So many Democrats believe we must always make this trade-off between social justice and economic growth.

This is not true; in fact, it is nonsense. Social spending, regulations and strong government moral leadership have been critical contributors to prosperity as well as guarantors of social justice. But the opposite is at the bottom of a lot of Democratic thinking in Washington.

Thank goodness, the Democrats will probably pass a higher minimum wage, despite the opposition of free market ideologues. Perhaps they will empower Medicare to negotiate drug prices. But few if any are talking about raising taxes to support other needed social spending. Will they make more serious healthcare reforms? Will they equalize educational quality? Will they do more about gender and racial discrimination on the job? Many more Democrats are talking about balancing the budget than creating the institutions that are needed in an economy of two worker families, poor distribution of health services, spotty educational quality, high levels of poverty, and generally low wages.

But there is another capitalistic model that has proved itself in the real world and from which the Democrats might learn a lesson or two. In the bi-monthly economics magazine I edit, Challenge, we are publishing a fine piece on the Nordic capitalistic model by a Princeton professor of politics, Jonas Pontusson.

Pontusson has been studying the Nordic economies for a long while. They suffered a serious recession, like most rich nations, in the early 1990s, but since then they have done very well. In fact, Finland, Sweden and Norway have grown faster than the U.S. since 1994. Only Spain and Ireland have outpaced them. Yet Nordic incomes are far more equal, poverty is very low, their social programs more robust, their taxes higher, and their governments take up a larger percentage of GDP than in the U.S.

The point is not to emulate these nations completely, but to rid ourselves of the neo-liberal clichés that have kept the nation from doing what is necessary. Here are a few of Pontusson's conclusions:

1-- Examining all the rich nations, he finds no evidence that inequality of incomes is associated with higher rates of economic growth or that nations with greater wage equality are a hindrance to growth.

2-- He finds no conclusive evidence that countries with large welfare states have grown more slowly than those with smaller ones.

3--Despite policies that support wages, Denmark, Norway and Sweden have a higher proportion of the working-age population employed than do other industrialized nations.

4--Despite higher taxes and government spending levels, four Nordic countries are ranked among the ten most competitive nations in the world by the World Economic Forum.

5--The Nordic nations spend a very high percentage of GDP on education, and the quality of education is rather equal. This may well contribute to economic growth.

6--Nordic nations also promote gender equality and polices that encourage women to work during child bearing. These may enable the nations to more fully utilize and develop their human capital.

A final quick point. The Nordic countries generally do not have laws that strongly restrain business from letting workers go. Rather, the governments provide strong provide income support and retraining programs rather than guarantee security on the job. There may also be a lesson here.

Can income, gender and educational equality quality as well as a generous safety net contribute to economic growth? Pontusson's analysis suggests a resounding yes. Pontusson's piece is in the November/December issue of Challenge.