Think Again

30 September 2005



World Economic Forum Says Scandinavian Welfare States are Most Competitive

If the average person on the street were stopped and asked, “What is the most competitive economy in the world?” almost none would answer “Finland.” However, according to the World Economic Forum (best known for organizing the Davos conference every year), not only does Finland beat out second-place America, but also, the top ten includes the rest of Scandinavia. Then again, the same was true last year.

The report’s methodology is a simple survey, but quite detailed and broad-based. The WEF press release explained, “This year nearly 11,000 business leaders were polled in a record 117 economies worldwide. The survey questionnaire is designed to capture a broad range of factors affecting an economy’s business environment that are key determinants of sustained economic growth. Particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation.”

Every time an American politician needs to trot out the boogeyman of the Welfare State for cheap political advantage, the Nordic countries seem to be their target. Huge social safety nets are deemed debilitating to a nation’s private sector. Yet, here are businessmen and businesswomen saying the Nordic countries of Denmark, Finland, Iceland, Norway and Sweden are great places to do business. As the WEF debunks “the conventional wisdom that high taxes and large safety nets undermine competitiveness, suggesting that what is important is how well government revenues are spent, rather than the tax burden per se.”

The implications for the “Anglo-Saxon” economic model are significant. Starting with the laughable Laffer Curve and rolling right up to Mr. Bush’s latest plea for tax cuts for the yachting bunch, the report calls into question (and largely refutes) the belief that tax cuts make the economy grow. If the government is spending wisely on public goods, taxation is a benefit to an economy by providing things the market won’t (e.g., a civil court system for resolving disputes, a national highway system, and free public elementary education). In other words, there is a qualitative dimension to taxes and spending. As a commentator in the Financial Times wrote, “the US, despite ‘overall technological supremacy’, is let down by poor economic management and the perceived negative influence of business lobbies on government policy.”

And for developing countries, the implications are significant. Cutting government spending isn’t the key to economic growth if public schools are cut back, if the transportation infrastructure suffers or if deficits balloon.

This is, of course, only one survey, and others may get different results by relying on different criteria. What is interesting, though, is the IMD management school in Lausanne index, which ranks the Scandinavians very highly as well. Could it be that government has an economic function after all? Or are the 11,000 business leaders surveyed just fifth columnist Reds?


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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