It would help if Scotland knew what the Swedish model was

A go-alone Scottish economy is viable – but would it be any better?

Scots may dream of a Swedish-style state but, lacking concrete plans, Ireland is the likelier model

People generally get this wrong. And it’s reasonably important that they get it right instead.

Both Sweden and Ireland are more free market, more capitalist, than the UK or US. This is why both places work in their different ways. Just look at any of the listings of economic freedom: more free trade, lower corporate and capital taxation, less regulatory intervention into the economy.

The differences between the two aren’t in those basic economic structures. Sweden layers a high tax, high redistribution welfare state over the top of that. As does Denmark, which as Scott Sumner points out is, absent that welfare state, probably the most capitalist and free market economy on the planet, even including Hong Kong.

Ireland doesn’t do that tax and redistribution thing. Which is fine, that’s a political choice.

But that’s also why Scotland just ain’t ever going to follow the Swedish or even Nordic model. Because the polity of the country simply doesn’t believe in that free trade and capitalism bit. They want the high tax, high redistribution: which is fine, as I say, that’s a political choice (even if not one I like nor one I’d want to live under). But they don’t want to have the liberal economic order which makes it possible.

Thus they’d be fucked of course, Venezuela on the Clyde here we come.

That Swedish model relies upon the vigour of the free market and since Scotland doesn’t understand nor want that then they can’t have the Swedish model.

20 comments on “It would help if Scotland knew what the Swedish model was

  1. So if Bastiat is the last Frenchman who understood economics, who was the last Scotsman? Adam Smith, or has there been one since then?

  2. James Mirrlees got the Nobel and he’s a Scot, I think at least. Very sound on taxation he is too. He gets that point about the Swedish model…..

  3. They’ll not be like Norway, either. The Norwegians have demonstrated – uniquely in the world – remarkable restraint in not dipping into their oil wealth fund for spending on pet projects and shoring up client voters. The Sweaties would be raiding that fund before it had accumulated a tenner.

    The Norwegians, strange folk, seem content to live a highly taxed, rather dull existence with shit roads and mind-bogglingly expensive everything all the while sitting on a huge pile of cash in the bank. I suspect a small, educated, homogeneous, Protestant population which largely wants to work has much to do with it.

  4. “I suspect a small, educated, homogeneous, Protestant population which largely wants to work has much to do with it.”

    Doesn’t that describe the Scots? Or have they lost that famous work ethic?

  5. I read some nationalist recently promising a more generous welfare state and also pledging not to ‘waste’ oil revenues in tax cuts but to have a fund like Norway.

    Any ideas how they’ll manage this? Has anyone told them the Magic Money Tree doesn’t exist?

  6. Also my experience of Swedish business is one of utter ruthlessness.

    All smiles and liberal diversity on the face of it, dodgy dealing and insinceriy behind their competitors backs .

  7. “Thus they’d be fucked of course, Venezuela on the Clyde here we come.”

    Typical scaremongering from an Eton-educated Tory toff from the Westminster elite.

    As Tommy Sheridan said: “the only banks leaving Scotland are the food banks”.

    Freedom (burp)!

  8. “So if Bastiat is the last Frenchman who understood economics, who was the last Scotsman? Adam Smith, or has there been one since then?”

    John James Cowperthwaite

  9. The Scots have been conditioned to like tax and redistribution because it has been the English who are taxed for redistribution to the Scottish.

    When the Scots have to tax themselves to maintain the level of redistribution to which they are accustomed, I predict a loss of enthusiasm for redistribution via taxation.

  10. BnlinDublin, Sweden is only below the UK on the Index of Economic Freedom because it scores very badly on taxation & government spending.

    If you look at the detail, Sweden scores equal to or higher than the UK on the other categories – Business Freedom, Economic Freedom, Rule of Law & Open Markets.

    Which is pretty much our host’s point – very free underlying markets with a heavy tax burden on top.

    (the one point where that breaks down is “Labor Freedom”, where Sweden scores badly – I assume that means employment regulations)

  11. Also my experience of Swedish business is one of utter ruthlessness.

    My Dad said the same, he was involved in the fallout of the collapse of a major Swedish reinsurer and said the idea that Sweden is a transparent model of open governance is laughable. One of the few good points of the Girl with the Dragon Tattoo trilogy was shining a light on aspects of this.

  12. Tim N, I agree that the first independent Scottish government will use any oil revenues to entrench their hold on power but what is it the UK does with the revenues now? There are many subjects I am deeply ignorant of, economics and the oil patch being just two of them, but as far as I know, all the revenues the UK makes from oil goes on debt repayments and welfare. Where is the sovereign fund for the UK?

    And, if I may stretch your indulgence a little further: what are the long-term prospects for the north sea fields? I read about the Clare field having 8 billion barrels of accessible oil. Is this minuscule in global terms? How long does the industry expect the North Sea fields to be productive with current technologies etc? And how does this compare with the shale gas/oil fields discoveries in England?

  13. There are many subjects I am deeply ignorant of, economics and the oil patch being just two of them, but as far as I know, all the revenues the UK makes from oil goes on debt repayments and welfare. Where is the sovereign fund for the UK?

    We don’t have one because we don’t need one. The main purpose of the sovereign wealth fund is to defer the spending of the windfall wealth at once, and instead to spread it out over the generations. It’s not done for the sake of the grandchildren, it’s done to avoid what’s called <a href="http://en.wikipedia.org/wiki/Dutch_disease"Dutch Disease: when the money from the oil exports drives the value of the domestic currency up so much that other industries become uncompetitive. There is also the effect that the enormous revenues, and hence salaries and costs, associated with the oil industry prices out any business not (directly or indirectly) serving the oil industry.

    In the UK, the oil revenue was not large enough relative to the rest of the economy to have such an effect, and so the revenues could happily be added to the overall intake and spent without any adverse effects. Now I don’t know if an independent Scotland would need a sovereign wealth fund, but regardless of that I do know that Scottish politicians could not resist raiding it for their own pet projects.

    And, if I may stretch your indulgence a little further: what are the long-term prospects for the north sea fields? I read about the Clare field having 8 billion barrels of accessible oil. Is this minuscule in global terms? How long does the industry expect the North Sea fields to be productive with current technologies etc? And how does this compare with the shale gas/oil fields discoveries in England?

    It’s hard to tell, as recoverable reserves are as much a feature of economics – oil price, tax regime, labour/material costs – as geology. So as things stand there is a reasonable amount of oil, but this depends on there being a favourable tax regime in place. If the Jocks decide this is an industry that has “lots of money” and can be milked dry, they could make the reserves uneconomic overnight.

    Personally I think the biggest damage will be felt in Aberdeen, which has become *the* centre of global oil and gas excellence. A few years ago I needed to find a company that could refit a galley on an offshore rig at short notice: I found 3 within 10 minutes of looking in the Aberdeen yellow pages. Try doing that anywhere else. Despite the decline of the North Sea production, Aberdeen has boomed as a centre of excellence for service provision, and amazingly this has gone largely unnoticed by the government or public. People can make huge piles of money in Aberdeen now, and I know dozens who are seriously making hay while the sun shines. Most have set themselves up as limited companies and hence avoid the top rates of tax, and the actual companies are making revenues which easily surpass their running costs, i.e. they are extremely profitable. I believe it would only be a matter of time before an independent Scottish government in Edinburgh, faced with the inevitable cash shortage, would start to squeeze this goose laying golden eggs, and eventually drive everyone away (they are there for historical reasons, not for practical purposes: the centre could very easily shift to Holland or Norway). And this assumes that the companies would not relocate anyway in the face of uncertainty over a new government in Edinburgh.

  14. Thanks for that, Tim. I can just see Salmond as Chavez without the guns. Unless things go really tits up, of course.

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