Friday, May 1, 2015

Processes and People

It is easily forgotten that a firm is far more than just the sum of its employees. Indeed, the success of a company is the result of the contributions of all of its assets. These assets, tangible and intangible, consist of e.g. its existing stored information and experience, the efficiency of its organisation, its connections with government and the local community, its established processes, its IT systems, its intellectual property (including the brand), its material resources (including inventory), its land and real estate, and, of course, its human capital. 

Employees are merely one part of the many assets the company uses to reach its objectives. Apart from the employees, an important set of company assets are the processes that the company has established over time. Hardly any employee knows all the processes of the company they work for. Most processes existed before the majority of the company's employees started working for the company, and most of these processes are still in place when they leave it.

The modern company that is looking to grow in a competitive environment is so dependent on such processes both internally as well as towards its customers and suppliers, that it could arguably be stated that it is the employees that are there to make sure the processes function properly, not that the processes are there to support the employees, as is often believed. At the core of this observation is the fact that the human factor is a risk that must be monitored and mitigated as much as possible because man is fallible.

Therefore, in order for company processes to be as little disturbed as possible by indecisive and erroneous human actions, the selection of key personnel is made carefully. The modern corporation is structured in such a way as to make sure there is little possibility for it to be subjected unreservedly to the influence of the limited and flawed human being. Companies generally try not to depend crucially on any single individual, making sure that no one is irreplaceable.2 As J. K. Galbraith observed:

In the large organization, even the risks associated with the selection of leadership are reduced. Organization replaces individual authority; no individual is powerful enough to do much damage. Were it otherwise, the stock market would pay close attention to retirements, deaths, and replacements in the executive ranks of the large corporations. In fact, it mostly ignores such details in tacit recognition that the organization is independent of any individual."[2]

The importance of processes in corporations can be illustrated by the “chain theory” that is part of Theory of Constraints (TOC), which was developed by Eliyahu M. Goldratt in the 1980s.[3] In this model, the human resources of a company are seen as links connected together in complex processes or “chains” These links make up the chains; they allow the processes to flow along the chains. A company is thus made up of many such interconnecting chains, visually forming a sort of tree. Every division or department within a company is as slow as its slowest and thus most costly link on each chain.

A company can improve its performance and lower its costs by identifying and strengthening its weakest links; the objective is to remove the bottlenecks. This can be done for example by adding resources, rotating employees, providing training, modifying processes or redirecting information flow. Once a solution to the weakest links has been found, other employees or groups of employees become the new weakest links, and the process of searching, identifying and resolving these weaknesses is then repeated until the cost of doing so exceeds the cost of not dealing with it. 

The way most companies deal with quality control for processes and for employees is revealing of where their priorities lie. Quality control is often given the highest priority for processes; modern companies often go to great lengths to assure state-of-the-art processes, spending both huge amounts of time and money to implement and perfect them. However, the same can rarely be said for employees. Companies instinctively follow the adage that no one is indispensable.


[1] This is especially true in recent years as the average employee turnover has increased.

[2] J. K. Galbraith, The Affluent Society, p84 (Penguin Books, 1999).

[3] See

Wednesday, April 1, 2015

The Futility of Liberty

The question of liberty in the modern world is a sensitive one because the answer is taken for granted. If one asks people in the West whether they are “free”, an overwhelming majority would instinctively answer in the affirmative.

But being convinced that one is free, however this term is defined, is of little importance if not accompanied by a clear consciousness of, and a constant appreciation for that freedom. If liberty is to have any chance of striving in a constitutional democracy, there must exist what George Santayana called an “instinct” of democracy in the people; that instinct which “assumes that, unless all those concerned keep a vigilant eye on the course of public business and frequently pronounce on its conduct, they will before long awake to the fact that they have been ignored and enslaved.”[1] The representative political system can only function if the people exercises, in the words of Benjamin Constant, “an active and constant surveillance of their representatives, and reserve the right, at not too infrequent intervals, to remove from power those who have failed to honour their promises and to revoke the powers of those who have abused them.”[2]

In some ways, it has become easier today for the people to exercise such democratic surveillance than in the days of this French thinker. The dramatic improvements in communication technologies, for instance, has greatly empowered the individual by providing him with unprecedented information about the misdeeds of his representatives. But there are also reasons why it has arguably become more challenging and also more urgent than in past times for the people to keep a vigilant eye on its elected representatives. As has become particularly evident in the last few years, the military and surveillance powers of many modern States are now almost unlimited.[3]

It is clear that such political vigilance requires an attentive, interested and educated people. Yet, as Herbert Marcuse indicated, in the modern society the satisfaction of needs, real or perceived, tends to reduce the capacity and the necessity for independent and critical thought, and undermines the importance of previously cherished liberties.[4] Admirable constitutional rights and individual liberties have been established de jure in the "liberal democracies" of the West, after centuries of efforts.[5] The question is to what extent these rights and liberties are appreciated today and actually taken advantage of de facto, in a society that incites individuals to meekly fall in line. All States tend to indoctrinate in some form or another, but the development and use of sophisticated indoctrination arguably makes more sense in a democracy than in a dictatorship. As Edward Bernays wrote in “Propaganda,” his notorious work from 1928, since leaders in democratic societies “can no longer do what they want without the approval of the masses, they find in propaganda a tool which is increasingly powerful in gaining that approval.”[6] Noam Chomsky thus also noted that “propaganda has typically become more sophisticated as countries become more free and the state loses the ability to control the population by force.”[7]

Of course, “liberal democracies” can hardly be compared with totalitarian regimes because they are undoubtedly much freer and do present a face of tolerance. But where some States have bluntly used the threat of punishment or punishment itself to assure direct submission, others use much subtler means to indirectly ensure obedience. They take the necessary steps to ensure that the individual fits into society so that finally, like in Huxley’s Brave New World, there is a no need for punishment because there is no dissent. In this vein, Howard Zinn warned of the “dominant powers in society who prefer that knowledge be used only to maintain the status quo, to train young people to take their obedient places in the existing society rather than challenging the people in power.”[8]

It is never easy for an individual to question the society in which he lives, but in such a situation it is almost impossible since it becomes equivalent to questioning himself. Constant entertainment, mass consumerism and media bias hinder the development of critical, independent thought and assure adherence to the prevailing values. As Marcuse indicated, those are the key elements in diverting the individual’s attention away from the political decisions and institutional reality that actually should concern him the most.[9] Social controls, such as the general compulsory education system, which John Stuart Mill called a “mere contrivance for moulding people to be exactly like one another”[10], as well as the biased and self-censuring mainstream media, help to ensure compliance.[11] The objective is to obtain the blind acceptance of the existing order and values of society.[12]

The success of this indoctrination in the “liberal democracies” of the West is ironically most clearly evident when the question of lack of tolerance is intolerantly dismissed. It is often deemed either shocking or humorous to merely express the idea that coercion and intolerance are basic attributes of these societies. This is the reason Marcuse suggested that independent intellectuals should make efforts so that society, naturally always geared against auto-criticism, does not succeed in silencing ideas that are generally disliked or avoided; i.e. those ideas that question the value-system of this society. Indeed, such doubts about the existing order of society would be validated if these ideas were successfully eliminated. Therefore, “the realization of the objective of tolerance would call for intolerance toward prevailing policies, attitudes, opinions, and the extension of tolerance to policies, attitudes, and opinions which are outlawed or suppressed.”[13] This consists in adopting an attitude of intolerance towards what Mill called the collective opinion, which the “tyranny of the majority” constantly imposes on the minority.[14]

However, modern “liberal democracies” often do the opposite: they show tolerance not so much towards this minority, but towards those who support these societies and simply take them for granted; that is, towards the majority that forms the social and cultural back-bone of these systems. This majority consists of citizens who conform to society and, as Rousseau said, fit into the mould that all minds seem to have been thrown into.[15] They are those who have the “correct” opinions, vote for the main political parties, acquire the latest material goods, frequent the “right” people, slavishly follow convention, are concerned about the “right” issues, and live the standard life of production and consumption that is expected of them.

To question the existing order of society means belonging to a minority; there could be no such order if questioned by the majority.[16] As Santayana said, “most men's conscience, habits, and opinions are borrowed from convention and gather continual comforting assurances from the same social consensus that originally suggested them.”[17] The most important reason for desiring freedom and tolerance in society is therefore first and foremost to make it possible for the heterodox views of the minority - not the orthodox views of the majority – to be heard. To these minority views often belong ideas that society needs the most but that the majority instinctively turns a blind eye to and tends to suppress.[18]

This minority typically has views that are discouraged, unappreciated and often dismissed without any attempt by the majority to understand them. The expression of new and uncommon ideas or simply the disclosure of relevant but inconvenient information is generally received with indifference, sometimes with incomprehension or even suspicion. As J. K. Galbraith wrote: “These are the days when men of all social disciplines and all political faiths seek the comfortable and the accepted; when the man of controversy is looked upon as a disturbing influence; when originality is taken to be a mark of instability”.[19] The majority automatically adopts and mechanically repeats what Galbraith coined as the “conventional wisdom”; that is, “the ideas that are esteemed at any time for their acceptability.”[20]

There is thus a paradox inherent in the modern world: though the advent of the
"liberal democracy" was based on an unsatisfactory yet unprecedented degree of liberty, this society constantly tends to undermine it. The remarkable capability of modern society to direct thought and behaviour tends to render the concept of liberty irrelevant. Democracy is only a chimera and liberty is futile if men and women are content to only be socially-approved automatons.


[1] G. Santayana, The Life of Reason, Chapter V: Democracy (1905 Edition).

[2] B. Constant, “De la liberté des Anciens comparée à celle des Modernes”, speech from 1819.

[3] The revelations of Edward Snowden and Glenn Greenwald come to mind, concerning the NSA, the GCHQ and several other intelligence agencies.

[4] H. Marcuse, One-Dimensional Man. Routledge and Kegan Paul, 1964.

[5] There are signs, however, that fundamental rights and liberties are being undermined as the following few examples show. In the USA, the recent and progressive erosion of civil liberties includes for example a loosening of the fundamental principles of habeas corpus and due process, and the acceptance of some forms of torture and pre-emptive arrest. The latest National Defense Authorization Act that now includes the possibility for indefinite military detention of US citizens without trial, also in the name of security (sections 1021 and 1022 of the NDAA for fiscal year 2012, signed by the US President Obama on Dec 31st 2011). 
It is also possible to mention the Anti-Counterfeit Trade Agreement (ATCA) that has been negotiated by several countries, and that could potentially infringe upon the freedom of expression and communication privacy of internet users. Another example is the extension of the pre-charge detention time for “terror suspects” that has already taken place in the UK. In Sweden, the FRA-law allows the state to eavesdrop on all electronic information flow going in and out of this country. The way governments are reacting to the 2010 Wikileaks publications of confidential information is also indicative of the way liberties are being eroded. Also, it is well known that in several Western countries the expression of support for certain political views is illegal (such as Nazism or historical revisionism).

[6] E. Bernays, Propaganda, p54. IG Publishing, 2005.

[7] N. Chomsky, “Ossetia-Russia-Georgia”, 11 September 2008.

[8] H. Zinn, interview in Z Communications, 29 August 2008 (available on

[9] Moreover, in the decades that have past since the publication of One-Dimensional Man, these factors have developed and expanded to become significantly more pervasive and dominant in the life of the individual.

[10] J.S. Mill, On Liberty, p68. In the same vein, H. L. Mencken also once said that the role for the education system was; “To make good citizens. And what is a good citizen? Simply one who never says, does or thinks anything that is unusual. Schools are maintained in order to bring this uniformity up to the highest possible point. A school is a hopper into which children are heaved while they are still young and tender; therein they are pressed into certain standard shapes and covered from head to heels with official rubber-stamps.” (see “H.L. Mencken at Full Throttle”, by Michael Dirda in his review of Mencken’s “Prejudices”, The Sunday Times, 29 November 2010).

[11] The lack of critical and independent media has only become more glaring as the long and slow decline of newspaper journalism has accelerated in the last few years, and as newspapers are closing in record numbers not only across the USA but across the whole Western world. See for instance, The Death and Life of American Journalism, by R. W. McChesney and J. Nichols.

[12] See for instance, N. Chomsky, Lecture at the Istanbul Conference on Freedom of Speech, 20 October 2010 (available on

[13] H. Marcuse, Repressive Tolerance (essay).

[14] J. S. Mill further warned that there is a need for “protection also against the tyranny of the prevailing opinion and feeling; against the tendency of society to impose, by other means than civil penalties, its own ideas and practices as rules of conduct on those who dissent from them; to fetter the development, and, if possible, prevent the formation, of any individuality not in harmony with its ways, and compel all characters to fashion themselves upon the model of its own.” (J.S. Mill, On Liberty, p8, Everyman’s Library, 1992)

[15] “ règne dans nos moeurs une vile et trompeuse uniformité, et tous les esprits semblent avoir été jetés dans un même moule: sans cesse la politesse exige, la bienséance ordonne: sans cesse on suit des usages, jamais son propre génie.” J-J Rousseau, Discours qui a remporté le Prix à l'Académie de Dijon : Si le rétablissement des sciences et des arts  a contribué à épurer les moeurs.  (1750)

[16] As Murray Rothbard said, “all States are supported by   a majority—whether a voting democracy or not; otherwise, they  could not long continue to wield force against the determined  resistance of the majority.” (rothbard, Power and Market, p20, 4th Edition, von Mises Institute)

[17] G. Santayana, The Life of Reason, p171. For a detailed modern review of this phenomenon of human instinctive bias toward held beliefs, see for instance, “The Science of Why We Don’t Believe Science”, Chris Mooney, 18 April 2011, Mother Jones.

[18] See, for instance, the famous essay by L. Strauss, Persecution and the Art of Writing (p1-2).

[19] J. K. Galbraith, The Affluent Society, p4. Penguin Books, 1999.

[20] J. K. Galbraith, The Affluent Society, Ch.2. Penguin Books, 1999.

Sunday, March 1, 2015

Taking Advantage of the Welfare State

Many people living in the generous modern Welfare State do everything they can to take advantage of the system; they try to reduce their tax bill and claim as many subsidies and benefits as possible.[1] The question is whether they should be blamed for doing so? In other words, is such behaviour morally acceptable?

In fact, such behaviour is generally considered immoral, which is somewhat paradoxical since it is so pervasive. The familiar argument is that such behaviour is immoral because the individual who is taking advantage thus of the Welfare State is not paying his “fair share” to society. In this view, income tax, in particular, should be paid because it is considered the payment for the security and the social benefits that the Welfare State provides him.

But what, exactly, is a “fair” contribution to society? Different fiscal regimes of different Welfare States lead to different individual taxation rates for the same work and even for the same base salary. What is “fair” varies then, not surprisingly, from society to society. Even within the same fiscal regime, different individuals may pay the same income tax but may benefit very differently from the Welfare State. Should a person with a family of his own, who is often sick and relies heavily on transfer payments, be considered to live a morally lesser life than a single person of good health paying the same income tax but who does not - can not - benefit from such social support? Or, vice versa, two individuals may get similar benefits from the Welfare State but might be subjected to very different income tax rates. In these two examples, it is difficult to say who, if any, of these individuals is paying his “fair share”?

There are several reasons why a direct link cannot be established between the taxes an individual pays to the State, and the overall benefits he receives. Firstly, income tax is only part of the total taxation revenue that the State collects (sales tax and corporate tax make up a large part). A similar example as the ones above can be given with regards to sales tax. For instance, if one individual is more frugal in his spending habits than his friend, caeteris paribus, should this person be considered to live less morally than the latter, because he contributed less in taxes to society? On the contrary, he may very well be considered to be setting a good moral example of virtuous living. And since consumption and VAT levels are generally negatively correlated, it would seem counter-intuitive to suggest that it is moral to consume. 

Secondly, it is generally impossible to determine specifically which part of public spending on welfare comes from the State revenues originating from a particular individual. Third, the inefficient spending of many bloated Welfare States makes it difficult to state that a certain level of total individual taxation represents a “fair” or “reasonable” contribution to society. In a lean and well-managed Welfare State, in which all public spending would be optimised and perfectly accounted for, this argument might have a little more weight. And fourth, some of the most important services that the modern Welfare State provides are collective, not individual (such as security, education, environment and infrastructure). Collective services mostly benefit the individual indirectly, by generally improving the general environment in which he lives. They are, by definition, unrelated with the specific tax contributions of a particular individual.

The points above substantially weaken the argument that there is a close correlation – and, hence, a moral link of cause and effect - between individual tax contributions to society and the benefits to the individual of living in this society. Indeed, most people tacitly seem to agree with this reasoning since they rarely associate the amount of overall taxes they pay with the quantity and quality of welfare services they receive. Thus, it seems difficult to state that one person is living a morally better life than another because he make bigger fiscal contributions to society.

Finally, it is important to remember that the individual contribution to society is not limited to taxes to the State. Individuals may contribute to society in many ways, according to their efforts and their capabilities. Some of these contributions obviously come in the form of taxes, but others, such as charitable, cultural or intellectual contributions, cannot as easily be quantified and do not involve the State at all. However, most people contribute only very little or not at all to society in this non-material sense. This is not surprising since man is a limited creature and can generally only barely be expected to look after his own narrow interests (not surprisingly, tax avoidance is an entire industry in the Welfare State). 

For all these reasons, an individual cannot, therefore, be morally blamed for doing everything he can to minimise his fiscal burden and take advantage of welfare benefits. It can never be immoral for an individual to defend what he believes is his own interest, as long as he does not violate the property rights of others. An individual's actions in society should be subject to legal – not moral - judgement. All that is required of him is that he observes the Law. As Aristotle observed, there is a difference between being a good citizen and being a good man, and a person can be the former without necessarily being the latter.[2] Therefore, as long as he stays within the framework of the law, an individual should not be morally blamed if he decides to take advantage of the society in which he lives.


[1] Whether or not these people “need” these social benefits is not the point. The need for anything beyond basic primary needs for survival are relative and subjective needs.
[2] Aristotle, Politics, Book III.

Sunday, February 1, 2015

The Real Success of the Nordic Welfare State - Part II

It may not have been true in the past, but today there is a real reason to admire the Nordic welfare states. Since the late 90s, after the banking crisis of 1991 in Sweden and Finland and the recession of the early 90s, these welfare states have been radically transformed. It is even possible to speak of a “reinvention” of the welfare state.[1] 

The Nordic countries, and in particular Sweden, have shown a remarkable amount of political will to carry out reforms whose aim has been to ultimately preserve - not destroy - the welfare state. Other welfare states (France and Italy, for example) are still struggling to undertake such reforms, almost twenty years after the beginning of the transformation of the Nordic welfare states. It is necessary to note, however, the lack of pluralism and public debate during these important social and economic changes. The public was rarely consulted and both main parties, the Conservatives and the Social-Democrats, were both in agreement.   

The reforms of the last 20 years were able to address the challenges that are common to many welfare states. These reforms, including a slight decrease in the tax burden for the first time, have also had the consequence of accelerating a convergence with other welfare states in some areas.[2] All the traditional and most sensitive areas of the welfare state were deeply concerned: health, education, and pension system.

As examples of such reforms, it is possible to mention school vouchers that were introduced in Sweden, allowing competition with public schools. Programs of privatization and liberalization have also been implemented for hospitals, the post office, care for the elderly, and services for young children, among others. The pension system has also been partially privatized, giving people some control over their mandatory retirement savings. Generally, private welfare companies now coexist with the traditional public services, who have been, to some extent at least, exposed for the first time to market competition.[3] This has obliged services that have remained public to improve their performance.

The recent financial crisis has demonstrated just how beneficial for the economy these reforms have been, since it put all Western economies to a similar test. The Nordic welfare states have been better at weathering that crisis. They have healthier economies and have rebounded from the downturn more quickly than other welfare states. The Nordic countries have shown that a modern welfare state with extensive and generous social protections can be maintained even during economically difficult times. It is precisely the reforms that the Nordic countries have carried out in the last two decades that have enabled them to be resistant to the financial crisis that elsewhere has created so many difficulties.

The social-democratic regime of the Nordic welfare state went perhaps furthest of all welfare states in terms of social spending and the universality of its services. It had ambitions to reform society not only economically but also socially.[4] While these welfare states cannot really be considered of the traditional “social-democratic” kind any longer, they are still ahead of many other welfare states in terms of the security and equality that they grant to citizens. This is still the case, even if the progress towards greater economic equality slowed slightly, and has even slightly reversed in some areas in recent years.[5]

The reforms of the Nordic welfare state model have not been perfect, of course. In some areas, like funding, the reforms have not gone far enough, and lessons are often learned from some mistakes that have been made. That being said, most of these reforms are still impossible, politically, in many other welfare states of Southern Europe. The Nordic countries once again have become a reference regarding the development of the welfare state; or rather, they have now really become role models, while initially this was not really the case. Only now has it really become possible to talk for the first time of the success of the Nordic welfare state.


[1] As for instance with Mauricio Rojas, in « Reinventar el Estado de Bienestar », (Gota a Gota, FAES, 2008).

[2] The main areas of convergence are: closer north/south alignment of the European welfare state (except during the crisis of 2007/2008 ) , the privatization (outsourcing ) of certain public services (and use of tender) , the introduction of quality measures and control and better management of resources in the public service, the reducing budget expenditures unrelated to social services (e.g. defense) , the progressive alignment of tax levels in different countries (% of GDP) , and the alignment with the EU and increased trade between nations. See statistics from OCDE for the convergence related to taxation:

[3] It mostly is only partial competition because funding still comes from the State, not from the end-user.

[4] Regarding in particular the social impact to the individual, the Nordic welfare states had « huge ambitions to transform the lives and the way of thinking of the population ». M. Rojas, Reinventar el Estado de Bienestar, p27. (Gota a Gota, FAES, 2008).

[5] But the Gini coefficients for the welfare states are still well below 30, even considering this situation, which shows a very high level of equality. « Les démocraties scandinaves », p215-216, Les Democraties scandinaves, Yohann Aucante (Armand Colin).

Thursday, January 1, 2015

The Real Success of the Nordic Welfare State - Part I

The Nordic welfare states were for decades considered role models; they were supposedly the proof that a highly developed welfare state could coexist successfully with an economically free society. Indeed, the Nordic countries, especially Sweden and to some extent Denmark, were recognized for pushing the welfare state further than other countries, for having developed social-democratic “universal” welfare states, and at the same time managing competitive economies with high rates of growth.[1] Though there is some truth to these perceptions, they require some important amendments that might somewhat tarnish this rosy view. 

It is important to remember that the Nordic countries benefit from a series of important advantages compared to other countries, both from a historical, cultural, geographic, and demographic point of view.[2] Historically, they hardly developed feudal systems, and there has been an almost complete absence of war on their territories for over two centuries.[3] Culturally, these countries are famous for their work ethic, combining a high level of trust and responsibility with a culture of consensus. Geographically, they are naturally protected and lie far from the frequent political turmoil of central and southern Europe. And finally, demographically they still have relatively homogeneous populations.

Such exceptional conditions would arguably have ensured the success of virtually any political system. They largely explain how these countries, which developed industrially relatively late, have, during the first half of the twentieth century, gone from being Europe's poorest countries to being among the richest in the world. The fundamental reasons for the success of the Nordic countries therefore has not much to do with the welfare state. Indeed, the economic success of these countries was a reality already before the establishment of welfare states, which did not happen fully until the early 1960s.[4] Although the concept of the welfare state was born relatively early in Scandinavia,[5] the advent of the modern welfare state of highly progressive taxation and widespread and often universal social benefits came rather late compared other European countries.[6]

Further, contrary to widespread views, studies show that the Nordic welfare state had a quite negative impact on entrepreneurship.[7] Most of the biggest industries and large Scandinavian companies were practically all founded and developed during the more liberal era before the advent of the welfare state. Conversely, very few significant new companies rose during the period of the social-democratic welfare state in these countries, that is to say, during the 60s, 70s and 80s.

Macroeconomic reforms always have a delayed effect; years and often decades can go by before their full impact is felt throughout society. For this reason, the Nordic welfare states initially benefited tremendously from the inertia of many previous decades of economic and social development, as well as from the investments and revenues of strong international corporations before the development of the welfare states. In the 1970s and above all in the 1980s, however, the effects of this growth started to wane, and both companies and the population began to feel significant pressure from the high taxes and the bureaucracy that had been increasing since the early 1960s. When the final crisis of the social democratic welfare state occurred in the early 90s, especially in Finland and Sweden, the welfare state had continued to grow in size until the tax burden that was needed to finance it clearly became unsustainable. At the time, the top marginal tax rate for individuals and businesses could actually exceed 100%,[8] and in 1993 the total government expenditure accounted for a record 70% of GDP.[9]

In order to get a qualitative idea of the economic freedom in the Nordic welfare state, it is possible to consider the Economic Freedom of the World Index.[10] This index is composed of five parameters that have a crucial impact on a nation's economic freedom: the size of its government; its expenditures, taxes, and enterprises; its legal structure and the security of property rights; the access to sound money; the freedom to trade internationally; and the regulation of credit, labour, and business. The Nordic welfare states were (and are) very strong in all these categories except the first one.[11] Strictly speaking, it should not really be possible to say that these countries were good examples of free economies, if the State had such a strong involvement in these societies. For instance, in the late 80s, the number of employees in the public sector in these countries was an astounding 40% of the working population.[12] The economic success of the Nordic welfare state can be explained by the fact that this negative impact of the size of the State and its intervention in the economy were counterbalanced by very high scores for the other four parameters of economic freedom mentioned above.

The admiration for the Nordic model, especially for the Swedish model, was partially based, therefore, on an erroneous historical and economic understanding of these countries. Despite what many people thought at the time, the Nordic welfare state cannot really be said to have been a success. Indeed, it is not surprising that in the ranking in GDP per capita over time, however flawed such a ranking in reality is, the Nordic countries lost many positions from the 1970s to the 2000s.[13] However, the Nordic welfare state can be called a success if the last two decades of reform are considered. This will be the topic of the second part of this essay.


[1] Of course, it is not possible to see the Nordic countries as identical. There are many differences, and they have different histories and have taken slightly different paths. Nevertheless, this country-by-country differentiation is not really possible to make in this relatively short essay. 

[2] For a good historic and cultural review of the basis for the l’État-providence in Scandinavie, see for instance, the Swedish case in « Sweden after the Swedish Model  : From Tutorial State to Enabling State » by Mauricio Rojas (Timbro, 2005). 

[3] The only times this happened was during the Finnish civil war of 1918 and the Norwegian resistance during WWII, from 1940 to 1945. 

[4] For instance, the OECD stats show that the Nordic countries had tax rates which were generally lower than most other European countries, including the UK. 

[5] The concept of society as “folkhem” (or literally « the home of the foyer people ») was invented by the Swedish social democrates towards the end of the 1920s. 

[6] « Les démocraties scandinaves », p99, Yohann Aucante (2012, Armand Colin). 

[7] Axelsson, S. (2006), « Entreprenören från sekelskifte till sekelskifte – kan företag växa i Sverige? » in Dan Johansson and Nils Karlsson (eds.) Svensk utvecklingskraft, Stockholm : Ratio. 

[8] Henrekson, M. (2007), « Välfärdsstaten och entreprenörskapet », IFN Policy Paper nr 16. 

[9] More than 70 % for Sweden and a bit less than 70 % for Finland. See « The Economic Crisis in Finland and Sweden in the 90s”, p37, Report to the Minister and Head of the Ministry of Health and Social Affairs (SOU 2000 :83). 

[10] The « Economic Freedom of the World Index » is an economic indicator that was created and is published by the Fraser Institute, du Canada. Voir : 

[11] This was the case between 1970 et 2004 for the Scandinavian countries, according to the study of Bergh, A. and M. Henrekson (2010), « Government size and implications for economic growth », Washington: AEI Press. 

[12] « The Economic Crisis in Finland and Sweden in the 90s”, p28, Report to the Minister and Head of the Ministry of Health and Social Affairs (SOU 2000 :83) 

[13] With the exception of Norway which has a specifically oil-fueled economy. See for instance GDP per capita in PPP,