As fiscal cliff approaches, don't be fooled by the great Nordic myth

The 1960-1980 economic growth should, therefore, not be taken as evidence that big government can produce prosperity. Rather, research in economic sociology reveals that the negative effect of high income taxes, as well as redistributive and other social-democratic policies were likely offset by beneficial cultural traits found in abundance in Nordic societies. These traits translate into economic benefits that mitigate the negative effects of the welfare state.

As shown by the Corruption Perceptions Index (CPI) and World Values Survey (WVS), such traits include individual motivation, productivity, and honesty. When combined with high degrees of homogeneity in a society, they foster increased levels of trust that reduce transaction costs such as the writing and upholding of contracts. As a result, more potential trading partners emerge and the economic market enlarges, allowing for more specialization, productivity increases, and economic growth.

A high level of trust also reduces free-rider problems, helps solve community issues, and leads to happier societies. However, the traits that produce trust are the result of various long-term historical, religious, and geographical factors that cannot be easily copied and implemented, especially in less homogeneous societies like the US.

Unfortunately, the adverse incentives presented by the economic policies of the welfare state appear to have slowly eroded some of these beneficial cultural traits in Nordic countries. For instance, as a result of its very generous welfare policies, sick leave from work in Norway became the highest in the world. The high employee absence caused productivity and economic growth to be much lower than it otherwise would have been. This example and others helped lead to economic stagnation and decline in the 1980s and 1990s.

Calls for the US to imitate policies and institutions supported by Nordic countries in the past are based on a misguided understanding of Nordic economies, history, and culture. Public opinion and policymakers should keep in mind those unique cultural and economic conditions. If not, the US risks choosing policies that send our country further down the path of a government-controlled economy and into even deeper economic and social problems than we have today.

J. Haavard Maridal is a research fellow and policy analyst focusing the issues of human happiness, prosperity, and well-being. He holds a Ph.D. in Public Policy and an M.S. in Economics from Florida State University and an MBA from Baylor University. Dr. Maridal is a contributor to the Economic Freedom Project.

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