Viking Economics (13 page)

When I look at Norway, Sweden, Iceland, and Denmark through my American eyes, I see countries that have virtually wiped out poverty. How did they do this?

The largely Christian Nordics set aside the Biblical saying, “The poor ye shall always have with you.” Even though their experience
included widespread poverty, the labor movements and their allies chose a different vision. If the Norwegians, for example, could tackle their economic elite and then resist the Nazi German invaders, why not see what could be done with poverty?

Successive Labor governments found that tackling poverty is not rocket science, although they found it much more complex than simply bulldozing Oslo’s slums and building new housing, something they did early on. Labor found that economists
can
design a system that virtually eliminates poverty, when hired to do so. When the working class takes power in a society, it can apply the economists’ policies and hire social scientists to evaluate the effects and stimulate course corrections.

Fortunately, the Nordics resisted the temptation to believe that poverty comes from one major cause. Take, for example, the view I’ve heard in my country that single-parent households are a major cause of poverty.

In UNICEF’s large 2000 study of child poverty in rich countries, researchers examined factors that show up in the wide disparity in poverty rates among the OECD nations. They explored what they called the “lone-parent theory” and found that it didn’t hold up. “Canada and Finland have almost the same proportion of children in lone-parent families, but the child poverty rate is over 15 per cent in Canada and less than 5 per cent in Finland.”
⁸⁰

In Sweden, one of every five children lives with only one parent, which is slightly higher than the proportion in the United States and the UK. Sweden’s child poverty rate, however, is under 3 percent as compared with about 20 percent in the United States and the UK.
⁸¹

Getting everyone married clearly does not take care of the problem! Poverty is complex. What the Norwegians did in their
first four decades after the power shift in the 1930s,
before
the oil began to flow, was to use multiple tools. One of them was to maximize participation in the labor market.

In interviewing for this book, I learned that Norwegians see work as a key expectation of a citizen. If they are able to work, Norwegians
should
work as a way to participate in society. Tone Fløtten, a young policy analyst at the Norwegian research institute Fafø, described to me a typical conflict between the government’s labor department and the social work department:

A labor department caseworker says, “Ole Johansen should have a job.”

The social worker says, “You know that’s impossible. Ole has been a drunk for twenty years.”

“Then encourage him to take a rehab program and learn to control his alcoholism. He needs to be working.”

“We’ve tried that,” the social worker replies, “and Ole always relapses. On Friday he goes on a binge. He’s out of it until Tuesday when he finally sobers up.”

“Well, then,” says the employment worker, “find him a part-time job, for Wednesdays and Thursdays. He needs to be a productive citizen; he needs at least that much self-respect.”

For the Norwegians’ economic design, paid work is fundamental. Many countries operate differently; they build in unemployment, as the IMF advised the government of New Zealand to do when I was there on a training mission.

When the government raises the unemployment rate, some blame the unemployed themselves for lacking jobs. The psychological dynamic follows accordingly. Picture a teenager who’s had a rough start in life, with family pathology and a history of family poverty. Teenagers, with few jobs to apply for, can be overwhelmed by discouragement, especially when they are told that it must be
their
fault that they are “losers.”

In Norway, however, society says something very different. It tells such a teen that
the economic system was built for everyone
, and therefore jobs are available, and free training and support are available, and working is important for self-respect and the economic productivity of the country. In short, the government’s policy is full employment.
⁸²

When I learned that the unemployment rate is actually a choice made by those who lead their economies, I looked more closely at the Norwegian unemployment rates. I’d read that Norway’s long-term average unemployment is considered by economists to be “full employment” because it allows for the people who are in the labor market but in transition from one job to another. The average for the period between 1997 and 2013 was 3.44 percent, according to
worldfinance.com
.
⁸³

I then looked for a bigger picture that included the period before the oil started flowing in the mid-seventies.

The Economic Journal
published a study showing four decades of unemployment rates in the OECD from 1960 to 2002. In that period, Norway’s five-year averages varied from 1.7 percent to 5.2 percent. To my surprise, Norwegian unemployment averaged lower before the oil started flowing than afterward. Clearly, the Norwegian success in handling poverty is not related to their “black gold.”

The statistic also shows that having a goal of full employment doesn’t guarantee its achievement. There is, after all, such a thing as the business cycle. In those years when the unemployment rate went up, the government made both fiscal and budgetary tweaks to increase the number of jobs.

Still, the same UNICEF researchers who disparaged the lone-parent theory caution against believing that employment rates
alone
determine the amount of poverty. The team found that Spain and Japan had widely different employment rates but about the same amount of child poverty. In the period examined, the United States and Mexico had fairly low unemployment but high levels of poverty, while in the same period Finland had high unemployment and
low
child poverty.

UNICEF researchers found that what mattered more than
whether
people were employed was
what their wages were
. If they are low-paid, they may be unable to keep their families out of poverty, especially if there is a minimum of other social and economic support for children. The Nordics famously pay workers well; their highly unionized labor force makes sure of that.

Another advantage of the Nordic income policy is that in social assistance the cash payments can be set low enough to motivate people to get paid jobs rather than “live off the system,” and on the other hand can be set high enough so people aren’t actually suffering in poverty.

By breaking down the statistics, UNICEF found another key dimension of employment—
distribution
of the jobs. If a high-unemployment area has available jobs well distributed through the population, child poverty will be lower than in an area where overall employment is higher but concentrated among fewer families—for example, in two- and three-income households
—therefore leaving more households with no one holding a job.
⁸⁴

By understanding the importance of how jobs are distributed among households, we can see another way that the Nordic economic design reduces poverty. The design encourages single parents to hold jobs by having free or affordable childcare available at the work site or near the home. Few children, therefore, live in a household where no one has a job.

Another notion I sometimes hear is that a major cause of poverty is immigration. In the mid-1990s in Sweden, that view seemed supported by the fact that poverty rates climbed at the same time that Sweden opened its doors to a wave of poor immigrants.

When we look more closely, we see that immigration increased in the 1990s, at precisely the time that Sweden was recovering from its bankers having gone wild, taking their country to the brink. Thanks to the Swedes’ flirtation with neoliberalism, the country had higher-than-usual unemployment. Sweden needed time to generate jobs for its own people, not to mention jobs for newcomers without Swedish language skills and often without job skills appropriate to Sweden’s economy.

Fortunately, the design of Viking economics came through in Sweden. It enabled basic resolution of the poverty problem for immigrants, even though racist reactions did erupt within the population and lingering problems remain. Poverty rates went down as the year 2000 approached, thanks not only to increased and well-paid jobs, but also to the educational and social infrastructure.

That being said, it remains true in all four countries that immigrants are over-represented in the poverty statistics. Linguistic and cultural obstacles and lack of job skills for the economy of the host country matter, and they take time to be handled in a way that creates the win-win promise of diversity.

The Swedes’ social safety net helped them rise to the 1990s poverty challenge. UNICEF’s poverty researchers, however, warn against counting on the net as a fix-all approach. Yes, choosing the share of national income devoted to unemployment benefits, family allowances and services, disability and sickness benefits, housing benefits, and other forms of social assistance does matter. But so do other factors, the researchers say, like well-paid jobs and how they are distributed, and the training and education programs that support them.

Even though UNICEF warns against putting all the anti-poverty eggs into the social safety net, the researchers comment that “no country with a high rate of gross social expenditure has a high rate of child poverty.”
⁸⁵

In the nineteenth century, the Danes, Swedes, Norwegians, and Icelanders tried to help the poor, motivated by a religious impulse toward charity. What they found was that programs for the poor are poor programs.

In the big picture, the track record of programs for the poor is miserable. No country has come close to abolishing poverty through programs for the poor, no matter
how
wealthy the country itself was. Why?

First, programs designed for the poor are inherently inefficient. Consider the bureaucracy involved in means-testing—all that paper-shuffling needs to be paid for! The programs create an incentive to “game the system,” again cutting into productivity. One way to generate waste is to have a lot of people sitting around trying to game the system, while others sit around trying to stop them from gaming the system.

Of course human beings will be human, and some will try to cheat. What a smart economy does not do is design programs offering
incentives
to cheat, which is what programs for the poor do.

Another characteristic of programs for the poor is that they are under-funded and skimp on quality, partly because the poor have don’t have the political power to insist that their programs be top-flight. In reality, the poor are likely to need even
higher
-quality support than people brought up with more social capital and other advantages. Programs for the poor give less service to precisely those who need more.

The social workers and teachers of the poor are often expected to be heroes—who else would choose to work with people who are believed to be more challenging? If these professionals turn out to be more like other human beings (non-heroes simply trying to do a satisfying day’s work), and if the conditions of their workplace are bad (typical in programs for the poor), then many will burn out. In the big picture, burnout is another source of waste.

Observers in the United States have noted since at least the 1930s that individuals thrown out of work even in a depression or recession often blame themselves for their situation. I remember my dad, one of the hardest workers I’ve ever known, bringing home government-surplus cheese and milk with defeat on his face. (Our family needed the supplements.) Programs for the poor
are the front-line echo chamber for a largely false message: “Your trouble is your own fault rather than the result of a societal phenomenon; if you are here, you reveal your inherent unworthiness as a ‘loser.’ ”

I have collected unemployment checks myself. But no social worker revealed to me the truth: the unemployment rate comes from choices made by those who lead the economy.

Conservatives worry that out-of-work people may blame the system, regard themselves as victims, and refuse to take responsibility for themselves. Lapsing into dependency, they may reject the principle that humans co-create their own reality.

The principle of co-creation is fundamental for me as well; this book is full of examples of people asserting their power, their agency. Programs for the poor, however, undermine agency when they reinforce individuals’ sense of themselves as losers. This insight was initially present at the heart of the 1965 launch of the U.S. “war on poverty.”
⁸⁶

The original conceptualizers of President Lyndon Baines Johnson’s “war on poverty” understood how much the initiative of the poor is related to empowerment. They therefore planned for representative councils of the poor to guide the new initiative. Their phrase was “maximum feasible participation of the poor.” This design element was, however, dropped.

Informal
groups empower individuals for economic advancement by supporting their agency. American observers have long noted that immigrant groups arriving with their families intact usually advance themselves through combinations of relatives: the family-run Chinese restaurant is the classic example. A unique feature of African American history is that the slavery system systematically attacked family ties and other cultural supports.

Despite the fact that informal groups and family networks can be a resource, programs for the poor are usually atomistic, responding to the poor one individual at a time. They systematically ignore other, broader means for empowerment.