In his new book, sociologist Lane Kenworthy writes:
Is there a compelling case for socialism? Should we aspire to shift, in the reasonably near future, from a basically capitalist economy to a socialist one?
Let’s stipulate that socialism refers to an economy in which two-thirds or more of employment and output (GDP) is in firms that are owned by the government, citizens, or workers. Two-thirds is an arbitrary cutoff, but it’s as sensible as any other. It connotes a subsidiary role for the private non-worker-owned sector. . . .
To fully and fairly assess democratic socialism’s desirability, we need to compare it to the best version of capitalism that humans have devised: social democratic capitalism, or what is often called the Nordic model. I try in this book to offer such an assessment. My conclusion is that capitalism, and particularly social democratic capitalism, is better than many democratic socialists seem to think.
We most recently encountered Kenworthy in this space when discussing his post, “100 Things to Know.” I still think Kenworthy could up his game on his graphs, but that’s a minor thing.
Most of Kenworthy’s discussions center on macroeconomics, and it’s hard for me to judge a lot of the arguments, so let me just say that I see this book as more of a resource than an argument. That’s not a bad thing: rather than trying to make a single point, Kenworthy is bringing in data from different directions and using these data to address various reasonable arguments. So I’d say you can read this book with the goal of getting a sense of the center-left perspective from a knowledgeable observer without an axe to grind.
Economics seems bewildering to me; everyone else on the internet is very certain about their views. Let me pose the question to Professor Gelman: how can we use the tools of statistics to deal with this huge mass of data. A randomized clinical trial of Rx A vs Rx B is quite simple compared to analyzing the thousands of interactions of any government policy on millions of people. This site points out that screw-ups of analysis of relatively simple issues happen all the time. Is economics analysis possible, or is accepting Hayek concept of the knowledge problem the best we can do?
I haven’t read the book and don’t intend to. But I am puzzled immediately – his definition appears to be at least 2/3 of the GDP comes from firms owned by the government. I don’t believe this is true for the democratic socialist countries in Europe. Perhaps I’m wrong about that – but I’m to lazy to try to look it up. The reason is that I’m not convinced that the focus on ownership is sufficient to discuss “capitalism.” There are many regulatory interventions that countries can choose to use or not. Clearly, European countries (at least the democratic socialist ones) adopt a far more regulatory approach – especially in how labor markets operate. Of course, it the government owns the firms, then the regulatory environment is governed by government employment contracts. But it is really the regulations governing private employment that differ markedly in Europe and the US. It is also the level of taxation and width and depth of the social safety net. In most cases, social services are provided by government entities (although I believe there are some countries that use private firms but where the government pays the bills – and there are a host of privatization of public services, such as prisons and postal services, where there are many models that differ in terms of ownership and regulation).
I believe it is the microeconomic differences that matter and not the macroeconomic ones. This book looks like a nonstarter to me.
He’s comparing “socialism” to the best available alternative which he calls “social democratic capitalism” which is what he classifies the Nordic countries as. So basically he agrees with you and doesn’t classify those European countries as “democratic socialist countries”
I’m not sure what he would classify as socialist, but probably it’s stuff like Yugoslavia or East Germany or such.
Largely language has moved on and the average person in the US would classify sweden as “socialist” even though it’s not by this “ownership” metric.
I’m not too interested in arbitrary binary classifications. I’d much rather see the answer to a question like “what is the optimal amount of resources per capita to devote to government run organizations, and which organizations should be government run?
To be clear, socialist is not being used to mean “government owned.” Generally, socialist means “worker owned.” So, American worker owned co-operatives like King Arthur Flour or Berkeley’s Cheese Board collective are fully socialist companies. ESOs, RSUs, and other stock grants to employees of tech startups would also count towards that ownership share in this measure. In Modern Germany, companies with 2000 or more employees must have a third of the board elected by the workers (Mitbestimmung), though I’d have to read the book to determine if this counts. Technically, I don’t believe German codetermination laws include profit sharing, so codetermination is functionally distinct from ownership, but of course workers can vote to increase their salaries instead.
Government ownership has been considered socialist or a path to socialism in the sense that “the government owns the firm, and the people own the government, so the people transitively own the firm.” But if course not all of that is true.
The focus on ownership is unavoidable, that’s what differentiates “capitalism” and “socialism”.
Of course to discuss “capitalism” one can look at many other factor. This is the baseline taken by the author:
“Social democratic capitalism features a capitalist economy, a democratic political system, good elementary and secondary (K-12) schooling, a big welfare state, employment-conducive public services (childcare, job training, and others), and moderate regulation of product and labor markets.”
Using his definition, I’d hardly call the center-left “socialist”. For that matter, I don’t know what the center-left is. These days, we have the group who are for the rich getting richer (Republicans), the group who are for the corporations getting richer (corporate Democrats), and the group who are for the other people getting a fair shake (progressives). If you want to understand economics, just read Dean Baker’s blog, e.g., https://www.cepr.net/socialism-aint-what-it-used-to-be-ezra-klein-interview-with-bhaskur-sunkara/
I first thought that the “center-left perspective” was the author’s one (who concludes that capitalism is better than many democratic socialists seem to think). I’m not sure now.
If this is indeed what the “center-left” looks like in the US I wonder how the rest of the political spectrum is defined: https://en.wikipedia.org/wiki/Democratic_Socialists_of_America
It is a mistake to think we have a linear spectrum in the U.S. As I wrote, we currently have three groups. Of course, two of the groups aren’t honest about what they really want, and have different amounts of money to spend on campaigns, so many voters are quite confused which candidate would really be best for them and the country. Besides money, there are other ways that the election rules affect who is elected.
I can’t think of any countries that fit the democratic socialist label, so I’m unclear how he can make a comparison, and I’m not sure how I would define better, unless in terms of whether one or the other could better meet the challenges of climate change.
Indeed that level of govt owned capital was pretty much confined to USSR or East Germany, other iron curtain countries etc and they don’t fit the Democratic criteria.
“There is no existing democratic socialism along the lines of what present-day advocates envision, so it’s impossible to conduct an evidence-based comparison between democratic socialism and social democratic capitalism. Instead, we have to consider a hypothetical democratic socialism. But that shouldn’t stop us from being as systematic and detailed as we can.”
worth reading the short intro Andrew referred to. Covers off on the matters raised here.
From the blurb: “Kenworthy argues that, despite formidable political obstacles, the U.S. is likely to move toward social democratic capitalism in coming decades.”
It is no coincidence that Iceland, Sweden, Denmark, Finland and Norway have the highest trade union density in the world. The social democratic institutions that they enjoy are, to a large extent, a consequence of an organised and powerful working class. I don’t think there is much historical precedent for exacting those kinds of political and distributional concessions in a capitalist society in the absence of such working class strength. Which, given the sorry and fragmented state of US labour, makes me wonder which historical agent Kenworthy presumes to carry the US towards social democracy. I guess I’ll have to read to find out.
“It is no coincidence that Iceland, Sweden, Denmark, Finland and Norway have the highest trade union density in the world. ”
Keeping out uneducated poor people who would work for less is one obvious reason for the stronger trade unions in those countries.
The US accepts a **far** higher percentage of immigrants from poor third world countries than any European nation, much less Europe as a whole. The EU on average has 9% foreign born, with only 6.3% born in a non-EU state.
The US has 13.5% FB, with only about 2% from all European, NATO and more or less developed countries combined (Western Europe, Central/Eastern Europe, Russia, Turkey, Japan, Australia, S Korea & UK). Sweden, the country with the highest foreign-born population in Europe at 14.7%, still collects 7.1% of its population from the same group of relatively wealthy and educated countries. Norway, not part of the EU, has 18% foreign born, but still half come from the same group.
Another reason Europe’s workers do so well is pretty obvious today: they don’t pay for national defense. They rely on the US to take care of that.
While the US spends 3.8% of it’s GDP on defense, no country in Europe spends more than 2.5% and most well below that. Former Soviet-Block countries spend the most, typically 2-2.5% of GDP. The closest “western European” country to the US in defense spending is Norway (1.8%). Sweden spends only 1.2% of it’s GDP on defense. This is even though US soldiers make substantially less than most soldiers in Europe, and therefore Europe gets a lot less military for it’s dollar. On top of that, the US is one of the most geographically secure country in the world while Europe faces down Russia to the east along a massive land border. Back in 1946-1950, when Europe was in shambles, it made sense for the US to protect Europe. Today, however, the EU is the world’s third largest economy after the US and China, with nearly 50% more people than the US. IT should comfortably be able to defend itself. But why bother when the US will do it?
Oh. And let’s not forget that Norway’s state-owned oil company delivers about 14% of it’s GDP.
So, overall, it’s no coincidence that European workers have lots of benefits: they have lots of walls to protect them from the world. Although I’ve advocated for Europe to spend more on its own defense, I’m very thankful and appreciative that the US responded relatively quickly to the situation in Ukraine, all the more given the shocking atrocities committed by Russian troops and the directive to essentially expunge the Ukrainian population. But at this point maybe it’s time for the EU’s trade unions to give up a little.
+1
Enh, an extra 2% on defense spending doesn’t make too much difference. Even assuming that that spending just “poofs” and vanishes, that’s merely the GDP per capita difference between the UK and France (guess which is which).
Zhou:
The question isn’t only the direct difference in spending. The question is: how much more would the EU have to spend to see to its own defense? My bet is that is roughly 1.0-1.5x the difference in spending today, considering military pay is substantially higher in the EU.
Circa 2021 (link below), the US spent $800B; The EU something less than $250B. To defend itself, the EU is looking at very roughly $550-$850B in additional spending, from a working age population of 290M (declining), so somewhere in the neighborhood of $2000-3000 per working age person. In the US, with a median income last I heard of about $68K, that would be 3.0-4.5% of income.
I can’t lay my hands on a US$ denominated EU median income, but let’s imagine in Europe it’s somewhat less – say, 2.5-4.0% of income or something. Saved over a working life (40yr) with a modest 5% return, that’s pretty close to $250K. You can think of that $250K as a benefit lost by the average European or gained by the average American. Not exactly chump change.
Anonymous wrote:
“So, overall, it’s no coincidence that European workers have lots of benefits: they have lots of walls to protect them from the world. […] But at this point maybe it’s time for the EU’s trade unions to give up a little.”
Wow, those were some pretty impressive mental gymnastics over minor differences to get to your conclusion.
A far simpler and better explanation is found here:
https://worldpopulationreview.com/country-rankings/wealth-inequality-by-country
…where we learn that:
“The top 1% of earners in Europe take only 12% of the total income and the bottom 50% of earners take 22% of income. For comparison, in the United States, which has more billionaires than any other country, the top 1% of earners take 20% of income and the bottom 50% of earners take 10%. The less inequality/greater equality in Europe is attributed to the fact that Europe has not let its market economy become a market society, where market forces control other areas of society such as education, health, and wages. Examples of this are social healthcare systems and more favorable labor markets.”
This is just simple arithmetic and so now I am scratching my head again. Wouldn’t it make more sense to just say that maybe the billionaires need to give up a little to get quality of life in the US up to where it is in Europe?
Two relevant points tied to government revenue and expenditures, as well as inequality in the US that are at the core of this issue:
1) Increasing portion (50% +) of US federal obligations are eaten up by entitlement programs (mandatory spending) and interest payments, i.e., not defense. The “kicking the can down the road” approach of the last few decades is not sustainable anymore…as recent inflation suggests we’re towards the end of US $ printing as a solution for these profligate spending.
https://www.federalbudgetinpictures.com/where-does-all-the-money-go/
Federal spending in 2021 was US $6.82 trillion: https://datalab.usaspending.gov/americas-finance-guide/spending/
2) Because of the massive federal spending and obligations outlined above, billionaires can’t really help us. Taxing all US billionaires at 100% would fund federal spending for just a few months.
https://www.politifact.com/factchecks/2021/nov/02/viral-image/confiscating-us-billionaires-wealth-would-run-us-g/
Usually, when political solutions are offered they dodge the issue of reforming mandatory spending at the federal level. That’s really the Gordian knot that both policy makers and commentators tend to avoid*.
*PS: I saw no mention of entitlement or mandatory spending reform in either the introduction or table of contents of the book pdf linked in post.
Chetan: I don’t see how those figures are terribly relevant. Increasing proportion of mandatory spending is the exact same as saying there’s a *declining share of discretionary spending*, just presented in a way that makes it seem like the answer is to cut the former, and not increase the latter. The US is about half that of Europe in terms of the share of GDP that is government expenditure, mandatory and discretionary combined.
The site you linked seemed mostly a matter of demonstrating the joys of extrapolating things out exponentially for 50 years.
Focusing purely on “billionaires” is an over-exaggeration, but the increasing wealth of the rich is still a thing. You can double the income of the median US earner through redistribution alone, ignoring any secondary benefits. Compared to Europe the difference is pretty strong. https://www.motherjones.com/wp-content/uploads/2018/06/blog_wid2018_top_10_percent_europe_us.jpg
The issue of billionaires in particular is more a matter concentration of political and economic power.
Matt Skaggs says:
“The top 1% of earners in Europe take only 12% of the total income and the bottom 50% of earners take 22% of income. For comparison, in the United States, which has more billionaires than any other country, the top 1% of earners take 20% of income and the bottom 50% of earners take 10%. ”
Matt, you make a good point: the top earners in Europe – corporate management – are far less productive than their American counterparts, so it makes sense that they would keep a much lower multiple of corporate earnings.
Number of top companies by market value, US and Europe:
Top Five: 4 to 0
Top Ten: 7 to 0
Top Twenty-Five: 17 to 2
Top Fifty: 32 to 6
Amazingly – or perhaps not – three of the six European companies in the top fifty are from Switzerland, which isn’t even in the EU!! Denmark, the Netherlands and France round out the group, and two were lost to “Brexit.” Before Brexit, the UK had 40% of the EU’s top 50 companies.
So, I think Matt you can see the difference isn’t in what European management choses to pay itself! Management in the EU simply can’t afford to pay itself more. Eventually that will manifest as workers earning less too, because Europe has been almost entirely left out of the tech industry. I don’t envy Europe the oncoming robotics revolution.
Anonymous:
What you are describing is more a matter of market failure and the resulting formation of monopolies in the US. That’s how you get about the same overall economic activity per capita, but more “biggest companies”.
Anonymous –
> Matt, you make a good point: the top earners in Europe – corporate management – are far less productive than their American counterparts,
I left a relevant comment here:
https://statmodeling.stat.columbia.edu/2022/06/19/propagation-of-responsibility/#comment-2062106
Your argument, of course, is circular – it circles around the subjectivity in how you define “productivity.” If by productivity you mean benefit accrued disproportionately to those who already sit at the top do the chain, then indeed the productivity of the American corporate system meets the mark. Meanwhile, here people lack access to Healthcare, are far more likely to get shot or end up in prison, increasingly unable to pay for a quality of education, lack access to quality public infrastructure lkms mass transit, etc.
Of course, it’s tricky to tease out where corporate productivity fits in there. Where might “culture” become relevant? (I notice your attribution of culture seems to only run in one direction; does our higher proportion of undesirables also help explain our advantage in “productivity” or does it I my act as a negative vector?) As another example, where does the “productivity” of the auto and fuel industries and their influence on mass transit infrastructure become “disproportionate” and where does “freedom of choice” or low population density in large swaths of the country provide a better explanation. Good questions, I think – but I also think people should take a more nuanced look at what “productivity” means than what it seems you were doing in your comment.
Joshua said:
“If by productivity you mean benefit accrued disproportionately to those who already sit at the top do the chain, ”
See my point (1) on the “Propagation of Responsibility” thread.
Zhou said:
“What you are describing is more a matter of market failure and the resulting formation of monopolies in the US.”
Ah, you mean the YouTube “monopoly” that prevents me from viewing videos on Twitter or Reddit or LinkedIn or dozens of other websites that serve videos? :) The left is always conjuring up new definitions of monopoly to serve it’s need to take from success and give to failure – the new one is “most popular” = “monopoly”.
But otherwise you make my point perfectly: Europeans are served by proverbial corner stores instead of supermarkets. This provides lots of good intermediate pay jobs for corner store management – at the cost of higher prices, lower selection and lower overall value for consumers and probably lower pay for top management, who are less valuable because of incompetence or because of regulations that prevent consolidation and increased efficiency.
The high net worth of American tech founders results from the high value they **provide to** consumers, not because they **take from** consumers. That’s why consumers keep going back. Consumers worldwide are **better off** – that means **richer** – because of the products and services that Amazon, Microsoft, Apple, Facebook, Tesla, Salesforce and so many other American tech companies provide – despite the extreme wealth of the founders of those companies. Each transaction creates wealth for the company and the consumer. The wealth gained by the population is dispersed but wealth gained by the company and its founders is aggregated.
“Monopoly” is a myth that left-wingers use to explain why consumers keep using the services of a company or industry, even though the company or industry is supposedly giving consumers a bad deal (or has a founder that’s too rich!) – AH HA! say the single-word-explainers! They keep going back not because the services provide value, but because it’s a **monopoly** ah ha! Brilliant!
Claiming “Inequality” is a display of willful ignorance or worse on the part of the left to hide it’s failed economic philosophy and to suck cash out of the little guy for its leadership (BS, EW etc) and myriad organizations of well paid mythology pushers. The “monopoly” myth explains away the reality of consumers getting a better deal from big tech companies; the “structural racism” myth explains away or hides the internal problems in its constituent communities; companies “charging too much” explains inflation; yada yada yada.
chipmunk –
Please explain in what way I was “dodging and hiding.”
You can have both immigration and robust workplace legislation to ensure workers are not exploited.
But simply importing “uneducated poor people who would work for less” and then having a legislative framework that lets employers use them to undercut the wages of existing citizen workers would reduce the living standards of said citizens – and is not the sort of thing a social democrat capitalist government should be doing IMHO.
I think it would work fine so long as there is a robust UBI payed by a simple flat tax on all income (including capital derived income). The notion that “workers” get money exclusively from hourly/salary wages which can then race to the bottom by immigration pressure is what doesn’t work. As soon as income isn’t exclusively from wages, wage plays less role in happiness and prosperity.
Hello – as someone working and living in the so-called “Nordic Model”, it is quite nonsense for Lane Kenworthy to say that northern Europeans live in “social democratic capitalism” and that it is the best capitalism ever devised. It is actually a variation of social market economy, and if it is the best ever devised, it has very little to do with socialism. The “social” part has nothing to do with socialism in terms of social ownership or economic planning. There is no animus towards markets or capitalism, and the system is not seen as an intermediary step between capitalism for heading towards socialism as a goal, and Billionaires are not seen as morally undesirable. In fact, 5 northern European countries have significantly higher number of billionaires per million people than the USA. The best way to describe the social market model is an actual promotion of markets and capitalism through fair competition (avoiding monopolies or govt cronyism), and using the resulting prosperity to provide a welfare state (which, BTW, is not as good as people think). Providing welfare is not necessarily “socialist”. Unfortunately I see socialists quite often trying to take credit for northern Europe success. The reality is quite different, and the Europeans suffered a lot of damage in the past with reckless socialist experiments. I think you need to be skeptical of the assumptions embodied in Kenworthy’s claim.
Matthew:
You say that what Kenworthy says is “nonsense.”
You elaborate by saying that the Nordic model “has very little to do with socialism,” that it “has nothing to do with socialism in terms of social ownership or economic planning,” that it is not “heading towards socialism as a goal” and that it “is not necessarily “socialist.”
In saying this, you’re not in disagreement with Kenworthy at all! In his book (including in the excerpt linked above), he explicitly says that “social democratic capitalism” (as in the Nordic) model is not socialist. Indeed he says he prefers social democratic capitalism to socialism.
You write, “I see socialists quite often trying to take credit for northern Europe success.” But Kenworthy is explicitly not doing that! You may well have some people you’re arguing with, but Kenworthy isn’t one of them.
Fair enough then, but the unfamiliar term “Social Democratic Capitalism” (here in Europe) combined with the ancillary assumption that it is “center left”, threw me a bit. I guess then here the model would not be considered “center left” but more broad-church centrism. The prevailing attitude here seems to be just like Adam Smith says: “…peace, easy taxes and a tolerable administration of justice”. But that the more prosperous you become, taxing for universal services is easy.
Zhou,
Replying here since for some reason not able to directly respond to your comment.
What is the source of the comment “The US is about half that of Europe in terms of the share of GDP that is government expenditure, mandatory and discretionary combined.” ?
The OECD data suggests government spending (both per capital and as share of GDP) in US is a few percentage points below Scandinavian levels: https://www.oecd-ilibrary.org/sites/6c445a59-en/index.html?itemId=/content/component/6c445a59-en
Social spending by US is of course a smaller percent of GDP, but that should be expected considering how much more bigger wrt GDP the US is. More relevant is the US$/ capita spending in which the US social spending is higher than Japan, the Netherlands etc, and just below Switzerland (toggle for per capita data in this chart: https://data.oecd.org/socialexp/social-spending.htm#indicator-chart ).
The core point I was trying to make is that key variable is what percentage of budget goes to social spending, US clearly is not skimping there with well above 50% of annual budget going to various entitlement programs.
We seem to be stuck with out of control legacy costs that are eating an ever increasing share of government spending. I think the challenge facing the US is how to get more out of this massive social spending which is going to run out soon (Medicare A in 2026, Social Security in 2032 by the administrations own projections): https://datalab.usaspending.gov/americas-finance-guide/spending/categories/
I was looking at the central government expenditure in:
https://ourworldindata.org/grapher/exports/central-vs-total-government-expenditure-gdp.svg
If you are looking at total government spending (i.e. including state governments) then the picture changes somewhat, sure, but your original stat is about mandatory spending as a proportion of the federal budget, i.e. central government spending.
“Social spending by US is of course a smaller percent of GDP, but that should be expected considering how much more bigger wrt GDP the US is.”
Should it be? Why? If we consider the GDP as a measure of the economic capacity of the country, and people are claiming the US has various social problems that can be solved by more spending, then there is no reason why the spending share should reduce with higher GDP. Tax more and spend more. Increase the annual budget. You might disagree with that as a policy preference, but there’s nothing you’ve presented that argues against it. There’s no evidence that the difference between Europe and the US is higher mandatory spending.
I mean one might argue that the richer a country, the *more* as a share of GDP it should spend on social and other types of government spending. A small country might benefit heavily from a laissez faire approach to attract investment and entrepreneurship to produce growth, but a developed economy has little to benefit from that, and much more to benefit from redistributive policies and avoiding wealth consolidation. Certainly across the world’s economies that’s the correlation.
This is the first time I’ve heard that we need more social spending per capita than even the Scandinavians countries. The only reason to expect higher than Scandinavian per capita social spending would be if you’re making the argument that US government social spending is inefficient with worse outcomes. If that’s your argument, we are in agreement.
Regarding GDP being higher in the US, that’s because of US private sector productivity and competitiveness, not sure I would recommend slaying that golden goose to move even more resources towards government mismanagement.
The latter strategy (diverting even more $ towards government allocation) runs into the same problem of unsustainable financing of government programs that we’re already world class in. As Thatcher said “the problem with Socialism is that you eventually run out of other peoples money.”
I think your perspective is what is unsustainable.
Interesting topic and interesting discussion!
I thought a bit about his approach to compare socialism to the best possible version of capitalism which he takes to be the nordic model. Is this really the relevant comparison? I think there are three comparisons possible (of course more, I simplify to make a point). You can compare socialism to the worst form of capitalism, to the best or to the average.
Comparing it to the worst form is not relevant because there many consequences are considered that do not arise regularly. But what about the average?
On page 9 in the linked document he writes that “Is Capitalism Not Good Enough?
Some observers believe the Nordic nations have unique features—culture,
good government, small size, among others—that allow them, and only them,
to achieve the good outcomes produced by social democratic capitalism without
suffering tradeoffs. But a careful look at the evidence suggests this isn’t true.
The model’s success almost certainly is transferable to other affluent democratic
nations. Indeed, all of those nations already are partial adopters of social demo-
cratic capitalism, and they’ve benefited from that.”
I think this is a crucial point and the arguments, that this form of capitalism can be established easily everywhere, should be very strong. Otherwise the appropriate comparison might not be the best form of capitalism but the average. It might be, that capitalsm produces regularly negative consequences that are not considered when comparing it to the best form.