The Fourth Revolution – The Nordic Future

In the fourth and last installment of our review and commentary on The Fourth Revolution: The Global Race to Reinvent the State by Micklethwait and Wooldridge, we examine the authors’ contention that Sweden and the other Nordic nations represent the future for the West’s reinvigoration.

Before and After

For most of the twentieth century, Sweden embraced the Fabian ideal for their society. Marquis Childs called their social experiment the “middle way,” one between capitalism and communism. In the nineteen sixties, Sweden moved left as they broadened the meaning of equality in their society. They applied more government and higher taxes to every problem.

Then it ended. Their politicians did what most world leaders know they ought to do but fail because they lack courage. Sweden reduced their public spending in proportion to their GDP. The government required itself to produce a fiscal surplus over the economic cycle. Swedish politicians reinvented the state while reducing its size. They gave their nation’s pension system a sound foundation, they adopted education vouchers, and revamped their health care system.

Sweden focused on reducing waiting times for hospital procedures and on speeding patients through their stays, which also reduced the frequency of hospital communicated diseases. They published data such as operation success rates in health registries for patients and taxpayers to evaluate. And they charged minor fees similar to those that Lee Kuan Yew initiated in Singapore to discourage healthcare system abuse through elective services overconsumption. Swedish health care is now one of the most efficient in the world. Swedes live longer than most in the Western hemisphere and their health costs have decreased too.

Other Nordic countries have improved to a more limited extent. Yet, all four have triple A credit ratings and debt loads below the Eurozone mean. Their economic experiments seem successful. Indices show that they have superior social inclusion, competitiveness, and well-being.

And they’ve done this by serving the individual, employing fiscal responsibility, promoting choice, and encouraging competition. They’ve eschewed state expansion, pump priming, paternalism, and centralized planning. The Nordic countries have extended the market into the state instead of the opposite.

From There to Here

The Nordic countries show what is possible. They had to change because they ran out of money and continued to change because they found they could provide a better state for their citizens.

In 1991, Sweden plunged into their “black of night crisis.” The banking system seized up, foreign investors abandoned their confidence in the third way, and mortgage rates peaked briefly at 500 percent.

In the early 1980s, the people of Denmark faced a “potato crisis.” It was called this because they felt that potatoes might be all they’d be able to afford for their subsistence. Not only was there a cash shortage but the industries which financially supported government programs were strapped.

Now, countries in the West find themselves at or near the same crises. Western states have promised their peoples benefits beyond their ability to provide. The Nordics prove that the state can be brought under control and can be improved for the betterment of their peoples’ future.

But Big Government

History over the last two centuries seems to show that governments grow larger as they accumulate power and control. The Nordic countries provide a counterfactual: government can be contained while its performance and efficiency increases.

The authors pose the question: “How far can you take [the Nordic experiment]?” They argue that neither diminishing productivity returns in the service and government sectors [Baumol’s disease] nor society’s accelerated aging can prevent success. They claim technology is a solution to both problems.

Baumol stated that systems which boost manufacturing productivity are not applicable to the service sector (of which government is a part). The authors suggest that his disease is simply technological lag. As an example, educational efficiency once depended on increasing class sizes.

Now, with the internet, students with drive and grit can access materials from world-class educators. This sort of teaching is even extending into formal classrooms. Accredited degrees are increasingly available online. As a result, universities are having to reconsider the wisdom of administrative bloat and building monuments.

Technology is delayering management and making workers more productive, disseminating health care and school performance data so citizens can make informed choices, and, increasingly, bypassing government by putting power in citizens’ hands.

Law and order, a very labor intensive government function, is also an example. Instead of harsh sentences, increased warehousing, or even a decreasing cohort of young men, the authors maintain that crime prevention is what led to a decrease in crime worldwide starting in the mid 1990s (but varying across the globe). And this decrease has most to do with technology (e.g., CompStat, increased video surveillance, monitored alarms, etc.). Although community policing (directed by CompStat), a hands on solution, is also necessary.

Technology is even reducing costs in the military. By replacing soldiers, sailors, marines, coast guard and air men with automated hardware and software systems, lifecycle costs such as salaries, healthcare, and pensions are decreased. Operations, maintenance, and personnel costs are an overwhelming proportion of total cost of military systems when compared with initial development and procurement costs.

Technology, in the authors’ view, is taking out costs while increasing efficiency in many, if not all, public sector activities.

But Greying Demography

The authors’ ask: “won’t any gains from treating Baumol’s disease be wiped out by demography?” They note that the Nordics have changed the basis for their retirement systems from totally defined benefits to partially defined contributions. Swedes put some of their pension money into private plans. The government indexes the retirement age to life expectancy and decreases pensions during economic declines.

Delaying retirement increases worker payments into the system, reduces outlays, and enhances economic productivity of older workers through entrepreneurial activity and skills transfer. And Sweden made these improvements with cross party consensus: the “people’s home” survives only if finances are handled competently.

A Call to Action

There are many ways to improve the state that increase benefits to citizens while decreasing the cost of (and frustration with) government. While the Left argues cutting government will hurt the poor and the Right cries that expanded welfare will collapse the economy, the authors assert that it’s not a zero sum proposition.

Nineteenth century Victorian liberals went after “Old Corruption” in its various forms. Subsidies for the wealthy and middle classes at the expense of the poor are easy to correct via means testing, flat taxes, and repealing funds for government agencies that provide unfair aid where it is not needed (e.g., if I own suitable land that I have no intention of cultivating, should I be paid for not growing tomatoes or some other crop?). It only takes the will to do it.

Rather than take away from the poor, remedying this one situation actually helps the poor. Entitlement programs on which they depend will not run out if we fix who pays in, for how long, up to how much, and who gets to collect and when. There are many other substantive instances of waste, fraud, and abuse that we’re spending trillions on (i.e., not just shrimp on treadmill studies). Fixing these will make the country run more efficiently, benefit those who really need benefits, and increase citizens confidence in government.

Just as Sweden updated their “middle way,” using capitalist competition to efficiently provide socialist services successfully, the United States, Great Britain, and other Western states can shrink government, improve their economies, and restore confidence in Democracy (or the Republic, in our case) while providing the safety nets they’ve promised to those who need them for as long as they need them.

Halfhearted efforts rooted in selective interests just won’t do. We have serious problems to solve, and we need serious people to solve them.

RSA Replay: The Fourth Revolution

Reassurance

If you google (yes, to google is a verb) you’ll get:

re·as·sur·ance /ˌrēəˈSHo͝orəns/

noun

noun: reassurance

  1. the action of removing someone’s doubts or fears.

“children need reassurance and praise”

  • a statement or comment that removes someone’s doubts or fears.

plural noun: reassurances

“we have been given reassurances that the water is safe to drink”

This is interesting, because we all need some reassurance lately. Whether it’s because our health insurance has been cancelled, the insurance company hasn’t offered an alternative, and we’re forced to try the exchanges. Or, we’re a newly minted graduate with unproven skills that we’d use for mutual benefit like gangbusters, if only someone would give us a chance. Or, we’re a displaced older worker that still wants to contribute their skills to society and can’t seem to find anyone who will hire us for anything near (even half) what we’re worth to the employer.

Well, I don’t see it. If left to our own resources (just check the heavily commented websites) we almost squeal with glee at the displacement of humans by technology. Overpopulation, some say with the obvious solutions in mind. A mark of progress others say as they cite previous technology revolutions (market, first industrial, second industrial, digital, etc.).

All of these ‘revolutions’ recast how human labor was employed. Each caused worker dislocations. Some caused worker revolts. None were deterred (only derailed to the average worker’s detriment). They’ll tell you it will all work out. But we’re being inhuman of we go on like that. It won’t all work out. People are suffering needlessly. But we can’t return to the past.

The pundits on one side say if you get more of the pie I get less. So I should take your pie (oh, wait, they call it ‘re·dis·tri·bu·tion’). Some see nothing wrong with this. Others call it theft. The pundits on the other side say business should grow the pie. But business men just take more of the pie that’s left (I’m talking to you, Wall Street). We’ve been told to go shopping and buy from government exchanges, as if all will be better then. But that doesn’t grow the pie, either. It’s plain old manipulation. However, someone has to start growing the pie. It’s not going to grow itself, you know.

a work of the National Institutes of Health, part of the United States Department of Health and Human Services. As a work of the U.S. federal government, the image is in the public domain.

Pie slice, NCI at NIH, public domain

At lunch one day, I was discussing this problem with a friend whose politics differ from mine. We discussed the pie. However, neither of us had any since we’re both trying to lose weight after our job losses. I said we need savvy folks to start enterprises online and in bricks & mortar that use our displaced workforce and apprentice our new grads. Businesses are so refined now that training and loyalty has gone by the wayside. How will young workers grow into positions of responsibility? Why aren’t older workers tapped for their knowledge and expertise?

Now, you could say, these unemployed are the dregs of the workforce. They deserve what they got. And you’d be dead wrong in many cases. Good workers are being let go and not hired to boost stock performance. If you’re so concerned about quality employees, test them as a prequalification step. Give objective, targeted proficiency and psychological tests online as a gate of entry to the interviews. Grow and use trained interviewers with subject matter and social interaction expertise. You’ll be surprised what treasures you find.

Now what would you have them do? Well, figure out what we really need as a society and as a world and have them either make it for or serve it to us. We don’t need more pet rocks. But the world does need more energy, more clean and fresh water, safer roads and neighborhoods, better education independent of economic background, life mentoring, better preventative health care access, etc. You get the idea. Find a need and fill it.

Our technology can be leveraged to support these new enterprises in ways we don’t even bother using. Virtual offices will work if they’re managed well. The usual computer snooping software is unnecessary when folks are measured on productivity and results. When continued employment hinges on good cooperation and quality outputs, a factory, virtual service, or distributed design house (as examples) can flourish.

Meetings can be held online (many outplacement services work that way). Folks can gather centrally on a quarterly or less frequent basis once they’ve been vetted and oriented to the enterprise. Better minds than mine have worked all this out. Look for it and get cracking.

Funding can be raised via loans or investors. While loans may be hard to come by, more investment crowdsourcing is becoming acceptable and available. Check with your accountants and lawyers. I can’t figure it all out for you. You have to pitch in.

Think of it, how many billions of dollars are being left on the table in the interest of the bottom line because social responsibility and innovation are seen as what the other guy does? Granted it won’t be as profitable in the short run as the status quo of squeezing the life out of remaining workers. But in the long run it will pay dividends in work satisfaction, increased tax base, and societal growth and prosperity.

Responsible folks need to give this country (and this blogger) some reassurance and get ‘er done.