United States, Norway, Sweden discussed on Freakonomics
From the very wealthy. In Norway, the tax burden is more equally shared, and then those taxes are aggressively reallocated says your reallocating. Texas. You also need trust that is being used for something useful. So. I think the to create institutions that are trustworthy is probably the most important thing. So in another country, trust is higher one example of this high trust or at least of less friction between employers and employees in Norway is the prevalence of labor unions. The public sector has ninety percent in annexation. And in the manufacturing sector is like sixty percent and in the service sector is thirty percent in the US. Meanwhile, the private sector industry with the highest share of unionized workers is the utility industry with just under eleven percent. So unions are still strong in the Nordic countries. Negotiated medium of ages that differs across industries and differs across the age the workers. That this, extremely good for people at the bottom economists tend to have mixed feelings about unions pointing out there inefficiencies and inflexibilities. James Robinson who has spent decades researching why certain states and societies prosper he's come to a more nuanced understanding. You can't think of unions just from an economic point of view the unions have all sorts of political consequences in society that may be even more important US companies use market power to repress wages. No unions complained powerful role in pushing back against that you know in columnists might say, well, we should be using fiscal instruments taxes. Transfers to redistribute but that means that the state has to be very involved in that process. So what happens if you're in a society where the social contract doesn't really allow that? Well, then you have to use other instruments and I think the Scandinavians clever by equalizing the pre tax distribution of income. You know the state actually had to do a lot less that could be very politically important especially in a place like the US where people. Antagonistic towards the government doing more in other words, unions reduce the need for government redistribution through a sort of pre redistribution that's negotiated directly by employers and workers. This also tends to. Financial outcomes creating less of a gap between the higher and lower earners. So many countries including the US and the UK especially you have seen an increase in inequality. If, you go back to nineteen thirties. You will see that the income inequality in. Norway. was S hi s in the US today. Norway today path for that income inequality decreased, but also social mobility increased. If you look a- cohorts born in the early thirties. See that income mobility was s low s in the US today. You know parents meant a lot for your own. Income, your position, and over ten fifteen birth cohorts this completely changed. So it was a very. Development in his research, Salvin S has found that in Norway parents income has almost no effect on their children's income a remarkable facts and uncommon in most places around the world. But that doesn't mean the Norwegian economic model is flawless. One disturbing trend tied to the oil industry is a diminished demand for education, and this is what you see in own resource based economies. It's easy to get the job good job in the oil sector without any education. It's very tempting. The people I grew up food. From the core. Industry sector that was very common and you see it very clearly in the data that investment is much lower education in those areas. And of course that is fine as everything is goes to lenders enough oil and Gas Dipoto Mr Vandevelde. Dries out. You need to restructure to do something else, and then you don't have a human capital base for that. So that is the big worry i. think another worry is that while Norway has high levels of income mobility, educational mobility is almost non-existent completing a college also have an assist, agree and especially going to an. Elite school let's say become a lawyer. You see that it's extremely unequal than the parental background means a loft in this regard Norway is to the US pretty similar. So that recruitment to delete is very unequal and that's important because the Nordic model requires a high level of trust in your institutions and the people who run them. So for trustworthy elite to rule and they need to have recruitment from different parts of society you know. They need renewal and different perspectives and so on. Another problem Norway faces and this is what a lot of Americans are afraid of when you start talking about socialism or even social democracies is that strong universal benefits including generous unemployment payments can diminish the incentive to work hard the government and then you budget said that you're going to cut back. On some of the support especially for young people because it turned out that. Young People in the twenty S. On Support David Sort of paid better than people at the same age working. So that is a big concern. It's a concern not just for individuals, but for the whole society, the whole economy. This is something James Robinson has spent a lot of time thinking about. Well it may be tempting for the US to import some elements of the. Nordic model. How much would that affect the foundation that has made the US such an incredible engine for innovation after the financial crisis in the United States, there was a lot of discussion love. Oh, the US has the wrong model. The US should just be like Sweden look at. Sweden. There should be more redistribution we pointed out. This is sort of fallacy in economic theory fallacy because well, countries differ from each other on many dimensions, not just three or four. Yes. The strength of their institutions and their tax system and natural resources, but also their culture, their spirit. The US. For instance, you know it's a much more cutthroat society. Why is it like that? Well, because that creates incentives to innovate and people are just very and bishops on entrepreneurial as much less social insurance and the stakes are very high and that doesn't just benefit the US. It's also benefits Sweden because all of that technology and innovation spills over to everybody in the world you know Ukraine ideas, those ideas spread everywhere. So some sense the Swedes. Can have this very harmonious redistributive society because they're free writing off the CUTTHROATS society. So the US is, Kinda, stuck there because you actually went to a model with more redistribution then the whole world rate of economic growth.