Viking Economics (19 page)

In their book, the authors assemble peer-reviewed data from the world’s richest countries. They find that inequality highly correlates with negative statistics in physical health, mental health, drug abuse, education, imprisonment, obesity, social mobility, violence, teenage pregnancy, and child well-being. They then argue that the correlations in fact represent causation, through a series of mechanisms. Their analysis of the international dataset also matched differences in equality among states within the United States.
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In addition to health indicators, Wilkinson and Pickett found data that enabled them to connect their equality hypothesis with trust. The European and World Values Survey asks random population samples from many countries whether or not they agree with the statement: “Most people can be trusted.” Wilkinson and Pickett related the trust-survey data to the rich countries they had been tracking on the inequality variable. They found the same large differences they’d found with the health measures, following the same overall pattern. Sweden has the highest level of trust, with 66 percent of people feeling they can trust others. They are joined at the top by the other Nordics and Netherlands. The lowest level of trust is Portugal, with Greece (where people famously cheat on their taxes) in the same neighborhood.

Inside the United States, a similar range on the trust survey shows up: North Dakota at 67 percent along with Sweden on the high end and Mississippi at 17 percent along with Portugal on the low end. Overall, the states’ trust indicators match their spots in relation to inequality.

The United States’ overall place in the trust survey ranks halfway between the Nordics at the top and Portugal at the bottom. But public confidence in the economic elite is very low, outrun only by politicians in the race to the bottom. Macroeconomist Dean Baker helps us understand this. Federal income taxes are formally based on a system in which those who earn more pay a high percentage of their income in tax. The range is supposedly 15 percent for income between $18,000 and $75,000, 25 percent for income above $75,000 and under $150,000, and 39.6 percent for income above $465,000. The reality is that the country’s 400 wealthiest families found ways to pay an average of just 17 percent of their income in taxes.

When trust is undermined by this kind of behavior, what is the result? Wilkinson and Pickett cite two U.S. political scientists, Harvard’s Robert Putnam and Maryland’s Eric Uslaner, each of whom has published studies of how trust levels influence society. Both scholars conclude that trust leads to cooperation. Uslaner writes, “People are more likely to donate time and money to helping others and to believe in a common culture where everyone should be treated with respect and tolerance. They are also supportive of the legal order.”
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All this matters for follow-through on taxpaying. Equality also supports the social resilience that libertarians want us to depend on rather than government. Disasters provide illuminating moments when we can see social resilience operating, or not.
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Climate change promises an increasing number of disasters, encouraging egalitarian tax policies that build community as well as governmental effectiveness for aid. The Nordic model, with its emphasis on equality and high taxes, has positive consequences for both community and government, and it maximizes capacity for the disasters certain to come in the future.

European countries have a history of taxing their corporations much more highly than we do in the United States. If we compare averages, corporate income tax revenue in the United States is about 25 percent below the average of the countries in the OECD. In 2013 during U.S. congressional hearings, the following question was raised: Why are so many large companies paying so little in taxes? According to Samuel Maruca, who served from 2011 to 2014 as IRS’s first transfer pricing director, the issue “was pretty well in the shadows
for the past fifty years
.”

Inside Europe, though, the differences have been substantial. In 2009, the United Kingdom got 2.8 percent of its taxes from
corporations, while the Norwegians got 8.2 percent from that source.
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Personal income tax rates are not easy to compare, because some calculations include social security taxes and some don’t. A further complication is that countries have been making adjustments since the 2008 economic crisis. Denmark and Sweden have a history of being leaders among those who tax their highest brackets the most; recent data had Denmark taxing at 59 percent and Sweden 57 percent. Norway was at 49 percent, about the same as the United Kingdom, but the UK’s VAT tax is only 20 percent, compared with Norway’s 25 percent. The United States within living memory had a robust economy while taxing its highest bracket at 70 percent, but now only taxes at about half that rate.
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And economist Dean Baker reports the wealthiest actually paid only half of
that
number.

In Norwegian eyes, inheritance taxes also operate for the common good. Tax on inheritance from a parent is 6 percent for an estate worth $67,000 to $114,000, and 10 percent for estates over $114,000.
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As I’ve mentioned, the ordinary sales tax is about 25 percent. However, punitive taxes are levied on alcohol, tobacco, cosmetics, and other items that are viewed as luxurious or polluting.

The sales tax on cars can be higher than the actual price of the car itself. On the other hand, electric cars have little tax. Norway is not alone in using tax policy to tackle environmental issues. The OECD shows a number of countries raising significant revenue from environmentally related taxes, especially Denmark and Sweden (of course) but also the United Kingdom.

Despite Norway’s being a leading oil exporter, it taxes gasoline at a very high rate to reduce consumption. A nationwide survey
in 2010 showed a high level of support for taxes designed to protect the environment. Only a quarter of those polled wanted substantial reduction of fuel taxes. Thirty percent wanted a modest reduction, while 40 percent wanted the tax to remain the same or be notched a bit higher, and about 5 percent wanted the fuel tax doubled!
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Although Americans are often stereotyped by our political class as anti-tax, the reality is often quite different. Pollsters have found that large majorities support a variety of taxes when they meet an important need and are for the common good.
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A point of curiosity about the Nordics is the extraordinarily low rates of violence and criminality that they enjoy. Rarely do people consider the economic benefit that goes along with that. Mike Honda, the U.S. member of Congress who represents the Silicon Valley, has it very much in mind. Along with the U.S. Institute for Economics and Peace, he claims that that if the United States lowered its rates of violence and criminality to, say, Canadian levels, we could save hundreds of billions of dollars a year and add 2.7 million jobs.

To cross-check their findings, they compared the five states in the United States that have the lowest incidence of violence and criminality with the five states with the highest, and found very specific correlates for the most peaceful states in the United States: highest health coverage, high school graduation, educational opportunity, and greater income equality.
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Tax policy influences
each of those outcomes; abundant resources strategically used have their own value for each of these markers, plus lowering crime and violence. Safety-minded Americans might embrace the Nordic model for that reason alone.

Although Nordics value the vision, risk, and innovation contributed by entrepreneurs, they have a more complicated view of who lays the golden eggs. For one thing, they think the workers do a very large share of the egg-laying, which is why they invest so heavily in human capital and get higher productivity from their workers than in many countries. For another thing, their track record with cooperatives and with state-owned and municipal-owned enterprises gives them a positive perception of other sources of egg-laying. For the Nordics it would be simplistic to call entrepreneurs “
the
job-creators.”

I already acknowledged one billionaire who left Norway for Cyprus, and the stubborn fact that the overwhelming majority of entrepreneurs remain in the country and pay enormous taxes. When
Inc. Magazine
’s Chafkin asked Nikita owner Inger Ellen Nicolaisen why she continued to grow her company, given the very large tax bite the government gets from the increased profit. Nicolaisen said, “I’m an entrepreneur. It’s in my backbone.”
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In reflecting, Chafkin reviewed his magazine’s range of stories over the years about (mostly U.S.) entrepreneurs. He concluded that what drives creative entrepreneurship most of all is not the chance to spend money. It is the chance to make an impact.

In light of Chafkin’s reflection, I thought of Norwegian Olav Thon. Everywhere I’ve gone in Norway I’ve seen one of his Thon Hotels in a premier location. Thon was once a farm boy who went to the city only to sell fox pelts. With 2013 assets estimated by
Forbes
magazine to be about $6 billion, he is the richest man in Norway.

Olav Thon continued to work well into his eighties, adding more hotels, retail stores, restaurants, and shopping malls to his empire, at home and abroad. When he turned ninety, he was asked for his plan for the future. He replied that he plans to give away his money through a trust when he dies.

Among many of today’s descendants of the Vikings it’s a truism that paying high taxes results in getting high value. Their old-school shrewdness helped lead to the conversion of Jeffrey D. Sachs.

Sachs was one of the youngest economics professors in the history of Harvard University, and he made his initial reputation as a neoliberal advisor to Eastern European countries administering economic “shock therapy” to their populations. Now the Quetelet Professor of Sustainable Development at Columbia’s School of International and Public Affairs, Sachs has changed his mind about the practicality of laissez-faire economics.

Reviewing the evidence, he wrote in
Scientific American
that the high-tax/high-spending Nordic countries have outperformed the low-tax/low-spending countries like the United Kingdom. “Most of the debate in the U.S.,” he writes, “is clouded by vested
interests and by ideology. Yet there is now a rich empirical record to judge these issues scientifically.”

Sachs compares, on the one hand, Denmark, Finland, Norway, and Sweden, and on the other hand the low-tax, high-income countries that share a historical lineage with nineteenth-century Britain and its theories of laissez-faire: Australia, Canada, Ireland, New Zealand, the UK, and the United States. The contrast is stark: in the Nordic group the average portion of the budget given to social purposes is 27 percent of the gross domestic product, and in the Anglo-Saxon group it’s just 17 percent.

He asks whether it’s true, as claimed by followers of influential free-market economist Friedrich Von Hayek, that the high taxes needed to pay for high levels of social insurance reduce prosperity.

“On average, the Nordic countries outperform the Anglo-Saxon ones on most measures of economic performance … Von Hayek was wrong.” In his conclusion, Sachs says that the Nordic model is not Von Hayek’s “road to serfdom” but instead is the path to “fairness, economic equality and international competitiveness.”
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Sachs’s study gained further support from a Canadian think tank that researched the tax policies and economic outcomes of all OECD countries. The Canadian Centre for Policy Alternatives found that the high-tax countries generated overall superior performance to that of the United States and other low-tax members of the OECD.
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Before learning about Sachs’s conversion I was already puzzling about some of these issues. My father’s ancestors came from Britain.
In 1959 and 1960, I taught English in a Norwegian high school and it was the
British
version of the language, not the American version, that I was expected to teach. In 1969 and 1970, I lived in London, working and traveling widely in the UK.

Britain and Norway, both maritime nations, have historically been very close. Economically, Britain has been Norway’s “big brother.” Norway imported whole factories from Britain in their early days of industrialization. When Norwegian governmental leaders fled the country only one step ahead of Nazi German invaders, it was to London that they went. When Britain decided to stay out of the European Common Market, Norway did, too.

My biggest surprise in researching this book, therefore, has been gaining a picture of Britain and Norway that throws a startling light on Viking economics.

For starters, the size: Norway has a bigger land area than Britain. As I followed the geographical thread I realized that the two countries faced vastly different challenges in the practical tasks of building a modern economy.

Norway’s population is dispersed widely, its small towns and villages separated by rugged mountains, fjords, and even glaciers. Because its latitude is high, the ice and massive snowfalls compound the difficulties. Building roads up sides of mountains and building bridges has been an enormous job, and maintaining them is not much easier.

The railroad age brought fresh obstacles; in Norway you can find the steepest-grade railroad in the world. I rode through two hundred tunnels on the train from Oslo to Bergen. Engineers additionally built sheds in a number of places to protect the tracks from snow.

Along with the era of airplanes came another challenge both
technical and financial. More than one hundred airports were built around Norway for a population that could fit in metropolitan Birmingham in England.