Sunday, June 5, 2011

The market economy in Norway

In keeping with the theme of my previous post, I thought I’d write about the economy in Norway generally. I’ve written a fair amount about my work life here in Norway since I started this blog a little over a year ago, but not so much about the type of market economy that exists here. The common view is that Norway is a socialist country, however that is defined, but the reality is in fact much more complex.

The New York Times and other American newspapers are very fond of presenting Norway in a glorious light—you can almost see the halo as they sing the praises of Norway and of Scandinavia in general—especially when they discuss the social welfare system, paid health care, subsidized education, shorter work hours, longer vacations, and other things that make daily life easier. The fact of the matter is that Scandinavia and the USA have some similarities and some differences when it comes to matters of the economy and social support systems. And to some extent, both countries could learn from each other. Norway is not an absolute socialist state that shuns capitalism; it is a mixed market economy that includes aspects of both capitalism (privately-owned industry) and socialism (public/state regulation of markets). It is the strong regulatory component and the involvement of the state in any aspect of a market economy that makes diehard capitalists in the USA uneasy. But the USA is also considered to be a mixed market economy. The major difference between the USA and Norway is that government involvement in the market is much less in the USA than in Norway and Scandinavia generally. But it is not true that there are no market and trade regulatory agencies in the USA. A Google search turned up a number of such agencies, among them: Equal Employment Opportunity Commission (EEOC“responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex , national origin, age (40 or older), disability or genetic information”), Federal Trade Commission (FTC—“responsible for preventing unfair methods of competition in commerce as part of the battle to “bust the trusts”), and the Environmental Protection Agency (EPA—responsible for protecting health and the environment). These exist to protect employees, fair trade, and the environment, but how well these agencies function, or how much power they actually have, is anyone’s guess. I really don’t know the answer to that. And last but not least, who can forget the Security and Exchange Commission (SEC), which exists to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”. In other words, they police Wall Street to a certain extent, whether Wall Street likes it or not. And Wall Street needs policing, as the recent packaged loan scandal and resultant global greed demonstrate. I believe that in the absence of rules and regulations, entropy ensues. Greed becomes dominant and the middle class and the poor end up suffering. It seems as though the SEC was just as much taken by surprise as the rest of us (was it asleep?) when it came to the recent corruption on Wall Street. That shouldn’t be. In any case, the rich will always survive well, in any country, and that goes for Norway too. The truly rich enjoy privileged lives here just like they would anywhere else—big houses, vacation cottages, yachts, fancy cars, multiple vacations each year, etc. Wealth has its privileges in any country.

But the fact remains that none of the privileges that Scandinavian citizens enjoy come ‘for free’. All of them are funded through taxes. I’ll simply refer to Wikipedia for information about the tax system in Norway—it’s easier than my trying to explain something I am not very competent to discuss in detail http://en.wikipedia.org/wiki/Economy_of_Norway. But suffice it to say that the Norwegian government uses the tax system to raise money for public expenditures such as those I’ve mentioned already—comprehensive universal healthcare and a comprehensive welfare system. There are three components of the tax system: a) progressive taxation (there is a marginal tax rate on income, and Norwegians are taxed for their stated net worth); b) value-added tax (VAT), which is the largest source of government revenue--the current sales tax is 25% for most store items, 14% for food and drink, and 8% for movie tickets and public transportation; c) special surcharges and taxes on a number of items including cars, alcohol, tobacco, and various kinds of benefits (info from Wikipedia). I don’t have a problem with paying higher taxes knowing that the revenues go to fund universal public healthcare and those sorts of things. What I do have a problem with is paying an inordinate amount of money for a new car. New cars cost a lot of money, much more than most Americans would be willing to pay. For many years, my husband and I drove very old cars simply because we could not afford to buy newer (and more environmentally-friendly) cars. We drove gas guzzlers and exhaust-spewing old cars. Environmentally-friendly? No. Affordable, yes. Now we have a better personal economy, but still, I would not buy a new car because of its expensive sticker price. When new car prices come down, I’ll re-think it. But it has always seemed strange to me that a country that prides itself on being ‘green’ has done little or nothing to encourage its citizens to buy cars that don’t pollute the environment. I believe the reason is because they would prefer that people did not drive cars at all (a pipe dream if ever there was one). But that idea lies dead in the water. No matter how much the authorities encourage the use of public transportation, the fact remains that people will continue to use their cars because they are the most convenient way of getting from point A to point B despite a fairly efficient public transportation system within Oslo. The public transportation system within the city is in fact very good—punctual for the most part, with good connections between trams and buses. But it is expensive. A single ticket to ride the bus or the tram will cost you close to 6 USD at present. If you buy a Flexi-kort (8 rides), that will cost you about 30 USD. If you use your car, regular gas is more expensive than diesel; gasoline costs about 2 USD per liter (1 US gallon = 3.78541178 liters), so a gallon of gasoline costs about 7.5 USD. That’s a lot of money, and I don’t think Americans are willing to pay so much for gasoline. Americans will need to re-think their attitudes about how much tax they are willing to pay if they want universal comprehensive healthcare, for example. The only way that can be done is to raise taxes, and raising taxes is never popular politics for any president or political party.

So what is it that many American politicians, corporations and employers fear when they look at Scandinavian economies? It seems to me that the largest fear is that government regulation of business will become too extensive and that taxes will increase in order to fund social welfare programs. The rich may fear being taxed excessively in order to ‘distribute the wealth’ more fairly. It’s hard for me to imagine why a society would fear a more equal distribution of wealth and universal healthcare. It has something to do with the American idea that we should be independent and survivors—pull ourselves up by our own bootstraps and don’t rely on anyone else for help. Which is all well and good if it were true. The truth is somewhere in between complete self-reliance and complete dependence on the government. Most Americans I know work hard, save money to buy homes and cars, and save money toward retirement. But the inequities start when you realize that a comprehensive healthcare program really only exists for those working for private companies that pay for these programs for their employees. If you are self-employed, you must pay for your own health insurance as far as I understand from those Americans I know who are self-employed. So problems start there if self-employed people fall ill or cannot go to work for a few days. If they cannot afford insurance, they must pay through the nose for medical care. Having universal low-cost healthcare for all is a worthy goal and has nothing to do with a socialist mentality. The costs of medical care are only going to increase as people live longer and as the medical research profession continues to find cures for different illnesses and diseases. The cures cost money—to develop, to test, and to promote. Nothing is ever free in this life. We pay for everything in one form or another. The questions just become—how much are we willing to pay for the goods and benefits that we enjoy, and is it fair that whole segments of the population that don’t work for others cannot enjoy these benefits?

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