A Scandinavian economist once said to Milton Friedman: ‘In Scandinavia, we have no poverty.’ Milton Friedman replied: ‘That’s interesting, because in America, among Scandinavians, we have no poverty, either.’ — Quoted by Kotkin (2009)
The descendants of Scandinavian migrants on the other side of the Atlantic live in a very different policy environment compared with the residents of the Scandinavian countries. The former live in an environment with less welfare, lower taxes and (in general) freer markets. Interestingly, the social and economic success of the descendants of Scandinavian migrants in the US is on a par with or even better than their cousins in Scandinavia.
Nordic societies have for hundreds of years benefited from sound institutions, a strong Lutheran work ethic and high levels of trust and civic participation. These cultural phenomena do not disappear when Nordic people cross the Atlantic. on the contrary, they appear to bloom fully. Close to 12 million Americans have Scandinavian origins, that is to say are individuals whose ancestors largely or in some cases entirely migrated from Scandinavia and who today identify as having Scandinavian origins. This group is characterised by favourable social and economic outcomes. According to the 2010 US Census, the median household income in the United States is $51,914. This can be compared with a median household income of $61,920 for Danish Americans, $59,379 for Finnish-Americans,
$60,935 for Norwegian Americans and $61,549 for Swedish Americans. There is also a group identifying themselves simply as ‘Scandinavian Americans’ in the US Census. The median household income for this group is even higher at $66,219 (US Census database).
It is notable that Norwegian Americans have household incomes 17 per cent higher than the US average. If we assume that their contribution to GDP is also 17 per cent higher, the GDP per capita of Norwegian Americans would amount to $55,396. This is only slightly less than the $57,945 GDP per capita of oil-rich Norway. Corresponding calculations show that Danish Americans have a contribution to GDP per capita 37 per cent higher than Danes still living in Denmark; Swedish Americans contribute 39 per cent more to GDP per capita than Swedes living in Sweden; and Finnish Americans contribute 47 per cent more than Finns living in Finland. We cannot draw definitive conclusions from these figures, since household composition may differ, but there is prima facie evidence that Scandinavians who move to the US are significantly better off than those who stay at home.
Those Scandinavians who went to the US, predominantly in the nineteenth century, were not elite groups. A recent study, for example, compared Norwegians who migrated to the US with those who stayed in Norway. The study shows that the Norwegians who moved from urban areas tended to face poorer economic conditions than those who stayed behind (Abramitzky et al. 2012).
The success of Nordic immigrants in the US shows the pervasiveness of norms and low-level social institutions. The comparison with Scandinavian Americans suggests that the pursuit to create ‘social good’ through welfare state policies has hindered economic prosperity. Economists Notten and Neubourg have calculated the poverty rates in European countries and the US using equivalent measures. They have shown that the absolute poverty rates in Denmark (6.7 per cent) and Sweden (9.3 per cent) are indeed lower than the US level (11 per cent). For Finland, however, the rate (15 per cent) is somewhat higher than in the US (Notten and de Neubourg 2011). At the same time, Nordic nations have, even before the rise of large welfare states, long been characterised by low levels of poverty. Nordic descendants in the US today have half the poverty rate of average Americans – a consistent finding for decades. In other words, Nordic Americans have lower poverty rates than Nordic citizens (Sanandaji 2012b).
Thus, what makes Nordics uniquely successful is not the welfare states, as is commonly assumed. Rather than being the cause of these nations’ social strengths, the high-tax welfare state instead seems to have been made possible by the hard-won stock of social capital. It was well before the welfare state, when hard work paid off, that a culture with an emphasis on a work ethic and strong trust and social cohesion developed. It was these informal institutions that paved the way for the introduction of large welfare states which were buttressed by strong social norms. However, in the long run, the large welfare states eroded incentives, and ultimately the social norms that bound Scandinavian societies together.