Many have long seen the Scandinavian countries as living proof that high taxes and generous welfare systems combine to create the optimal economic and political system. The welfare systems in Denmark, Finland, Norway and Sweden do offer various services to their citizens, not least the less well off. But these systems come at a cost.
Scandinavian countries have never been an exception to the normal economic rules. These societies were successful when their states were smaller during the first half of the 20th century. Much of the social and economic progress for which the Nordics are admired happened when the countries had small or moderately sized welfare states. When the public sectors expanded in size, progress stalled.
The Scandinavian countries became successful again after returning – to an extent – to their free-market roots. Despite some reforms, even today high taxes, generous welfare benefits and rigid labour market regulations hinder development – just as these features do in many other developed countries.
It is true that Scandinavian countries compensate for high taxes and labour market rigidities by following liberal policies in other areas, such as business freedom and openness to trade. Again, as in other countries, this has helped ensure moderate levels of economic growth.