June 09, 2015

The NDP and the "Nordic model:" Could Alberta have been just the beginning?

Brett FawcettRebel Blogger

As of this writing, the polls ominously inform us that, in the ever-tightening race for control of the federal government, the NDP has managed to squeeze their way into the lead - itself a stark testimony to the fading firework quality of Justin Trudeau’s public image.  

This, despite their disastrous records in British Columbia, Saskatchewan, Manitoba, Ontario, and Nova Scotia.  This, in the midst of dipping oil prices.  This, with Saskatchewan’s post-NDP economy as a blazing example of the kind of prosperity that the weight of the bloated regulatory behemoth birthed by NDP policies can suppress. 

None of these testimonies, apparently, is sufficient evidence to convict the NDP in the court of public opinion.  Canadians are, perhaps, attracted by their economic proposals: They will not raise personal income taxes and they will lower small business taxes, but they will raise corporate taxes to pre-Tory levels, that is to say, levels comparable to the corporate taxes in the Nordic countries.  After all, those countries are quite advanced and doing perfectly well, aren’t they? Twentysomething corporate taxes aren’t slowing them down any, now, are they?

In light of that, the prosecution offers what may be a surprising witness for the consideration of the court.  Exhibit B, your honour: The economy of the Nordic nations. 

Yes, those Edenic lands that socialists cite to prove what paradises would ensue if only we imposed more economic controls; those are the very countries I want to bring up to argue against voting for the NDP.  And, for the purposes of this article, we’re going to assume they’re just as great as left-wingers would like us to believe they are; for the purposes of this article, we won’t consider things like illegitimacy or suicide rates. 

Moreover, we won’t consider any external factors, such as the fact that those nations are much smaller than Canada and have different infrastructure costs; we won’t think about how they, in many cases, are much more resource-rich than Canada (keep in mind that Norway’s oil is already basically ready to use while it’s still in the ground, unlike the Albertan oil sands, when you hear someone sing the praises of the way they collect royalties;) we won’t consider cultural factors that distinguish them from North America, or raise the sometimes uncomfortable question of how they handle immigration.  No, for the sake of argument, we’re going to assume their prosperity has to do exclusively with their economic policies, and go from there.

Moreover, as a Catholic, I’m happy to introduce a moral component to this discussion. Catholic social teaching has a principle called the preferential option for the poor.  It means that a society will be judged based on how it treats its poorest members; see the parable of the sheep and the goats in Matthew 25.  This principle of social justice is probably what Justin Trudeau was clumsily trying to describe when he said that fairness does not mean benefitting every single Canadian family, but looking after the poorest among us. 

Pity he doesn’t extend his concern to the very poorest and weakest among us, the unborn; but, alas, that’s yet another topic to set aside for now.  The point is, we will consider the Nordic countries that, according to the 2007 United Nations Human Poverty Index, are doing the best at taking care of their poorest members.

That list put Canada at #8 in the world.  Not bad.  But it could be better.  #s 1-7: Sweden, Norway, the Netherlands, Finland, Denmark, Germany, and Switzerland.  It’s true that these states have strong welfare programs, and slightly higher corporate tax rates than we do.  While our highest corporate tax rate is 15%, Sweden’s is 22%, Norway’s is 27%, the Netherlands’ is 25%, Finland’s is 20%, Denmark’s is 24.5%, Germany’s is 15.8% (barely higher than ours, notice), and Switzerland - well, Switzerland is a bit complicated, because it’s divided into 26 cantons (member states) and they’re mostly in charge of taxation, but the top federal corporate tax rate is only 8.5%, but it can go up to a staggering 40% depending on the canton. 

Each of them is, admittedly, at least a little higher than Canada, with the kind-of exception of Switzerland.  And this is, of course, to leave out the question of capital-added taxes and inheritance taxes.  But there are a couple of other things to take into account before we jump at the chance to hike our corporate tax rate up to Nordic levels.

The Nordic model of the economy has often been characterized as a kind of third-way economic model between capitalism and socialism.  It advocates a strong welfare system, yes, but it also allows the engine of capitalism to operate relatively unhindered. 

There is a way in which this makes good sense: Let the economy grow and strengthen, and then once individuals have gotten wealthy from that, tax them heavily to pay for their social safety nets.  As Winston Churchill put it, "Some of them regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Only a handful see it for what it really is - the strong and willing horse that pulls the whole cart along." 

One of the mantras you always hear in defense of higher corporate taxes is that “they can afford it”.  Assuming that this is true, this seems like an argument for higher personal income taxes, not for higher corporate taxes.  It’s the business sector that creates wealth in general, and goods and services which benefit the community; logic would seem to dictate that this be left alone to pull the whole carriage forward. 

And, indeed, the Nordic countries do have much higher personal income taxes: Sweden tops out at 57%, Norway at 47.8%, the Netherlands at 52%, Finland at 31.8%, Denmark at 56%, Germany at 47.5%, and Switzerland - federally at 11.5%, but on the cantonal level, up to 40%.  Yet Canada tops out at 29%, and the NDP says they will not raise it.  Why not? Because, we are told, there are not enough high-income earners for a higher personal income tax to make a significant difference in government revenue.

Okay, people, this is really important: Personal income tax rates are way higher in these Nordic countries than corporate tax rates are.  If the NDP wants to embark on a comparable welfare project but doesn’t want to raise personal income tax, the math is going to catch up to them, and it won’t be pretty.  Their only options will be to either raise personal income tax - and won’t that go over well? - or to raise corporate taxes even higher. 

And this is to miss the point that the Nordic countries have other economic freedoms which even Canada under the Harper government lacks.  According to the Index of Economic Freedom (compiled by the Heritage Foundation and the Wall Street Journal), Sweden is freer than Canada in regards to investment and monetary freedom; Norway is freer in regards to business, trade, and monetary freedom; the Netherlands in regard to monetary and investment freedom; Finland is freer than Canada as regards business, monetary, and investment freedom; Denmark is freer as regards business, trade, monetary, investment, and financial freedom; and Switzerland is freer as regards trade, fiscal, monetary, and investment freedom (as well as regards government spending). 

All of these nations are very open to foreign investment.  The NDP, frankly, is not so encouraging when it comes to the prospect of foreign investment; their call for a review of the Investment Canada Act is not likely to attract the foreign investment that so fuels the Nordic economies. 

It’s also worth mentioning that almost none of the Nordic countries have a mandated minimum wage; wages are established by collective bargaining contracts.  Indeed, in a recent referendum, Switzerland rejected a minimum wage law with a landslide 76.3% of voters.  This is a far cry from the NDP’s desire to raise the minimum wage by 50% when Canada already has the sixth highest minimum wage in the world. 

Once again, the operative principle here is that these countries allow a great measure of economic freedom such that individuals can become wealthy and be taxed heavily.  The NDP has only really picked up on one half of that equation, and when the revenues come up too short to pay for their various programs, we don’t have much to encourage us that they will err on the side of greater investment freedom rather than steeper personal income taxes.

One final point to make in an already bloated consideration: The parties that pioneered these “social business” economies were often Christian Democrats, explicitly inspired by the social vision of the Popes, who insisted that societies needed to care for the poor but also respect private property rights. These business-driven but socially conscious economic models were grounded in a traditional Christian sense of social morality. 

This was once the case with the NDP, in the days of its rural infancy; now it is primarily a secular party trying to peddle one-half of an economic model from a bunch of countries which, for the most part, still have national churches.  This is like trying to raise a plant without soil.  The best you can really hope for is a cactus in an economic desert.


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commented 2015-06-11 09:04:01 -0400
During the 1980’s, Alberta was gutted by Trudeau’s National Energy Policy that forced Alberta to sell it’s oil and gas to the Rest of Canada for less than world prices. Alberta became an economic wasteland.

Meanwhile, during the 1980’s, Norway boomed. Their version of a Heritage Trust Fund took off. Why? Norway was not required to sell it’s oil to the Rest of Europe for less than world prices.

Alberta was promised a floor price of $18/bbl in order to avoid civil unrest. Oil later fell to $10/bbl in the 1999’s. With very modest prime rate interest, we are owed north of $100B. Does the “Nordic Model” include a cheque for Alberta? It should.
commented 2015-06-11 08:57:34 -0400
We are becoming (or have become?) a nation of takers and moral busybodies. It is the result of decades of social engineering by “progressive” governments.
commented 2015-06-10 14:24:39 -0400
I’m voting for PM Harper all the way! He is the only real leader in the group, and has done an amazing job for Canadians, and also on the world stage. Tom thinks Alberta actually wanted the NDP, and nothing could be further from the truth. Tom is the reason that Notely is not going to release a budget until after the federal election, because they know what will happen to Tom’s chances. If she goes to " full commie" on Albertans, she won’t be sitting as the Premier again.
commented 2015-06-09 14:03:00 -0400
I hate being right, but we may be seeing a repeat of Alberta on that national scale. As the NDP gains momentum many just might abandon the CPC and Liberal ship for the NDP this election.