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The Swedish Example

Your January 10 article ["An Economy Bullish on Deception"] was on target on many issues.  However, there are a couple of points you might want to mention next time that would enhance the appeal of the logic underlying your progressive intentions.  This is true of many progressive economic commentators, because the conservative business press and right wing blogs are able to dismiss the humane substance of your message as leftist, fringe economic flim-flam otherwise.
 
First, a lot of the shareholders are ordinary Americans through their pension plans, employee stock option plans, and seniors who have saved a small next egg and are counting on a return higher than fixed income bonds to tide them through their sunset years without burdening their kids.  It is not the small shareholders who are at fault in the obscene wealth disparities between working middle class Americans and the upper crust of senior management and large shareholders.  They are just innocent bystanders, helpless to organize and dislodge corrupt and incompetent boards of directors appointed by management to be the shareholders "watch- dogs".  They are more like management lap-dogs.  It is like Enron appointing Al Capone (which is approximately what they did) to be the shareholders' watch- dog.  Furthermore, a lot of companies are ripping off  worker- share holders by reneging on their stock ownership retirement plans, or ripping up retirement benefit guarantees and gobbling up workers savings over 20, or 30 years.  Thus it is important to distinguish between the small shareholder and the large predatory ones.  Your ideas will resonate well with both the small shareholders and workers, both of whom are in the same boat since the Reagan neo-con revolution in 1980.
 
Second, very little, if any, substantial knowledge about the Scandinavian miracle is being provided to inform the ordinary American.  First we must face the fact that the ordinary American is a rather ill-read and ill- informed person, through no fault of his own, but of the terrible public school system he or she went through.  In this setting, the large moneyed interests find it easy to manipulate the perpetual paranoia of the low income masses through the media and entertainment outlets they control to brand the Scandinavian countries as totalitarian, socialist dictatorships, on the verge of bankruptcy and financial ruin and for the masses to accept this fiction.  I am a Canadian who was an Assistant  Professor at Stanford Business School at the start of the Reagan regime, and then a Professor at he University of Minnesota Business School during the Clinton period as well as the last part of Reagan - Bush 1.  In both periods, the American economy was touted to be the best in the world and this was taken at face value by large masses of the American public as well as "academics" who voted for Reagan (the "Reagan Democrats").  Business schools often teach mostly ideology rather than critical thinking, logical analysis and honest intellectual discourse.  Precisely for that reason the hordes of MBA's and Business Undergraduates churned out are mostly know-nothing, small minded, drones of the type found in a Dilbert cartoon, believing (with unshakable evangelical conviction) that Scandinavia (and by extension, Minnesota) is a "socialist" hell.
 
Here is some what is not taught about the social democracies of Scandinavia that you can convey to your readers:
 
1.  Swedish companies ( according to the McKinsey Corporation, one of the largest corporate consultants and no friend of the worker) have enjoyed a real rate of return of 7.2%, almost a full 1% higher than American companies over the last 100 years.
 
2.  Given the very high tax rates in Sweden for both businesses and workers in the same period, about 30-50% higher than in the US on average, with "cradle to grave benefits" and 5-week paid vacations for workers, and the fact that the 10 million people over there produce a GDP of about $400 billion, which amounts to $42,000 per capita compared to $35,000 in the US, and that $42,000 is more representative of the real distribution in the population given their low disparities compared to the US, the right wing economists at the Wall Street Journal and the Economist are reduced to frothing at the mouth.  Then they resort mad post hoc rationalizations of "regimented" societies to outright lies that the Sweden is on the brink of collapse.  This chicken little routine has been going on for at least the last 30 years.
 
3.  The reason is that neo-cons can't explain the Swedish phenomenon except by admitting that the profit margins of Swedish goods must be much higher than comparable American goods to sustain a 7.2 % return on capital in the face of high taxes.  to admit this would wipe out all their Darwinian capitalist nostrums.  Why?  Because once one admits this, then the logical process of reasoning inexorably leads to the conclusion that the Swedish social democracy is a far more effective and efficient, and humane engine of growth and prosperity than the Darwinian capitalist model the US is following.  Here is the rest of the logic.  To sustain a higher profit margin on their goods in competition with American and other goods that may substitute for them in the international arena, Swedish goods must contain some inputs that are prized by consumers in Europe and America that physically similar goods from the US do not have.  My research shows that it is knowledge components - - design as in Ikea furniture, to meticulous craftsmanship as in a Volvo, for example - - that provides the incremental profit margin.
 
4.  Why can't America provide exactly the same knowledge value-added to its products?  Because the US has a skills shortage as a result of lousy public school systems and technical colleges, where science, mathematics and technology and language skills are pathetically taught with broken down infrastructure or not taught at all, because of 30 years of education infrastructure cutbacks by successive Republican, neo-con governments.  The Clinton administration was a bit neo con too.  In contrast, Sweden has superb public schools and colleges, maintained and funded by the taxes people pay, so that Swedish companies have a steady supply of a highly skilled and intelligent work force with an up to date knowledge base.  Indeed, I went to Minnesota instead of California, braving the cold, bitter winters, because like their Scandinavian brothers, education is motherhood and apple- pie there (Minnesota has a higher tax rate).  My two daughters acquired a great early childhood education in public schools in Minneapolis.  At the Business School, I marvelled at Minnesota's ability to be the America's a dominant hub for small high-tech start-ups.  It was also a hub for large computer and medical high tech firms.  As in Sweden, it had many of the most profitable and innovative, socially conscious companies in the US headquartered there.  They regularly grumbled a bit about the high taxes, but did not pack up their bags and go to a no tax state such as Mississippi.  They stayed put.  Why?  Where else would Swedish (Minnesotan) companies find the same level of skilled work force?  Not in low tax Poland and Mississippi! 
 
5.  Thus, every year the Swedes produce an extra $7,000 knowledge- benefit GDP per capita (42-35), that multiplied by a 10 million Swedes amounts to $70 billion.  It is doubtful that they invest more than $5 billion or $500 per capita per year more than the US on education.  Add another $25 billion or so in health care, working conditions, beautiful cities etc. and you have a return on investement of $70b/$30b = about 200% per year.  That alows the Swedes to set aside 0.7% of their GDP for poverty relief globally.
 
There you have it.  Try this explanation in one of your articles and see the neo-cons froth at their mouth.  More importantly, it will educate the soccer moms that social democracy is fantastically good for their kids than the neo- con hell the Bushites have created.  by the way, Clinton was slowly moving towards a social democracy and if Al Gore had not blown the election by his wooden performance and his gutlessness to rally the masses to get back an election stolen from him, America and the world would have been a much better place.
 
 
Amershi is a finance professor and director of the AIC Institute for Strategic Business Studies,
McMaster University, Ontario. Reach him at amershi@mcmaster.ca               
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