The Underbelly of the Nordic Model

Well, I don’t know. Which is worse: cheating on taxes while saying it’s bad to cheat on taxes, or cheating on taxes while claiming to be engaged in a principled struggle against Coercive Taxation by Big Government? It’s a tough call, really…

“So 4 per cent of total social welfare payments seem to go to frauds. Isn’t this shockingly … low?????”

Agreed, it is very low (maybe). So what we then need to work out is what is it about Swedish society that makes their high level of income redistribution work when such levels don’t seem to work in other countries?

That statement is subject to a set of qualifiers of course. Is 4% fraud actually low by international standards? Is the way in which such payments are made (leaving aside the fact of them and concentrating upon the method) conducive to less fraud? If, indeed, less fraud there is? What is the level of welfare fraud across countries?

I sure as hell don’t know the answers to those questions but Henry, as you’re stating that those are “low”, how about it?

Points will be lost if you insist that as a racially (tribally, to taste) homogenous society Sweden can happily deal with more such than more fractured societies. I’m sure I’ve seen that explanation for the success of social democracy in the Nordic states already debunked here on CT.

Figures I found randomly on the net (so not reliable in any way) suggest the UK welfare budget is around £150 billion, and estimates of welfare cheats found in the same brief survey go from around £2-5 billion, which suggests 1.75-3%. Of course this is certainly enough to support unending articles in the Daily Mail, but as you say doesn’t seem particularly bad for a large scale government program.

Meanwhile, here in the good ol’ up-by-the-bootstraps US of A, where there’s nary an effete Eurabian or do-gooder socialist to be found, “An estimated 30 percent to 40 percent of taxpayers cheat on their returns, defrauding the government of some $290 billion a year, according to an Internal Revenue Service analysis of 2001 returns.” (Source)

Would that be the soft underbelly of the US Model, or the piece of skin at the nape of the neck?

This has been making the rounds in Swedish media (with the government properly embarrassed by revelations of tax dodging among political functionaries – and then we haven’t even mentioned the PM’s deputy minister who was spotted in an intense encounter with a TV journalist at a Stockholm bar while she was on duty as coordinator of the disaster organisation) lately.

One point could be that the Nordics (rightly) expect their governments to be non-corrupt. Another that Sweden has a relatively high rate of people on sickness benefits compared with Denmark or Norway.

Payments of benefits for the care of a sick child (simply known as VAB-days) is another troublespot in Sweden.

OAP payments are just as fiddleable as the rest, identity fraud being one of the keys for that particular one – there are even organised gangs that bus around old people in the UK to pick up pensions at multiple different locations in an area using different fake identities.

So what exactly is the “Nordic Model”?

Blonde?
Blue-eyed?
Zoftig? … oops … wrong ethnic model there

How very surprising that people cheat on their taxes or about taking welfare payments. NOT!

As someone who lived in Sweden in the late Seventies, and thus remembers the morality prevalent then, I am actually shocked far more by the behaviour of politicians caught cheating on their taxes and surviving than by the welfare fraud.

The trouble with both sickness benefits and “staying home to look after the children” is that the government to some extent encourages both frauds, since the alternative to sickness is unemployment, which looks worse in the statistics, while looking after your children, again, looks good in the statistics. But it is well-known that men in the north of the country only take time off to look after their children in the elk-hunting season. When I lived there, the whole child-care system ran on tax fraud, since there were only, legal, subsidised places for about two thirds of the children who needed them, and everyone else had to pay cash more or less officially. So there has been a generation brought up to regard tax fraud by the self-employed small businessman as something like speeding: not really an immoral crime at all.

“Perhaps I needed to spell that out.”
Clearly.

Uncle Kvetch: not sure what fraud in the paying out of Govt money has to do with fraud in the collection of it.

The Swedes themselves seem to make a distinction.
http://www.skatteverket.se/download/18.3dfca4f410f4fc63c86800017740/10407.pdf
“Swedes have relaxed attitudes towards
black work. A majority who has bought
black work is happy for having done a
good business and only one of four would
have a bad conscience [10.2]. Many of
those who have bought black regard black
work as necessary to keep Sweden going
[10.3].”

“The
NR estimate of black income from work is
based on the discrepancy between reported
incomes and reported expenditures in the
household sector. This discrepancy has for
year 2002 been calculated to SEK 115-120
billion, which corresponds to some 10 percent
of total income from work.”

That’s small by, say, Italian standards, certainly. But more or less than the US? I don’t know, you tell me.
BTW, that number doesn’t include excise tax evasion, VAT fraud etc.

Err, no. It was Kvetch who first compared the Swedish welfare system fraud to the US tax payment one. I compared the US tax payment one to the Swedish tax payment one.

The 4% figure isn’t low compared to some other actual figure, but compared to the rhetoric about rampant fraud and abuse coming from free-market ideologues. It seems to be enough to bother the Swedes, or some of them at least, and I don’t think that anyone is saying that they shouldn’t be bothered.

The following is true more or less everywhere in the US. Many U.S. small businessmen take pride in their tax evasion, on the grounds that if free riding is possible, they want to be first in line.

So there has been a generation brought up to regard tax fraud by the self-employed small businessman as something like speeding: not really an immoral crime at all.

Uncle Kvetch: not sure what fraud in the paying out of Govt money has to do with fraud in the collection of it.

I was addressing what I thought was the clear subtext of the FT article, a staple of the Anglo-American business press: A generous welfare state leaves a nation “rife” with “cheats.” (As John Emerson alludes to in #24.) Conversely, the lack of said welfare state would supposedly result in a more “responsible” populace.

But then again, two minutes after I posted my first comment, it occurred to me that someone would be along very shortly to point out that cheating the welfare state is stealing, whereas cheating on your taxes is merely taking back what’s rightfully yours. Not an argument I have any desire to engage, so I probably shouldn’t have bothered.

Matt, the 350 billions figure is the budget of the welfare..

No idea about what triggered that italics. :)

So we have to ask ourselves—is it a worse problem if some people get benefits that they aren’t entitled to, or if the system doesn’t reach the people it’s trying to help, and humiliates the people it does reach?

The only people that have to ask this currently are the Swedes themselves. My guess is most Swedes see the cheating of the system as a regrettable but unavoidable aspect, one not worrying too much over and perhaps, if they’d like some quality time off to Elk Hunt, something they’d like the possibility to potentially exploit in the future. But seeing as how social democratic models, particularly the scandinavian models are based on a communitarian honesty and sense of public commitment (tax cheats are looked down on) The possibility that the continued cheating and exploiting of the system (especially if it increases) leads to Swedes judging that the integrity of it’s welfare institutions, seeing as how the country is so dependent on them, supercedes the possibility that someone might have to suffer the indignity in order to recieve their generous state goodies.

Not exactly the same issue, but similar:

Tyler Cowen (in Discover Your Inner Economist) reports that on a given work day around 25% of Norway’s workers are absent from work, either “sick,” “undergoing rehabilitation,” or on long-term disability. The percentage is especially high among government workers.

Now 25% strikes me as a very high number. Any explanations? (Cowen’s suggestion is that the norms people accept and abide by vary from culture to culture: some may think it unacceptable to cheat on taxes but OK to take days off work, while others do the opposite. He takes Norwegians, and Scandinavians generally, to fall in the first group.)

The UK’s example suggests that the rate of fraud and error is to some extent a feature of the benefits system, not of the culture.

According to the UK Department of Work and Pensions, the rate of fraud and error in Job Seeker’s Allowance and Income Support was around 10% in 1997–1998, but fell to around 5% in 2005–2006 as a result of fairly aggressive target setting by the government.

No doubt this change has negative consequences for benefit recipients, for example more difficulty claiming benefits, and increased bureaucratic intrusion. And I’m pretty sure some of the fraud has merely been pushed around the system into other areas like Housing Benefit (where fraud and error have increased slightly over the same period) and Disability Living Allowance. But I don’t think British attitudes to benefit fraud have changed much over the last ten years.

Danes have slightly more fun, right?

In a recent study of the US which I can’t recover at the moment, they separated out one very peculiar demographic: about 3 million poor whites in the Upper Midwest (which tends to be Scandinavian or German). They were healthier than any American group (including prosperous whites and poor whites elsewhere) except Asian Americans. I tend to think it’s because of the Aryan tendency not to have much fun.

Not entirely off topic, but the movie “Together” offers a pretty great view of Sweden in the 70’s, and makes the Nordic model seem pretty appealing and flawed by the end.

@ 31 “Tim is part of the right-wing propaganda industry”

I think that is a rather harsh assessment of Mr Worstall. He certainly is from the right wing side of the economic debate, but I’ve never seen him deliberately dissemble or distort to put his views forward. Or at least, not to the point of labelling him part of a “propoganda industry”. Call him that, and you have to call CT part of the left-wing propoganda industry.

I have to agree with drr; the reason for the outrage in Sweden is at least partly due to the honesty required to make the model work. Yes you are entitled to benefits if you require them but you are also expected to do your bit for the common god, i.e. work if you can and pay your taxes. In the last twenty or so years there has however – in my experience – been a rather marked change in attitude among many, especially in the lager cities.
The other reason, as I see it, for the outrage is the political agenda of large parts of Swedish mainstream media. They have, at least since the early nineties, been pushing neocon views and the dismantling of the welfare state has been high on the agenda. Most of the things that made Sweden in the seventies one of the best places in the world to live are gone, and my prediction would be that you will see the Scandinavian countries slowly adapt to standard eurolevels of corruption and greed as time goes on.

“Citizen’s basic income.”

What’s wrong with that?

My hobby horse would be asking for a minimum marginal wage, a less drastic but harder to implement change.

Ajay, that he believes what he says and is fairly honest about it would lead me to think that the way to address him would be with honesty and try to persuade him of your view with bona fides, rather than dismiss him as a right wing propogandist. You’re never going to bring him back from the dark side with that attitude.

However, the fact that I’ve worked for TCS, currently do so for the Adam Smith Institute (as a freelance writer), occasionally for The Times and The Daily Telegraph in the UK: yes, for some that makes me a fully paid up member of the right-wing propaganda industry.

Ya think?