Paradoxes of the Nordic Model II

(Continued from Part I)

I had to get a temporary account in a Danish bank, anyway, so I decided to wait with paying the bill until I had it. Two weeks later I had the requisites and I went back to the nearest Danske Bank (DB) branch to get an account. I filled the form and was assured that I’ll get everything within a week. To cut a long story short, it took three more visits to the branch and two more weeks to finally get the account. I also learned that I would have to pay the bill myself electronically.

The next installment in my saga involved two days and phoning three different people trying to figure out how to fill the electronic form. In the process I had to download a Java application that would ensure secure transactions. So the next morning after going through all of that I thought I was finally ready to pay the bill. But as I was logging on, I got a message telling me that I had to install the new version of Java, as the previous one was not secure. OK. But as soon as I installed the next version, the DB Java applet stopped working…

I could go on, but I will just say that by the time I solved all the problems, I spent at least 15 hours trying to pay the damn bill (and that’s a conservative estimate). And the whole process extended over 6 weeks.

What can we conclude from this empirical evidence? First, it was not just an isolated problem. The system failed me on at least three separate occasions. As James Bond liked to say, once is a happenstance, two a coincidence, but three is a pattern.

Second, it wasn’t just me not knowing the system. At several steps problems arose as a result of human error (for example, the bank employee used the wrong address, and in addition miskeyed my e-mail).

Third, I don’t want to demonize the DB. I have now dealt with three separate organizations in Denmark, and I had similar experience with all of them. So it’s a pattern.

It is my considered and empirically backed opinion that Danish organizations work less efficiently than the American ones (even taking into account that today things work in America noticeably worse than 20-30 years ago).  One interesting cultural difference I discovered was that the Danes are quite good at telling you firmly and politely that doing something is not part of their competence (even if after additional dialogue we find out that it actually is…)

Finally, and most importantly, even if the banking system worked perfectly, it would achieve its high labor productivity by off-loading 90% of the work on the customer. I actually don’t mind – I’d rather do my finances electronically than by mailing checks, or (worse) through bank tellers. But that’s a strange way of accounting for productivity. And electronic banking works so poorly here or in the US (for anything non-standard) that the total amount of time spent by both bank employees and customers probably increased as a result of this transition.

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And now we are back to the paradox of the Nordic Model. Although the Nordics work fewer hours and they are not noticeably more productive than, for example, Americans (if at all), they enjoy a very high standard of living. The general impression is that people here are better off than in the States. You simply don’t see poor people in Denmark. And various objective measures of well-being put the Nordic countries at the very top of the list in international comparisons.

So what are the possible explanations? I don’t know, and I’d welcome ideas from the readers of this blog. Here are some possibilities that come to mind.

1. The most likely possibility is that this is a result of income compression, which lops of both ends of the distribution: the rich and the poor. The rich are often invisible to the naked eye (sequestered in gated communities, or at exclusive resorts), but the poor are highly visible. So when both tails are cut off, the visible result is a prosperous society.

2. A related possibility is that Danish wages kept up with their productivity (such as it is). In the US, as I wrote in a series of blogs, this was not the case. Just to illustrate the magnitude of this effect. Today (in 2012) the average hourly compensation of production workers (according to the data of Lawrence Officer and Samuel Williamson) is  $27.15 (in current $$). Assuming 2,000 working hours per year this translates into a yearly salary of $54,300. Now, if beginning in 1960 the salaries of American workers increased in step with the GDP per capita, the average now would be not $54,300 but $81,000. Now that is quite a difference.

3. The Danish society is not a consumer society. They are not into conspicuous consumption. Women dress simply and inexpensively (here I must rely on the observations of my wife: I wouldn’t recognize high fashion even if it came close and bit me). As a rule, they don’t wear much jewelry. The majority rides bikes. Those who drive, drive small cars. I haven’t seen a single Hummer since coming here!

(Photograph by the author)

4. Denmark is a high trust, highly cooperative society. There is very low crime. Most parked bicycles are not even locked. Bank employees may not work very efficiently, but nobody tried to swindle me. In theoretical terms, what it means is that when there are very few defectors, the amount of common good produced overall is maximized. So everybody is well of, even though they don’t work hard – but they don’t free-ride, either. The Danes are very disciplined and follow the rules. All you need to confirm this observation is to see a group of them waiting patiently for a green light to cross the street, even though there is no traffic.

5. A related factor is that huge conglomerates, like Maersk, chose not to move their headquarters to Luxemburg to minimize their taxes. The head office is apparently still in Copenhagen. Which means that they pay their taxes in Denmark, thus contributing to the overall common good.

So all these observations seem to point to a hypothesis. Back in 1930 John Maynard Keynes famously made the prediction that within a century (and that’s now only 17 years away) a 15-hour week will be all that is needed to sustain our civilization. This prediction went spectacularly wrong, it is now clear. Except, perhaps, in the Nordic countries?

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Disclaimer: This blog should not be construed as a critique of the Danish people and Denmark. That would be quite ungrateful, because I am here as a result of an invitation by my Danish colleagues. Furthermore, my wife and I are greatly enjoying our sojourn here. It’s also a great opportunity to observe another society from the inside. These remarks should be taken in the spirit of scientific inquiry.