Bad Credit: S&P Downgrades Finland Debt Rating.

On CNBC, we read:

Standard & Poor’s downgraded Finland’s sovereign debt rating to AA+ from AAA on Friday, citing economic weak development.

It also revised the country’s outlook to “stable” from “negative.”

The ratings agency said Finland could experience “protracted stagnation” due to its aging population, shrinking workforce and weakening external demand.

In addition, S&P cited the country’s dwindling market share in the global IT industry and its relatively rigid labor market as contributing factors.

Finland, alongside Norway, Denmark, Sweden and Iceland, is often touted by the Left-wing as proof that a nation can have a huge government machine and massive welfare system without being a communist-style hellhole. Indeed, I think Newsweek rated Finland as the “Best Country to Live In” in 2010, an honor that I think is frequently attributed to the Nordic nations. There is a lot of truth to this: generally speaking, the standard of living and quality of life is often rated highly amongst Nordic countries.

I have written about the Nordic countries and their special brand of socialism before. The key thing that many left-wing individuals either don’t know, or ignore, is that the Nordic nations are highly capitalistic in many ways. In certain respects, they have even more economic freedom than we have in the USA. Examine the chart below, based on economic freedom data compiled by the Heritage Foundation, to see what I mean:

Numbers in red indicate where Nordic nations outrank the USA in terms of freedom.

Numbers in red indicate where Nordic nations outrank the USA in terms of freedom.

We can see that for the most part, the Nordic nations outrank the USA in terms of economic freedom in nearly every category. From what I’ve read, I know that Nordic businesses and markets generally operate with far less regulation, restrictions, and red-tape than we have in the USA. These are some folks who understand capitalism, apart from the labor markets at least. The labor markets in the Nordic nations are bedeviled with a huge number of laws and regulations, such as super-high Minimum Wage laws and extensive mandated benefits. One of the major results of this has been to disemploy large numbers of workers, most particularly immigrants, from substantially gainful employment. This is why the normally idyllic-seeming Sweden has been rocked by major riots within the past few years: young unemployed Swedes and immigrants are sick of being locked out of the labor market by the extensive labor regulation mandated by the State.

The Nordic nations can support welfare states that are restricted to rotting slowly because of Capitalism. Notice I said “restricted to rotting slowly”. There is no “supporting” a welfare state in an indefinite sense. The question is to be asked is, “How long can we run our welfare state before we run out of money?” Nations like Finland have been able to achieve a good level of prosperity in the modern day through an large adherence to free-market principles, and by mostly staying out of war. This has enabled them to run a more robust socialist welfare system than most others nations. But it doesn’t mean they’re supporting the system in perpetuity. They’re just able to maintain a slow rotting pace. Finland’s recent downgrade is evidence of the slow rot. If Finland undergoes some new economic renaissance, either through economic liberalization or other means, then they’ll be able to put off the day of reckoning; but where socialist systems are concerned, the question is not “Will we have a day of reckoning?”, but rather “When will our day of reckoning arrive, and how can we buy more time?”

An interesting example to consider is the small Arabian nation of Qatar. Qatar boasts large oil reserves, and some of the largest natural gas reserves in the world. These resources are mostly mined by state-run companies, with the profits going to the Qatari government. This has made the Qatari government quite wealthy. In accordance with this, Qatar also boasts one of the most extensive welfare systems in the world. For such a small country, they’re rolling in the dough and can afford it. But consider this: virtually all of Qatar’s affluence comes from oil and gas money. If oil and gas were obsoleted tomorrow as sources of energy, what would happen to Qatar? They’d better figure something out quick, because otherwise the good times are over. The whole Qatari system would come crashing down very quickly if their biggest exports became worthless. So in Qatar’s case, their welfare is also rotting slowly; but the huge largesse of their oil and gas money makes the process seem invisible. The cost of welfare can go up every year, but the money is so plentiful that hardly anyone notices. The leaders of Qatar had better hope that oil and gas don’t lose their value anytime soon, because then the true cost of the Qatari welfare system will become evident extremely quickly.

Not all socialist systems turn into totalitarian dystopias. The Nordic countries certainly seem like nice places to live. They seem to do mostly well in the realm of economic and civil liberties. But that doesn’t change the fact that welfare has to be paid for. When a country has an aging population and stagnant employment, that bodes ill for the welfare state. Finland has an aging population and stagnant employment. It shows. If they want to push off the day of reckoning for Nordic socialism, they’d better figure something out, and fast.

 

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