Cuddly is good for you

6 Jan

An excellent study on voxeu refutes the fashionably conservative argument of Acemoglu and Robinson that social democratic capitalism is bad for innovation.

“Do the ‘cuddly’ Nordic countries free ride on the ‘cut-throat’ incentives for innovation in US-style economies? Don’t PCs, the internet, Google, Windows, iPhones and the Big Mac speak for themselves? Despite a higher overall tax burden and more generous safety nets, the Nordics have generated at least as much – if not more – innovation than the US. So far, ‘cut-throat’ capitalism has not been the only road to an innovative economy.”

You can find overwhelming evidence here

http://www.voxeu.org/article/nordic-innovation-cuddly-capitalism-really-less-innovative

And why are the Nordics doing so good, rather than be stuck in some Soviet-style sclerosis, as the neoliberals have been predicting for several decades.

“One explanation for Nordic good performance might be that they are better in mobilising human resources. While hours per capita are higher in the US, a larger share of the working age population is employed in the Nordics owing to more inclusive educational, social and employment policies.This may imply that talents are harvested better for gainful economic activity. A second explanation could be the rather determined public policies to promote innovation.A third explanation might be that the economic incentives for innovation in the Nordics, while weaker than in the US, are not miserable after all, at least not across the board. For instance, all Nordic countries have introduced dual income taxation, according to which capital incomes are taxed at a flat rate. This helps in motivating entrepreneurs, despite quite progressive taxes on earned income.”

And finally

“A well-designed safety net may also work to promote risk-taking. In particular, unemployment insurance may help risk-taking entrepreneurs by making it is easier for them to hire workers.”

The sooner we have the numbers on these explanations the better for the argument that innovation and a cuddlier economy can actually work together.

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