This post on good-governance countries by Scott Sumner is fascinating (via Reihan Salam). People on the left and the right may disagree with many of the particulars, but I think the overall thrust of Sumner’s post remains true: namely, that good-governance is really important and that smaller countries (like Sweden and Denmark, or city-states like Singapore and Hong Kong) are able to do this much better than big countries like the United States.
Riffing off of the World Economic Forum’s Global Economic Report, Sumner tries to recalculate the best governed countries:
It seemed to me that many of those categories measure “good governance” more effectively than the Heritage Index (which doesn’t tend to measure the output of services traditionally provided by governments (infrastructure, health, education, etc.) But market size seemed irrelevant to me, and I noticed it partly explained the high scores of the US, Germany and Japan. And I also thought the last two categories were unrelated. Innovation would reward countries that happened to have a comparative advantage in tech industries, and what the hell is “sophistication?” So I averaged the first 9, and here’s what I got:
1. Singapore 5.852
2. Switzerland 5.799
3. Hong Kong 5.696 5.778
4. Sweden 5.696
5. Denmark 5.602
6. Finland 5.584
7. Holland 5.513
8. Canada 5.509
9. Australia 5.452
10. Norway 5.444
11. Germany 5.361
13. U.K. 5.358
13. Taiwan 5.271
13. France 5.271
15. U.S. 5.187
16. Japan 5.147
Actually the WEF list is far longer. I did not re-compute all of the index numbers; a few other smaller European countries would probably have overtaken the US and Japan if I had. Here are some reactions to the new list:
1. Small countries are better governed.
2. The list has something for both those on the left and those on the right. Most of the top scorers are the sort of European welfare state beloved by liberals. France overtakes the US in this list. On the other hand the top three are usually regarded as pretty capitalistic places, and even if you throw out the two Asian city-states (which I’d oppose) Switzerland is often called the most capitalist country in Europe.
It seems to me this list is exposing a perspective that is orthogonal to the tired left/right debate over big government. It suggests multiple paths to nirvana.
There’s a lot more to the piece, so it’s worth digesting in full, but the long and short of it seems to be that the typical left/right divide on economic policy and the welfare state is really pretty irrelevant when it comes to successful governance. Switzerland features very high on the list, and it has one of the most functional systems of competitive federalism in the world, while Sweden – which is far more socialistic than anything most Americans would ever dream of and much more centralized than Switzerland – none the less has a 100% voucherized school system, something many American right-wingers would love to implement here. Many of these countries have far freer markets than America does, yet even the hyper-capitalistic Asian city states like Hong Kong and Singapore still have pretty significant welfare systems (and Singapore has a truly brilliant healthcare system that blends health-savings accounts with single-payer).
Sumner continues by asking some questions about these top-performing countries:
A. What values should government policies embody?
B. What policies effectively deliver those values?
C. When there is a dispute about which policies work best, how should the dispute be resolved?
The first question is moral, and the answer I give is “utilitarianism.” Unlike 99% of people in the humanities, I regard utilitarianism as a radically egalitarian value system—where people put the best interest of society ahead of their own narrow self-interest. The second question is scientific, and my answer is ‘economistic’ policies, those that are implemented by people cognizant of the (counter-intuitive) way taxes and regulations often distort decision-making. The sort of fiscal regime you get if 100 Martin Feldsteins sat down and designed a country on a pad of paper. In other words—Singapore. The third question is political, and my answer is democracy. And I don’t mean just having elections; I mean a system where the people actually govern. Where every school is a separate school district. Where taxes must be approved by referenda. Where every decision is made at the lowest feasible level of government.
Low and behold, all three of these models are represented in the top 5 of my list.
I think this makes a pretty good case for what Will Wilkinson describes as ‘limited-government liberalism’ or what has largely come to be known ‘liberal-tarianism’ around the blogosphere.
I think Sumner’s claims about the Laffer curve are a bit too strong. Economists disagree mightily on what sort of tax rates would actually start to hit productivity and I think we could go quite a bit higher than Sumner suggests, but I could be wrong. I do think he’s right to point out that effective governance is key – in a country with really effective government, tax dollars simply go farther and produce more value. The problem with a very big, very populous and – let’s face it – very politically dysfunctional system like our own is that tax dollars do not produce all that much value. Much of our revenue effervesces quite quickly, or get sucked into our burgeoning defense budget or innumerable other wasteful programs. This is not an argument against generating revenue, by any means – taxes are an inevitability and probably a lot less important than most anti-tax advocates think in the big scheme – but rather an argument about how best to generate and spend it. I think a more decentralized system akin to the Swiss model makes sense for this country. (Perhaps ironically, we have already moved a bit closer to the Swiss healthcare model.)
Lots to think about, one way or another. And probably plenty to argue about as well. Politics is a vulgar business, but economics is the realm of mystics and seers.
In my view the left/right debate is this country is so vicious because we are debating second best policies in a policy-making regime that is profoundly dysfunctional. Thus Matt Yglesias and I probably disagree strongly about extending the Bush tax cuts for the rich, but we both favor a simple progressive consumption tax as the ideal. I see these small countries with good governance as models that point the way forward, past our stale ideological debates. The question is whether we will pay attention to the lessons they are providing.