The Nanny State

No one leaves Denmark without noticing the order and efficiency with which some economic activities are conducted. An illustration is the country’s elaborate system of bottle and can recycling. One would be hard pressed to find another country that can boast a recovery rate of 100% for refillable bottles and of 85% for non-refillable (but recyclable) bottles and cans.

The foundations of the system were set in 1981, with a law that (1) limits the types of containers to around 30 types of glass containers that can be used to bottle beer and soft-drinks and (2) requires manufacturers to participate in a scheme that collects and re-uses these containers. Although the system was initially decried (by foreign manufacturers of beers, notably) as a way of protecting the domestic market, it survived several court actions and culminated in the establishment of the Dansk Retursystem, a non-profit organisation which collects and redistributes containers for refilling or recycling. The interesting part of the story is the role played by government. Laws were passed and property rights were granted but it is the private sector which ultimately wanted and founded the current system and now manages it. The government policies -which some would label as nanny-state policies – simply created the right conditions.

Denmark is not only good at recycling bottles. It also has the Folkeregisteret, a remarkable state-owned database on all individuals living in the country. It contains data on physical address, taxes, voting, pension and health, all of which are used in interactions between the State and individuals. A change of address simply involves informing the Folkeregister and information are then passed on to the tax office, banks, utility companies, public libraries, etc.

The list of efficient Danish institutions that can be potentially transported elsewhere is long: the payment system (the Dankort) is the closest one gets to electronic money, the flexible labour market combines low unemployment and high female participation with high levels of social protection, a transport policy that favours cycling and public transportation, to name but a few. Ombudsman is a Danish word. All in all, Denmark has one of the highest reported level of happiness in the world.

The issue of whether these will work elsewhere raises a ‘chicken-and-egg’ kind of problem which economists have only started to grapple. Do strong institutions foster cooperative, law-abiding social norms, or do these norms give birth to good institutions? Will individuals in another society participate in a recycling scheme with the same eagerness as the Danes? Will they accept being on a database, albeit a very secure one?

In a recent paper, Raymond Fishman and Edward Miguel use a natural experiment to find out to what extent social norms and institutions matter. They look at the parking violations racked by foreign diplomats based in New York City. Because of diplomatic immunity, these violations are not enforced; any marked difference across diplomats must be related to differences in their culture. There are around 246 violations for every Kuwaiti diplomat in post, 140 for every Egyptian diplomat, a shameful 21 for every Mauritian diplomat and zero for Danish, Norwegian and Swedish diplomats. It appears then that these people bring their cultural norms with them: the Danish diplomat is egalitarian and expects to be treated like the common person, the Mauritian diplomat, on the other hand, expects to be treated better than the average person.

Although this study implies that social norms matter in the way people cooperate, it does not mean that institutions are ineffective. Institutions and norms can reinforce each other. Interestingly, Fishman and Miguel show that, the more time diplomats from a ‘corrupt’ country spends in New York, the more often they break the law. This is not the case for diplomats from ‘non-corrupt’ countries. Differences widen over time: those that are used to breaking the law in their own country, will break the law more often as they realise that they can get away with it in New York. Can strong institutions break the cycle?

The current labour government in the UK has often been labelled as being as authoritarian and paternalistic. The BBC is most deserving of these titles: it teaches the Brits how to cook, to garden, to do DIY and to be tolerant towards immigrants. Perhaps not a bad thing. In Denmark, crimes involving immigrants are often blown out of proportion by the media. While many Danes believe that immigration is a big problem and provide support to the People’s Party, figures show a different picture: for a population of 5 million, there were a mere 3200 asylum-seekers in 2004, only 10% of whom were granted asylum.

The nanny-state is not harmless. It can encourage excessive delegation of domestic responsibilities to the State. The heat-wave of August 2003 in France claimed the lives of 14000 elderly as families left them to go on holidays, only to blame the Health System on their return. In countries like Portugal and Greece, the lack of entrepreneurial spirit of the young can be blamed on the fact that the State offers job security and above-the-market wages (it is a pity that some the best minds aspire to become teachers and civil servants). In Denmark, school enrolment is high but an alarming number of students fail to earn any qualification – not a surprise when taxes are high and income levelled.