The Suburb Versus the Nation

The United Nations recently released its 2010 Human Development Report, ranking Norway as the most developed country in the world, and inviting a week of comparisons between the enlightened Norway and the dysmal, fourth-ranked United States.

Such comparisons are an abuse of statistics; the US and Norway are incomparable because of the vast differences in size, social structure, demographics and natural resources.

The first, and most glaring problem of comparison is the size of the countries. The US population is 64 times bigger. Norway is about the same population as Alabama, with a smaller population than 22 US states, and  its GDP is smaller than 13 US states.  If you dropped Norway into California, we’d refer to it as a suburb.

The difference in size is important because of the other big difference, diversity. Norway is very homogeneous, which is possible because it is so small. The US is one of the most diverse countries in the world — just the US Black population is 9 times larger than the whole country of Norway. High diversity has the statistical effect of pushing the country closer to world averages, while the very small Norway can be a statistical outlier.

A much more correct comparison would be to compare Norway to individual US states. Top US states rank very well relative to Norway, and on the TIMSS test of science and math, the two us states that participated, Massachusetts and Minnesota, outranked Norway by more than 20%.  Social programs that work well with a cohesive set of Scandinavians would probably work in Minnesota, but fail completely among the clannish descendants of the Ulster-Scots of the US south. Culture matters, and where Norway has one predominant culture, the US has dozens.

( As a data point on the power of culture and ethnicity, note that the states that compare best to Norway, like Minnesota, are also the states with the most northern Europeans. )

The high taxes and generous social programs in Norway are possible in part because of the country’s  oil revenue — Norway is the world’s third largest oil exporter.  Oil added about $14B to the state’s revenues in 2004, a nice cushion for their social programs. Oil doesn’t explain all of Norway’s success of course, but it is a part of it that few other countries in the world have.

The downside of the high taxes is that is has crushed innovation. Have a look at the list of Norway’s largest companies and follow the links through to see the date the companies were founded. For all of the links I followed, the company was either founded before 1940, or was created by a merger of companies that were founded before 1940. As far as I can tell, Norway ( and Scandinavia in general )  has no Microsofts, no Googles, no Silicon valley. Tandberg, the “Silicon Valley company of Norway” was founded in 1933. A lot of the companies were founded before 1900. The landscape of the Norwegian economy does not show any evidence of the “creative destruction” that characterizes the US economy.

Doubtlessly, Norway is a wonderful place to live, if the character of Norway fits your personality.  But regardless of its success and charm, there few lessons to be learned from the completely inappropriate comparison of the US to Norway.