Robert Campbell discusses this summer’s trip to Denmark, Sweden and Norway
The 2017 Go Abroad Economics trip to Scandinavia took a group of 13 students to study economics ‘hands-on’, through a two-week journey through Copenhagen, Stockholm, and Bergen. We prepared for our visits to economically interesting destinations with a collection of readings on Scandinavia from academic journals and news sources. Still there were unexpected shocks. Unlike on previous Go Abroad Economics trips, where students have faced extremities of heat or altitude, our rudest adjustment upon arrival in Scandinavia was to the extreme price level. It took several days after stepping off the plane in Copenhagen to acclimate ourselves to the unspeakable prices of restaurant food, and to the idea that a bottle of lemonade could cost £6. The hardest moment for Sean, our trip organizer, was when he bought what proved to be a £3 Snickers bar in the Copenhagen airport. We later learned that parts of this high price came from the 13 distinct taxes that Denmark levies on nuts. We had hoped to ask about this during our visit to the Danish Finance Ministry, but our meeting was cut short by caterers who needed prepare the venue for a scheduled tax negotiation by laying out bowls of almonds. Nuts.
The rapid growth of our total expenses during the trip was softened by the fact that Scandinavian economies are largely cashless. We found that everyone from train conductors to hotdog vendors accepted card payments, and everyone from the Bankers at “Danske Bank” to the crusty anarchists of Copenhagen’s “Free State of Christiania” had cards to pay with. The ubiquity of the cashless economy was such that GAE students relying on cash consistently struggled to find ATMs, while many of us using cards made it through Denmark, Sweden, and Norway without ever touching a single Krone or Krona. I myself touched exactly 1 Krona during the trip, which I found lying on a basketball court in Rinkeby, the Stockholm neighbourhood infamous for its riots and large immigrant population. More surprising than finding money lying in the streets of one of Stockholm’s poorest neighbourhoods, was how remarkably well maintained even the poorest parts of Sweden are. Despite the low average income and high unemployment rate, Rinkeby enjoys exceptionally well-built and well-maintained sports pitches, parks, toilets, and other public utilities. In fact, the amount of public capital we observed was enough to make us question whether the government is overfunded. We found anecdotal evidence for this in a poor neighbourhood just outside Rinkeby, where the city had spent an excess of 10 million pounds to build a competition sized baseball diamond, complete with stadium lighting and a full-sized electronic scoreboard. Despite these incredibly expensive fixtures, the bleachers were designed to hold only a light smattering of spectators. Even without calculating marginal utility, it seemed abundantly clear to our group that the resources to build such a thing were inefficiently allocated.
Wages and labour
In addition to allocative inefficiency, we also saw indications of productive inefficiency during our trip. Many of the government offices we visited seemed to be thinking quietly about the productive consequences of Scandinavia’s famously generous welfare model, and the infamously high taxes that support it. We learned from a journal article by Henrik Kleven that this has resulted in an 80% labour force participation tax rate in some Scandinavian countries, meaning that a nominal person entering the labour force earns only 20% more than they did when unemployed. Apparently this has affected labour force participation rates, especially among recent immigrants and immigrants. For example, we learned in our preparatory readings from the Economist that Sweden requires an 80% labour force participation rate to fund its welfare programs, but only 51% of its non-European immigrant residents work. During our visit to the Danish integration ministry we learned of more extreme examples of this trend; 91% of female Somali immigrants in Denmark are unemployed. Hans Jørgen Whitta-Jacobsen, former chairman of the Danish Economic Council, mentioned to us that the poor labour participation rate amongst immigrants is partly driven by the exceptionally high minimum wages across Scandinavia. His assessment was that these wages are well above the marginal productivity of many immigrants, who are kept out of a labour force they could otherwise contribute to.
The future of automation?
We also observed some of the positive consequences of high Scandinavian wages, in the form of large capital investment into automation. The most striking automation motif during our trip was the ‘two person rule’, which states that for any largely automatable activity, all of the work will be done by exactly two workers. We found two unexpected features of this rule in practice: firstly, the two workers often don’t appear to work very hard, and secondly, there is no limit to the possible number of auxiliary workers who appear to not contribute much. The prominence of this second feature appeared to correlate with the degree of government involvement in production. For example, we visited a private fish farm in Norway where two workers, and an apprentice, oversaw the automated feeding and maintenance of three massive fish enclosures, each of which contained roughly 100,000 fish. The feeding and pumping cycles were completely automated; the only remaining task was to perform a daily check on the fish “to see how they are feeling”, and tweak the feeding rates accordingly. It was apparently no inconvenience to the workers to drive us around on their speedboat and give us a lecture on the history and science of fish farming.
Similarly, at the Kollsnes Gas Processing Plant in Norway, we found that only two people operated the entire control room. Despite the fact that Kollsnes supplies over 10% of the total European gas demand, the control room operators glanced only periodically at their screens; their workload seemed to easily accommodate long conversations with tourists. The ‘two person rule’ also held true at the Norwegian Statoil dispatch station, which monitors boat traffic around oil rigs. Their warning system has been automated to the point that the two remaining dispatch operators are no longer required monitor the screens. Of the two dispatch operators, one was happy to tell us about his job, while the other answered emails and only occasionally glanced at the screens. Neither seemed to be in a hurry about either. The most striking feature of the ‘two person rule’ we observed was not the indolence of the workers, but the fact that they were the vestigial remnants of entire teams by software. This seems to indicate that modern capital combined with a small and possibly superfluous labour input is a substitute for scores of unassisted workers in some industries. We found the most extreme example of this at the Danish Central Bank. Hidden amongst over 300 human resource managers and other employees were four economists who executed the entirety of Danish monetary policy from a computer terminal by maintaining the Krone/Euro currency peg. Of these four economists, only two were required to come in on any given day, one of whom had time to give us a protracted presentation on Danish monetary policy.
Automation of the kind we saw is currently profitable in Scandinavia because of the extremely high cost of labour, but the falling cost of automation may soon render it profitable in other parts of Europe. The 2017 GoAbroad trip to Scandinavia was not only an exceptional opportunity to learn first-hand about an economy outside the United Kingdom, but also to develop a deeper understanding of our potential economic future. This is the essential value of the GoAbroad program; that it bridges the gap between an economics education and the larger world in which that education is ultimately employed.