[Part 2 of the Creating Good Jobs series]
Last week we saw the idea that the government can’t help create jobs by “picking winners and losers” is just a myth. This week, an article in Inc magazine will help knock down another big myth.
According to Inc, Norway rocks:
Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium. A 2010 study released by the U.S. Small Business Administration reported a similar result: Although America remains near the top of the world in terms of entrepreneurial aspirations — that is, the percentage of people who want to start new things—in terms of actual start-up activity, our country has fallen behind not just Norway but also Canada, Denmark, and Switzerland
At the same time, Norway’s unemployment rate is one of the lowest in the world – 3.5% – and poverty is “almost nonexistent.”
How does Norway pull this off? Low taxes, employers can do what they want — all the goodies that the Chamber of Commerce roots for?
In a country with low unemployment and generous unemployment benefits, a worker’s threat to quit is more credible than it is in the United States, giving workers more leverage over employers. And though Norway makes it easy to lay off workers in cases of economic hardship, firing an employee for cause typically takes months, and employers generally end up paying at least three months’ severance. “You have to be a much more democratic manager,” says Bjørn Holte, founder and CEO of bMenu, an Oslo-based start-up that makes mobile versions of websites. Holte pays himself $125,000 a year. His lowest-paid employee makes more than $60,000. “You can’t just treat them like machines,” he says. “If you do, they’ll be gone.”
And then there are taxes. Take Wiggo Dalmo, who created a “$44 million company with 150 employees”:
Whereas most entrepreneurs in Dalmo’s position develop a retching distaste for paying taxes, Dalmo doesn’t mind them much. “The tax system is good—it’s fair,” he tells me.…
This is particularly surprising, because the prices Dalmo pays for government services are among the highest in the world. He lives and works in the small city of Mo i Rana, which is about 17 miles south of the Arctic Circle in Norway. As a Norwegian, he pays nearly 50 percent of his income to the federal government, along with a substantial additional tax that works out to roughly 1 percent of his total net worth. And that’s just what he pays directly. Payroll taxes in Norway are double those in the U.S. Sales taxes, at 25 percent, are roughly triple.
So why isn’t he furious about taxes?
“What we’re doing when we are paying taxes is buying a product. So the question isn’t how you pay for the product; it’s the quality of the product.” Dalmo likes the government’s services, and he believes that he is paying a fair price.…
The first thing I learned is that Norwegians don’t think about taxes the way we do. Whereas most Americans see taxes as a burden, Norwegian entrepreneurs tend to see them as a purchase, an exchange of cash for services. “I look at it as a lifelong investment,” says Davor Sutija, CEO of Thinfilm, a Norwegian start-up that is developing a low-cost version of the electronic tags retailers use to track merchandise
One reason why:
For a modestly wealthy entrepreneur like Sutija, the value of living in this socialist country outweighs the cost. Every Norwegian worker gets free health insurance in a system that produces longer life expectancy and lower infant mortality rates than our own. At age 67, workers get a government pension of up to 66 percent of their working income, and everyone gets free education, from nursery school through graduate school. (Amazingly, this includes colleges outside the country. Want to send your kid to Harvard? The Norwegian government will pick up most of the tab.) Disability insurance and parental leave are also extremely generous. A new mother can take 46 weeks of maternity leave at full pay—the government, not the company, picks up the tab—or 56 weeks off at 80 percent of her normal wage. A father gets 10 weeks off at full pay. These are benefits afforded to every Norwegian, regardless of income level.
And there are other advantages:
“It’s much easier to do business in Norway,” [Jan Flo, chief financial officer of Moods of Norway, a $35 million clothing company] says. “The U.S. isn’t one country; it’s 50 countries.” Although Norway may be more heavily regulated than America, the regulations are uniform across the country and are less apt to change drastically when the political winds blow.
In addition to regulatory stability, Flo pointed to a number of other advantages his company enjoys in Norway. Although personal taxes on entrepreneurs are high, the tax rate on corporate profits is low—28 percent, compared with an average of about 40 percent in combined federal and state taxes in the U.S. A less generous depreciation schedule and higher payroll taxes in Norway more than make up for that difference—Norwegian companies pay 14.1 percent of the entirety of an employee’s salary, compared with 7.65 percent of the first $106,800 in the U.S.—but that money pays for benefits such as health care and retirement plans. “There’s no big difference in cost,” Flo says. In fact, his company makes more money, after taxes, on items sold in Norway than it does on those sold in its California shop
Successful entrepreneurs in Norway to get to live the good life, but not on the same scale as rich folk in America. So, asks Inc., why do they become entrepreneurs? What’s their incentive to create jobs?
I also became convinced of this truth, which I have observed in the smartest American and the smartest Norwegian entrepreneurs: It’s not about the money. Entrepreneurs are not hedge fund managers, and they rarely operate like coldly rational economic entities. This theme runs through books like Bo Burlingham’s Small Giants, about company owners who choose not to maximize profits and instead seek to make their companies great; and it can be found in the countless stories, many of them told in this magazine, of founders who leave money on the table in favor of things they judge to be more important.…
At one point, I asked Wiggo Dalmo why he was still working so hard to expand his company: Why not just have a nice life—especially given that the authorities would take a hefty chunk of whatever additional money he made? “For me personally, building something to change the world is the kick,” he says. “The worst thing to me is people who chose the easiest path. We should use our wonderful years to do something on this earth.”
And again, this isn’t a piece out of the Nation. It’s from Inc. Magazine, aka Capitalism ‘R Us — whose mission is to offer “advice, tools, and services, to help business owners and CEOs start, run, and grow their businesses more successfully.”
Look, I’m not arguing we should go for the high taxes of Norway. But at least their success — along with Denmark and Germany — ought to make us back the hell up and ask if the Chamber of Commerce and conventional economists are missing what’s possible.
Up next week: a values-based approach to creating jobs