Two historic countries, moving in opposite -- and unexpected -- directions.
"Sweden" isn't the first word that normally crosses our minds when we hear the expression "free market." But if President Obama, Paul Krugman, Warren Buffett, and other progressives want to find ways out of America's seemingly-intractable economic crisis, they might consider looking to the country once viewed as the very model of a modern Social Democracy.
They're likely to be surprised -- and probably appalled -- by what they discover. For while America has opted for more deficit-spending, bailouts, socialized medicine, easy money, failed state-subsidized Solyndra-like green businesses, "job-plans," and thus-far unsuccessful efforts to raise taxes, Sweden has been quietly turning social democracy into a museum-piece.
No one will be surprised to learn that Sweden was among the first European countries to create a modern welfare state. Between 1911 and 1914, Karl Staaff's Liberal government introduced some of Europe's first national pension and insurance schemes. Over time, additional programs were added.
But two things distinguished Sweden's welfare state from the very beginning. First, Sweden's progressives cleverly marketed their ideas as a way of realizing what they called a folkhemmet (people's home). The emphasis was upon realizing a once-overwhelmingly peasant society's traditional values in a context of industrialization. This helped the Social Democrat governments that ruled Sweden between 1932 and 1976 avoid being labeled as soft-Marxists in a country deeply wary of an expansionist Soviet Union.
The second distinguishing feature was Sweden's vision of state-provided social protection as a right. This led to successive governments insisting upon universal coverage and the costs being covered by general taxation.
It took several decades, but the relentless logic of these commitments eventually eroded the Swedish economy's competitiveness. The situation was worsened by the decision of governments in the 1970s to hasten Sweden's long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and -- of course -- increasing taxation to punitive levels to pay for it all.
Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that "In 1970, Sweden had the world's fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages in Sweden increased by only one percentage point." So much for helping "the workers."
Facing severe economic stagnation, Sweden began implementing several rather un-social democratic measures in the early 1990s. This included curtaining its public sector deficit and reducing marginal tax-rates and levels of state ownership. Another change involved allowing private retirement schemes, a development that was accompanied by the state contributing less to pensions.
These reforms, however, proved insufficient. In the early 2000s, according to James Bartholomew, author of the best-selling The Welfare State We're In (2006), more than one in five Swedes of working-age was receiving some type of benefit. Over 20 percent of the same demographic of Swedes was effectively working "off-the-books" or less than they preferred. Sweden's tax structure even made it financially advantageous for many to stay on the dole instead of getting a job.
But with a non-Social Democrat coalition government's election in 2006, Sweden's reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.
To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished -- yes, that's right, abolished -- inheritance taxes.
But liberalization wasn't limited to taxation. Sweden's new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world's most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.
So what were the effects of all these changes? The story is to be found in the numbers. Unemployment levels fell dramatically from the 10 percent figure of the mid-1990s. Budget-wise, Sweden started running surpluses instead of deficits. The country's gross public debt declined from a 1994 figure of 78 percent to 35 percent in 2010. Sweden also weathered the Great Recession far better than most other EU states. Sweden's 2010 growth-rate was 5.5 percent. By comparison, America's was 2.7 percent.
Of course Sweden's story is far from perfect. Approximately, one-third of working Swedes today are civil servants. Some of the benefits of tax reform have been blunted by Sweden's embrace of carbon taxes since the early 1990s. That partly reflects the extent to which many Swedes are in thrall to contemporary Western Europe's fastest growing religion -- environmentalism.
High unemployment also persists among immigrants and young Swedes (25.9 percent amongst 15-25 year olds). This owes much, Bartholomew observes, to "the high minimum wage imposed on the various industries by the still-powerful unions. Those who cannot command a good wage are not allowed to work for a lower one." On the income side, average Swedish wage-earners in 2009 still took home less than 50 percent of what they cost their employer. The equivalent figure for Britain was 67 percent.
It hardly need be said that the differences between Sweden and the United States are enormous. An economy of 310 million people is a very different affair to one with just over 9 million inhabitants. Moreover, small ships are easier to turn around than ocean-liners. Nonetheless, it's surely paradoxical -- and tragic -- that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.
Letter to the Editor
Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, and Wilhelm Röpke's Political Economy.
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Scandinavia is fairly civilized, unlike America. A Breivik is the exception in Norway; in America mass murderers are everywhere-- in all 50 states. Violence is what America is about; violence is how we built this country starting with Jamestown and heading in a straight line all the way to OKBOMB and continuing to today.
If violence ceases, America ceases.
Wow. Alan Brooks is even stupider than I thought. He's not even curious about the reasons my ancestors (Solbakken = "sunny hills" in Norwegian), left their Scandinavian paradise to come to violent shithole America about 100 years ago. The answer is: Norway was a bigger shithole than violent America. This is news to him. That's what makes Alan Brooks a shitbrain.
Wow. Indeed. That was the best response to Alan that I think I have ever read. Alan is also not moving out of that horrible violent country to parts unknown either.
But Scandinavia has a natural beauty that is virtually unsurpassed. And its people are hard-working, industrious and attractive. I'm not of Viking ancestry, but I admire their world.
Hopefully, Sweden will lead the way in Europe by giving Muslims the boot and a swift exit out of their country and a one way ticket back to their backwards anscestral lands.
That's the other religion besides environmentalism that Sweden has adopted, Clinton, along with feminism.
To be a man in Sweden in 2011 is to be a black in the United States in 1950. One economic effect of feminism that few notice is a shortage of workers to do "women's work" such as daycare, cleaning homes, etc. Since men are largely not allowed to do this work due to cultural expectations and women don't want to pay other women a good wage to do it, it's done by IMMIGRANTS. These immigrants then use these jobs as "anchor" jobs to move themselves, or their children, into the system and then it repeats itself. Since this work is performed by women, it means that the immigrants reproduce vastly faster than migrant men.
Sweden is basically where California was in the 1970's. Granted, California is a border state with Mexico while Muslims need to take boats and planes, but they've got a head start...
I've talked to Swedish businessmen who are amazed at how hard it is to do business in the U.S. In Sweden, you get business permits once from cooperative efficient bureaucrats. In the U.S., you get state permits, city permits, then you deal with a legion of federal regulators from the EPA, OSHA, Labor, etc...
Sweden also has much lower corporate taxes and easier rules to deal with.
China made significant moves especially in 2007 timeframe to introduce property rights. Purchasing Power Parity rose from 9.61 in 2005 to 15.9 in 2010, or a 65% increase in wealth per person in real terms. Canada reduced the corporate tax rate to 16% that drops to 15% next year. They created more jobs in a country of 30M than Obama produced with over 300M inhabitants. The U.S., Britain and the PIIGS are facing insolvency. See any pattern here? Even a public school educated liberal should be able to figure this out.
Yes, Sweden learned a lesson during the seventies and although the social democrats helped restructure the country we now have a mid center government with another agenda. I think they will last long. The former prevailing socialist agenda is finally broken. I think it is amazing that the Obama White House now is trying to bring about the ruin of the US when turning the country into something similar to Sweden in the seventies.
SwedishLady, are they really broken though? Sweden still has socialist, er, "single payer" healthcare and a very generous welfare state, yes?
Sweden's successes are probably simply due to a low population growth allowing low unemployment and keeping immigration under control due to a perception that it's cold and most non-white third worlders not wanting to deal with the weather. Same with Canada. Mexicans and even many liberal Americans worship the place but can't be bothered to simply take a rowboat to go over....
Interesting article. Leftists seem incapable of understanding or even recognizing how market forces affect all of commerce, even if government controls commerce. That's why the more government affects commerce, the poorer a nation will be.
One would think the wise could learn from others' mistakes. Yet our Left seems determined to attempt to place a social-welfare system in America. The experience of those who tried it in the past including even the totalitarian states that could not make it work, should prove beyond doubt the fallacy upon which it is based. Cannot we relegate this ideology- and the Leftist Democrat party along with it- to the proverbial "dustbin of history"?
Now Al, you know better than that. The left knows these things have been tried and failed elsewhere. But their argument is THEY haven't tried it and THEY will get it right.
Remember Liberalism IS a mental disorder.
DS: Point well taken. Maybe Sweden cut down on the Aquavit and that cleared up their thinking. What could be The Lefts' excuse?
Organic food. All that natural fertilizer collects in their head.
They can't learn from others' mistakes because they forget to teach history in schools so nobody knows those mistakes have already been made.
Much of this can also be said of the Netherlands. Dem politicians here are in denial, though.
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