Swedish Success

March 7th, 2011 at 10:00 am by David Farrar

An interesting WSJ article:

In a Europe plagued by debt crises, one country has no budget deficit at all and is currently returning to surplus. This same country is consistently among Europe’s fastest growing economies, with GDP growth set to hit 4% this year.

That country is . For many years, foreign policy-makers have pointed to as a positive model to follow, making Swedes like me proud. Too often, though, foreigners have drawn the wrong lessons from ’s success. For instance, whenever I give a lecture, anywhere in Europe, about economic reform, I always get the following response: “But you come from , which is socialist and successful—why should we launch free-market policies ?”

The simple truth is that Sweden is not socialist. According to the World Values Survey and other similar studies, Sweden combines one of the highest degrees of individualism in the world, solid trust in well-functioning institutions, and a high degree of social cohesion. Among the 160 countries studied in the Index of Economic Freedom, Sweden ranks 21st, and is one of the few countries that increased its economic freedoms during the financial crisis.

I’m probably one of the guilty ones who has traditionally associated Sweden with socialism, or social democratism (whatever they call it now).

It’s true that Sweden wasn’t always so free. But Sweden’s socialism lasted only for a couple of decades, roughly during the 1970s and 1980s. And as it happens, these decades mark the only break in the modern Swedish success story. …

Only in 1950 did Sweden’s tax burden rise to 20% of GDP, though that remained comparatively low.

But Socialism was fashionable in post-War Europe and Sweden was not immune. The 1970s were a decade of radical government intervention in society and in markets, during which Sweden doubled its overall tax burden, socialized a slew of industries, re-regulated its markets, expanded its public systems, and shuttered its borders. 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.

Sounds a bit like a country I know.

By the late 1980s, though, Sweden had started de-regulating its markets once again, decreased its marginal tax rates, and opted for a sound-money, low-inflation policy. In the early 1990s, the pace quickened, and most markets except for labor and housing were liberalized. The state sold its shares in a number of companies, granted independence to its central bank, and introduced school vouchers that improved choice and competition in education. Stockholm slashed public pensions and introduced private retirement schemes, keeping the system demographically sustainable.

These decisive economic liberalizations, and not socialism, are what laid the foundations for Sweden’s success over the last 15 years. After the reforms of the early 1990s, Swedes’ real wages increased by roughly 35% in a decade.

Definitely sounding familiar.

The path to reform has, however, come only in waves. After the intense overhauls of the early 1990s, the pace slowed somewhat and it wasn’t until a center-right government returned to power in 2006 that free-market reforms picked up again. That center-right coalition, led by my own Moderate Party, was re-elected last year, after beating our leftist opposition by almost seven percentage points. The leftists’ campaign promise? To roll back economic reforms.

Even smarting from the financial crisis, Swedes turned the leftists down. Over the last four years, they have seen their borders opened for more labor migration, they have seen still more state-owned companies sold, and have seen their public authorities shrink in number. Stockholm has also cut property taxes and abolished the wealth tax, and instituted a new system of income-tax credits that lets working people with average incomes keep what amounts to an extra month of wages, after taxes, per year. Today, the state’s total tax take comes to 45% of GDP, from 56% ten years ago.

And best of all:

Stockholm has also introduced a law that empowers Swedes to chose their providers for health care and other public services. This has led to a robust surge in entrepreneurship within the health-care sector, where more competition is bound to improve services.

Who’s up for a study tour to Sweden?

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30 Responses to “Swedish Success”

  1. spk18 (21 comments) says:

    Lived there for a bit in the 1990s – OSH warning to men – you will get a sore neck…

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  2. berend (1,699 comments) says:

    DPF: Who’s up for a study tour to Sweden?

    Not John Key, who is borrowing for tax cuts, i.e. 300 million A WEEK, leads a government that churns 50% of GDP into mostly waste, has dictatorial powers and is somehow very popular with the electorate.

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  3. DT (104 comments) says:

    It is true that Sweden is more liberal now than in the 1970s, although as with much of Mr Munkhmar’s writing, he is selective and over-eggs his case. Sweden is still one of the most regulated western economies in the world. Mr Munckmar – formerly a free market lobbyist – is correct that liberalisation of some institutions can help lead to more efficient outcomes, but it is far from as black and white as he frequently paints things.

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  4. ben (2,418 comments) says:

    Ouch. 45% of GDP is still a hell of a lot, comparable to a basket case in the South Pacific called New Zealand. 56% is dire, as Kiwis will soon find out.

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  5. Sam Buchanan (502 comments) says:

    When ‘ the state’s total tax take comes to 45% of GDP’ Sweden seems to be a model of social democracy (which is rather different from socialism – I don’t think anyone seriously thinks Sweden is socialist in the classic sense).

    I onder if its the “well functioning institutions” and “social cohesion” that is responsible for Sweden’s success rather than the particular economic balance?

    In New Zealand, both ‘the left’ and ‘the right’ seem to be mostly social democrats these days – arguments are often about exactly what the state should spend our money on (infrastructure vs welfare, sports events vs environmental protection) rather than whether it should be spent in the first place.

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  6. gazzmaniac (2,319 comments) says:

    Here’s a question: Has Sweden had a property boom/bust cycle like much of the rest of the Western world? Or are they like Australia with housing becoming more and more unaffordable?

    I have heard stories of people paying large under the table payments to Swedish landlords to secure a rental lease. That is a direct result of the government keeping rents artificially low – nobody wants to invest in more properties because they won’t make money out of it, and the people in the market have to find other revenue streams to make their investment worthwhile.

    I’ll come on your trip to Sweden if only to have a good look at some of the talent.

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  7. Banana Llama (1,105 comments) says:

    I’d rather go to Finland at least they have a pair of balls between them.

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  8. berend (1,699 comments) says:

    This just in:

    Government has no choice but to increase debt more than previously thought this financial year following the latest Christchurch earthquake, Finance Minister Bill English says.

    No choice, you’re reading that guys? Everything, just everything National is doing is necessary expenditure. We simply can’t shave any bureaucrat, can’t shut down women affairs, stop paying for hip hop tours, or put any cap on government spending.

    Michael Cullen could have said this.

    And where are the supporters of National? They’re all swallowing and defending their socialist party.

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  9. Grant Michael McKenna (1,158 comments) says:

    Sweden has remarkably low levels of stateownership of assets as well, and has charter type schools. Not a bad model.

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  10. gazzmaniac (2,319 comments) says:

    Didn’t the “Tomorrow’s Schools” voucher scheme come from the Swedish model? What ever happened to that?

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  11. gazzmaniac (2,319 comments) says:

    Banana Llama – I’d hardly call Finland a model of good economic management, when you consider that 10% of their GDP comes from one company.

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  12. Robboy (49 comments) says:

    Over-egged his case? No kidding. Anyone who subtracts 43.60 from 49.27 and gets “almost seven percentage points” shouldn’t be taken seriously. He also fails to mention the current Govt is a minority government, as both coalitions refused to share power with the xenophobic Swedish Democrats who (worryingly) almost doubled their vote.

    DPF states “Sweden’s socialism only lasted for a couple of decades” despite the Social Democrats holding power for 65 of the last 78 years. Perhaps he does need to go on that study tour. He might find out that the success of the so-called Nordic Model has as part of its structure a universal and arguably generous welfare net and a strong trade union movement that allows Sweden to rank at (or near) the top of income equality rankings – compared to NZ whose movement in income inequality was the worst measured by OECD in their 2008 report.

    Or, to save on an airfare to Sweden, go and read this: http://www.etla.fi/files/1892_the_nordic_model_complete.pdf

    You’ll find that social equality is rated a helluva lot more important than in other (Anglo-Saxon) countries and therein might lie part of the reason for the “Swedish Success”

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  13. Banana Llama (1,105 comments) says:

    Yet they are not broke and are doing remarkably well for their size and position on the globe, they could of been a Belarus after all so they must be doing something right.

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  14. PaulL (6,015 comments) says:

    Bits of the Swedish model are interesting – private provision of education and health come to mind. Other bits, less so. The problem is that the left will claim Sweden is successful because of the state involvement in the economy, the right will claim it’s because of policies like their health and education policies. And possibly they’re both wrong, and it’s something else entirely.

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  15. Magnanomis (138 comments) says:

    gazzmaniac – yes, Nokia, Finland’s flagship corporate, is in deep trouble. Their CEO (ex-Microsoft) said they had to jump from a ‘burning platform’ (Symbian, etc) to survive; but by adopting Windows Phone 7, Nokia have probably jumped to another burning platform. Nokia has good open source technology (eg, Qt, MeeGo), but can’t execute because of rampant corporate bureaucracy. Looking forward to MS acquiring Nokia.

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  16. Grant Michael McKenna (1,158 comments) says:

    PaulL; it could indeed be something else- the fact that it is Swedes that are doing it; didn’t P.J. O’Rorke point out that the cold had killed off all the lazy ones?

    A friend has pointed out that the WSJ article title- the Swedish Model- is a useful test of how much of a politics geek one is. If, like me, the phrase makes one think of politics/economics rather than nubile women, you are doomed…

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  17. PaulL (6,015 comments) says:

    Damn. Didn’t even cross my mind there were two interpretations. I’m also doomed.

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  18. garethw (205 comments) says:

    Holy crap, DPF is praising a political economy whose personal income tax rates START at 30% and go up close to 60% (IIRC). And a tax take to GDP that’s, what, 50% higher than ours? Today is a weird day…

    The Nordic tax model as an option for NZ was in Brash’s report as the alternative possibility, but he clearly despised it so much that he didn’t even mention it when he swanned in to write the Exec Summary.

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  19. Manolo (13,517 comments) says:

    I suspect DPF is gauging public opinion and starting a softening campaign for a possible tax hike by the Labour-lite government. :-)

    Other than Helen Clark and her socialist minions, how on earth could you justify a Scandinavian model predicated on incredibly high taxes?

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  20. TripeWryter (715 comments) says:

    Sweden is still a country where the state appears to have far too much say in people’s lives.

    There was the instance last year of the social workers who barged aboard an airliner after it had been on the verge of taking off for India.

    Aboard was a couple who had been home-schooling their son, and they were taking him to India, where, from memory, the mother came from.

    The social workers had secured a court order because they disagreed with the parents’ decision, and because they thought that home-schooling was A Bad Thing.

    The aircraft had already taxied to take-off, and was recalled. The child was taken off the plane into the custody of the welfare authorities. They had to apply to a judge to get permission not only to see their son, but also to get information on how he was.

    Smack a child in Sweden and you will end up in court. Sweden was Susan Bradford’s ispiration.

    Leave a child off a birthday invitation that’s gone to everyone else in class and you could end up in court.

    Men risk social ostriscism if they don’t take advantage of the allowances for parental leave to raise their children. Not that I think men shouldn’t be engaged in child-rearing; as one who has, I think it is great. But it should not be because of social or state pressure.

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  21. NeutralObserver (93 comments) says:

    Joining the EU and getting tariff and quota free access to a rich market of 500 million people on their door step probably hasn’t hurt their economy either.

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  22. somewhatthoughtful (461 comments) says:

    Have we forgotten that it’s the swedes that want to try Julian Assanage on the most bullshit charges?

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  23. Hurf Durf (2,860 comments) says:

    I trust the Scandis as far as I can throw them.

    Still, if this spin forces the left to think of new damage control, I don’t mind.

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  24. nickb (3,686 comments) says:

    Sweden, the bastion of capitalism indeed.

    http://www.heritage.org/index/country/Sweden

    Government spending is very high. In the most recent year, total government expenditures, including consumption and transfer payments, equaled 52.5 percent of GDP.

    That % of GDP is one of the highest in the world I would wager. Certainly higher than ours. Sweden should be emulating us!

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  25. Dazzaman (1,134 comments) says:

    What kind of country is it? They had the last white boxing heavyweight champion, well since these Ukrainian brothers and Valuev of Russia, Ingemar Johannson……and yet they banned professional boxing!!! Nutless wonders.

    Sweden = Socialist Tyranny!

    Free Domenic Johannsen!!! Kidnapped by the Swedish government.

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  26. Bill Courtney (161 comments) says:

    Sorry guys, but the Swedish education model just doesn’t deliver! Their performance has been declining since the mid-1990s and they are worried. The recent 2009 PISA results from the OECD tests for 15 year olds, ranked them 19th in Reading and 29th in Science! NZ ranked 7th in both subjects (out of a total of 65 systems that participated). Here’s a 2010 quote from Bertil Ostberg, schools minister in the ruling centre-right coalition and a pioneer of the “free school” model: “I wouldn’t say that this has failed but maybe some expectations were too high that this would change the system as a whole.” Lesson: there are no silver bullets in education. Take note Roger Kerr and pass this on to the 2025 Taskforce, will you please? Maybe then we won’t have to read about Sweden – yet again – in Volume 3.

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  27. rob davies (12 comments) says:

    This article was written by Johnny Munkhammar, a right-leaning advocate of “limited government,” “personal liberty” and other tee-shirt slogan conservative ideals.

    It simply repeats the right’s oft-cited key lines and is laced with political bias – in other words, hardly an independent endorsement of Sweden’s success, which Munkhammar magically attributes to the last two periods of “conservative” Swedish government.

    I’d probably consider it about as insightful as anything Matthew Hooten could write on his beloved New Zealand experiment – – and would advise Swedes to give a Hooten article as much berth as we should give this.

    If you ask a right-leaning political commentator what he puts Sweden’s economic success down to, it’s probably no surprise he points to a little box of Crosby/Textor one-liners…

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  28. nickb (3,686 comments) says:

    Scoff, nice one rob. Mathew Hooton is such a frothing right winger all right.

    Get a clue man.

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  29. Hurf Durf (2,860 comments) says:

    All down to the Crosby/Textor bogeyman, nickb. Have the denizens of the Standard finally learned how to use the url address box? The internet shudders with fear.

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  30. rob davies (12 comments) says:

    Have either of you been introduced to a mirror recently? Myth and mythology aren’t exclusive to one end of the spectrum. Your witticisms aside, it’s hardly surprising DPF can point to articles online attributing, in this instance, Sweden’s sound economic position to one-liners ably supplied by idealogues at home on their laptops.

    Scoff indeed.

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