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Another Perspective
Free Market Sweden, Social Democratic America
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.
About the Author
Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, Wilhelm Röpke’s Political Economy, and, most recently, Becoming Europe: Economic Decline, Culture, and America’s Future.
Letter to the Editor View all comments (40) | Leave a comment
More Articles by Samuel Gregg
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Alan Brooks| 9.29.11 @ 8:59PM
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.
James Solbakken | 9.30.11 @ 1:52PM
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.
Simon Templar| 9.30.11 @ 2:03PM
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.
Seek| 9.30.11 @ 2:04PM
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.
Clinton| 9.29.11 @ 7:36AM
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.
PolishKnight| 9.30.11 @ 9:54AM
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...
Old Soldier| 9.29.11 @ 7:50AM
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.
Von Mises Jr.| 9.29.11 @ 8:55AM
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.
Swedishlady| 9.29.11 @ 9:11AM
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.
PolishKnight| 9.30.11 @ 9:58AM
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....
JayDick| 9.29.11 @ 10:01AM
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.
Al Adab| 9.29.11 @ 11:15AM
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"?
Drunken Sailor| 9.29.11 @ 11:29AM
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.
Al Adab| 9.29.11 @ 1:40PM
DS:
Point well taken. Maybe Sweden cut down on the Aquavit and that cleared up their thinking. What could be The Lefts' excuse?
Drunken Sailor| 9.29.11 @ 2:03PM
Organic food. All that natural fertilizer collects in their head.
TrueBlue| 9.29.11 @ 4:19PM
They can't learn from others' mistakes because they forget to teach history in schools so nobody knows those mistakes have already been made.
Claire Solt PhD| 9.29.11 @ 11:21AM
Much of this can also be said of the Netherlands. Dem politicians here are in denial, though.
RJ| 9.29.11 @ 12:44PM
Examples like this should help in the political debate to make clear that many free-market, limited government reforms have been tried and succeeded in countries which most Americans think are more state-oriented than the US.
Of course the left will not drop their demands for more state control. Their leaders probably are smart enough to know that it will harm the overall society, but, serves as a way to steal from the public through schemes like Solyndra for the benefit of their supporters. Also notice how liberals in government, such as Jamie Gorelic (sp) get politically-connected jobs after leaving a Democratic administration and extremely wealthy. $75 million in bonuses at Fannie Mae for damaging the US economy sounds like serious corruption to me.
Al Adab| 9.29.11 @ 1:42PM
RJ:
I think maybe you hit the point. It really is about Control not about reality. Liberty and the defense of citizens rights has nothing to do with the reward your friends and punish your enemies mindset. In other words, country be D***ed it's all about us.
RJ| 9.29.11 @ 3:20PM
Thanks Al Adab.
The American Republic was structured to reduce factionalism and ensure each citizen with equal treatment under general laws. Unfortunately, for over 100 years, the country has moved away from these values and now, more than ever, too many Americans have no problem with "to the victor goes the spoils." As Bastiat said, the state is the great fiction by which everybody tries to live at the expense of everyone else. When that is the case, corruption is unavoidable and government is little different from organized crime.
Al Adab| 9.29.11 @ 3:53PM
RJ:
"Organized crime" is just about the point our government has reached. Financing of particular companies ( in which a Sen. Obama had invested personally), mandates to purchase products from particular companies (that just happen to be big contributers to one side) and forced "investment" in political prefered industries sure sounds a lot like mob actions.
When they use the power of government to enrich themselves (and I believe both sides are guilty albeit not necessarily equally so) it no longer serves its purposes. Does that put into play that "alter and abolish" clause Jefferson used?
RJ| 9.29.11 @ 4:39PM
Hi Al Adab,
We can still reform the government by voting, so no need for Mr. Jefferson's alter and abolish actions. However, in the long term, I am not optimistic. Dependent people cannot be free and Americans are much less self-reliant and independent than they were before. I pray for a re-awakening of the ideals of personal liberty and opportunity.
Pat| 9.29.11 @ 4:56PM
Al Adab:
Article today on City Journal about UC Berkeley mentioned the university’s vice-chancellor of equality and diversity pulls down $194,000 a year. A taxpayer supported educational institution can afford administrative salaries in the upper stratosphere of American wage earnings while parents are paying increased tuition and California taxpayers are paying increased taxes? The Mafia, with its show up to work only on payday to collect your check and then kick some money back to the Godfather union jobs racket, has nothing on these government sponsored criminals. And which came first, the need for diversity at Berkeley or the legal swindle to pay someone to enforce it? And this is just a minor – and all too common - example of the widespread corruption infesting all levels of our government.
Conservatives constantly give Statists the benefit of the doubt when attributing their personal motives to “misguided ideology”. This $194,000 a year make work job is a typical example of their misguided ideology.
Al Adab| 9.29.11 @ 8:39PM
Can we note that the 194K is just UNDER the magic 200K which makes one "rich" in Obamas' America?
Pat| 9.29.11 @ 3:38PM
RJ: Good points on what our government is doing and you were dead right on your “steal from the public”. But I believe it’ always financial self-interest and greed which provides the driving force for what we call Leftist philosophy - increased control, ideology, misguided vision – we can pretend it’s about those rationalizations and not about money but Leftist governments always manage to direct other people’s money into the pockets of their leaders.
Unsmiling citizens dressed in baggy clothing and standing in long lines to buy bread or toothpaste were once an everyday scene in the former Soviet Union. But the Soviet leaders, the so-called Party elites experienced none of that. The misery of the common people was never allowed to touch them while riding in their hand tooled limousines from and to their state provided luxury apartments. The people had government provided health care within their Workers’ Paradise but the Party leaders were treated with foreign made pharmaceuticals dispensed from within highly modern special clinics.
The Party hierarchy claimed the workers didn’t begrudge their leaders the finer things in life so long as life in the country steadily improved. And, here in America, we pretend that our Washington politicians being whisked around in official government limos bears not the slightest resemblance to the dismal failure of Communist Russia. Yet, the perqs and fruits of public service are amazingly similar between the two systems of government – and probably not unintentionally.
Living a parasitical existence off the labor of others is the heart and soul of Leftism, this “misguided vision thing” Conservatives constantly moan about is merely a smokescreen to disguise a harsher reality – our Leftists even pretend to believe in their own ideology at times in order to justify their attempts to steal the property of those who don’t share their thug morality. Our current government functions smoothly as a kleptocracy where those with political connections look to legislation as the source of personal wealth. It’s simply not an historical coincidence our politicians want to “Sovietize” America.
RJ| 9.29.11 @ 4:43PM
Right on, Pat.
The statist philosophy is rooted in, as you say,"financial self-interest and greed" at the expense of others. Its all about stealing and exploitation.
Jack London| 9.29.11 @ 3:45PM
I wouldn't be so fast to take Sweden as a model - because of egalitarian reform previously it's a far more advanced country socially and has factors such as an 80% union rate among workers and far greater democratic participation. What they do is adjust a mixed economy - it's not a private free market 'paradise' for you Hayek hounds .
Al Adab| 9.29.11 @ 3:55PM
Oh I agree Jack. i don't think any of us are proposing Sweden as a model (pun intended) but rather to note that the political drift is contrary to our current political drift.
Jack London| 9.29.11 @ 4:49PM
The 'political drift' to anything approaching Sweden would be a good thing but really we are seeing very little of that. It's false comparison. All we are seeing is a bitterly opposed attempt to get America back to where it was before the selfish right bought us out, plus a few way overdue reforms, with healthcare particularly.
On a more congenial note a business partner brought me a rather nice looking Armagnac from France - challenged me to compare with a malt, which I'll be doing later.
Al Adab| 9.29.11 @ 8:44PM
First, good luck with the comparison. I suggest either Laguvulin or Laphroigh.
Now, "the selfish right"? Do you mean the people who value Liberty over dependency and property over redistribution? If so then yes, I plead guilty. Apparently many are willing to sell their birthright for a bowl of government pottage, but Conservatives value Liberty foremost even to the loss of lives, and sacred honor.
James Solbakken | 9.30.11 @ 1:56PM
Sweden has done what is necessary for any economic entity: They balance their checkbook, they reconcile their bank accounts, they don't borrow more than they can afford to pay back, and they definitely were not letting lazy bums live off the sweat of others until recently when they started letting the Muslim bums do it.
It's really not that complicated.
James Solbakken
Tom| 9.29.11 @ 3:05PM
Thanks to author Gregg for making the "trading places" point that has not registered with many voters in the USA. Living in the USA and doing business there, a picture of a Swedish government that is actually functional and helpful has emerged for me. For example, tax returns are public and the national ID card is useful. The standard of living seems to be top-drawer and superior in some respects -- smart cards, transport, leisure, and telephony.
Waldemar Ingdahl | 9.29.11 @ 4:33PM
I'd say that the article does draw a bit hasty conclusions. Sweden does have the highest taxation in the world
http://www.thefreemanonline.or.....ew-sweden/
Timely Renewed | 9.29.11 @ 6:26PM
The way to restore America to the right path is to return the federal government to its original limits under the Constitution. Given the deep entrenchment of the special interests and Supreme Court precedents which support the federal leviathan, we can only accomplish this by amending the Constitution to reverse the Supreme Court misinterpretations of the Constitution's original meaning and structure which have allowed the federal government to such a ridiculous size and power. See http://www.timelyrenewed.com.
Jessie| 9.30.11 @ 3:13AM
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.
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Jessie| 9.30.11 @ 3:14AM
Can we note that the 194K is just UNDER the magic 200K which makes one "rich" in Obamas' America?
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Jessie| 9.30.11 @ 3:16AM
Much of this can also be said of the Netherlands. Dem politicians here are in denial, though.
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POST American| 10.2.11 @ 7:40AM
-----------------BOTTOMLESS LINE-------------------
"Huxley back in the 50's said the ONLY thing
standing in the way of merging the bankster
created 'Cap--IT--ALL---ist' and 'Calm--you--nist'
and EUGENICS systems was the Catholic church.
---That, now, ----is GONE."
-ALAN WATT
(essential Nat Intel online)
Keep ignoring those Freemason Christian
church nfiutration issues kiddies.
'Eck--YOU--MEN--ick---ALLL-ism' they call it.
------------------------as ever----------------------------
---USURY, micro-chips n' abortions---
-------Just keep a goin'