Swedish Success

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 Sweden. For many years, foreign policy-makers have pointed to Sweden as a positive model to follow, making Swedes like me proud. Too often, though, foreigners have drawn the wrong lessons from Sweden’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 Sweden, 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?