The Swedish System

At the Wall Street Journal Swedish author and historian Johan Norberg explains Sweden’s system:

Sweden was one of the world’s fastest-growing economies for nearly a century. But by the 1960s, the country began to take its wealth-creating prowess for granted. I tell Mr. Norberg about New York Mayor Bill de Blasio ’s assertion: “There’s plenty of money in this world, it’s just in the wrong hands.” In 1960s Sweden, Mr. Norberg replies, “that’s almost verbatim what they said back then: ‘Now we’re this rich. Shouldn’t we just distribute it, and give it to the people and the places we like?’ ” Such thinking overtook the country’s dominant center-left Social Democratic Party.

“We thought we could do anything, and we had all of those other preconditions: the work ethic, some sort of social pressure, which meant that people were doing the right things, and they wouldn’t want to live on the dole,” Mr. Norberg says. “And then for 20 years, from 1960 to 1980, we doubled the size of the government spending as a percentage of GDP. That’s the aberration in Swedish history.” The Swedish welfare state first was a safety net for the needy. Over time the political class moved to “socialize the lives of the middle classes as well.” The plan: “Increase their taxes, and their benefits, and then they will buy into this system.”

The consequences were predictable. “It resulted in less work, people preferring to stay at home and paint the house rather than hiring someone to do it, general lack of getting the kind of education that matters. It led to entrepreneurs leaving Sweden.” Private-sector employment declined from the 1970s to the ’90s, while disposable-income and economic growth was relatively slow. Some of the country’s best companies and brightest minds fled an onerous inheritance tax.

Plenty of economists knew Sweden needed reform, but undoing the damage would take years. A critical figure was Prime Minister Carl Bildt of the center-right Moderate Party. He came to power in 1991, as the rigid Swedish economy struggled to cope with an economic crisis. Mr. Norberg calls the former prime minister “an ideas politician” who understood free-market principles. Mr. Bildt’s coalition government cut capital-gains and corporate taxes, while the top marginal income-tax rate shrank to 50% from around 90%. Sweden deregulated the telecom and energy industries while introducing school vouchers and other market-oriented reforms. The Social Democrats retook the government in 1994, but the trend toward economic liberty continued for another quarter-century.

“One thing the left gets wrong is that they think that Sweden has this sort of warm, friendly, fuzzy capitalist thing—no layoffs, no fierce competition, protecting the old companies and so on. And it’s really the total opposite,” Mr. Norberg says. “It’s more deregulated. The product markets are much fiercer competition, much more free trade. All of the companies know that they have to be world champions or they will be destroyed.”

American leftists, even those who shy away from the “socialist” label, generally call for higher taxes on “the rich” to support an expanded welfare and entitlement state. That, too, misapprehends the Swedish example. “We have much higher taxes on the poor and the middle classes than you do,” Mr. Norberg says. “And this is the dirty little secret that no one in the American left wants to talk about.” Nonprogressive taxes on consumption, social security and payroll are 27% of Swedish gross domestic product, 16 points higher than in the U.S.

Assumptions about Swedish health care often are wrong too: “Lots of Americans think it’s a Medicare for All thing. But it’s not even a national system. It’s a regional system.” Largely funded by a flat tax, the system isn’t all government-run: “We had a problem with productivity and investment in the health-care sector. So now we have more freedom of choice and more competition in the provision of health care.” Whereas American Democrats aspire to abolish private insurance, “one of the biggest hospitals in Stockholm was privatized, and you can go to private providers. And the first line of health-care defense, in a way, is often private clinics.”

There are some things that Denmark, Norway, Sweden, and Finland (allegedly the happiest country in the world) have in common and it’s not socialism. It’s that they’re all nation-states (a nation state is one in which ethnicity and citizenship are identical), culturally Lutheran, with high levels of societal cohesion and social consciousness. Their governments and other bureaucracies tend to be honest and efficient, simply because doing anything else would be wrong.

Those who look to Sweden as a model tend to look at a single point in time: 1970. Those days are gone, even in Sweden.