Sweden is the ideological blugdeon for people who are skeptical of state power.
Johan Norberg is a senior fellow at the Cato Institute and a writer who focuses on globalization, entrepreneurship, and individual liberty. Norberg's articles and opinion pieces appear regularly in both Swedish and international newspapers, and he is a regular commentator and contributor on television and radio around the world discussing globalization and free trade.
Johan discusses common misconceptions about Sweden's free market history with Tom Woods of the Ludwig von Mises Institute.
He says the world tends to cast a positive light on Sweeden, being a small non threatening, nice, peaceful place. People pick and choose different aspects of Sweden they personally approve of, be it the nice open globalized economy, or the perfect big government socialist country, or even the free love and trendy pop music aspects.
Tom asks Johan about an article he wrote about Sweden's success not because of welfare state spending and government intervention but actually in spite of those things and before those policies took place.
He explains that in the 1970’s Sweeden was the fourth most prosperous country per-capita on the planet, following one of the fastest periods of economic growth that only Japan outpaced. This growth started in the 1870’s after a rapid liberalization and deregulation process. In 1840-1870 there was a classical liberal and laissez-faire movement to open the country up to free trade and deregulation.
Growth took hold, between 1860 and 1910 when real wages increased by 25% per decade in the manufacturing industry 20 years before the social democrats get power. During this period public spending was still below 10% and Sweden was one of the most open economies in the world.
Tom Woods brings up the point that those on the left will look at a regulatory agency and say that after its creation, for example, there are fewer workplace fatalities, but never analyze the trend of decreasing fatalities before the regulation took place.
People analyzing Sweden in the 1980’s at the peak of big government and point to how prosperous the country was with high taxes, welfare, and regulations. How were they rich? Mr. Norberg compares this to the saying, “How do you get a small fortune? You just start with a big one.”
Sweden had previously had tremendous growth with a very open economy. The social democrats of the 1930’s still had classical economist influences and didn’t want to interfere too much with the economy. As early as the 1950’s Sweden had lower taxes and less public spending than the United States and the rest of Europe.
The fortune had been built off the free market, and it wasn’t until the 1970’s that the social democrats began to hike public spending and increase taxes. But how did the welfare state gain traction if the country was doing so well?
A popular shift that happens to successful countries follows the saying, “He who has satisfied his thirst turns his back on the well.” People began to take their success for granted and forget about the pre-conditions and fierce competitions it used to get there. Some people started to demand more access to wealth and that it be distributed more evenly.
Sweden is a very small homogenous country that started out with more equality and landowners than most countries. This vastly seprates them from African, southeast Asian, and even most European countrues with fuedal histories.
Their distributing government started off rather small scale in the 70's as people still viewed the government as their neighbor. It grew very large very quickly and public spending doubled in two decades. This resulted in slower growth from 1975 to 2000.
By the mid 1990’s Sweden had not created a single private sector job since 1950 - all growth was public sector. Social Democrats understood tax and spending only works if you have private firms creating the money. Reforms in the 1990’s, after an inflation bust resulted in policies like lower marginal tax rates, public pension cut, school vouchers with private providers welcome, and de-regulating product markets.
Sweden’s cradle to grave care was cut back after the inflation of the 1990’s. Their attitude towards welfare is actually far different because they have a history of social trust and social control where living off the welfare system is shameful because you are living off your family and neighbors. Sweden built these welfare systems but people rarely used them,.
Their culture however, is undergoing a change in perception for the welfare state.
Culture begins to change when you change the incentives Johan explains. The newest generation began to notice that work is difficult, and being forced to pay heavy taxes doesn’t make you excited to do it. Paid sick days and unemployment on the other hand are relatively easy. . . this is changing the work-ethic dynamic of Sweden's culture.
The last eight years they have had a center-right government which has tried to scale back these welfare systems and lower taxes. There is currently not enough support for going back to the old welfare system.
Currently, in four of the five spheres of economic freedom Sweden is more free than the United States. This perception needs to be updated.
The full interview can be seen here, and the more academically written piece entitled, "How Laissez-Faire Made Sweden Rich" can be read here.