Tuesday, 25 October 2016

The Gift That Keeps on Giving

When people I meet talk about Sweden, or when I read people from the rest of the world on the topic of Sweden I generally get one out of two things: a) your country, with its large governments and welfare systems and gender equality must be paradise, and b) some spin-off of the 'migrant crisis', per-capita immigration rates or rape crisis. Oh, yeah. And ABBA and IKEA and H&M and Avicii or so. 

Roughly speaking, none of those are true (except the ABBA and IKEA and H&M and Avicii...). And since one of my favourite bloggers, Dan Mitchell, published a post debunking (a) yesterday, I'll briefly discuss that one. This is how Mitchell begins his post:
Sweden punches way above its weight in debates about economic policy. Leftists all over the world (most recently, Bernie Sanders) say the Nordic nation is an example that proves a big welfare state can exist in a rich nation. And since various data sources (such as the IMF’s huge database) show that Sweden is relatively prosperous and also that there’s an onerous fiscal burden of government, this argument is somewhat plausible.
Mitchell spends the rest of his post brilliantly destroying such naive arguments, pointing to three well-known elements for those of us who bother looking:
  1. Sweden grew rich during its free-market era (ca 1850-1950), before the Welfare State and heavy taxation took place in the 1960s. After which, its growth and economic indicators have been fairly average and nonimpressive. 
  2. Sweden is a more capitalist country than even the U.S. on every account but rigid labour market (typically paid for by higher unemployment rates) and size of the government (both according to the Fraser Institute Economic Freedom Report and the Heritage Foundation Economic Freedom Index).  
  3. Culture: descendents of Swedes in America earn on average 20% more than the U.S. median household. That is, the magic isn't Sweden's laws or institutions or government, but rather some deeper Swedish culture. Trust and work ethics are traits often pointed to. 
Earlier this year, Johan Norberg wrote a longer piece for reason.com, arguing that Bernie was right: America should indeed be more like Sweden. This is the take-home point: 
Being more like modern Sweden actually means deregulation, free trade, a national school voucher system, partially privatized pensions, no property tax, no inheritance tax, and much lower corporate taxes. Sorry to burst your bubble, Bernie.
In other words, the centrepiece of Sanandadji's (2015) book Scandinavian Unexceptionalism still holds:
The normal economic laws prevail: a good cultural background leads to good economic outcomes; and high taxes and a large welfare state ultimately undermine both the culture and the economy. In this respect, Scandinavia is entirely unexceptional. 
What is so incredible is how the left's wet dream and illusion of Sweden as a successful socialist paradise is impervious to facts, arguments or logic. No matter what piece of evidence is laid against it, the image persists:

  • Corporate taxes are much lower than in the U.S; 
  • trade is much freer and not even politicians speak of protectionism as something beneficial;
  • regulations are much less ominous and straight-forward than what the U.S. levies on especially financial firms; 
  • Swedish social outcomes, such as life expectancy, civic participation, individual responsibility and equality were surpassing the U.S. way before the Welfare State came into existence. This mistaken image still persists: Sweden is the anti-thesis to standard econ; Big Gov = paradise.

Please, my dear deluded friends on the left, do continue discussing Sweden. But the lesson there isn't the Big Government story you expect to find. It's quite the opposite.


  1. To be fair, the period mentioned as something extraordinary in Swedish economic growth happens to be the same time as most other western countries were involved in major conflict whereas the Swedes happily kept selling iron to Imperial Germany/ Nazi Germany. So to put the Swedish economy growth as being better than the rest of the world is not quite fair...

    1. Hi, Anonymous. To an extent you are right. But the growth rate 1870-1940 or so is not only extraordinary compared to everyone else; it's extraordinary compared to every other country at every other period. It's estimated that only Japan had higher long-term growth during its economic miracle.

      So yes, but it's an even stronger claim than that.