Sweden’s success depends on capitalism

| February 4 2013
Christopher Cook

In the previous post, we point out an article and video from The Economist on the subject of economic reforms that have benefitted Sweden and other Scandinavian nations, making them far healthier than other Western nations with massive welfare states. In the absence of knowing about these reforms, however, defenders of free markets are often left helpless when defenders of massive welfare states cite a country like Sweden as an example of one that works. That is why it is important that defenders of the free market take note of these facts and arm themselves with them for such discussions.

But there is more of which we must take note than just the recent reforms. Sweden’s success, seen in broad relief, was the result of a century of robust capitalism from 1870–1970, strengthened in the latter years by mega-corporations like Volvo. Their struggles worsened at the same time during which they expanded their use of more socialist policies, and their recovery coincided with reforms, and a move back in a freer direction. Far from being an example of how socialism works, their history shows clearly that application of socialist policies has a negative impact and application of free market ones has a positive effect.

The article in the Economist makes these points.

There can be no doubt that Sweden’s quiet revolution has brought about a dramatic change in its economic performance. The two decades from 1970 were a period of decline: the country was demoted from being the world’s fourth-richest in 1970 to 14th-richest in 1993, when the average Swede was poorer than the average Briton or Italian. The two decades from 1990 were a period of recovery: GDP growth between 1993 and 2010 averaged 2.7% a year and productivity 2.1% a year, compared with 1.9% and 1% respectively for the main 15 EU countries.

For most of the 20th century Sweden prided itself on offering what Marquis Childs called, in his 1936 book of that title, a “Middle Way” between capitalism and socialism. Global companies such as Volvo and Ericsson generated wealth while enlightened bureaucrats built the Folkhemmet or “People’s Home”. As the decades rolled by, the middle way veered left. The government kept growing: public spending as a share of GDP nearly doubled from 1960 to 1980 and peaked at 67% in 1993.

Back in 2011, we provided a great deal more reinforcement for this understanding. With some text and videos from three economists, we show that far from being a socialist success story, Sweden is an example of how effective free market principles can be. This is reprinted below.

Whether Sweden or any state with a large welfare state can maintain this kind of mixed economy long-term is an open question. But one thing seems clear—the more free-market such an economy is, the longer it will last.

 

Stop calling Sweden a socialist country. Just stop.

It never fails, and it’s mind-numbingly annoying:

You’re in an argument with a person of the left. I’m not talking about a working class union member and family man who votes Democrat out of loyalty or habit. I’m talking about the ideological left: the people who actually believe that socialism is a good thing. You’ve got one of them pinned down and right where you want them, and then you ask what ought to be the knockout question:

“Tell me one nation where socialism has actually worked.”

Knowing what you know about socialism’s manifest failures—how it leads to failure and stagnation at best and misery, oppression, and murder at worst—you think you’ve got them. And then they give the reply I have heard three dozen times before . . .

Sweden.

After hearing the Sam Kinison scream in your head, you compose yourself. But what do you answer?

The left has been pointing to Sweden as an example of how socialism works since the early 1970s. They’re wrong, though it’s not surprising that they would make this claim. Here, in the simplest terms, is how it went down:

From 1870 to 1970, Sweden was a model free-market economy: low taxes, low regulation, strong property rights. This made them an economic powerhouse, and the fourth-richest nation on earth.

Then, in 1970, as a part of a global trend—and very much a European trend—they started moving leftwards. They raised taxes, grew the regulatory and administrative state, increased transfer payments, developed a wide variety of social welfare programs,  and grew the size of government generally.

Their economy suffered. Many people found it easier to take government money than to work. One tax bracket ended up being, when all the taxes were added together, over 100%. Sweden slipped in the world, dropping to 9th. After a few decades of of this quasi-socialist system, the only big corporations in operation were ones that had been created before 1970—before socialism began there. These big corporations were playing a huge role in propping up what was otherwise an increasingly moribund economy.

So, in the 1990s, Sweden turned back the clock and began a march back in the direction of free-market capitalism, a march that continues and is strengthening even today. This has rescued the economy and put Sweden very much on the path to prosperity.

The myth was born because the proponents of socialism took a snapshot of Sweden in the 1970s. Here was a socialist country that was doing very well. What they failed (or refused) to notice was that it had only recently become socialist, and it was doing well because it was still living off of the success produced from 1870 to 1970. When they took their snapshot, socialism hadn’t yet done its damage. Sweden has since corrected their error, but the myth of the socialist paradise lives on.

That is not to say that Sweden is a 100% libertarian nation. In many ways, it is a large-government capitalist welfare state. It’s what the commentators in the video below refer to as a mixed economy. But it is not an example of the success of socialism.

People on the left who want to get educated on the real Sweden should watch these videos. Sweden may provide some ammunition to those who wish to believe that welfare-state capitalism is sustainable. But it cannot be used as an example of how socialist economics work in the broader sense, because its history over the last 40 years—and more broadly over the last 140—prove exactly the opposite. Sweden prospered with capitalism, declined with socialism, and is ascendant again with their move back in the direction of free-market capitalism.

Watch the videos below and help eradicate a myth.

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