Tuesday, September 11, 2012

What the Hell is Really Going on in Sweden?

In an important new paper Nima Sanandaji writes:
Sweden is often regarded as a nation whose policies should be emulated by others. Not only is it characterised  by high living standards, but also by other attractive features such as high life expectancy, low crime, a high degree of social cohesion and an even income distribution. The same holds for the other Scandinavian countries.

If one disregards the importance of thinking carefully about causality, the argument for adopting a Swedish-style economic policy in other nations seems obvious. Sweden has a large welfare state and is successful. This is often seen as a proof that a ‘third way’ policy between socialism and capitalism works well, and that other nations can reach the same favourable social outcomes by simply expanding the size of government.

If one studies Swedish history and society in-depth however it quickly becomes evident that this simplistic analysis is flawed. The Swedish experience might as well be used to argue for the benefits of free-market oriented policies, and as a warning of the economic and social problems that can arise when government involvement in society becomes too large.
Sanandaji outlines his paper this way:
• Sweden did not become wealthy through social democracy, big government and a large welfare state. It developed economically by adopting free-market policies in the late 19th century and early 20th century. It also benefited from positive cultural norms, including a strong work ethic and high levels of trust.

• As late as 1950, Swedish tax revenues were still only around 21 per cent of GDP. The policy shift towards a big state and higher taxes occurred mainly during the next thirty years, as taxes increased by almost one per cent of GDP annually

• The rapid growth of the state in the late 1960s and 1970s led to a large decline in Sweden’s relative economic performance. In 1975, Sweden was the 4th richest industrialised country in terms of GDP per head. By 1993, it had fallen to 14th.

• Big government had a devastating impact on entrepreneurship. After 1970, the
establishment of new firms dropped significantly. Among the 100 firms with the highest
revenues in Sweden in 2004, only two were entrepreneurial Swedish firms founded after 1970, compared with 21 founded before 1913.

• High levels of equality and favourable social outcomes were evident before the creation of an extensive welfare state. Moreover, generous welfare policies have created numerous social problems, including high levels of dependency among certain groups.

• Descendants of Swedes who migrated to the USA in the 19th century are characterised by favourable social outcomes, such as a low poverty rate and high employment, despite the less extensive welfare state in the USA. The average income of Americans with Swedish ancestry is over 50 per cent higher than Swedes in their native country.

• Third World immigrants have been particularly badly affected by a combination of high welfare benefits and restrictive labour market regulations. In 2004, when the Swedish economy was performing strongly, the employment rate among immigrants from nonWestern nations in Sweden was only 48 per cent.

• Since the economic crisis of the early 1990s, Swedish governments have rolled back the state and introduced market reforms in sectors such as education, health and pensions. Economic freedom has increased in Sweden while it has declined in the UK and USA. Sweden’s relative economic performance has improved accordingly.
(ht Tom Woods)


  1. Sweden does have a social democratic welfare state, but it is more free economically than many think. Someone over there seems to have remembered that to pay for a welfare state, and to have income to re-distribute, civil society must be sufficiently free to generate wealth in the first place.

    Some (at least in the UK) often call for "Swedish-style" social policies. What they don't realise is that the laissez-faire underpins them.

  2. The guys @ http://www.mises.se/ are working on a book project that aims at debunking all the myths about the socialist paradise Sweden. For resources and a comment on one of Nima's previous papers, see here: http://www.mises.se/om/mises-sweden/ http://www.mises.se/2011/11/12/the-swedish-model/ http://www.mises.se/2011/10/05/samuel-gregg%E2%80%99s-misconceptions-about-sweden/ http://www.mises.se/2012/06/13/the-lies-and-misconceptions-about-sweden-continues/ and http://www.mises.se/2012/05/15/presentation-the-myth-of-the-socialist-paradise-sweden/

  3. Help me out here, doesn't Sweden also benefit from low corporate tax rates, whereby a lot of internationals hang their shingle to benefit, bringing about a win-win?

  4. I meet many Swedish people who consider it a privilege to pay their taxes. They know they get value for money and have comfort and security. It seems to be a happy balance of free enterprise and welfare. You see that in the people. Open, honest, hard working. Swedish lifestyle is excellent. I always enjoy being there. If you ended up in a hospital then you could not do too badly being in a Swedish one.

  5. I am contemplating a move to Sweden with my family; my wife is Swedish. I recently did a rough calculation to compare my tax burden in Sweden versus living in California. Obviously, Sweden does have higher taxes, but take home pay is closer then you might think when you include the pre-tax contributions for medical and retirement.

    I'm sure I'm leaving out some things on both sides, but keep in mind that the Swedish system is also much simpler in general to compute.

    Assume a gross cost to an employer of $100,000 in both places, using my 2012 returns and a Swedish online calculator I get the following yearly net pay in each place:


    Employer Social Security 6.20%
    Employer Medicare 1.45%
    pretax 401K Contrib 10.50%
    Health Insurance 11.40%
    Unemployment Insurance 2.80%
    Total 32.35%
    Gross Pay $70,450

    Employee Social Security 6.20%
    Federal Income Tax 19.30%
    Sate Income Tax 3.90%
    Total 29.40%
    Net Salary $49,738


    Total Employment Tax 31.42% (includes health and pension)
    Gross Pay $68580
    Total Municipal Tax 14.63%
    Net Salary $58,547

    You can try computing your Swedish taxes using this site:

    http://www.ekonomifakta.se/Fakta/Skatter/Rakna-pa-dina-skatter/Rakna-ut-din-skatt/ (hint: translate.google.com will help)

  6. Here's another tool that shows how taxes have come down in Sweden the last few years: http://jobbskatteavdrag.se/

    (Use google chrome and choose translate)

  7. The sound is a bit bad at times but here Jeff Berwick interviews Klaus Bernpaintner of the Swedish Mises institute about the truth about the socialist utopia of Sweden, the swedish health care system and the swedish law against homeschooling. http://youtu.be/o3VXMB14dBg