Posted on by Colin Twiggs

Sweden: Failure of the welfare state experiment

…..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…….In the long run….. even the well-functioning societies in Scandinavia have been adversely impacted by welfare dependency and high levels of taxation. The ‘third way’ policy has not persisted – it can be viewed as a short-lived and failed experiment. Throughout most of its modern history Sweden has had a favourable business environment. The period characterised by the most extensive welfare state policies, where Sweden deviated strongly from the western norm, around 1970-1995, is an exception. That period was associated with a stagnant economy.

…….The transition towards an extensive welfare state that occurred in Sweden led….. to an economic cost in terms of reduced entrepreneurship, as taxes and regulation hindered the development of private businesses. It also led to a significant crowding out of private employment. Between 1950 and 2005, the Swedish population grew from seven to nine million, but net job creation in the private sector was zero. Jobs in the public sector expanded rapidly until the end of the 1970s. As it became difficult to further expand the already large public sector, job creation simply stopped (Bjuggren and Johansson, 2009).

Nima Sanandaji, The Institute of Economic Affairs, Sweden Paper August 2012.pdf (application/pdf Object).

32 Replies to “Sweden: Failure of the welfare state experiment”

  1. This article is pure propaganda. Sweden has very high taxes and it has budget surpluses, year after year. “In the last decade, from 1998 to present, the government has run a surplus every year, except for 2003 and 2004.”

    You see, it pays for what it spends instead of giving tax cuts to the super rich and then creating massive deficits and debt.

    If lower taxes are the key to Sweden’s success (and yes, it is very successful), then those taxes are over 50% of GDP, compared to less than 20% of GDP in the US.

    But here’s the best part, “World Economic Forum 2010 competitiveness index ranks Sweden 2nd most competitive, behind Switzerland.” The US can’t make that claim…and never will be able to make it again because we’ve wracked up massive deficits and debt after giving away trillions in tax cuts.

    So how did Sweden become so damn competitive? The government spent a small fortune on IT R&D.

    And the crisis in the 90s was NOT caused by high taxes (taxes are still very high). IT was caused by a housing collapse, just like we’re going through now.

    1. So how did Sweden become so damn competitive?
      The author’s view: “Economic freedom has increased in Sweden while it has declined in the UK and USA. Sweden’s relative economic performance has improved accordingly.”

      Private sector job growth was negative from the early 1970s. The property/banking crisis in the 1990s led to further falls but private sector job numbers had already been shrinking for 20 years.

  2. Almost forgot…this second most competitive country in the world has around seventy percent of its workforce unionized. Imagine if the US did the same and once again became the envy of the world.

    1. Interesting that union membership has fallen to 71% from a peak of 86% in 1995, coinciding with the first real growth in private sector jobs since the early 1970s.

  3. zzpat
    thanks. I’m not seeing anything here that’s bad about the Sweden model except an opinion. It seems the economy is doing relatively well, very much so. The quality of life is outstanding. Oh, I know, there simply is no controversy. That must be boring, so there must be a problem.

  4. The quotes were taken out of context. If one actually reads the article, the author’s underling point seems to be: “If one studies Swedish history and society in-depth however it quickly becomes evident that this simplistic analysis is flawed.” It appears that of primary importance is widely shared characteristics of hard working, honest, trustworthy, trusting, responsible, … which cannot be explained by simplistic analysis of ‘big government’ versus ‘small government’ nor ‘welfare state’ versus ‘free-market capitalism’.

    Interestingly, Swedish immigrants to the USA do significatly better than the US average. “One important reason why Sweden performs well according to many social metrics has its roots in history and sociology: Sweden and other Scandinavian nations have, for hundreds of years, benefited from sound institutions, potentially a strong Lutheran work ethic and high levels of trust, civic participation, and cooperation. These cultural phenomena do not disappear when Swedes cross the Atlantic and emigrate to the USA. The 4.4 million or so Americans with Swedish origins are considerably richer than average Americans, as are other immigrant groups from Scandinavia.”

    To me, the success of Sweden has to do with the Swedes. They work hard and pragmatically adjust & evolve their government, health care, banking, welfare, industrial, taxation, educational, regulatory, etc systems to suit their core values. IMHO, they might pay what many consider to be “high taxes” but they seem to get good value for what they pay for.

      1. I disagree. If I recall correctly, the author pointed out that the swing in the 70’s was reversed as people perceived that some were taking undue advantage of ‘safety net’ benefits and this was, and still is, a culturaly unacceptable behaviour. For some reason the link to the original paper pdf no longer works and I’m working off memory. This is nearly always a bad thing.

        There were glaring ‘holes’ in his quoted ‘statistics’ that I did not check out. Example: In the past two decades, health care employment (and costs) has exploded in all western nations. Including this massive growth as ‘public jobs’ for Sweden and ‘private sector jobs’ for the USA is, at best, incorrectly comparing apples to oranges and, at worst, intentionally deceptive. Many similar questions: Are prison guards in a privatized prison considered public employees or private sector employees? This type of comparison results in a ‘double skew’ of both ‘jobs data’ and taxation costs/percentages if health care is ‘tax funded’ or not. I do not know if these corrections were made in his data or his quoted statistics.

        Similarly, there is no analysis of ‘private sector jobs’ created or destroyed by sector. Example: Financial sector employment and percentage of GDP has exploded in the USA but I am doubtful that the same ratio(s) exist in Sweden. [Aside: Certainly the Swedish response to bank insolvency was considerably different in 2008-2009.] I would be interested in seeing data on manufacturing/mining/forestry/agriculture employment and fractions of GDP for Sweden versus the USA covering the past 30-40 years. All of these industries (and a bunch more) “create value” on which to base an economy on. Service industries, with many exceptions, generally do not.

        I stick with my orginal observation that “the success of Sweden has to do with the Swedes” and conclusions as to taxation systems and economic policies based on comparisons of Sweden & the USA are, at best, “suspect”.

      2. Here is the link . It works in my browser.

        Certainly cultural traits of frugality, trust and a strong work ethic are important. But these are not unique to Sweden.

        Zero growth in private sector jobs for almost the entire 30 years of the welfare state experiment is the elephant in the room. Especially as jobs growth resumed after 1995.

  5. Then they would have to work harder for this. It is much worse when there’s economic downfall based from less employment and entrepreneurship. In my opinion, an extensive welfare state should start from building up these factors, then deal with the less important stuff later.

    1. Great paper. I like this warning not to put the cart before the horse:

      There is also another question that must be addressed: which one comes first, wealth or a strong welfare system? Which one of the two is first developed in a country? According to Wagner a country first becomes rich, and then she develops a strong welfare system……Sweden did not become rich because she has a strong welfare system! Sweden developed a strong welfare system because she was a rich country!

      3. Very good summary of the inequality debate:

        The rich man increased his wealth at a pace of 50%, while the poor man increased his real wealth at a pace of 40%. They are both richer though. But a trained socialist would put it in the following way. “The income of the wealthiest 50% of the population, increased from 90% to 91% of total income, and the income of the poorest 50% of the population decreased from 10% to 9% of total income, and therefore the rich became richer and the poor became poorer”. But the last part of the phrase is false of course, as I just explained. They all became richer….

        The paper also highlights how socialists use annual incomes to measure increases or decreases in inequality, when they should be using changes in net wealth — a far different measure.

      6. That is very kind of you. But to publish them where?
        The ones I have translated in English are at the following link.

        http://www.scribd.com/iakovos_alhadeff/documents

        I believe the best two I have written are the

        “Why Marx was wrong”
        http://www.scribd.com/doc/202485182/Why-Marxism-is-wrong

        and

        “The causes of the economic crisis for non economists”
        http://www.scribd.com/doc/201709399/The-Causes-of-the-Economic-Crisis-For-Non-Economists-The-Austrian-School-Approach

        May I also ask why would you help me?

        Thank you very much though even for just thinking about it. Very kind of you
        Iakovos

      7. Publish excerpts on the blog/newsletter, with links back to the original article.
        There is no charge. I promote whatever interests me. I am happy to assist fellow bloggers whose views I support.

      9. Thank you very much for your interest. I am really honored. The thing is that I published them at Amazon too, just to get some more readership, and in order to have the right to use some of their promotional tools (their kindle select program) I agreed not to use any other publisher.

        Otherwise, you can have them at Amazon, but you cannot use the kindle select services. But I had them at my page, thinking that it didn’t really matter since I had them for free at my page, and I also gave Amazon the right to refund anybody who finds a better price (free in my page).

        But I got a message today from Amazon, saying that they noticed that my stuff are on the net for free, contrary to what I agreed. And I had to withdraw them in order not to lose the kindle select facilities. Below is my amazon page. I could not put them for free. I will put all of them for free for 5 days every 90 days (that is the maximum number of days you are allowed to put them for free). That is if they don’t throw me out from the kindle select program. If they throw you out, you can still use amazon, but not kindle select (free promo, allow borrowing etc).

        I did not want money. I am just going for the readership. So I chose the lowest possible price, which is 1 dollar, from which I get 35 cents. But they charge another 23 cents, which I think is the Greek vat. So they sell them for 1.23 dollars. I would put them for free if I could. But I am really honored that you pay attention to my essays.

        http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&field-author=Iakovos%20Alhadeff&search-alias=digital-text&sort=relevancerank

        Iakovos

      10. I sympathize with your position. You have put a great deal of effort into your essays, but are struggling to find readers. Unfortunately there are many writers in the same position.

      12. My suggestion would be to publish excerpts, with a link back to the full essay on Scribd or Amazon. Problem with Amazon is most readers don’t have Kindle.

      13. It is a very good idea. But I don’t want to do it when they are not free. It is different when it is free (scribd). It is simply your opinion. You are begging for readership. But when it is not free (amazon) you are begging for money. It is very different.

      19. 140k readers? That is very impressing indeed. Well, I gave you the link with my documents, If you think they are worth of being published…….I will be very happy. But thank you very much for the feedback.
        Iakovos

      20. I am posting my documents in wordpress in an effort to get some readership. I am not in investment you see, so I do not know any of the experts giving advise. I really did not mean to be rude. I do not know any consultant.

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