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).

33 thoughts on “Sweden: Failure of the welfare state experiment

  1. […] experiment with socialism is often lauded as an outstanding success but numbers from the Institute of Economic Affairs suggest […]

  2. 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.

  3. Ray says:

    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.

    • ColinTwiggs says:

      My take was that the strong work ethic and high levels of trust were damaged by the welfare state model and are having to be re-built.

      • Ray says:

        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”.

      • ColinTwiggs says:

        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.

  4. john says:

    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.

  5. zzpat says:

    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.

  6. zzpat says:

    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.

    • ColinTwiggs says:

      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.

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