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14 February 2013

Sweden: Beacon of the right

Sweden – home of Abba, meatballs and social democracy. Well, not so much the social democracy anymore.  In fact, as the Economist reports, 21st century Sweden is more of an inspiration to the right than to the left:

  • “Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.
  • “Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period.”

Furthermore, it's not just the size of the welfare state that’s been transformed, but its structure too:

  • “Sweden has… put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.
  • “Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly.”

So, why the turn around? After all, this is a country in which the main party of the left ruled “for 44 uninterrupted years from 1932 to 1976” and whose grip on national life was so complete as to include a eugenics programme that lasted forty years and which sterilised more than 60,000 people.

It was shame that did for the eugenics, but for the less sinister aspects of Swedish social democracy the main problem was one of affordability:

  • “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.”

How has all that reform and retrenchment of the state worked out for the Swedes? Not too badly as it happens:

  • “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.”

Furthermore, few western nations have emerged from the financial crisis so assuredly as Sweden has – thanks, in part, to a banking system that was reformed years before the global storm of 2008. 

Of course, one can always point to Sweden’s special advantages – a relatively small population in a large country packed with natural resources. Two centuries of continuous peace has also helped, not to mention the good sense of the Swedish people in staying out of the Eurozone.

Nevertheless, what Sweden demonstrates is that, even in the most accommodating of circumstances, the state has its limits – and, that once those limits are breached, reform is not only possible, but necessary.


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