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Johan Norberg
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Johan
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NZCPD
Guest Forum
Opinion piece by Johan Norberg
14 October 06
The
Swedish model looks more attractive
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What’s
the difference between
Sweden
and the
US
? Well, only one of the countries has introduced school
vouchers, abolished the death tax and partially privatised the
pension system. All those reforms that President Bush has
struggled to introduce in the
US
have been successfully implemented in
Sweden
. And the Swedish social democrats has accepted the first
change, participated on the second and took the initiative to
the third.
It shows how much that can be done in a small and consensus
oriented society, when there is an agreement on the need for
change. Liberalisation was begun by a social democratic
governments in the end of the 1980s as a response to economic
problems, and was accelerated by the centre-right Bildt
government of 1991-94. The economy was deregulated and markets
were opened which paved the way for multinational companies
like Ericsson.
Sweden
increased its economic freedom much more than most European
countries. Public perception always lags behind, but Sweden is
actually one of only 20 economies in the world categorised as
“free” in Wall Street Journal’s and Heritage’s annual
ranking.
The ensuing social democratic governments didn’t turn the
clock back, but lost the appetite for reform after a while.
Especially, they never touched the total tax burden and the
rigid labour market regulations, which has led to growing and
mostly hidden unemployment. McKinsey put the figure at 15
percent. But more liberalisation will possibly follow now that
the Swedish voters replaced the social democratic government
with the four party centre-right
Alliance
on September 17th.
It was a stunning defeat in a country many voters believe to
be the best in the world. Prime Minister Göran Persson
announced his resignation as social democratic leader the
moment he accepted the defeat. Even though the election took
place right in the middle of an economic boom, he led his
party to their worst election since 1914, before general
suffrage was introduced.
International media has reported that the new likeable
conservative Prime Minister Fredrik Reinfeldt from the
Moderate party ran on a…well…moderate platform. They will
mend rather than abolish the welfare state and we should not
expect them to slash public expenditure. But this ignores
several reasons why we should expect an intensive reform
period anyway.
In
Sweden
, the tradition is that the politicians fight about who will
expand the welfare state the most. This time, the election was
won on one single issue: a fairly principled debate about
producing public benefits vs. creating new jobs with lower
taxes. That this could be won in a country with such
widespread dependence on government jobs and handouts
surprised many observers, myself included. This gives the new
government a strong mandate to reduce benefits and taxes,
especially on low incomes. And when people move from the
welfare rolls to jobs it gives the government room to move on
with more tax cuts.
The four centre-right parties are more in agreement than ever
before, after years of market-liberal ideas pouring out from
authors and think tanks. Suffice it to say that three of the
parties have fairly influential libertarian factions, and the
leader of the fourth has said that he has Ayn Rand’s Atlas
Shrugged on his bedside table.
Their
Alliance
has a rather substantial reform agenda. The government will
privatise most state-owned companies, deregulate product
markets, make it easier to hire the young, open Sweden for
workers from other countries, dismantle the political control
of the universities, give parents freedom of choice in child
care, open welfare services completely for private
alternatives with more voucher systems and locally, they will
privatise hospitals.
And this time around the three smaller parties are more
radical than the moderates on several issues and will push for
more reforms, for example on specific tax cuts and labour
market reform. In 1991-94 the moderates wanted to do more, but
was constantly held back by the others.
This is all the more interesting, since this is the first
Swedish government in 25 years to have a majority in
parliament. And it is the first centre-right government in
living memory that doesn’t take over when the economy is in
free fall.
There is a chance that
Sweden
will be the fastest liberalising European country in the years
to come. Even though it is a small country this might have
international repercussions, since many look to
Sweden
for inspiration. If
Sweden
, of all places, continue to pioneer open markets, voucher
systems, and health care choice, it will look less menacing to
the political left around the world. European leaders with
reform ambitions should call Mr Reinfeldt right now, and they
will have made an important new EU partner in the fight to
deregulate the European economy.
Yes, it feels strange. But in a way it is back to the future.
Sweden
used to be one of the world’s most open and free economies.
That is how
Sweden
got rich. As late as the 1950s, when
Sweden
was one of the wealthiest countries on the planet,
Sweden
had lower taxes and less public spending than the
US
and most West European countries. So when people ask how
Sweden
could be such a rich country despite the taxes and the
regulations, it is very much like the old joke about how you
get a small fortune: You start with a big one…
It was only in the 1970s that
Sweden
became an exception, when taxes skyrocketed and businesses
were regulated. This is when
Sweden
got its reputation as a socialist economy. And it is since
1970 that
Sweden
has lagged behind the rest of the world. Since then not a
single job was created in the private sector, on the net.
Since then, just one of
Sweden
’s biggest 50 companies have been created. Bosse Ringholm, a
social democratic minister of finance recently concluded that
every Swedish household would have had an extra $2.700 per
month on average, if
Sweden
had had the same GDP growth as the OECD since 1970.
So
Sweden
had to search for a formula that could put an end to the
stagnation. And self-assured as always it found one, in its
own history.
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