September 5 2012

Taking Notes from Sweden on Economic Success

Vicki E. Alger

Government’s the only thing we all belong to,” says a promotional video that aired yesterday. I agree with my colleague Charlotte Hayes that “this is the creepiest idea so far from Charlotte.” A recent study from the U.K.’s Institute of Economic Affairs also suggests it’s among the silliest if you’re serious about a successful economy.

In “The surprising ingredients of Swedish success – free markets and social cohesion,” author Nima Sanandaji makes several salient points:

 

-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.

-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.

-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. 

 

Liberty, not government dependency, is the key ingredient for growing strong economies. This message likely won't be broadcast from Charlotte. Instead we’re more likely to continue hearing that somehow we’re all creatures of the state and, “If you’ve got a business—you didn’t build that. Somebody else made that happen.”

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