This Swedish Model Is, on Balance, Not Attractive (Nor Are Those Western Europeans)

What was once considered, and actually was, a beautiful thing not that long ago has turned pretty ugly. Johnny Munkhammer at TCS Daily has the details, in which he describes “the Swedish Model” as consisting of three parts, two good and one awful — so awful that it has offset the good parts. Some of the stats here will stun you:

There are two good Swedens to learn from: One is the hugely successful country that literally went from rags to riches between 1890 and 1950, with one of the highest growth rates in the world. This was not least thanks to a tax pressure (tax rates–Ed.) between 10 and 20 percent of GDP, a truly limited state, with open borders and very good conditions for entrepreneurs.

Or there is the Sweden that started reforming in the 1990s. Marginal tax rates were cut, markets were deregulated, the Central Bank was made independent, public pensions were cut substantially and some free competition was allowed in health care. School vouchers were introduced — still even controversial in the US — and markets were deregulated, the prime example being telecom, opening up for the development of Ericsson and a something like 75 percent decrease in the price for phone calls. This led to a higher growth and increased prosperity for several years around the Millennium shift.

But there is also another Sweden, a country that one can learn much from, but should definitely not imitate. It is the country that introduced an extreme version of the European Social Model of a big state. The tax pressure was raised from 20 percent in 1950 to some 50 percent in 1980. The state monopolized welfare services and social security. The labor market was highly regulated.

The Swedish experience from walking this path is that it is a dead-end. It is even counter-productive. And when it comes to this model, the big state, Sweden has not reformed. The tax pressure is still the highest in Europe. Ever since the taxes reached this level, growth has been declining. If Sweden were a state in the US, it would be the fifth poorest. During the past 15 years, average annual growth has been 1.4 percent — lower than the average for the US, the OECD and the EU.

Employment has been developing very poorly. There are nine million people in Sweden, and some 1.5 million people of working age don’t go to a job. The unofficial total unemployment is some 20 percent.

….. Thus, many people are dependent on the state. Early retirement, sick leave, unemployment, temporary labor-market programs — there are many categories. Employment is decreasing and dependency on the state is rising. About 60 percent of the adult population is to some extent dependent on the state.

And indeed, those welfare services that were said to benefit from public monopolies and a big state are deteriorating. Despite an increase of almost 70 percent in spending since 1979, Sweden’s public health-care system is coming apart at the seams. The Swedish Association of Local Authorities and Regions reports that doctors see an average of four patients a day, down from nine in 1975. The number of hospital beds is down by 80 percent since 1975. More than 50 percent of patients have to wait over 12 weeks for an examination and then at least 12 more weeks for treatment. Public schools and public elderly care also experience great problems.

These are all natural results from this so-called social model. The big state stands in the way of prosperity and better living standards. In this regard, other countries — in the EU or anywhere in the world — should not copy Sweden.

This great table, which I would suggest bookmarking, shows per capita Gross Domestic Product (GDP) for the US and 14 other countries, both in dollars and as a percentage of the US amount, from 1960 to 2003. You can see from the table that Munkhammer’s Swedish story above plays out:

• From 1960 to 1970, Sweden’s per-capita GDP grew almost 50% and went from about 80% of the US figure to almost 88%, and peaking at a bit over 90% in 1975.
• After that, it’s basically been downhill, and by 2003 Sweden’s per-capita GDP was only 78% of the US.
• In the meantime, look at the countries that have passed Sweden or moved to near-parity. In 1970, Sweden’s GDP was second only to the US. Go to 2003, and you’ll see that it has since been fallen behind Canada, Austria, Denmark, and Norway (big-time). Countries that were well behind Sweden but that are now nipping at its heels include Japan, Belgium, The Netherlands, and the UK.

The expansive welfare state has its consequences, and they are predominantly negative.

Martin Wolf, in a Financial Times piece yesterday (HT the on-hiatus EU Rota) expands the analysis to current conditions in Western Europe:

The time has come for Europeans to ask themselves the unthinkable: can their vaunted social model endure? It is a question I have wished to avoid. But it is irresponsible to persist in doing so. Something is rotten in the state of western Europe. The continent retains valuable assets from the past. But these are showing symptoms of decay. The underlying cause seems increasingly evident: the hypertrophy of the state.

The tone gets harsher from there, and justifiably so, and includes this priceless chart:

To find which countries are relatively prosperous and which ones are not, simply move up the chart.