This is an old article that appeared 15 years ago, but the facts of the matter are still very relevant today:
Swede and Sour
by Johan Norberg [ 06/10/2002 ]
STOCKHOLM -- If Sweden left the
European Union and joined the United
States we would be the poorest
state of America. Using fixed prices
and purchasing power parity adjusted
data, the median household income in
Sweden in the late 1990s was the
equivalent of $26,800 compared with
a median of $39,400 for U.S.
households - before taxes. And then
we should remember that Sweden has
the world's highest taxes.
The Swedish Research Institute of Trade, who made the study,
underlined that Afro-Americans, who have the lowest income in
the United States, now have a higher standard of living than an
ordinary Swedish household.
That story came as a chock to many about a month ago. But
mostly to foreigners, not to Swedes. Since the 1970s, we are used
to news about Sweden lagging behind the rest of the world in
wealth and income. It was more of a shock to Americans and
Europeans who used to think about Sweden as the perfect
example, the exception that could combine the big welfare state
with a productive economy. If this social model was a part of the
US, it would be considered a social problem. How did this come
about?
To understand this, we have to understand that Sweden was
never an exception to the rule that wealth can only be created by
free men and women, on a free market.
Swedish Development
In 1850, Sweden was a poor developing country where the people
starved. This country couldn't be saved by redistribution. Even if
you had levelled out all property in the middle of the 19th century,
it would still have given everybody a life in misery. Total equality
would have given the average Swede a living standard equal to
the median income in today's Kazakhstan.
But in a few decades in the mid-1800s, a group of classical liberal
politicians gave Sweden religious liberty, freedom of speech,
freedom of movement and economic liberty, so that people could
start their own businesses and buy and sell freely on the market.
Free trade made it possible for Sweden to specialize in what we
did best, such as the timber and iron industries, and exchange it
for that which we produced less well, such as food and machinery.
The result was economic growth and industrialisation, which made
it possible to increase well-being and invest in education and
health care. Between 1860-1910 the manufacturing wage
increased 170 per cent, much more than in the period after.
Swedish life expectancy increased ten years and infant mortality
declined rapidly. Sweden was not a welfare state, it was more of a
minimal state. Until the first World War, the Swedish public sector
did not spend more than 6 per cent of GDP!
The Social Democrats, who took power in 1932, continued with
liberal rules for big business, whom they appreciated, and they
continued with a free trade policy. Even though government
intervention slowly grew, in 1950, the public sector was smaller
than in most countries -- about 25 % of GDP, roughly the same as
in USA and Switzerland. The economy also benefited when we
stayed out of two world wars. Swedish enterprise sold to both
sides, the industry was not destroyed and young Swedes weren't
killed.
Between 1870-1970, Swedish growth was the biggest in the world,
next to Japan's. In 1970 Sweden was the fourth richest among the
OECD-members, after USA, Luxembourg and Switzerland.
The Welfare State, The Welfare Weight
But then, the welfare state had begun to increase -- as a way for
the politicians to redistribute the wealth that individuals and
markets had created. The economy continued to grow: considering
the starting-point, the good industries and a well educated and
hard working people, only a total planned economy could have
destroyed that possibility. But thereafter, it was slower than in
other countries. If you don't get much return on investments, work
and education, why would you invest, work hard or get a good
education? The welfare state simply consumed the wealth that the
markets had created, and made it harder to create more. In 1990,
the year before a deep depression in Sweden, private enterprise
had not created a single net job since 1950, but the public sector
had increased by more than a million employees.
The Swedish public sector grew bigger, and more unproductive in
the 1970s, and the labour market was regulated. From 1976 to
1982 public spending rose from 50 to 65 per cent. At the same
time we had to devalue the currency five times, by a total of 45
per cent. The average growth rate was halved to 2 per cent in the
1970s, and declined further in the 1980s, and that was before the
big crisis in the 1990s.
After more than 30 years of high taxation and an expanding
welfare state, Sweden is not the 4th richest OECD-country any
longer, but the 17th. This hurts the least well off most. Between
1980 and 1999, the gross income of Sweden's poorest households
increased by just over six percent while the poorest in the United
States enjoyed a three times bigger increase.
Free markets and free trade were the basis for the Swedish
miracle. Sweden was not an exception, and therefore it is no
surprise that the shift away from free markets undermined the
miracle.
In 1934 the two Swedish social democratic ideologues Gunnar and
Alva Myrdal explained that there were extremely beneficial
conditions for a welfare state in Sweden - considering our wealth,
the homogenous population, the protestant work ethic and the
good education. If the welfare state didn't work here, it couldn't
work anywhere in the world, they thought. The rest of the world
should seriously ponder the fact that the Myrdals were right in
that prediction.
The author is a Swedish historian of ideas, a senior fellow with the
classical liberal think tank Timbro, and author of the influential
pro-globalisation book In Defence of Global Capitalism,
http://www.globalcapitalism.st -- winner of The Antony Fisher
International Memorial Award 2002
So a quick summary. Sweden used to be poor. But then by 1970 it had one of the highest overall standards of living in the world. Many articles were written at the time about Sweden's high standard of living and how they had managed to achieve that. But then in the following decades the standard of living gradually began to decline. Maybe some socialism was a good thing but the government became over-bloated.
And all this was before most of the mass immigration into the country.
I do want to qualify this article a little bit, I think it's mostly overblown. The standard of living in Sweden wasn't bad in the 90s, the great majority of the population could be considered middle class, though the afforded amenities were usually more sparse than what their middle class counterparts in the U.S. were used to at the time. I mean smaller houses, more families living in apartments instead of houses. Basically comfortably just within the realm of middle class but nothing extravagant. Much higher paying middle class jobs didn't exist to the extent they did in the U.S. and then high taxes ate into much of the income. Because of the absence of poor people, labor costs were also higher, so that paradoxically made middle class incomes not go as far in terms of purchasing power. (Although it also made unemployment rates very low for teens and elderly persons because of the more limited labor pool available to employers)
But since the 90s things have begun to change. The country is fast headed towards "Second World" status.
(Some of you know what that means, but I'll quickly explain it to those who do not. We all know that "Third World" is a colloquialism for meaning a country has a lot of poverty and living standards don't tend to be very high, whereas a "First World" country has a thriving middle class and overall high standards of living. Some countries fit between those two categories. I'd say that the country of Italy, for example, just barely fits within First World living standards. Countries like Greece and Hungary might be right on the border between First World and Second World status. When you get to actual Second World, we're talking countries like Albania or the Ukraine. Turkey and Iran would probably go in the Second World category. Some of you may still be having difficulty comprehending what this means. Second World means there's still going to be a small portion of the population dying in the streets and most people are not able to afford cars, or at least having a car is considered more of a luxury. Most people don't have lots of extra money to spend on things like going to the movies or eating out, or the latest Apple iPhone. Hospitals tend to be pretty limited in the types of medical treatment they can offer, and a major surgery is typically a huge financial hardship for the average family. You'll have a large segment of the population toiling for low wages and living in near poverty. Maybe 25% of the population will be stuck in life and not really able to do anything because there isn't enough money.)
- By Rich
- By Bill_Nye
- By Potemkin