During his upcoming visit to Sweden, President Barack Obama will surely praise the nation’s combination of high living standards, few social problems, and high level of income equality. What he may not recognize -- although he should -- is that the astonishing social and economic outcomes in Sweden and other Nordic countries have more to do with a unique culture among homogenous populations than with simply following a recipe of social democratic policies.
Sweden long has been admired by US intellectuals, particularly on the left. In 1976 Time Magazine described Sweden as a “country whose very name has become a synonym for a materialist paradise... No slums disfigure their cities, their air and water are largely pollution free... Neither ill‑health, unemployment nor old age pose the terror of financial hardship.” The praise has continued since then. Recently even Bruce Springsteen joined those in favor of the US adopting a Swedish style welfare state. The success of Nordic nations is often seen as the proof that large welfare states lead to good outcomes. Paul Krugman for example writes: “Every time I read someone talking about the ‘collapsing welfare states of Europe’, I have this urge to take that person on a forced walking tour of Stockholm.”
A walk through Sweden’s history however paints a more nuanced perspective than the one Krugman and other praise-givers might suggest. Around 1870 the previously poor country could begin its route to prosperity, thanks to comprehensive market reforms. Between 1870 and 1936, the start of the social democratic era, the country had the highest growth rate in the industrialised world. Between 1936 and 2008, a period when Sweden was mainly controlled by the Social Democrats, the growth rate was only ranked 18th out of 28 industrialised nations. Also, it is vital to remember that the social democrats were initially highly pragmatic. Small government policies continued until the social democrats radicalized in the late 1960s.
Sweden’s phenomenal growth can, besides business friendly policies, has much to do with the country’s unique history. Nordic countries were for a long period dominated by independent farmers who had great incentives to work hard in order to survive in the harsh and cold climate. The populations in these homogenous countries not only adapted very strong ethics relating to work and responsibility, but their culture also became characterized by social cohesion and high levels of trust.
Early welfare state institutions, not least a public school system open for all social classes that emphasized discipline and academic knowledge, indeed promoted social mobility. It is vital to realize that the high level of income equality for which Sweden is envied for developed when the nation had relatively small welfare state. The rise of high tax policies occurred after Sweden had already grown equal.
The cultural attributes that explain Nordic success work well also in the US, at least amongst the nation’s Nordic population. Today we can see that descendants of Scandinavians who live in the US (whose fore-fathers left well before the development of social democratic policies) have the highest levels of trust in the US. Americans of Swedish origin have the same poverty level as Swedes in their native country. The Americans however earn some 50 percent higher incomes than the latter.
The period for which Sweden has been most envied by the US left is the massive state expansion that occurred mainly during the period following the second world war, a period when the tax rate increased by almost one percentage point annually over three decades. In particular the left is fascinated by the “third way policies”, a mix between capitalism and socialism, which followed radicalization of previously pragmatic social democrats in the late 1960s. This period, characterized by massive state involvement and effective marginal tax rates of sometimes 100 percent, was however anything but successful. Previously Sweden had thrived due to birth of new entrepreneurial firms, a phenomenon that almost stopped in 1970 and did not again start until significant market reforms where introduced during the 1990s and early 2000s.
During recent decades the levels of economic liberty have again increased strongly in the Nordic countries (Norway, leaning on its oil-wealth, is somewhat slow to reform). The Nordic nations compensate for their high taxes and regulated labour markets by having introduced high levels of economic liberty in a wide range of other fields. Recently, even the taxes have been reformed. In 2000 total tax revenues in Sweden were over 51 percent of GDP. The level decreased somewhat during the following years of social democratic rule, to 48 percent in 2006. The current centre-right government has reduced them to 44 percent and is currently introducing new reductions of the tax burden.
Rather than expand their welfare states, Nordic nations are again returning to the free market roots that have served them so well historically. This is perhaps an important lesson for Obama, Springsteen and Krugman, to ponder. There are indeed many smart elements in the Swedish welfare state, and the welfare states of other Nordic countries, that deserve admiration. An example is how public child care has encouraged women’s entry into the labor market. Another is Danish flexicurity that combines public safety nets with a liberal labour market. A third is partial privatization of social security in Sweden. A fourth --- often ignored --- is the country’s dedication to fiscal conservatism even under the Social Democrats.
There are also many areas in which some Nordic nations fail whilst others do significantly better. Norway continues to rely on systems with very generous public benefits, which deteriorate the work ethic. The other nations, which cannot rely on oil wealth, have learned their lesson and work towards strengthening incentives for work and entrepreneurship. Finland has kept a school system that is, thanks to academic discipline and knowledgeable teachers, able to educate well those who do not come from academic or middle-class families. Sadly, Swedish public schools, have, much like their US counterparts, moved towards progressive ideas and deterioration in teacher’s knowledge. The result is an inability to stimulate those who are not intrinsically motivated to learn to do so. Overall the Nordic nations also fail at integrating foreign-born, even those who come with higher education.
There is simply much to learn from Nordic nations. They have experimented with everything from implementing Milton Friedman’s idea of vouchers in welfare to implementing gender quotas in corporate boards. But aside from benefitting from the unusually strong norms related to work, trust and cooperation, Nordic societies are no exception to the rules of politics and economics. The same policies that hinder growth in the US (high taxes, lack of infrastructure, failing school policies) limit societal success in Scandinavia, whilst steps to encourage innovation, entrepreneurship, and work are proven to work equally well in both sides of the Atlantic.
Dr. Nima Sanandaji is a Swedish author of Kurdish-Iranian origin. He has written numerous books and reports about issues such as entrepreneurship, women's career opportunities, integration, and welfare. Nima is the author of reports "The Swedish Model Reassessed" for Finnish think-tank Libera and "The surprising ingredients of Swedish success” for the Institute of Economic Affairs. Currently he is working on a book about the unique economic and cultural success of both the Nordic nations and the “new Nordic” countries in the Baltics.