Swedish Lessons

by Andrew Stuttaford

It’s a sign of how far times have changed in Sweden that a high Tory magazine like The Salisbury Review can run an article praising Sweden, but this piece by Anders Åslund usefully shatters a few stereotypes in a manner that would have driven an old lefty like the late Stieg Larsson quite mad.  

In the piece, Åslund describes the shambles into which decades of overreach by the left had reduced the country (even if those to blame for its nadir,  the 1991-93, crash include right(ish) as well as left), and the often painful steps that were taken to turn the country round:

Swedish reforms have been many, systematic, and comprehensive. The immediate concern was the budget deficit. In the 1990s, Sweden’s budget deficit was 13 per cent of GDP, with public expenditure cuts of 8 per cent of GDP and tax hikes of 5 per cent of GDP. Sweden’s public debt was gradually reduced from 73 per cent of GDP in 1996 to 38 per cent of GDP in 2011. The government trimmed all kinds of social security payments to reasonable levels. Sickness leave has fallen by half since employees are no longer paid from the first day or in full. Today, Sweden has regular budget surpluses, although tax revenues have been reduced by 9 per cent of GDP from 1994 until 2011. Sweden’s main scourge was tax. In 1990, the social democratic government actually cut sky-high marginal income tax from 90 per cent to 50 per cent. The current government has decreased taxes every year and abolished the wealth tax. Inheritance tax and gift tax are also gone. A corporate profit tax of 26 per cent may seem reasonable, but tax competition is fierce in this part of Europe, as most East European countries have slashed corporate taxes to 15-19 per cent…

Keynesianism remains disliked in Sweden. Before the global financial crisis Sweden had a budget surplus on average of 2.5 per cent of GDP in the years 2004‘7. After a minimal budget deficit in 2009, it has once again a budget surplus. Sweden remains, like Germany and Finland, highly dependent on exports, and its GDP fell by 5 per cent in 2009, but it rebounded by 6 per cent in 2010 and 4 per cent in 2011, and the current account surplus is substantial. Sweden’s credit default swaps are lower than Germany’s. The only concerns are the euro crisis depressing demand, and unemployment, which hovers around 7.5 per cent.

“Only”? I’m not so sure about that. I’d also throw in some Minsky-like worries about current high levels of personal indebtedness, as well as anxiety over the consequences of an immigration policy that has, to say the least, been careless.  It’s also worth pointing out that it is easier to restructure a smallish export-oriented economy at a time of global prosperity than in the sort of conditions that prevail, well, now.

Nevertheless, read the whole thing.

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