The myth of Sweden as the country where socialism works is too convenient (for some) to be allowed to drop.
Nevertheless, Johan Norberg has been doing his best for years to refute it whenever the matter has come up:
I try to explain that we have been socialists and we’ve been successful—but never at the same time.
Now he has a written a book to combat this legend, which I look forward to reading.
Norberg has a post up on the Cato Institute’s blog in which he gives some background. In his view, Sweden’s story is “one of the best examples we have of the benefits of free markets and the perils of socialism.”
He explains:
Between 1870 and 1970, Sweden had a smaller government and a more open economy than most comparable countries, and that was the era when Sweden grew faster than any other developed country but Japan.
Then, when Sweden had already become one of the richest countries in the world, Sweden began to experiment with socialist ideas. From 1970 through 1990, government was massively expanded, taxes were raised, and the economy was regulated. This was not the golden era of socialist nostalgia, but more like an Atlas Shrugged moment: Swedish companies like IKEA and Tetra Pak and lots of successful entrepreneurs left Sweden and not a single net job was created in the private sector. It was the one moment in Sweden’s modern history that we lagged behind other countries.
After a devastating financial crisis in the early 1990s, politicians from both the left and right agreed to end this experiment. Instead, they reduced public spending, taxes, and regulation to get back to the growth model that made Sweden successful. Sweden started to outperform its neighbors again.
If Bernie Sanders and AOC wants to imitate actually existing Sweden today, they would have to liberalize markets in many ways, reform Social Security, introduce school vouchers, get rid of the minimum wage and most occupational licensing, and abolish taxes on inheritance and property.
Sweden still has a bigger welfare state than the United States, but the receivers pay for it themselves. The tax burden falls heavily on low‐ and middle‐income households in Sweden, making the tax system much less progressive than in the United States and almost all other rich countries.
The lesson Swedes took from the 1970s was that you can have a big government or you can make the rich pay for it all, but you can’t have both.
I explain this history and detail how Sweden’s welfare state works in the book, but if you want the shortest possible takeaway from Sweden’s modern political history, listen to Kjell‐Olof Feldt, Social Democratic Minister of Finance (1983–1990): “What we believed in as young socialists simply turned out to be impossible in practice.”
Sweden is (yet more) proof of the truth of Herb Stein’s observation that if “something cannot go on forever, it will stop.” The proximate cause of Sweden’s crunch in the early 1990s was, as Norberg relates, a financial crisis, but by then it had become clear that the country had run out of the cash it needed to fund its vast public sector. The Swedes being the Swedes, they appointed a respected economist, Assar Lindbeck, to analyze what had gone wrong. He produced a report that underpinned the country’s change of direction.
I was lucky enough to hear Lindbeck speak in New York at around that time, and he prefaced his talk with the observation that, although he was going to go into more detail, the underlying problem in Sweden was not hard to diagnose. It simply did not have enough people working in the private sector to pay for a welfare state that had grown as large as it had.
Ironically, today Sweden has to contend with the troubling consequences of another disastrous (and subsequently abandoned) utopian fad, the embrace some years later by the center-right Moderates, the leading party in the then-governing coalition, of something close to open borders libertarianism. But that’s another story.