The Corner

Why Sweden Isn’t Venezuela

There have been a few days of rioting in Venezuela, with the riots directed at groceries and food distributors. The scene will be familiar with anybody with even a casual education in the history of socialism: The shelves are empty, and staples such as milk and rice are nowhere to be found. In a period of only a few years, Venezuela has been reduced from seeing its strongmen swaggering around the world giving out free (“free”) heating oil in poor communities to being a pauper nation with 800 percent inflation and people rioting for food.

The culprit here isn’t simply lower oil prices: You’ll notice they’re not rioting in Oslo or Houston. The culprit is socialism. 

There’s a great deal to be said about the moral awfulness of socialism (you can get the CliffsNotes version from me or take a horrifying deep dive with the late Robert Conquest) but it is worth taking a moment to think about the structural issue.

Talk to a Bernie Sanders voter about “socialism” — and they can be very insistent about using the word — and you’ll get paeans to Sweden, which is not a socialist country but a country with large, expensive welfare state. The distinction is not trivial: There is relatively little in the way of state-run enterprise in Sweden; the Swedish government is in fact only a 60 percent partner in the postal service. The Swedish government is, alas, in the casino business, albeit in a more transparent way than American government is. On the Heritage economic-freedom rankings, Sweden isn’t that far behind the United States. It has very high taxes, but taxes are not the only burden that governments put on the economy, not necessarily even the most important, and Sweden outscores the United States on a number of important metrics: free trade, property rights, freedom from corruption, investment freedom, monetary policy, etc. The United States’ small edge in the rankings comes mainly from relatively low taxes and a much less regulated labor market.

If you want to know why that matters, take a look at those empty Venezuelan grocery stores. A highly productive modern capitalist economy can withstand a fair amount of welfare-statism, as Sweden, Canada, Switzerland, the United States, and others demonstrate. What it cannot bear very much of is proper socialism, which is to say government ownership and operation of the means of production. If you’re going to have a welfare state, what you want is one in which your welfare programs simply enable higher levels of consumption among the people you’re trying to help rather than one in which government tries to actually manage enterprises.

The classical example here is food stamps. The federal nutrition program may be rife with fraud and low-level corruption, but it doesn’t have much effect on the actual underlying economic activity of farming, food processing, etc. (To the extent that it distorts real economic activity, it does so mainly at the retail level.) You can live with a little bit of corruption, but you can’t live without food.

The most dysfunctional aspects of the American economy are those in which the government actually operates enterprises (public schools, VA hospitals, housing projects, etc.) or in which its financial role is so pervasive that it is effectively a business manager (Medicaid). Government-run schools in Philadelphia fail for the same reason as government-run groceries in Caracas: Central planning is an impossibility.

It isn’t that difficult to subsidize the poor — if you’re willing to pay for it. All you have to do, really, is levy the tax and cut the check or issue the voucher. What’s difficult and destructive is putting real economic activity under direct political discipline so that you can try to get the outcomes you want without having to actually levy the tax and write the check, two politically unpopular activities. Thus the deliberately opaque webs of credit subsidies, mandates, tax incentives, etc. that characterizes our public policies on everything from the Export-Import Bank to higher education.

There are limits to welfare-statism, too, of course, which is why Sweden has spent the past couple of decades as a tax-cutting, privatizing, budget-balancing, market-oriented reformer. The country has some deep problems, of course, and while I am not an enthusiast for Swedish levels of taxation, say this for Stockholm’s confiscatory ways: Unlike their American counterparts, members of the Swedish middle class pay the freight for their welfare state. You don’t get the Swedish system without Swedish levels of taxation, including relatively high taxes on low-to-middle-income workers. (They #FeelTheBern.)

We disagree about how much welfare-statism we want, but we ought to agree that however much we have our programs should be structured more like SNAP and less like the Venezuelan groceries. 

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