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How Modern Sweden Profits from the Success of Its Free-Market History

  • How Sweden Succeeds in Spite of Itself
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Tags Global EconomyWorld HistoryPolitical Theory

10/16/2015Yonathan Amselem

Bernie Sanders’s entry into the presidential race has sparked a nationwide conversation about socialism and its potential to remedy the real and perceived pathologies suffered by Americans. Throughout Sanders’s extensive political career, he has proudly labeled himself a socialist while being careful to distance his ideological roots from basket cases such as North Korea, Cuba, Venezuela, Bolivia, and other collectivist nightmares. Rather, as with most progressive socialists, he considers himself a “democratic” socialist sharing more in common with the relatively wealthy Scandinavian countries.

It is interesting that progressives like Sanders can look at a rich country like Sweden and automatically conclude that the nation’s high living standards do not result from a laissez-faire past, low levels of national debt, monetary independence, no centrally mandated minimum wage, strong legal protection of property rights, a level-headed central bank, low corporate tax rates, or even Sweden’s gradual move toward more privatization in healthcare, social security, and education. Rather, progressives naturally assume that Sweden’s high living standards are a product of their high taxes and nationalized industries.

But, imagine if LeBron James took up smoking. Any success on the court would be despite his destructive habit not because of it. Sweden’s economic success has come in spite of its socialism.

I will focus on just one Scandinavian country, Sweden, given that it has often been touted by progressives as a sort of heaven-on-earth. A (very) brief history of this fascinating country might help us better understand Sweden’s current high living standards and the many ways in which Swedish socialism has set an unnecessary cap on the nation’s productivity.

Sweden: From Crippling Poverty to Unheralded Prosperity Through Laissez-Faire Capitalism

Some 250 years ago, the area we recognize now as “Sweden” was a frozen tundra inhabited by a huddled mass of starving peasants. Their lives were tightly controlled by a series of kings, aristocrats, and other men of artificially high esteem. As award-winning author, Johan Norberg points out in this excellent piece on Sweden, it took a series of classically-liberal minded revolutionaries to wrestle control from the elites and put Sweden on a path to prosperity.

Licensing czars, an oppressive guild system, and a litany of other onerous regulations on free exchange were dramatically reduced or eliminated. In the century from 1850–1950, the population doubled and real Swedish incomes multiplied nearly tenfold. Despite the almost non-existence of a welfare state or any major state control of economic sectors, by 1950 Sweden was the fourth richest nation in the world. Sweden’s extraordinary growth during that century rivaled even that of the United States (Sweden was not a participant in the two World Wars). As a matter of fact, capital formation and wealth creation proved so abundant in Sweden during the global depression of the 1930s that even social democrats in the legislature practiced a form of salutary neglect to ensure the prosperity would continue. As with any other country, Sweden’s impressive capital stock was built by entrepreneurs operating in a free market system.

Sweden’s Experiment with “Nordic Socialism” is Relatively New and Has Been Disastrous for Growth

Big business looking for government protection worked alongside ambitious politicians and union leaders to force Sweden into adopting socialist policies in the decades following its impressive growth. Over time, government spending more than doubled and taxes in certain sectors were doubled or even tripled. Despite these calamitous changes, by 1970, the OECD still ranked Sweden as the fourth richest nation in the world. However, by 2000 Sweden sank to number fourteen. Dr. Per Bylund from Oklahoma State University has previously pointed out that from 1950–2005, Sweden did not add one net private sector job. Nordic Socialism has frozen a once entrepreneurial and prosperous people in time. With few exceptions, Sweden’s large businesses have very little incentive to innovate (and they have not), and many enterprises now survive purely on government contracts whose value is impossible to ascertain without a system of free exchange to establish prices for goods and services.

Sweden has managed to live comfortably for decades despite its many heavy-handed socialist policies only because so much capital stock was created in the decades prior (not to mention a sane monetary policy). Yet this capital consumption is eroding Sweden’s wealth. In 2007, Professor Mark J. Perry from George Mason University pointed out that if Sweden were to be admitted as a 51st state to the Union, it would be the poorest state in terms of unemployment and median household income. Yes, even poorer than Mississippi. In fact Sweden’s current welfare state suppresses household incomes so effectively for Swedes that a 2012 IEA study found that American Swedes have roughly the same unemployment rate as Swedes in Sweden yet earn, on average, 53 percent more annually.

In recent years, Swedish lawmakers have begun slowly privatizing chunks of their socialized sectors such as healthcare, social security, and education. Last year, Reason magazine pointed out that private health insurance has exploded in a country where cancer patients may wait up to a year for treatment in the state-run system. This trend has grown. Sweden, furthermore, has begun outsourcing education to private providers and seen not only a reduction of costs but an increase in parent satisfaction and learning outcomes for graduates.

Bernie Sanders has Picked up the Wrong Lessons from the Nordic Model

Bernie Sanders has stated now, and in the past, that he would like to see an America with universal healthcare, paid maternity leave, expanded social security through higher payroll taxes, mandatory vacation days and sick leave, free secondary education, and the enactment of a slew of other progressive policies. It seems he has only forgotten to promise yachts for the homeless.

The underlying problem with socialists like Bernie Sanders is that they do not actually believe (or understand) in economics at all. As Ludwig von Mises himself has pointed out, socialism is not an economic theory — it is a theory of redistribution. Only free exchange can coordinate entrepreneurs and their resources in a way that creates actual goods and services that satisfy consumer needs and wants. Socialists like Bernie Sanders take no part in this process of wealth creation; they merely show up after the fact and demand title. Sweden has practiced this form of parasitic socialism on their accumulated wealth and it has significantly stifled Swedish productivity.

Nordic-style policies advocated by Sanders have (predictably) restricted Sweden’s growth for decades. The notion that we can implement Nordic socialism in a nation of 320 million people without destroying labor mobility, taxing capital out of existence, and absolutely crippling innovation where it’s needed most is pure delusion. Sweden is slowly returning to its productive capitalist roots. We should do the same.

CORRECTION: An earlier version of this article incorrectly referred to "GDP per capita" when describing Mark J. Perry's research. The correct term, "median household income," has been inserted.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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