As Communist regimes in Europe drop like flies, left-leaning intellectuals have urged the new governments to look to Sweden for a "third way" between central planning and laissez-faire. But there's trouble in social democracy's paradise. There are cracks in the dam of socialism so large that the ruling Social Democrats hope to repair them with supply-side tax cuts.
The nationalized health-care system has to ration services: Swedes must wait a year or more for coronary bypasses, more than two years for hip replacements. While the state promises universal "free" child care, some parents can't find places for their children. Taxes chew up 56 percent of GNP, almost 20 percentage points higher than the average for all Western democracies. And a November 1989 study by the business group Ekonomifakta estimates that sluggish economic growth has reduced GNP by 23 percent over the last two decades.
The high tax burden has engendered an expanding underclass: 10 percent of Sweden's full-time workers can't support themselves without welfare benefits. And draconian tax rates stifle the desire to earn higher incomes. People who earn more than $35,000 a year fall into a 72-percent tax bracket. So, reports the New York Times, many workers choose to take compensatory time off, rather than extra pay, for working overtime. As a result, the average fully-employed Swede works only 31 hours a week.
The Social Democrats plan to reduce the top income tax rates from 72 percent to 55 percent by 1991. But these rate cuts will be accompanied by a broadening of the tax base. A study by Swedish economists reported in the British journal Economic Affairs predicted that the tax cuts would increase GNP by 2 percent, but tax revenue by almost 20 percent.
These tax cuts do not necessarily signal a move toward free markets. Sture Eskilsson, director of Timbro, a Swedish free-market think tank, says that true privatization is not on the Social Democrats' agenda. "They do not challenge the role of government in [providing] basic social services: health care, public transit, and child care."
Eskilsson and business leaders claim the Social Democrats only wish to rejuvenate moribund state monopolies. The business community promises its own plan to reduce taxation to around 45 percent of GNP.
Despite the private sector's understandable resistance to the Social Democrats' tax reform program, Eskilsson says that Finance Minister Kjell-Olof Feldt holds some free-market sympathies. Feldt told the Times, "We don't believe we can get this economy to function if we increase the tax burden."
This article originally appeared in print under the headline "Sweden Isn’t Eden Anymore".
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