Is Sweden a Supermodel for Economic Reform and Recovery?
C. Fred Bergsten of the Peterson Institute in the Wash Post:
Sweden was the world's third-richest country in 1968 but became a massive welfare state in the 1970s and 1980s and a prototype for how not to run an economy. It slid to No. 17 in the global income rankings and experienced a deep financial and real estate crisis in 1991, according to a 2012 study from the Research Institute of Industrial Economics. To its enormous credit, Sweden reversed course with consummate skill and political courage; it has become a paragon of sensible economic and social policy….
After its crisis, Sweden reduced public expenditures by 20 percent of its gross domestic product, slashing social transfers such as unemployment benefits and sick-leave compensation. It cut its public debt in half (its debt, as a proportion of the economy, is now about half that of the United States). It cut marginal tax rates and simplified its tax code so much thatnearly two-thirds of Swedes simply confirm by phone that the declaration automatically prepared for them by the tax authorities is correct. The banking system was thoroughly reformed and emerged unscathed from the global financial crises.
Structural reforms were also adopted. Successive governments deregulated one market after another and privatized as market conditions permitted. All children receive vouchers so their parents can choose private or public schools at public expense. Swedish social security became a true insurance system, rather than a pay-as-you-go one with huge unfunded liabilities as in the United States.
None of this is to say Sweden's famous social safety net was stripped bare.
Sweden remains a social welfare society, and government spending still accounts for half of its economy; it finances all education and health care, as is common throughout Europe. Sweden did not dismantle the social system but, in addition to drastically reducing its costs, adopted macroeconomic and structural reforms to make it sustainable and greatly enhanced its efficiency by privatizing the delivery of many educational and medical services. The country's guiding principle is that a successful social welfare society must be fiscally conservative and administratively efficient.
Sweden is no libertarian paradise, but its bounce-back conforms to the ideas widely discussed here: Cut spending, liberalize all sorts of policies to create better austerity measures that right-size government and lay the groundwork for economic growth.
Back in 2010, Reason TV asked, Sweden: A Supermodel for the U.S.? Watch it now.
