Sweden, Rotting From Within

At the National Interest, Swedish economist Johan Norberg drops an analytical A-bomb on Sweden's stumbling welfare state.

In the early 1990s a deep recession forced Sweden to abandon a lot of the excesses from the 1970s and 1980s. Marginal tax rates were cut, the central bank was made independent, public pensions were cut and partially privatized, school vouchers were introduced, and private providers were welcomed in health care. Several markets were deregulated, like energy, the post office, transportation, television and, most importantly, telecom, which opened the way for the success of companies like Ericsson.

But Sweden retained the world's highest taxes, generous social security systems and a heavily regulated labor market, which split the economy: Sweden is very good at producing goods, but not at producing jobs. According to a recent study of 35 developed countries, only two had jobless growth: Sweden and Finland. Economic growth in Sweden in the last 25 years has had no correlation at all with labor-market participation. (In contrast, 1 percent of growth increases the number of jobs by 0.25 percent in Denmark, 0.5 percent in the United States and 0.6 percent in Spain.) Amazingly, not a single net job has been created in the private sector in Sweden since 1950.

Reporting on Europe, most journalists reserve the gloomiest forecasts for France and Germany, crippled from week to week by strikes, political sclerosis, and their behemoth welfare states. Coverage of Sweden, for some reason, has been limited to social conservatives fretting about the ABBA fans' unwillingness to crack down on gays and produce more babies. Norberg's take on the fate of the grandaddy of European welfare states is eye-opening and overdue.

Nick Gillespie interviewed Norberg back in 2003.