There’s this idea in the U.S. (on both the Right and the Left) that Scandinavia is some sort of democratic socialist paradise where the governments and the people have banded together to make it all work. Bernie Sanders lavished praise on Scandinavia during last week’s Democratic presidential debate when talking democratic socialism.
“Those are some of the principles that I believe in, and I think we should look to countries like Denmark, like Sweden and Norway, and learn from what they have accomplished for their working people.”
But this isn’t true at all. Swedish economist Nima Sanandaji wrote in CapX in August how the country rejected democratic socialism because of how bad it turned out, especially for those who owned businesses.
As politics radicalised the social democratic system began challenging the core of the free market model: entrepreneurship…In 1980 a private person who owned a business could pay an effective marginal tax of 137 per cent on the returns on the capital raised by new share issues. This means that the individual would actually lose money by making a profit once the effect of both taxes and the inflation of the original investment were taken into account. If the business had been financed by debt, the venture became profitable, albeit still facing a high tax rate.
The late Johnny Munkhammar wrote in The Wall Street Journal in 2011 how free market reforms saved the country during the financial crisis.
Even smarting from the financial crisis, Swedes turned the leftists down. Over the last four years, they have seen their borders opened for more labor migration, they have seen still more state-owned companies sold, and have seen their public authorities shrink in number. Stockholm has also cut property taxes and abolished the wealth tax, and instituted a new system of income-tax credits that lets working people with average incomes keep what amounts to an extra month of wages, after taxes, per year. Today, the state’s total tax take comes to 45% of GDP, from 56% ten years ago.
Meanwhile, unemployment benefits, sick leave and early retirement plans have all been streamlined to encourage work. The number of people receiving such welfare—which soared during the socialist decades—has fallen by 150,000 since 2006, a main reason for Sweden’s remarkably sound public finances. Stockholm has also introduced a law that empowers Swedes to chose their providers for health care and other public services. This has led to a robust surge in entrepreneurship within the health-care sector, where more competition is bound to improve services.
Sweden did take a swing towards the Left during last year’s election, but it’s not as bad as it seems. The government is a minority government, meaning there’s a Left coalition (barely) in power. The country’s debt crisis is really horrible with Sweden $161B (U.S. dollars) in the red. A part of this is because of the increased government spending from 2014 into this year. It’s not at Grecian levels just yet, but Bloomberg noted earlier this year things weren’t good.
Sweden’s government will face a big bill from the current borrowing spree when interest rates, eventually, rise.
The costs for mortgage tax deductions, which allow households to write off as much as 30 percent on interest costs, may almost double to 46.8 billion kronor ($5.4 billion) by 2019, the National Financial Management Authority forecasts.
The migrant influx isn’t helping things and Sweden’s jobless rate of 6.7% for September has the government worried. It’s basically forcing the Social Democrats to talk with the opposition Moderates (the free market types) on what to do. This might cause another swing towards the Right if the Moderates play their cards right. Sweden is going to have to do spending cuts, whether they like it or not. If they don’t, then things will go haywire, again.
Sanders also likes to bring up the fact Sweden has “tuition free universities.” But the math doesn’t add up. Here’s what The Atlantic found in 2013:
But students there still end up with a lot of debt. The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). Sure, the average US student was carrying about 30% more, at $24,800.
But remember: Free. College in Sweden is free. That’s not even all that common in Europe anymore. While the costs of education are far lower than in the US, over the past two decades sometimes-hefty fees have become a fact of life for many European students. Britain got them in 1998 . Some German states instituted them after a federal ban on student fees was overturned in the courts…And yet, students in Germany and the UK have far lower debts than in Sweden. And 85% of Swedish students graduate with debt, versus only 50% in the US. Worst of all, new Swedish graduates have the highest debt-to-income ratios of any group of students in the developed world (according to estimates of what they’re expected to earn once they get out of school)–somewhere in the neighborhood of 80%. The US, where we’re constantly being told that student debt is hitting crisis proportions, the average is more like 60%…
The reason why is because of rent, food, beer, etc. And guess what? The Atlantic found out Swedish students are STILL taking out student loans.
According to data collected by the OECD, despite nonexistent tuition costs, Sweden has a virtually 100% uptake rate on student aid. That’s why Sweden is all by itself in the bottom right corner of this chart, although its Nordic neighbors are not far behind.
The facts are this: Sanders’ claim that the “Swedish model works” aren’t true at all. Sweden rejected it in the 1990’s. Sanandaji sums things up pretty nicely at CapX.
The failure of third way policies is well known amongst both academics and politicians in the country, and can in turn explain the enthusiasm for market reform that the country has experienced since the early 1990s. It is perhaps surprising how the myth of Sweden’s successful socialist system lives on abroad, decades after state control over the economy was rejected in the country itself.
So what’s the solution for Americans? Bringing this up and pointing out just how wrong Sanders and Hillary Clinton are. The “Swedish model” is a myth! It’s not real! Those on the Right need to bring this up over and over and over again. It can put Sanders, Clinton, and the rest of the Democrats on the defensive. They can’t defend something which doesn’t exist because it failed miserably! The best panacea for democratic socialism is unfettered free markets and less government spending. THAT’S what the Right in America needs to be pushing if they have the testicular fortitude to do so.