Sweden and other Nordic nations are often regarded as role models whose policies should be copied by others. The reason is simply that these countries are characterised by good social outcomes such as high living standards, high life expectancies, even income distributions, low crime rates and high degrees of social cohesion. The arguments for adopting a Swedish-style economic policy, centred around high taxes and a big welfare state, can seem obvious: Sweden has a large welfare state and is successful.
If one studies Swedish history and society in-depth, however, it becomes evident that the nation’s experience should actually be used to argue for the benefits of free-market oriented policies, and against massive government involvement in society.
It has historically been difficult to survive in the cold Scandinavian climate. Therefore the population has adapted a culture with great emphasis on individual responsibility. The strong Nordic norms and high levels of trust were seen as the optimal starting point for an expanding welfare state, since they limited tax avoidance and misuse of generous public support systems. However, as Swedes became accustomed to a system of high taxes and generous government benefits, these same norms have gradually declined.
A popular notion is that the high level of equality is a direct result of the high tax regime. However, well before the existence of a welfare state, Sweden had among the lowest levels of inequality when compared with other western nations. During a time when taxes were at a considerably lower level compared to today, Sweden prospered both economically and socially. Today on the other hand, the combination of high taxes, generous public benefits, a compressed wage structure and labour market regulations have created a situation where foreign-born and young people find it difficult to enter the labour market.
In my new paper, The surprising ingredients of Swedish success - free markets and social cohesion, I argue that the Nordic experience is not an exception to the observation that high taxes and massive government intervention hinders growth. On the contrary, the success of Nordic nations has been closely linked with their level of economic freedom. This explains why the period of economic radicalisation towards the left, the so-called ‘third way policy’, was a short-lived and failed experiment in Sweden. It also explains why Nordic nations have compensated for high taxes by implementing free-market reforms in various other fields, thus increasing their economic freedom ranking to levels comparable with the UK.