EDITOR’S NOTE: Due to technical difficulties, I’m posting Mark Pennington’s second post for him below:
I tune in to Fox News occasionally to get some relief from the constant left of centre bias offered by the BBC – the latter is currently offering an incessant stream of reports on how public spending cuts which will return Britain to levels of government spending last seen in 2006, represent the end of civilisation as we know it. It is disturbing though to hear Fox presenters repeatedly describing European countries, such as Sweden – as ‘socialist’, warning about the fate which awaits the US if it does not mend its Obamaesque ways.
Sweden is emphatically not a socialist country – unlike Britain, it has never practiced a policy of mass nationalisation and has thus never needed a Margaret Thatcher to reverse such a trend. Unlike the United States, it has recently taken radical steps to privatise postal services and to massively enlarge the role of the private sector in secondary education. In essence, Sweden is an open market economy but with an enormous transfer-based welfare state imposed on top. One might say that Sweden is a model of social democracy. Indeed, many on the British and American left point to Sweden as a clear example of how to combine high levels of prosperity and other quality of life indices with high levels of income redistribution. Alas, for the left, even a cursory glance at the history reveals that the success of Sweden in this regard has occurred not because of social democratic policies, but in spite of them.
As the former economic advisor to Prime-minister Olaf Palme, Assar Lindbeck has shown, for most of the period between 1930 and 1965 when the Social Democratic Party held a virtual monopoly of power – it did not in fact pursue ‘social democratic’ – i.e. highly redistributive policies. Significantly, in 1960 Sweden had lower levels of taxation and perhaps more surprisingly, higher levels of income inequality (as measured by gini coefficients) than the United States. This followed a period when Sweden rose from being relatively poor by European standards to one of the four riches countries in the world with respect to per capita income. In the intervening years, however, Swedish taxes have risen to be among the highest in the developed world and the income distribution has become one of the most egalitarian. With respect to per-capita income, however, Sweden has fallen between 10 and 15 places. Recent improvements in Swedish economic performance meanwhile have been accompanied by attempts to reduce the level of taxation and to tolerate a modest rise in income inequality following the virtual bankruptcy of the country in the early 1990s. In short, as any classical liberal would be keen to point out, there is always an economic cost to redistributive policies and Sweden is no exception to this rule.
It might, of course, be argued that the decline in the relative growth performance of Sweden is a ‘price worth paying’ because redistribution has brought about many other benefits such as greater social trust, lower crime, low infant mortality and the like. This view lies at the heart of the thesis that inequality is the cause of various social ‘diseases’ for which greater equality (read redistribution) is ‘the cure’. Yet again though, the evidence from Sweden does not fit the social democratic case. Sweden already had higher life expectancy, lower infant mortality, lower crime and higher levels of trust than most other developed nations in the early 1960s, i.e. when it had a much less egalitarian income distribution. Indeed, some indicators – such as crime – have actually deteriorated since the income distribution has been flattened. The experience of Sweden and the Nordic countries more widely suggests that it is not the welfare state that has created high levels of trust and social well-being, but that countries with high levels of trust and well-being are more likely to introduce egalitarian policies – policies which slowly but surely start to put a strain on the social fabric.
So, America and Britain have much to learn from Sweden – but the lessons they need to heed are not those proffered by Fox News or by the British and American Left.
 Lindbeck, A. (1997) The Swedish Experiment, Journal of Economic Literature, 35: 1273-1319
 Bergh, A. (2006) Is the Swedish Welfare State a Free Lunch, Econ Journal Watch, 3 (2): 210-35.