The left is wrong: The welfare state didn’t make Scandinavia successful
23 June 2015
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Economic Theory
Regulation
Tax and Fiscal Policy
19 November 2024
Bruce Springsteen may have been “Born in the USA”, but he says he’d prefer the US to be more like Sweden.
With its generous welfare state, many hold up the Swedes, and other Scandinavian countries, as role models for what can be achieved by a large redistributive state. With high life expectancy and relative income equality, Sweden is thought to be a repudiation of Anglo-Saxon “neo-liberalism”. That’s why, in 2005, Polly Toynbee claimed Sweden was “the most successful society the world has ever known”.
More recently, there has been a cooling in this praise. Prior to the country’s 2014 election, any problems arising – such as the 2011 Swedish riots – were blamed on rising inequality, austerity, cuts to public spending, or any other bogeyman associated with Sweden’s relative shift away from its big government model since the 1990s.
But the idea that the Scandinavian countries show “another way” remains. In particular, the social democratic era of the 1970s to 1990s is seen by the left as the basis of Sweden’s success. This is a huge misreading of the history and evidence – as a new IEA book, Scandinavian Unexceptionalism by Nima Sanandaji, shows.
The truth is, many of the outcomes the left loves about Sweden pre-date the era when its welfare state was most significant. Sweden in fact performed very well economically prior to its welfare state – and had the fastest growth rate in the industrialised world between 1870 and 1936. By 1975, it was the fourth richest nation in the world, but after two decades during which the welfare state was most intrusive, it fell to 13th.
A similar story is found when one looks at social outcomes. Sweden is held up for its high life expectancy at birth, with the implication being that generous healthcare and safety net welfare are responsible. Yet, relative to other countries, Sweden performed better on life expectancy in 1960 than in 2005 – i.e. prior to the large expansion of the state.
This historical pattern, coupled with the strong performance of Iceland (which has a much smaller government), suggests that it might be cultural characteristics and the way services are delivered that set the Nordic countries apart. Sweden’s low level of income inequality also pre-dates the huge expansion of welfare and higher taxes. Other cultural and historical factors – such as the high degree of homogeneity in the population – seem more important in explaining egalitarianism.
This becomes clearer if one considers that the Czech Republic is also relatively egalitarian, and unlike Sweden has low and flat taxes. Indeed, attributing good outcomes to cultural explanations becomes more powerful still when one considers that those of Scandinavian descent in the US (with less welfare, lower taxes and freer markets) have higher median incomes than average Americans, and lower poverty rates than both Americans and citizens of Nordic countries.
So almost everything that the British left thinks about Sweden and Scandinavia more broadly is wrong. In the period prior to its welfare state, Sweden experienced robust growth. It wasn’t the creation of the welfare state that fostered high levels of trust, but trust that created the culture for a highly redistributive state. The long period of ever more intrusive welfare, however, led to stagnant jobs growth, only partially reversed by some modest reforms since the 1990s.
As a hangover of “big welfare”, Sweden now has high levels of disability and sickness benefits, despite unusually good health, and problems integrating migrants. Certainly, Sweden shows that a highly redistributive state need not lead to disastrous outcomes – but the evidence suggests that Sweden could be even more successful economically and socially with a more liberal, free market economy, given its strong institutions and culture.
Ryan Bourne is the IEA’s Head of Public Policy. This article first appeared in City AM.
With its generous welfare state, many hold up the Swedes, and other Scandinavian countries, as role models for what can be achieved by a large redistributive state. With high life expectancy and relative income equality, Sweden is thought to be a repudiation of Anglo-Saxon “neo-liberalism”. That’s why, in 2005, Polly Toynbee claimed Sweden was “the most successful society the world has ever known”.
More recently, there has been a cooling in this praise. Prior to the country’s 2014 election, any problems arising – such as the 2011 Swedish riots – were blamed on rising inequality, austerity, cuts to public spending, or any other bogeyman associated with Sweden’s relative shift away from its big government model since the 1990s.
But the idea that the Scandinavian countries show “another way” remains. In particular, the social democratic era of the 1970s to 1990s is seen by the left as the basis of Sweden’s success. This is a huge misreading of the history and evidence – as a new IEA book, Scandinavian Unexceptionalism by Nima Sanandaji, shows.
The truth is, many of the outcomes the left loves about Sweden pre-date the era when its welfare state was most significant. Sweden in fact performed very well economically prior to its welfare state – and had the fastest growth rate in the industrialised world between 1870 and 1936. By 1975, it was the fourth richest nation in the world, but after two decades during which the welfare state was most intrusive, it fell to 13th.
A similar story is found when one looks at social outcomes. Sweden is held up for its high life expectancy at birth, with the implication being that generous healthcare and safety net welfare are responsible. Yet, relative to other countries, Sweden performed better on life expectancy in 1960 than in 2005 – i.e. prior to the large expansion of the state.
This historical pattern, coupled with the strong performance of Iceland (which has a much smaller government), suggests that it might be cultural characteristics and the way services are delivered that set the Nordic countries apart. Sweden’s low level of income inequality also pre-dates the huge expansion of welfare and higher taxes. Other cultural and historical factors – such as the high degree of homogeneity in the population – seem more important in explaining egalitarianism.
This becomes clearer if one considers that the Czech Republic is also relatively egalitarian, and unlike Sweden has low and flat taxes. Indeed, attributing good outcomes to cultural explanations becomes more powerful still when one considers that those of Scandinavian descent in the US (with less welfare, lower taxes and freer markets) have higher median incomes than average Americans, and lower poverty rates than both Americans and citizens of Nordic countries.
So almost everything that the British left thinks about Sweden and Scandinavia more broadly is wrong. In the period prior to its welfare state, Sweden experienced robust growth. It wasn’t the creation of the welfare state that fostered high levels of trust, but trust that created the culture for a highly redistributive state. The long period of ever more intrusive welfare, however, led to stagnant jobs growth, only partially reversed by some modest reforms since the 1990s.
As a hangover of “big welfare”, Sweden now has high levels of disability and sickness benefits, despite unusually good health, and problems integrating migrants. Certainly, Sweden shows that a highly redistributive state need not lead to disastrous outcomes – but the evidence suggests that Sweden could be even more successful economically and socially with a more liberal, free market economy, given its strong institutions and culture.
Ryan Bourne is the IEA’s Head of Public Policy. This article first appeared in City AM.
3 thoughts on “The left is wrong: The welfare state didn’t make Scandinavia successful”
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Really bizarre article. I’ll just make one point to explain why, similar points could be made about other stats in this article, but anyway to quote:
“the social democratic era of the 1970s to 1990s is seen by the left as the basis of Sweden’s success”
Really? What social democratic era is this that the left talks about? All I know is that by 1970, Sweden had already experienced 23 years of the Swedish Social Democratic Party under Tage Erlander. In fact, the welfare state in Sweden goes back even before his premiership started in 1946, according to the book “Tage Erlander: Serving the Welfare State, 1946-1969” by Olaf Ruin. Here is what it says:
“At its peak, the Swedish model was characterised by three things. First was the extensive Swedish welfare system that had been started during the interwar period and had been expanded to near perfection after the war, as social reforms followed each other fast and furiously during the forties, fifties, and sixties. Universal pension payments were raised on serval occasions; universal child support payments were introduced and increased several times; the length of paid vacations stipulated by law was increased again and again; obligatory health insurance was established; an obligatory supplemental pension was legislated; the system of free schools and universities was expanded; students were provided with stipends; the pace of building apartments subsidised by the state was accelerated, and so forth. During the 1960s, Sweden was considered the world’s most advanced welfare state.”
So you want to say Sweden had one of the best life expectancies and most wealth by the 60s/70s? Maybe the above facts had something to do with it?
Alex – the point is that those policies were not particularly generous until there was a huge expansion from about 1960 through the late 1980s. Assar Linbeck who used to be the economic adviser to the late Olaf Palme has written very widely on this suggesting that for the first 20 or so years of social democratic party rule the policies adopted were not particularly social democratic and certainly not significantly more so than those pursued elsewhere in western Europe.
Today Scandinavia in general and Sweden in particular have a very high levels of early retirement, sickness leave and poor mental health. The poor mental health is a long-term trend, happening all over Scandinavia as a consequence of the welfare policy and strategy during both economic progress and recession. The public health concerns are raised in the Nordic countries since 2010 when the region has by far the highest consumption of antidepressants in OECD Health Statistics. Like any human with the gift of reflection, we reduce many confusing aspects of the welfare-ridden society down to an important quation: How did we get there?
The key points how and why the Nordic welfare states came about and evolved to its current complexity has to do with the Scandinavian modern societies which substituted for those traditional systems as early as 1930s. A set of straightforward social welfare policies was initiated, launched and spread by local politicians with no intention of manipulation or abuse of power. The success of any social epidemic is depend on the environment, circumstances and the effort of a handful of people with particular social and political gifts. As a result, the ideology of the Nordic welfare states was driven by the effort of some exceptional people who had a powerful persuasive personality. The great mystery, however, is how the noble objectives of welfare state evolved to its current complexity and produced an undesirable result. Social justice, human services and community stability as the guiding principles of the Nordic welfare states have given way to a culture of dependency, segregation and poor mental health today. The reason simply refers to a phenomenon what psychologists call “risk homeostasis.”
What risk homeostasis tells us is an idea, a vision, a piece of legislation, a business plan, a life partner, a product or a social and economic model that appear to be straightforward and logic to our theoretical brain can be unsustainable, biased and destructive in long run. It is about drawing a line between theoretical world and practical reality in order to see how we are actually under influence of irrational reasoning and why we maintain an unrealistic confidence in our own perception over welfare state. This is an exploration of the most compelling self-deception or cognitive error that has been identified and explained scientifically under risk homeostasis. The reason is simply a cognitive error because we adjust our beliefs depending on the level of risk we actually perceive. The message needs to be conveyed to above author and the redears is the fact that the social and economic model of welfare state once rational to our functioning brain has produce an undesirable result today. The works and the efforts of scientific debaters such as Daniel Kahneman, Noam Chomsky, Malcolm Gladwell, Milton Friedman, Jerald Wilde, Naomi Klein, Thomas Piketty, Jared Diamond and many more bring significant contributions and greatest efforts to our understanding of risk homeostasis, cognitive error and the dark side of welfare state.
The truth is that the importance of being mentally, emotionally, socially and spiritually health was almost lost on culture of decadency in Scandinavia leaving a number of mysterious symptoms that mark everyday life of most ordinary people today. The symptoms that the general public suffer from are work related stress, anxiety, game and gambling addiction, alcohol abuse, high consumption of antidepressants and the epidemic rate of cohabitation, separation, isolation, loneliness and emotional emptiness. Today policy makers and politicians offer a blueprint of how to reform the welfare system, promoting transparency and digital technology to make the state far more efficient and responsive. But decades of experience shows that technology and transparency have neither played a significant role in addressing the roots social oppression nor the solution to society’s poor mental health. Social breakdown easily creeps into the most technologically advanced, transparent and effective version of modern society where a culture of dependency is the building block of Scandinavian mindset.
The Scandinavian social welfare system results from decades of unsound practices by the welfare state, essentially twofold: high tax and high cost of living. People have been socially and economically equalized by the Nordic welfare states through progressively high income tax and state subsidies. The Scandinavian economic policy took its own distinctive forms, drawing on an increase of income tax from less than 20 percent in the 1960s to nearly 60 percent and from a non-VAT (value added tax) policy to nearly 25 percent VAT on good and services today, the highest rate of 25% exists in Norway. By early 1970s the Nordic countries were simply and purely tax-and-spend countries. The Sweden’s public spending reached 67% of GDP in 1993.
What´s more, today most Scandinavian policy makers seemingly assume that psychological and biological explanations for the world’s inequalities is wrong. Therefore ordinary people have been equalized regardless of their intelligence, talent, hard work and personal input. Such equality fuels the whole range of dependency, welfare fraud, human trafficking, brain drain, growing problems across schools, the rise of poor public health and the lose of social norms and cultural values.The Scandinavian welfare system is moving in a wrong track, which will take the masses nowhere but to a defunct state of mental functioning where the economic orientation is forcing citizens to pay a sky high tax and VAT on all goods and services including a VAT of nearly 12% on food. High tax and high cost of living are the driving forces for state subsidies and allowances, which are a list of 135 items funded through the national health insurance. Social orders are not what we think they are in long run where politicians make decisions and forecasts based on their own internal models assuming their models are humane, accurate and sustainable. Today psychological health is the most worrying problems we face, as individuals and as a society. It is about you, me and generation to come. Our collective trait is close to disagreed-upon rules, demanding for enlighten leadership and institutional purpose. We most likely need a new way of thinking and processing information in order to know the complexity of welfare state in Scandinavia, which is wasteful, inefficient and expansive, producing inferior education, segregation, harming our cultural values and creating poor mental health. Thank you.