Economic Theory

Book review: “The Mirage of Swedish Socialism: The Economic History of a Welfare State” by Johan Norberg (Part 2)

…continued from Part 1


Most Western welfare states saw large expansions in the 1960s, and Sweden was no exception in this regard. What made Sweden different was that when others slowed down, they kept going. In the late 1970s, government spending crossed the mark of 50% of GDP, and it soon edged close to 60%.

But the 1970s and 1980s were not just a period of high public spending. The government also started the tamper with the operation of the market economy, such as by interfering with prices and wages.

Still, when Norberg calls this 20-odd year period “the socialist period”, he is not just talking about specific policies. He also describes a general zeitgeist:

“Sweden never became a textbook socialist country, with the means of production in government hands. Social democrats considered taking control of big business with the “Employee Funds,” […] transferring those companies from private hands to collective ownership, but it was […] watered down substantially […]

However, the whole climate of ideas in Sweden was infused by socialist ideas in the 1970s and ’80s, ideas both inherent in the social democratic project and some from external forces.”

This is a reference to the flagship socialist policy idea of the period: the “Meidner Plan”, brainchild of the trade union economist Rudolf Meidner. In its original form, the Meidner Plan was a plan for the gradual socialisation of most of the economy.

The idea was to force companies to emit a new round of shares every year, in proportion to their profits, and to transfer those shares to a fund owned and managed by trade unions. Technically, nobody would have been expropriated under this plan. Suppose a company initially emitted 100 shares, and you owned 20 of them. This would make you the owner of one fifth of the company. If the company then issues another 20 shares, and hands them over to the trade union fund, your 20 shares have not been taken away from you. It is just that you now only own one sixth rather than one fifth of the company (i.e. 20 shares out of 120 rather than 20 out of 100). If the same thing happens again in the next year, the proportion of the company that you own goes down to one seventh. And so on.

These numbers are just for illustrative purposes: the actual ownership transfer under the Meidner Plan would have been slower than that. But over the course of a generation or so, the funds would have acquired a majority stake in most large companies.

It is therefore unsurprising that the Meidner Plan still excites many socialists today. Jacobin magazine, for example, describe it as one of the most ambitious democratic socialist policy proposals ever seriously considered in a developed economy”, and call for its introduction in the US today:

“The existing owners of capital […] would retain their shares, but those shares would be diluted through new issuances every year […]

The voting shares of the funds would thereby gradually increase in value until capital income and control over the economy lies in the hands of the public.”

Similarly, in the UK, the Marxist economist Grace Blakeley writes:

“[A]ny socialist government must consider radical propositions to transform ownership and investment – through, for example, […] a Meidner Plan for the UK.”

At the last general election, such a “Meidner Plan for the UK” was official Labour Party policy in all but name. As then Shadow Chancellor John McDonnell put it at the time:

“Power also comes from ownership. We believe that workers, who create the wealth of a company, should share in its ownership […]

We will legislate for large companies to transfer shares into an “Inclusive Ownership Fund.” The shares will be held and managed collectively by the workers. The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company.”

When Sweden eventually introduced Employee Funds in the 1980s, they lacked the key characteristic of the original Meidner Plan: its open-endedness. Meidner’s funds would, by design, have controlled an ever-growing proportion of the nation’s capital stock. Sweden’s actual Employee Funds had upper limits. Neither did they use the mechanism of forced share issue. They were more like a pension fund, which simply bought exiting shares. Meidner himself was – understandably – not happy with them: real Meidnerism has never been tried.

After a few years, they were disbanded again without much resistance.

The Sweden of the 1970s and 1980s, then, was not a socialist country, but it was a country which pushed social democracy to its utmost limits, and in which socialist ideas to go further were seriously discussed at the highest levels.

When contemporary socialists name Sweden as an example of a “successful socialist economy”, this is what they are talking about. They are not talking about the actual Sweden that exists today. They are not even talking about the actual Sweden that existed in the 1970s or 1980s. Rather, they are taking that 1970s/80s Sweden as a starting point, and extrapolate in a Meidnerite, socialist direction.

But this is, of course, still not a real place, and using it as an example very much begs the question of whether Meidnerite socialism would have worked any better than the all the other versions.

Either way – as far as it went, the economic outcomes of Hyper-Social Democracy With Socialist Characteristics were not great. It did not lead to a Venezuela-style humanitarian catastrophe, but it did lead to a period of relative economic decline, which culminated in the economic crisis of the early 1990s. For the first time since the 1930s, Sweden was less rich than the Western European average. Public debt had shot up from under 20% of GDP to over 80%, and unemployment shot up to over 10%.

This led to a return to liberal principles in the 1990s. Price controls were abolished, state-owned enterprises privatised, and public spending was taken down to a little under 50% of GDP again (which is still very high, but getting there took a reduction by more than ten percentage points from its peak).

Today, Sweden is best described as a market economy that is generally fairly liberal, except for the fact that it has a very large welfare state.

Is the relative success that Sweden enjoys again today a challenge for free-marketeers?

It depends. If you are a full-on “Lafferite”, who equates free-market economics with tax cuts, and who thinks high taxes are the biggest impediment to growth, then it is not unfair if an opponent asks you why Sweden does so well. But my take on it has long been that if you get most other things right, and if you have a high-trust society where people are prepared to pool their resources, you can get away with a fairly high level of taxation. It does not mean that a high-tax model is a great idea – just that the downsides are tolerable.

In other ways, though, the Swedish welfare state raises some challenges for its professed admirers.

Firstly, Sweden has gone further than most welfare states in introducing voucher-like systems, where services are publicly funded, but can be privately provided if recipients so choose. There is huge variation between different branches of the welfare state, but overall, almost a fifth of the welfare budget is spent on private providers. For example, one in six students attend publicly funded private schools. Whenever similar measured have been adopted or considered in Britain, it has caused a fierce backlash from socialists and Sweden-aficionados. The NHS, in particular, cannot by a pencil from a private company without triggering hysterical campaigns about “creeping privatisation”.

Secondly, the Swedish example makes clear that you cannot have a welfare state of that size by only taxing a few super-rich individuals, as British left-wingers like to imply. It requires high taxes on everyone, and it is dishonest to present it as a quasi-free lunch.

Thirdly, most redistribution in Sweden is “horizontal” rather than “vertical”: it is not redistribution from the rich to the poor, but between people in the same or adjacent income quintiles. Some people are net beneficiaries of the welfare state throughout most of their lives, some are lifetime net contributors, but a lot of people simply pay for their own benefits, minus the admin cost.

That is by no means the worst of all possible worlds, but I can’t see why this is better than a smaller, more targeted welfare state, which you do not come into contact with unless you fall on hard times.

In summary: if you want to use Sweden as an example of a successful social democratic welfare state, which works despite high taxes – fair enough. You have a point, even if there are major caveats you should mention. But using Sweden as an example of a successful “socialist” economy really is just a cheap rhetorical trick, which should be called out. Socialists who do that are not referring to the actual Sweden, or even to an idealised Sweden of the past, but to a Sweden that they think could once have been. Which is really just another roundabout way of saying “Real socialism has never been tried”.


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

Leave a Reply

Your email address will not be published. Required fields are marked *