Most people are familiar with what I call the Swedish Fallacy – the reliance on Sweden by people on all sides of the spectrum to back up whatever policy proposal they're making, as if Sweden is a paradise on earth that everybody can emulate by adopting the same policies. It's especially common on the left: they have high taxes and a dynamic economy, so higher taxes must not be a bad thing! A new report from the Libera Foundation, a Finnish think tank, throws a spanner into those works:
One should remember that the golden age of Swedish entrepreneurship, where one successful firm after another was founded in the small country and gained international renown, occurred during a time where taxes and the scope of government were quite limited. Sweden shifted to radicalized social democratic policies in the 1960s, 1970s, and the 1980s. . . .
It is, however, important to remember that Sweden, like other Nordic nations, has compensated for these policies by improving economic liberty in other fields. Some reforms, such as the partial privatization of the mandatory pensions system and voucher systems in schools and health care surpass what has been possible to implement in most developed nations.
Swedish society is not necessarily moving away from the idea of a welfare state, but continuous reforms are implemented towards economic liberty within the scope of welfare. The rise of government has been stopped and even reversed in recent years. The nation is again returning to the free market policies which served it so well in the past.
This is a point that Tim Worstall has made in the past as well. The report also discusses the cultural factors that make such high taxes tolerable. Yes, Sweden is a high tax, high welfare country, but it's also remarkably free market by most other measures. Indeed, it might be that the only way they're able to pay for so much welfare is because in many other respects they take a more laissez-faire approach to their economy than we do.
That should be food for thought for socialists who want to take from the rich to give to the poor – if a free market maximises the money they have to redistribute in the medium-term, the most sincere socialist position might be to favour fairly high taxes and low regulation. It's not something I'd support – high taxes are still bad news for lots of reasons – but I'd prefer it to the primitive central planning that many on the left still favour. I don't think Sweden's a paradise, but it might still be able to teach the left a thing or two about how to pay for the welfare state they want.
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