(N.b. – This is actually a rearranged and expanded version of this post from last Thursday. I happened to stumble across the printed version of the cited article on Sweden over my morning tea earlier today, so I wanted to revisit this with more details and emphasis on Sweden. — Sk.)
Last month (28 June) saw the 300th anniversary of the pivotal Battle of Poltava. Poltava was a watershed in the history of eastern Europe (and the world), as it marked the emergence of Peter the Great’s Russia as a major power – and the dashing of any hopes for Ukrainian independence for the next 282 years.
A third consequence was that Poltava marked the end of Sweden’s long run as a major power with an extensive and far-flung empire. After Poltava, Sweden gave up on its imperial status – and largely withdrew from the rough-and-tumble of continental politics.
Nowadays, Sweden is giving up on another long run – its run as the “model” welfare state.
More below the fold.
My business travels have taken me to Sweden a few times. It’s a very pleasant, congenial place.
The aggravating part about Sweden isn’t anything that’s directly the fault of the Swedes. It’s the way that Sweden (and its massive welfare state) became a sort of golden calf for tiresome “progressives” – who never grew fatigued with their infatuations, and never bothered to revisit their affections from back in the 1970s.
But reality has caught up even with mythical Sweden. Long the iconic end-of-human-social-evolution utopia-of-dreams of domestic “progressives,” Sweden is now frantically trying to back itself out of that swamp:
Anders Borg[*] has a message for those who look to government to take over health care, rescue the financial system and run troubled corporations: I have seen the future–and it doesn’t work.
As the finance minister of Sweden, Borg is the chief financial officer of a country long known as a walking billboard for a social welfare state. In Borg’s view, the 1970s and 1980s were lost decades for Sweden. Left-leaning politicians pushed government spending, excluding investment outlays, from 22% of gross domestic product in 1970 to 30% in 1980. Real growth fell from an average of 4.4% annually in the 1960s to 2.4% in the 1970s and remained low for the next two decades.
[* – Sorry, sci-fi fans, but in that funny pronunciation system used in Swedish, his surname is pronounced “Bor-ee” – ed.]
Those were lost decades indeed. If Sweden were a U.S. state, its GDP per capita would place it near the bottom among the fifty states, on a par with Mississippi.
So what is the “new Sweden” doing in public policy?
Borg is pushing Sweden in the opposite direction, encouraging the legislature to cut taxes, cap spending and privatize parts of health care.
His government has slashed the tax rate on low incomes from 30.7% to 17.1%. The combined tax take (national and local; income and other) has fallen by 2.5 percentage points in three years to 46.6% of gross domestic product.
Among other tax cuts: [Prime Minister] Reinfeldt has done away with a wealth tax and cut corporate and property taxes.
This is clearly not your father’s Sweden.
Having run the “progressive experiment” for a few decades, the Swedes have figured out that it’s a dead end that does not work – and they want out.
Of course, the main question is – can the situation be redeemed?
[Borg] became disenchanted after concluding the indulgent government was turning Sweden into a “boring, stagnant society.” [!! – ed.]
To hear Borg tell it, his government isn’t inspired by coldhearted Darwinism but by cold, hard evidence that the easier the state makes life for people, the easier they take it.
Many observers are starting to notice that most of the iconic lazy western European welfare-state-utopias are frantically trying to undo “utopia.” The open question is, will several decades of marination in that fiasco render those societies incapable of recovering? That remains to be seen.
But at least Mr. Borg sees governance not as an entitlement, but as a responsibility:
“Given that we’re taking money out of people’s paychecks, we have to be responsible,” he says of his low-tax ethos.
This is more commonly known as…. common sense.
Meanwhile, what’s going on in “emerging markets”?
Personally, I like “emerging markets” – because many of them really are determined to actually emerge. It’s been encouraging to see, experience first-hand, and participate in the renewal of eastern Europe – and also to become increasingly involved with parts of sub-Saharan Africa (a region which is finally showing some signs of real life).
So, what’s going on in the jurisdictions that have their acts together?
Sensible tax policies are another attractive feature of many emerging markets. The highest tax rate in Brazil is just 27.5%. Flat-tax structures have become the norm in places like Russia, the Czech Republic and numerous other countries that were once behind the Iron Curtain. And dynamic Asian markets like Singapore, Malaysia and Taiwan have long since done away with capital gains taxes.
Where would you invest funds and build facilities (and create jobs)? (I actually have to worry about things like that first-hand.)
For a good 35 or more years now, domestic “progressives” have been hectoring everyone about how the United States has long been somehow out-of-step with “the rest of the world.”
Maybe now would be a good time for these cooks to begin eating their own cooking….