Sweden - socialist?

[Garth Zietsman]

From time to time one of us will refer to Sweden as a socialist country and then some others will respond with "but they rate as one of the most economically free countries in the world."  How did Sweden get it's socialist reputation if it is so economically free?  Well it seems that Sweden WAS full blown socialist (and economically unfree) until the late 70s.  It has become freer since then (and was freer before the 60s).  This article gives a nice summary of the changes that occurred.  It's truly inspiring.

The change is reflected in Economic Freedom of World (EFW) scores.  These scores can in theory range from 0 to 10 with 9 (Hong Kong) being the highest so far and 4 being what a thorough-going state planned Communist states used to average.  Sweden moved - mostly between 80 and 95 - from the lower 5s (as unfree as the likes of Angola, Argentina, DRC, Ecuador or Ukraine are today) to the upper 7s (in line with UK and USA)

One issue I have is that the article claims that Keynesianism didn't work for Sweden (as for other countries) in the 70s and that it is unpopular now.  I have no doubt that it didn't work in the 70s since it was everywhere implemented in a way that caused runaway inflation expectations (via wage inflation).  Recently however Sweden did use a Keynesian type stimulus (with success) but gave a lesson to the world on how it is supposed to be done - like a capitalist should use it i.e. with the 'moderately conservative implications' Keynes claimed for it, rather than as a means of, or excuse for, greater government largess.  Keynes thought of it as a temporary technical tool to be used in the more general context of a fiscally responsible classical liberal economy.  It was intended as a defense against socialism because of the instability of capitalism (ya I know socialism turned at to have much worse problems) and socialists of the time recognized it as just that.  Firstly Sweden is one of the very few countries that run a budget surplus in good times, dipped into a deficit during the recession (as a result of falling revenue due to the recession and their stimulus) and then promptly returning to lower government spending, budget surpluses and fiscal responsibility (as Keynes intended).  Secondly they vigorously contained wage inflation expectations - one major union even excepted a wage reduction i.e. they were quite good at tackling wage stickiness in non-Keynesian ways, thereby offsetting the degree of Keynesian intervention necessary.  (Sorry this wasn't supposed to be an article on or a defense of Keynesian economics but praise of Sweden from abandoning real socialism for the classical liberalism that exists today.  I meant only to point out that Sweden's approach to it is classically liberal and not socialist in nature.)

It has been almost taken as a given that academics are to the left of the general population.  It's certainly true of the US (even in economics) but a 2007 study showed that Swedish academics are to the right of the general Swedish population and the Swedish Parliament.  The most left wing academic discipline in Sweden is sociology (like in the US) but in Sweden it has a left wing bias of only 5.5 (of left to right relative to the general population) which is where economics professors are in the USA (sociologists in the US have a left wing bias of over 20).  Furthermore Swedish academic support for right wing groups that aren't pro free market liberals is much lower than general population support i.e. the academic bias is entirely classical liberal in nature.

In short, Sweden was hard core socialist in the 60s (hence the reputation) but is now as (or more) classically liberal as the UK or USA are today.  By the way the Baltic states in general have more in that direction - Estonia in particular.

[Erik Peers]

Could this imply a causality? That the academics influence economic policy?

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[Gareth Brickman]

People often conflate Sweden's welfare state with socialism. More often than not, it's a semantic issue.

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[Garth Zietsman]

I personally don't think academics have a large impact on policy.  There are however reasons why academics tend to biases that differ from those of the general population - even those of equally smart non-academics.  It seems these reasons push academic biases in different directions in Sweden and the US.  The best theory that can explain the US/Swedish academic ideologies - in my view - is that academics are used to high status from their mastery of conceptual stuff during there school and university careers, and they think society short changes them in terms of respect and status they believe is their just deserts.  They think society doesn't respect and listen to them as much as they should.  In the US that society is conservative and quite capitalist so academics tend to be more anti that ideology there, but in Sweden the prevailing norms were socialist so they will tend to be somewhat anti-socialism there.

As a test I propose that academics in Hong Kong, Singapore and Taiwan are probably very left relative to their populations but that the opposite holds in mainland China (or in the old Soviet union)..

[Garth Zietsman]

It seems that the Swedish welfare system has also been cut quite a lot so far and the trend is continuing.  The article I linked to has some of the details.

[Leon Louw (gmail)]

Years ago, when Sweden was supposedly at its most "socialist", there were anomalies about which few were aware. I assume they're still true.

In short, Sweden was a "welfare" state rather than a socialist state, and the Sweden, more than anywhere else, epitomised the distinction.

Here are some of its more distinctive features:

1. It was one of the few European countries that never nationalised; at its most "socialist", it was the industrialised world's most privatised country -- the biggest share of capital formation in private hands, even more so than the USA
2. It effectively had no anti-trust law -- the highest "concentration ratio" in the world. To this day, ownership of most large enterprises is in the hands of a handful of families. (Competition policy is controversial amongst free marketeers -- I'm on the side of those who espouse zero government interference with private contracts, including so-called collusion and cartels.)
3. It had one of the least interventionistic labour policies. There was an understanding between business and labour that wages would be kept at levels that ensure full employment and international competitiveness, in other words, no de facto minimum wage law.
4. There was considerable ease of business entry and exit, in other words unregulated micro-economic markets.
5. There was little or no exchange or exchange rate regulation.
6. Housing was largely private and housing markets unregulated.
7. Despite being de jure a centralised unitary state, it was a de facto federation, with internal policy competition, eg local governments advertising lower taxes, less regulation, and better property rights to attract investors.

On the other hand, there were high taxes and "cradle to grave" welfare -- the most confiscatory and generous in the world.

Sweden cannot therefore be positioned on a crude binary continuum from capitalist to socialist. It was, during its glory years, one of the most free market economies, but with one of the highest tax rates.  

It was a country where the government was clear about wanting the goose to lay golden eggs.

So, it was never a model of socialism. That was a myth derived from a single variable: welfare.

Other "socialistic" countries, like ours, are characterised by self-defeating polices whereby government wants lots of revenue, on one hand, but then stifles the capacity of the economy to generate it on the other.  It's like labour unions wanting higher wages (a seller's market), yet espousing anti-business policies that reduce the demand for what they sell (a buyer's market), labour.

 

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[Jaco Strauss]

Thanks Leon (and Garth for raising it), I found this very enlightening. 

I suppose another reason for the Swedish welfare state to be relatively successful, is the fact that the population is homogeneous and roughly on a socio economic par. In other words you pay high taxes, but you get all the benefit of those taxes. In affect you are paying for your own hospital and your own kids' education, albeit through a middleman. And when that middleman is relatively efficient, the opportunity cost and wastage is not not so high as to make the negatives obviously evident.

Compare that to South Africa where you pay hight taxes for hospitals you cannot use, education you have to privately supplement, universities your kids are in many cases barred from, a police force and judiciary failing you, etc, etc. Combine this with massive levels of corruption, nepotism and incompetence and is clear that Sweden is not a country that can be used to try and justify the mess we are stuck with...

J

2012/10/9 Leon Louw (gmail) <leon...@gmail.com>

[Stephen vJ (Gmail)]

Jaco, it's much simpler than that. Sweden has been in the top 20 most capitalist countries on all the economic freedom indexes since the 1990's (although it has slipped down to the top 30 in the last two years). South Africa on the other hand rose to the top 40 in the late 1990's, has since dropped back down to the mid-80ths position and has never managed to sustain a position much above the top 50.

 

People like to credit the relative efficiency of bureaucrats, but I have never seen that to be the case - when you dig into it, they always turn out to simply have less bureaucrats.

 

Also, a homogenous society is really bad for progress - see Jonah Lehrer's recent book "Imagine". Places like the USA, Hong Kong and to a lesser extent Sweden, have benefitted from having a variety of people which is part of what fuels innovation. A homogenous society and the fallacy that it is somehow a good thing, is a relic from 1930's Nazi propaganda and that xenophobic period of history which gave us relics such as the passport and human serial numbering.

 

Natural Darwinism also applies to economics and society - variety is a good thing.

 

S.

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[Garth Zietsman]

I speak from ignorance on Sweden but according to the article I linked Sweden wasn't just merely welfarist but properly socialist.  

He claims that there was a great deal of nationalization 'by stealth' in the sense that they placed massive taxes on profits and bought shares with them.  So although companies remained in 'private' hands the government owned a great deal of the economy.

Top marginal tax rates were greater than 100%!!  That means that you if you earned more than a certain amount the bit above that rate wasn't just taken away from you but you were fined for the audacity on top of it.

There was plenty of fiddling with the rule of law e.g. brazen political appointments of judges (actually the US is no different on that.)

He claims there was exchange rate regulation - that the Kroner was free to float sometime after the 90s.

Collective bargaining was extremely centralized until recently i.e. it took place through a single forum.  He claims that this led to high wage and therefore general inflation.

He also claimed that all the measures that took place under the SA murdered Olaf Palmer substantially slowed growth.  The dropped way down the GDP rankings and people worked a great deal less because the rewards were just taxed away.

And of course it was not only massively welfarist but this welfare was all state controlled.

Not in the article but according to the EFW index Sweden scored about 5.3 in the 70s.  This - if the index has any validity at all - represents a very substantial degree of economic un-freedom.  I estimate that hard core Stalinist Russia and Maoist China were about 4 on that measure so 5.3 is not far off and is in line with some exceptionally economically unfree places today e.g. DRC, Angola, Argentina, Ukraine - and Sweden's large government size plays a minor role in that index figure.

On the issue of competition policy I am agreed that collusion shouldn't be outlawed but at the same time if businesses get so powerful that they can prevent any kind of competition entering the market then I think some kind of intervention is necessary - from the point of view of liberty.  I understand that Hayek thought that regulation to ensure competition was a necessary and important government function - it was the topic of his talk at the first Mon Perelin Society meeting.

Anyway most of what I'm saying are not so much my claims about Sweden as those of the author of my linked article.

Garth

[Jaco Strauss]

I don't know the book Stephen, but I think it is a bit of a stretch to equate all homogeneous societies as backward xenophobic throwbacks to 1930 Nazi Germany.

Homogeneous places like Japan and China have been pretty innovative for a very long time. In the case of China for millennia, so I'm not sure if it is so simple and clear cut as you make it sound.... But the point I was actually trying to make was merely the fact that homogeneousness does simplify matters tremendously from a governmental point of view. Compare Botswana to DRC or Sudan for example. 

Similarly, the national debate in Sweden would surely not be as race obsessed as it is in South Africa. When the government over there takes money from Olaf and gives it to Sven (or vice versa) there would probably be less political fallout than if another were to take from Sipho and give it to Ahmed (or vice versa). That was all I was trying to say... 

2012/10/9 Stephen vJ (Gmail) <sjaar...@gmail.com>

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Jaco Strauss
Cape Town

[Erik Peers]

Is homogeneousnous something akin to homogeneity?

[Jaco Strauss]

I suppose so, it is my third language ;-)

'n Goeie begryper het gelukkig bloot 'n halwe woord nodig!

2012/10/9 Erik Peers <erik...@gmail.com>

[Erik Peers]

Dis ook waar.