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Sweden’s Shrinking State

Ah, Sweden, the very mention of it will often bring about the phrase ‘liberal paradise’. The land where healthcare is free, everyone lives long lives, and there’s no crime or violence, despite huge taxes and a massive public government.

All of it sounds wonderful except: it hasn’t been that way since the early 1990′s and its government is shrinking by the day.

Yes, this ‘paradise’, it seems, has been deregulating and lowering both taxes and spending for the past 20 years at a rate that’s absolutely astonishing. This myth of the ‘perfect state’ has come about due to a few things:

  1. Between 1850-1950, Sweden had one of the fastest growing economies in the world, it amassed massive capital, and was largely unregulated.
  2. Between 1950 to 1980, all the state programs began with the huge surpluses they had, and marginal taxation skyrocketed to 70% – this is the liberal paradise that people mention. Times were good, really, but it was unsustainable.
  3. Starting in the 1990s, the ‘banking crisis’ occurred where banks collapsed, the healthcare system utterly failed, killing thousands, and the entire financial system started to collapse on itself. Spending as a percentage of GDP  was at an all time high of 71.1% (for reference, the US now spends 103%). The education system was on the verge of collapse and many, many jobs evaporated overnight.
  4. Sweden went from 4th richest OECD country to the 16th in the span of 20 years.

Strangely, no big government advocate seems to know of the 1990′s Swedish banking crisis. It’s in plain view: http://en.wikipedia.org/wiki/Economy_of_Sweden#Crisis_of_the_1990s and is a well studied piece of history in Sweden itself. The reasons are clear: big government intervention. Sweden, instead of continuing to go down the bad course, actually did something that is rarely done: they reversed course.

In 1994, following the banking crisis, massive market reform came down and entire industries were deregulated. Private schools were started, a voucher system was put in place, and largely, the majority of top performing schools in Sweden are for profit. The banking system was deregulated, many services were cut, taxes lowered, and spending as a percentage of GDP was cut from 71.1% to 53.3% an overall reduction of the state by over 30%.

Even the citizens are wanting less state provided healthcare. A rise of private insurance has been growing in Sweden, In 2011 about 440,000 people had private health care insurance in the country of 9.5 million (source: http://reason.com/blog/2014/01/22/socialist-swedes-take-to-private-health). If this public paradise was so great, why is it radically moving towards privatizing and deregulation faster than the US is moving towards socialization? Now, Sweden is still less ‘free’ than what most libertarians would wish, but it does show that a country can turn itself around and that even the most praised ‘ideal liberal states’ are not immune to the ill effects of big government.

For more reading on the subject, an article that appeared in Forbes does a great job going into more detail: http://www.forbes.com/sites/paulroderickgregory/2012/05/13/look-to-sweden-obamas-high-tax-gurus/

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