From The New American:
Indeed, before the emergence of welfare-state policies beginning in the 1960s and 1970s, Sweden was among the most prosperous and fast-growing economies on the planet. Between 1870 and 1936, when Sweden was characterized by relatively free markets, the nation enjoyed the highest rate of growth in the industrialized world. Innovation and entrepreneurship flourished, making Sweden one of the richest countries on Earth. Then came the radical Social Democratic period characterized by an ever-larger and more expensive government. Between 1975 and the mid-1990s — marked by the radical, if short-lived, experiment in “Third Way” socialism — Sweden dropped from being the fourth richest nation in the world down to the 13th richest.
Fortunately for Swedes, as the giant welfare state’s harmful effects became increasingly obvious, the Swedish political class began to reverse course. From lowering taxes and government spending to deregulating and privatizing broad swaths of the economy, policymakers realized that the nation’s continued success depended on freer markets — not total government. Still, the damage was severe. As Sanandaji explains, citing his earlier research on the subject, the rate of business formation during the “third-way era” was “dreadful.” In 2004, none of the 100 largest firms ranked by employment were founded within Sweden after 1970. “Furthermore, between 1950 and 2000, although the Swedish population grew from 7 million to almost 9 million, net job creation in the private sector was close to zero,” he observed.
Today, Denmark, despite higher taxes, has more economic freedom than the United States. Sweden and Finland are both catching up, too. And interestingly, despite Sanders’ recent pronouncements on ABC News about Scandinavia having “more income and wealth equality,” Sweden still has a great deal more “wealth inequality” today than the United States, according to a study cited in the monograph.
To understand just how damaging the Scandinavian “third way” era was, Sanandaji cites a startling admission by Bo Ringholm, the Social Democratic finance minister of Sweden at the time. “If Sweden had had the same growth rates as the OECD average since 1970, our total resources would have been so much greater that it would be the equivalent of 20,000 SEK [$2,700] more per household per month,” Ringholm is quoted as saying in 2002. And as Sanandaji shows clearly and convincingly, often using government data, a major reason that Sweden’s economy did not grow at the rate of other OECD economies during that period was the lack of economic freedom.
Aside from the economic toll, the “third way” period in Sweden and other Scandinavian nations also led to a deterioration of what Sanandaji calls “social capital.” On this front, there are a lot of interesting examples provided in the book to make the case. Consider, for example, the remarkable shift in attitudes among Swedes on abusing the welfare system. In the 1981-1984 World Values Survey, 82 percent of Swedes agreed that it was never justifiable to accept welfare benefits one is not entitled to. Just three decades later, barely more than half of Swedes agreed. Examining sickness- and disability-related unemployment benefits, Sanandaji also shows that Scandinavian governments spend more than any others with the exception of the Netherlands — despite the overall excellent health of Scandinavians compared with people in other nations.
Among the most fascinating and informative elements of the book is Sanandaji’s comparison between Scandinavians in Scandinavia and those who immigrated to the United States. The findings poke a major hole in arguments made by Big Government supporters who point to Scandinavia and confuse correlation with causation. “The descendants of Scandinavian migrants in the U.S. combine the high living standards of the U.S. with the high levels of equality of Scandinavian countries,” Sanandaji notes in a summary of his findings comparing the estimated 12 million Scandinavian-Americans with Scandinavians in Scandinavia, which are explored in an entire chapter dedicated to the topic. “Median incomes of Scandinavian descendants [in the United States] are 20 percent higher than average U.S. incomes.”
Sanandaji’s excellent research strongly supports his overall conclusion that the Scandinavian welfare states hindered prosperity, economic growth, and rapidly contributed to the deterioration of the very cultures and social norms that even made the welfare states possible to begin with.
In other words: Americans, beware.
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