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'Rotting' Sweden a lesson in bad policy Add to ...

Writing in the summer issue of National Interest, a public policy magazine, Swedish author Johan Norberg says Sweden, the Nordic supermodel of all the welfare states, is in deep economic trouble. "Long the paragon of social democracy," he says, "the Swedish model is rotting from within."

He cites these problems:

In 1970, Sweden was a rich country, with the fourth-highest per capita income in the world. By 2000, it had fallen to 14th. "If Sweden were a state in the United States," Mr. Norberg says, "it would be the fifth poorest." By this measure, Sweden ranks only higher than Louisiana, Arkansas, Mississippi and West Virginia.

From 1975 through 2000, income per capita grew in the U.S. by 72 per cent, in Western Europe by 64 per cent, in Sweden by 42 per cent. In 2002, Sweden's finance minister calculated that Sweden's performance in these years had deprived each household in the country of $2,500 (U.S.) a month.

Sweden's civil service, once highly efficient and a force in managing the welfare state, has grown lethargic and lazy. The European Central Bank reported that, in a study of 23 developed countries, Sweden gets the least service for each dollar that governments spent -- 33 per cent less, for example, than Britain. Swedish doctors, on average, see four patients a day, down from nine in 1975. They spend as much as 80 per cent of their time on administration.

Sweden is still good at producing goods but can't produce real jobs.

"Amazingly," Mr. Norberg says, "not a single net job has been created in the private sector in Sweden since 1950." By official government numbers, Sweden's unemployment rate is 4.8 per cent. The real rate is 12 per cent or more. An economist was recently prohibited from publishing his finding that the real rate of unemployment was 20 per cent.

In the past, the government has created jobs by subsidizing enterprises that hired people. These programs no longer work. In one current program, the government offered subsidies to public sector enterprises that hired academics unemployed for two years or more. Eight thousand academics qualified. The program produced only two hirings.

Absenteeism is rampant in public and private sector jobs alike. The government provides sickness benefits equal to as much as 80 per cent of a worker's wages. Although they are the healthiest people on the earth, Swedes now "report sick" more often than any other people. Absenteeism has doubled in the last seven years and "sick pay" now consumes 16 per cent of government's expenditures.

Segregation of Sweden's foreign-born work force abounds. Although they comprise one-seventh of the labour force, most immigrants live on welfare in ghettos. "The number of segregated neighbourhoods continues to grow," Mr. Norberg says. "In some neighbourhoods, children grow up without ever seeing someone who goes to work in the morning."

Sweden's most important companies are products of the laissez-faire period before the First World War -- companies such as Ericsson, the telecom giant, founded in 1876, and Electrolux, the world's biggest manufacturer of household appliances, founded in 1910. Only one of Sweden's 50 biggest companies was founded after 1970. Sweden has kept these companies in business, Mr. Norberg says, with low corporate tax rates and successive devaluations.

In Mr. Norberg's analysis, Sweden's welfare state succeeded in the short term for four reasons. The population was small and homogeneous. The civil service was efficient, free of corruption, motivated. A strong Protestant work ethic ensured that people worked hard regardless of social programs. And the work ethic ensured high productivity -- essential for an export-dependent country.

He says none of these strengths remains.

Sweden has been governed by the Social Democratic Party for 65 of the past 74 years. First elected in 1932, the Social Democrats built the world's most elaborate cradle-to-grave welfare state. Yet, for a while, it kept government spending under control. As late as 1950, he says, Sweden's tax burden (at 21 per cent of GDP) was lower than the tax burden in Western Europe or in the United States. And it remained adamantly a free-trade country. Between 1960 and 1980, however, public spending doubled, from 30 per cent of GDP to 60 per cent.

By the 1990s, the government was compelled to begin the demolition work -- tax rate cuts, public pension cuts, school vouchers introduced, private health care permitted. Yet, with taxes taking 50 per cent of GDP, Sweden still has the highest rates in the world.

Deeply divided, Sweden goes to the polls on Sept. 17 to elect a national government. The most recent public opinion surveys show the governing "red-green" coalition (Social Democrats, Greens and the Left Party) with 46.7 to 49.1 per cent of the electorate; the centre-right Alliance for Sweden coalition with 47.7 to 50.0 per cent.

As always in these things, welfare state entitlements make for entrenched constituencies of people grown accustomed to living off other people's labours.

The more egregious the entitlements, the more reactionary this constituency and the more paranoid. The Social Democrats are now campaigning, it appears effectively, as protectors of "the most needy," the left's fabrication of last resort. Yet without more demolition work, Sweden could easily lose its place in the world economy to Louisiana. nreynolds@xplornet.com

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