How Laissez-Faire Made Sweden Rich (2013)
libertarianism.org
libertarianism.org
1. Sweden's economic growth relative to the rest of the world continued quite strongly for 40 years after the Social Democrats took power in 1932 and built a large welfare state.
2. In fact, the period with the strongest economic growth rate in absolute terms was 1950-1975, the period when laissez-faire was most clearly abandoned.
3. The libertarianism article doesn't once mention the absolutely crucial fact that Sweden did not participate in the two world wars. In fact, Sweden has been pacifist since the early 1800s. It really helps a lot when your country is not twice ravaged by major wars, and Sweden also makes a habit of investing more in its people.
4. The fact that Sweden and several other countries can sustain a rich economy with healthy and happy people, at the same time as it has high taxes, is itself a death knell for the claim that libertarianism is always and forever the best ideology. If something drastically different from libertarianism is most strongly associated with wealth & health, then libertarianism clearly isn't necessary.
The libertarianism article is not without merit (some kinds of trade liberalizaton and other liberal reforms were obviously a great idea in retrospect), but like most articles written by proponents of an ideology, it fails to acknowledge other important pieces of the puzzle.
Also, while not involved in any wars, I'm not sure i would call Sweden pacifist during the last century. For example Sweden had the 4th largest airforce in the world in the 1950s [1]
And, except for tax rates, Sweden has a pretty liberal economy [2].
[0]http://www.scb.se/en/finding-statistics/statistics-by-subjec...
[1]https://en.wikipedia.org/wiki/Swedish_Air_Force#Expansion_du...
I think the fact that steadily increasing tax rates over the decades before 1974 also coincided with high economic growth is a good point against libertarianism.
And the fact that tax rates have been quite high since the early 70s, and yet Sweden's share of the global economy has been basically constant, is also interesting. Libertarianism would suggest that should not happen, and yet it works just fine.
I think avoiding being clobbered by World Wars 1 & 2 was the most important thing :). Probably "neutrality" or "non-aggression" is a better word than "pacifist".
Good points about Sweden having a liberal economy other than high tax rates. I agree that has worked well for Sweden.
I think one could reasonably attribute the growth for the first decade or two after tax rates began increasing to the momentum built up during the previously laissez faire era.
Supply chains, investor sentiment, etc all take time to change so a tax hike might not make its effect on GDP immediately evident.
Also, many investments have a time delayed effect on GDP, like large capital projects which can take a decade to complete. Investments in the lower tax era could have only begun outputting goods well into the new high tax era, giving the false impression that the high tax era was responsible. Think a factory that takes a decade to come online for example.
It's a bit much to expect growth to peak during the era 20-40 years after laissez faire ended, and think that it was because of the previous laissez faire policies.
>Supply chains, investor sentiment, etc all take time to change so a tax hike might not make its effect on GDP immediately evident.
These things did not use to be so sophisticated a century ago.
Without a doubt at least, high taxes and health and wealth clearly coexist in many countries. In fact, outside of some tiny countries and also some countries with oil wealth, it's the only form in which wealthy countries exist in this world.
And at the state level in America, this pattern is even clearer. https://en.wikipedia.org/wiki/List_of_U.S._states_by_income
Except for Alaska (small population, vast natural resources), every state in the top 12 by income is liberal-leaning in its voting patterns.
Likewise, except for New Mexico, every state in the bottom 16 by income is conservative-leaning in its voting patterns.
We need to look at Sweden's peak growth relative to other countries in my opinion, because its absolute growth rate was mediated by more than its own policies.
For example the entire developed world saw its peak economic growth rates during the postwar era, suggesting there were certain global economic conditions created by the establishment of the post-war order that could have played a major role in their economic performance.
So a better indicator of policy effectiveness would be to look at its economic growth relative to its contemporaries.
IIRC, Sweden's economic performance relative to its contemporaries, like the US, began to lag soon after it increased its tax rates to above theirs.
>>Without a doubt at least, high taxes and health and wealth clearly coexist in many countries.
But that's not in dispute. The dispute is over whether those countries are rich because of their current high tax policies, or their past low tax ones.
The article tries to demonstrate that in the case of Sweden at least, it acquired most of its wealth during the past eras.
It would even be quite interesting if potentially the best approach to a healthy & wealthy society would be to be very libertarian for a while, and then very high tax after that...
These countries actually are social democracies: https://en.m.wikipedia.org/wiki/Social_democracy
Big difference based on just 1 word.
Also, Sweden was never truly poor, by world standards. You don’t have to believe me, check the Maddison Project. Even when it was “poor” 200 years ago, it was probably 100-200% richer than my home country, Romania, and probably another 100-200% richer than the truly poor parts of the world.
Let's pick some moments in time, say 1500, 1800, 2000 and some countries, say Sweden, Romania and Asgard® (I'm going to use a fictitious country name to avoid offending anyone from a poorer country :) ).
My statement was that in 1500, 1800 and 2000, the wealth levels for these countries were like this:
Sweden > Romania > Asgard.
for all 3 moments in time (or any other, more or less)
The description in the article doesn't make sense, he's appealing to our modern sensibilities. Of course Sweden in 2000 is richer than Sweden in 1800. But it doesn't make any sense to compare things like that. If you want to get a true measure, you need to compare things at that point in time: Sweden in 1800 with Romania in 1800 and with Asgard® in 1800.
So, for your comment:
> are you saying [...] Romania wasn't poor and therefore Sweden was actually wealthy?
1. Romania in 1800 was comparatively poorer than Sweden in 1800, but richer than Asgard® in 1800. So, Romania was still poor, but not as poor as other places.
2. Sweden, as a result, "was actually wealthy" for that time, compared to many other countries in the world, at that time.
It's definitely possible to get poorer as time progresses, rather than richer. Venezuela is a recent example.
But these scenarios are not the common case, there’s a reason they are called economic disasters or miracles.
Oh, and the present day has way more noise than the past, cause of industrialization. Now a country can truly be 10-100 more productive per capita than another. But before the Industrial Age it was waaaay harder to stand out, you needed some exquisite social systems to do it, it happened extremely slowly and rarely.
this is exactly /my/ point: which countries were poorer than romania. if there were any then you're talking about basically indigenous peoples that still lived pre-agriculture
another commenter makes the point that serfdom had been eliminated by 200 years ago. fine. peasants. most of eastern europe were peasants (hence of course peasants revolts of the 19th century culminating in the bolshevik revolution). i think it very hard to get much poorer than pre-industrial revolution peasant farmers.
> You don’t have to believe me, check the Maddison Project.
But hey, let me Google that for you:
https://en.wikipedia.org/wiki/List_of_regions_by_past_GDP_(P...
(Romania is lumped up in Eastern Europe, just sort to find the regions considered poorer)
There are a million shades of "poverty". To paraphrase Tolstoi: rich people are rich in mostly the same way, poor people are each poor in their own way.
[1] https://en.m.wikipedia.org/wiki/Serfdom_in_Wallachia_and_Mol...
But more so, the standard of living in Sweden remained well behind that of other Western nations till after World War II. The big increase in the standard of living was something that happened during the post war boom. All Western nations grew rapidly then, but Sweden was able to close the gap between itself and other Western nations. We could argue all day about whether the boom or the socialists deserve credit, but it seems clear that laissez faire had nothing to do with it.
Also, the vast amount of resources required to industrialize thanks to colonialism also helped tremendously.
That may be true from 10 thousand miles away. Upon closer inspection, there's a huge difference in current wealth and standard of living between Russia and say Finland, while 100 years ago they were roughly the same. Not to mention the unimaginable wealth of natural resources that Russia has, which, under proper political and economic policies, could make it into a Norway-like paradise.
Norway wasn't "made into a paradise" by its natural resources, it was just lucky to be the sole exception unafflicted by the resource curse:
It's always tempting to believe that there was something special about their "ideological prowess", but that isn't really the case. With or without laissez faire they would have done well. With or without a welfare state they would have done well.
Econ 101 is "people respond to incentives". Think tanks representing the rich and wealthy (of which libertarianism.org/CATO is one) have a strong incentive to try and give laissez faire credit for every positive economic development ever. It's what makes their donors wealthy.
The Kochs (a major source of funds for this website) would particularly like you to think this because of some of the truly epic fights that they have had with the environmental protection authority. To them, "regulation is bad, mkay". Guess why?
Hence why, even though I'm sure he honestly believes it, Johan Norburg gives free markets credit for Sweden solving their infant mortality problem.
What would be a better explanation in your opinion?
"This free trade phase, however, was short-lived. Sweden started using tariffs as a means to protect the agricultural sector from American competition since around 1880. After 1892, it also provided tariff protection and subsidies to the industrial sector, especially the newly-emerging engineering sectors [..]. Because of this switch to protectionism, the Swedish economy performed extremely well in the following decades"
"The Swedish state made great efforts in facilitating the acquisition of advanced foreign technology, including state-sponsored industrial espionage. However, more notable was its emphasis on the accumulation of “technological capabilities” [..]. It provided stipends and travel grants for studies and research, invested in education, helped the establishment of technological research institutes, and provided direct research funding to industry"
(1) - http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings...
I want to point out that I think (c) is by far the most important fact but that the post ignores; however, it also ignores lesser factors such as the widespread participation and effects of labor unions.
I see the post as grossly oversimplifying (by conveniently ignoring many other historical factors) while the last time I check, this is something that's still very much debated by modern economists.
1. Neutrality - not being ruined by 2 consecutive world wars
2. Profiting from wars - in Sweden's case, by selling arms and minerals (Bofors, iron ore, etc.) to both warring sides.
"Peace-loving" and "neutral" Sweden continues to be a major exporter of arms, all the while relying on protection of its allies (spending a mere 1% of its GDP in 2015 on its own defense)
3. Until the influx of immigrants (started slowly 30 years ago), a homogeneous, protestant, population.
https://www.politico.eu/article/neutral-sweden-arms-pedlar-e...
https://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS?locat...
The mass immigration (and the word 'mass' is really an understatement) of people with much less education and non-Western culture/values is destroying those other factors, not to mention the fact that they overwhelmingly vote socialist to increase welfare payments.
While Sweden's economy has seen some growth (but really not that much per capita) due to limited liberalization, a floating currency and most of all a huge increase in household debt to pay for soaring house prices caused by population growth (also due to immigration) and extremely low interest rates, the chickens will eventually come home to roost.
Sweden really has no future.
Bold claims are like low percentage shots.
A developed country, full of highly educated people, in a peaceful part of the world, should be able to self-correct to some degree. It might, relatively to the rest of the world, not be in as good a state as before, but saying “it has no future” is stretching things quite far, IMO.