John Hassler Sept 29 11

Sweden a socialist or a market state?

John Hassler

The Bumblebee •

“...Think of a bumblebee. With its overly heavy body and little wings,

supposedly it should not be able to fly— but it does. Every summer it comes back and makes the seemingly impossible possible en route from a forget-me-not to a daisy.

This is how so-called analysts view the Swedish economy. We “defy gravity.” We have high taxes and a large public sector, and yet, Sweden reaches new heights. We are still flying, so well that many envy us for it today.”

Göran Persson, prime-minister, quoted in the IMF report The Swedish Welfare State, Can the Bumblebee Keep Flying?, IMF 2004

The Swedish welfare state • The Swedish government collects more tax revenue than almost any other country in the world.

• The large expansion came in the 50s, 60s, and 70s.

• Came a bit later in other countries.

• Has been clear convergence -- in EU.

Is it flying?

• Sweden had the world’s highest growth rate between 1870 and 1970.

• After, not an outstanding growth performance but remains a rich country.

• Has among the world highest degree of equality of disposable income and yet a high degree of social mobility.

• After all, is GDP everything?

Why is it flying?

• Perhaps not spectacular performance, but Sweden is not crashing. Why? – – – – – – –

High taxes, but efficient system with fairly little progressivity.

Efficient bureaucracy.

Good educational system.

Low taxes on property and corporations.

Market alternatives financed with vouchers.

Fairly little government involvement in business and industry.

Unions that are large enough to care of the size of the pie, understanding the value of a competetive industry.

– Well functioning political system that can deal with difficult tradeoffs.

How socialistic is Sweden?

• •

•

”Sweden has socialized the family but not the firm”.

Assar Lindbeck But– a lot of private production of services provided by government.

The extensive welfare state systems do create problems, but perhaps not so strange that the bumblebee continues to fly!

0 Mexico

Chile

Turkey

Korea

United States

Japan

Switzerland

Slovak Republic

Ireland

Greece

Canada

Poland

New Zealand

Portugal

OECD-Total 2

Luxembourg

Germany

United Kingdom

Israel 1

Spain

Czech Republic

Slovenia

Netherlands

Hungary

Iceland

Austria

Finland

Italy

France

Norway

Belgium

Sweden

Denmark

Tax revenues share of GDP 2009

60

50

40

30

20

10

Tax revenues share of GDP 60 50 40 30 20 10 0 190019101920193019401950196019701980199020002010

US Swe

Government expenditure share of GDP 65 60 55 50

EU Ger UK Swe Spa

45

40 35 30 25 20 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Swedish GDP per capita relative to OECD average 135 130 125 120 115 110 105

Current prices

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

100

Constant prices

Income inequality and social mobility

Immobility

Inequality

Source: Daniel Waldenström, chapter in SNS Konjunkturrådets årsrapport 2010.

Average taxes 1970 Sweden UK USA France

Income percentiles

Source: Daniel Waldenström, chapter in SNS Konjunkturrådets årsrapport 2010.

Average taxes 2004 (2008) Sweden Sweden (2004) UK Sweden USA (2008) UK France USA France

Income percentiles

Source: Daniel Waldenström, chapter in SNS Konjunkturrådets årsrapport 2010.

0 Korea Canada Japan Ireland Norway New Zeeland U.K. Australia Denmark Luxembourg France Israel Belgium Sweden USA Netherlands Schweiz Finland Spanien OECD average Estonia Island Polen Chile EU-21 average Slovenia Greece Germany Hungary Portugal Austria Slovakia Tjeck republic Mexico Italy Turky Brasil

Share of 25-34 with university degree

70

60

50

40

30

20

10

Senior High Compulsory

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

Share of students in private schools 25

20

15

10

5

0

Quality of life relative to the U.S.

Source: "Beyond GDP? Welfare Across Countries and Time“, C. Jones and P. Klenow, WP. Stanford University