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Sweden: And the pendulum swings
Posted by: McQ on Monday, September 18, 2006

Sweden on the brink of change:
Asked why she will be supporting the conservative coalition that opinion polls suggest is on the brink of power, the office worker smiled: "Taxes. They're way too high."

It is a view that once sounded like high treason in a country whose love affair with the welfare state has kept the Social Democrats in power for 65 of the past 72 years. But a new generation of Swedes appears to have lost patience with the suggestion that they should hand over almost two thirds of their pay to provide the world's most lavish system of state handouts.
Now, it certainly can't be argued the welfare state hasn't been given a fair chance, can it? But, as this young office worker has discovered, it is unsustainable, at least at the level of taxation they are now suffering. For her, the costs now outweigh the benefits.

A hopeful sign? Well, maybe. It depends on two things, of course. How the incoming center-right government manages the situation, and, of course, how serious Swedes are with really implementing change which would put the onus and responsibility for managing their lives more on them as individuals (or is this really a "cut my taxes but not my benefits" vote?).

With multiple generations having grown up under the Swedish system as well as one party rule for 65 years, you might imagine my skepticism concerning real change in Sweden.
The employed pay for all this through a standard income tax rate of 31 per cent, rising to about 60 per cent for the highest earners. The overall share of GDP taken by taxation in Sweden is just over 58 per cent – compared with 33 per cent in America. What's more, according to Mr Munkhammer, to afford the current welfare level in the future, it will be necessary to double tax levels. "Except, how can you double what are already the highest taxes in the world?" he asks plaintively.
But the statement has been made and the reality is the voters are correct - with Sweden's birth rate the system, as well as the level of taxation, are unsustainable. What they'll actually do about it, though, remains to be seen. But it would be a hopeful sign for the rest of Europe if the Swedes were actually serious about this and did manage to begin to wean themselves from the welfare state.

We'll see.
 
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I hope you’re right, but my co-blogger, whose family is Swedish, believes otherwise. She’s of the opinion that, at most, we’ll see some tinkering at the margins of the welfare state. She could well be wrong, of course; I don’t know anything about Sweden. But since she has a lot more experience there, her opinion is at least an informed one, and it offers an unfortunate contrast to your optimism.
 
Written By: Andrew Olmsted
URL: http://andrewolmsted.com
Actually I’m skeptical as well. That’s why I hedged my hope for real reform with "or is this really a "cut my taxes but not my benefits" vote?"

But the paragraph which talks about the reality of what it will take to maintain the level of welfare they now have says that at some point in the future, they are going to actually have to deal with the problem.
 
Written By: McQ
URL: http://www.qando.net/blog
Absolutely true. I just have the sneaking suspicion that, in Europe and here in the U.S., those issues will not be addressed until they come crashing down on our heads. I figured the world is going to get pretty interesting, from an economic standpoint, around 2020-2025.
 
Written By: Andrew Olmsted
URL: http://andrewolmsted.com
Be sure to read blogger Fjordman’s outstanding essay about the Swedish and Norwegian welfare states. Here is an excerpt:
Journalist and writer Kurt Lundgren notes on his blog that Sweden during the past five years has witnessed the largest mass-emigration in the country’s history since the peak of the immigration to the USA more than a century ago. The people leaving are primarily highly educated, native middle class Swedes. Common reasons cited for leaving are rampant crime and a sense of hopelessness and resignation over poor political leadership. At the same time, Sweden receives a large amount of immigrants from Third World and Islamic nations every year. Is this population replacement profitable for Sweden as a nation?
Here is Fjordman’s second essay, which continues the theme of the first and is once again well worth reading. Here are a few choice excerpts:
Sweden is struggling to pay the bills for the tens of thousands of workers on long-term disability and an expanding group of young people leaving the workforce altogether on so-called “early retirement.” 500,000 people are on early retirement in Sweden today, 68,000 of whom are between the ages of 20 and 40.
For example, according to the Organisation for Economic Co-operation and Development (OECD), Sweden was the fourth richest country per capita in the world in 1970 whereas now it is down to number 14, and falling.
Pretty soon, Sweden could have an “army” of just 5000 men. That’s five thousand troops to defend a nation that is geographically more than three times the size of England. And it may take up to a year to assemble all of them, provided they are not on peacekeeping missions abroad. That Sweden could soon need a little peacekeeping at home seems to escape the establishment.
 
Written By: Jordan
URL: http://
The overall share of GDP taken by taxation in Sweden is just over 58 per cent – compared with 33 per cent in America.
Are you sure that # is right for the US? as I understand, the federal gov’t’s recievables are somethinglike 18% of GDP, which would mean all state/local gov’ts share combines to ~15%. I wouldnt think that state/local taxes were close to the Federal rates... this surprises me.

 
Written By: h0mi
URL: http://
Well, the pioneers get the arrows in their backs. Sweden pioneered the cradle-to-grave more-or-less socialist welfare state. Through a strong ethic in their population and reasonably careful management, they’ve managed to make it last longer than I thought they would.

As the pioneers like Sweden attempt to deal with the problems, their experience will be illuminating. As most of us seem to feel, they are probably headed for a catastrophic readjustment of some kind. But even so, their experience will demonstrate to hopelessly optimistic lefties what doesn’t work.

And, dare I hope... maybe one of the countries on the same path (France, Germany, Italy, Norway, Finland, then a bit further back Spain and England, then us and Australia) will eventually figure out how to get the voters bought into dramatic changes before the catastrophe forces them. A few examples of the "crash and burn" solution may serve up enough motivation for that. Again, maybe. (To be honest, probably not, but I can hope, can’t I?)
 
Written By: Billy Hollis
URL: http://
Are you sure that # [33%] is right for the US?
Well, as with all things accounting, it depends on how things are counted.

As a baseline, you can check this spreadsheet. It comes in at just over 28% for calendar year 2001 for all levels of government. I think growth in spending has outstripped growth in GDP, so when they get current numbers, they are likely higher. According to this projection, the fed percentage has already gone over 20, which alone would bump the total to 29%.

And of course, there are various sorts of skullduggery with things off the budget, unfunded liabilities, etc. that mean the actual number is certainly higher. How much higher depends on how you define things. I’d bet the 33% cited in the Telegraph is from a study that makes some fairly conservative assumptions.
 
Written By: Billy Hollis
URL: http://
there is nothing they can do, From the numbers I have seen they are past the point of no return. Their entire system will crumble and the chaos will resemble Russia right after the fall of the soviet union.

I am not being pessimistic. What can you do when the majority which pays all of the confiscatory taxes all retire? Thats in the process of happening right now.

We are only a decade and a half, at most, behind them. But enough time still exists for us to do something about it. But not much time.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
While I voted for change, it should also be noted that Sweden already has enacted a number of reforms missing in other western democracies, such as school vouchers and a fiscally sane pensions system. (These were introduced by the previous centre-right government, but have been retained by the centre-left.) In this sense, it has already turned back from the brink. Yet a lot of work remains: out of the taxes taken, only about 20% go to core services, while the rest are redistribution (e.g., to the jobless, pensioners, various benefits) and, at a guess, waste.

At this point, the main problems are not so much the welfare state per se, but seem to stem from a closely related issue: the structurally very rigid job market, mainly rearguarded by our exceptionally strong unions (joined at the hip with the social democrat party). While this worked seemingly well up to the 1960s, it now turns growth into jobless growth and shuttles people into various make-work programs and early retirement, at great fiscal and social cost.

We will see if this issue can be tackled; this is by no means a given. The mandate given to the centre-right was attained both by moving strongly to the left, and by government sleaze and lack of ideas. I interpret this as reforms will have to fall short of shock therapy, but milder ones may well be accepted by the electorate.
 
Written By: Tom
URL: http://
Tom:
At this point, the main problems are not so much the welfare state per se, but seem to stem from a closely related issue: the structurally very rigid job market, mainly rearguarded by our exceptionally strong unions (joined at the hip with the social democrat party). While this worked seemingly well up to the 1960s, it now turns growth into jobless growth and shuttles people into various make-work programs and early retirement, at great fiscal and social cost.
Any idea as to how the new government will tackle this problem? And how receptive, in your opinion, will the population be, as a whole, to any move to reduce the power of these unions?
 
Written By: McQ
URL: http://www.qando.net/blog
The "right to work" is an extremely touchy issue, protected by numerous laws as well as high strung rhetoric, and thus a difficult question to approach.

The advertised angle of attack to increase workforce participation will be to reduce the take (today scandalously high) on the lowest bracket to lure people back to work. The other piece of the equation, "job creation" such as it is, is far more difficult. Hopefully, the road taken will be deregulation, perhaps leaving the ’legacy jobs’ of the unions alone. The difficulty here is that the economy is tuned to the (very successful) multinationals, but they are mainly investing abroad rather than hiring at home. Small and medium businesses have great difficulties in growing, and often get sidelined in the discussions, followed by poor treatment.

A direct Thatcherite fight against the unions is probably what the social democrats would love, since they then could rally the today somewhat demoralized troops; in fact, they predicted such a move if the centre-right won. I wouldn’t expect that to happen, at least not by centre-right choice, even if there is a bit of tension at this time. It should be noted that the Swedish unions, while powerful, also have historically been far more pragmatic than, say, the German ones. A deal of some sort might be conceivable, though it would be hailed as heresy. The two would have to learn to get along a bit better first.

Regarding the voters, we have had wave after wave of layoffs among industrial jobs, and a government incapable of doing anything about it. I’d say people are fairly fed up (rejecting the government when annual GDP growth is 4% or more), want a better alternative, but are also fearful of loss of benefits, their "safety net". (It should be said that most people, predictably, appear to have very low savings, apart possibly from real estate, so there’s not a lot of slack if the benefits would just disappear.)

The union rhetoric is starting to sound a bit hollow and self-centered, and union participation seems to be declining over the long term; still, entirely dismissing them would be folly. Here, the centre-right would be wise to present a viable alternative to the old model, without going overboard with hard-hearted "neoliberalism", which voters do not find very palatable and which is (alas) too easy a target for the left. Some deft manoeuvering may be needed.
 
Written By: Tom
URL: http://
Interesting. Thanks for the detailed answer.
Here, the centre-right would be wise to present a viable alternative to the old model, without going overboard with hard-hearted "neoliberalism", which voters do not find very palatable and which is (alas) too easy a target for the left.
In your opinion, what generally would be accepted as a ’viable alternative’ by the majority that wouldn’t seen the unions fighting it tooth and nail and wouldn’t provide the center-left party the political fodder they’d need to recapture the government?
 
Written By: McQ
URL: http://www.qando.net/blog
what generally would be accepted as a ’viable alternative’ by the majority that wouldn’t seen the unions fighting it tooth and nail and wouldn’t provide the center-left party the political fodder they’d need to recapture the government?
Again, a difficult issue. I don’t have a ready answer, but I’d start looking at it from this end:

Politically, I would follow through on the centre-right proposed programme at a reasonable pace, while also being patient and not rushing the reforms. There are plenty of taxes and programmes which are not very popular, make them into showcases. Play it safe, steady hand on the wheel, get reelected. Show the voters that there are two sensible alternatives, not one.

Socially, a powerful (but somewhat paternalistic and perhaps a bit naive) vision has more or less dominated Swedish thought, "folkhemmet", the ’people’s home’, where all Swedes are one family, working together in mutually assured security. (An idea introduced by the right but long since appropriated by the left.) It might be that a new, positive framework of thought may be needed as an alternative. Alas, liberalism (in the classic sense) is often seen as cold and selfish.

I would start with breaking the mental hold, e.g., looking at encouraging personal savings, "from welfare to affluence"; taking the side of common sense rather than the odd ideological standpoints that the left have espoused; more responsibility and choice, less nanny-state; encourage a more positive view of business and entrepreneurship; and so on. Perhaps also revisit and revive some of the pre-welfare state virtues, suitably spruced up.

But at this point, I feel my hands starting waving, so I’ll stop with that. The voters are, just maybe, less set in their ways than the establishmentariat thinks.
 
Written By: Tom
URL: http://
But at this point, I feel my hands starting waving, so I’ll stop with that.
*Chuckles*
Thank you for the mental image and the discussion to date. That was very interesting.
 
Written By: Mark
URL: http://

 
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