Daily Archives: 13 June 2009

Sweden: Poorer Than You Think

I’m pretty excited about today’s posts.

When I speak about freedom and Austrian Economics and the evils inherent in Socialism, people often tell me they are not speaking of Socialism as was manifest in the Soviet Union, they are speaking of socialist democracies like Sweden. In other words, they don’t believe in big crimes, but think little crimes are okay.

I believe that in socialist democracies it’s not the socialist (ie. coercive) institutions which are working, it’s the pockets of freedom that exist around them. Encroaching socialism can appear very benign in a prosperous country, because it’s proponents claim credit for the wealth and opportunities created by the remaining pockets of freedom.

Today, I excerpt from three outstanding essays I found at the Ludwig Von Mises Institute.

Sweden: Poorer Than You Think by William L. Anderson

One of the enduring myths of the ‘Third Way’ welfare state is that a nation as a whole can have a high standard of living–even if no one really has to work–as long as government transfers massive amounts of wealth from those who are well off to those who are less well off. For the past four decades, we have been inundated with news stories, books, and public commentary, all of which have exhorted us to be like Sweden.

The Swedes, we have been told, enjoy free medical care, generous welfare benefits, time off from work, and subsidies for just about everything. When one counters that Swedes pay enormously high taxes, the standard reply is, ‘That is true, but look at what they receive for their payments.’

According to a recent study, however, the cat is out of the bag. Relative to household in the United States, Swedish family income is considerably less. In fact, the study concludes, average income in Sweden is less than average income for black Americans, which comprise the lowest-income socioeconomic group in this country.

. . . .

In defense of the Swedes, let me first say that simple comparisons of income can be deceiving. While I have never been to Sweden (even though I have relatives there), I would think that even the poorest sections of Stockholm and other Swedish cities are more livable and attractive than what one finds in many U.S. cities. Even with the high taxes, I think I would rather live in downtown Stockholm than in downtown Detroit or Newark.

However, the study alerts us to something that is much more important, and that is that the European welfare states are not making their citizens wealthier. Over time, the cracks in these relatively wealthy nations are growing larger, and if the disease is not arrested, much of Europe will tumble off into real poverty in the not-so-distant future. Europeans–and, most likely, Americans–seem destined to learn the hard way that large, seemingly intractable welfare systems have their way of destroying the Goose that Laid the Golden Eggs.

While people can debate the present condition of Swedes in Stockholm versus blacks in Harlem, there is a deep issue here that people seem to forget when it comes to welfare states: they are destructive at their roots. Advocates of welfarism concentrate only upon distribution while vilifying production. Such a state of affairs cannot go on forever as governments are forced to cannibalize their own capital structure over time in order to make the system to continue to work.

. . . .

The Swedes and other northern Europeans are somewhat lucky in that they have had a relatively high standard of living. People in southern European nations like Italy and Spain–where high taxes and vast regulatory agencies abound–find themselves to be much poorer and with no prospects of real improvement.

Unfortunately, many Europeans (like our Canadian neighbors) believe that a vast welfare apparatus makes them morally superior to nations that do not have the same scope of benefits. (While one can point out that the United States has a huge welfare bureaucracy itself, it does not offer the same ‘generous,’ long-term benefits of the European states.) While they prattle on about their moral superiority and their egalitarianism, however, something else is happening. They are slowly becoming poorer and poorer, and the welfare state cannot save them. It can only accelerate their downward slide. (Read more from mises.org)

The Sweden Myth

The Sweden Myth by Stefan Karlsson

The alleged recent success of the Swedish economy has allowed welfare statists both inside and outside of Sweden to argue that high taxes and an extensive welfare state are good for the economy. To fully understand this fallacy, we should review Sweden’s economic history.

Until the second half of the 19th century, Sweden was fairly poor. But far-reaching free market reforms in the 1860s allowed Sweden to benefit from the spreading Industrial Revolution.

And so, during the late 19th and early 20th centuries, Sweden saw its economy rapidly industrializing, driven by the many Swedish inventors and entrepreneurs.

During that time, Sweden produced extraordinarily many inventions, given its small population, including: dynamite, invented by Alfred Nobel (who established the Nobel Prize); the self-aligning ball bearing, invented by Sven Wingquist (who used this to create the SKF company); the sun-valve, invented by Gustav Dahlen (who used it to found industrial gas company AGA); the gas absorption refrigerator, invented by Baltzar von Platen (which was later used by Electrolux).

In addition, there were countless non-inventing entrepreneurs during that period: car manufacturers Volvo and Saab, and telecommunications company Ericsson. Indeed, with just a few exceptions, nearly all large Swedish companies were started during the late 19th and early 20th centuries, which was not only a period of strong growth, but also the time when the foundation for later economic growth was laid.

Another factor which continued Swedish prosperity was the fact that Sweden was able to stay out of both World Wars, and indeed all other wars as well. Sweden is in fact the country with the longest consecutive period of peace, having fought no war since 1809, when Sweden was invaded by Russia, losing Finland to the invader. . . .

As a result of its free market policies, the resourcefulness of its people, and its successful avoidance of war, Sweden had the highest per-capita income growth in the world between 1870 and 1950, by which time Sweden had become one of the world’s richest countries, behind only the United States and Switzerland, and Denmark (who have since also fallen behind because of high taxes).

But the foundation for future trouble had already been created. In 1932, the Social Democrats rose to power in the face of the Great Depression. And like FDR in America and Adolf Hitler in Germany, they started to expand government power over the economy. Until 1932, government spending had been kept below 10% of GDP in Sweden, but the Social Democrats, under their leader Per Albin Hansson, wanted to change this and remake Sweden into a ‘folkhem’ (‘people’s home’), a term Swedish Social Democrats adopted from the Fascists in Italy.

Between 1950 and 1976, Sweden experienced an expansion in government spending unprecedented during a period of peace, with government spending to GDP rising from about 20% in 1950 to more than 50% in 1975. Virtually every year, taxes were increased while the welfare state expanded relentlessly, both in the form of a sharp increase in the number of government employees and ever more transfer payment benefits.

During the first 20 years, this relentless government expansion took place seemingly without ill effect, as Sweden benefited from rapid global growth – although Sweden’s growth had already started to slip in relative terms, from well above average to just average. This changed in the 1970s after Olof Palme, from the left wing of the Social Democratic party became Prime Minister. Palme stepped up the socialist transformation in Sweden, rapidly increasing anti-business regulations and sharply increased payroll taxes.

The payroll-tax increases, along with increasing wage demands from unions, made Swedish businesses highly uncompetitive on the global markets, something which Palme decided to solve by devaluing the Swedish krona. As a result, price inflation rose sharply, leading to repeated devaluations. . . .

. . . . the recession became Sweden’s deepest by far since the Great Depression, with GDP in 1993 being 5% lower than in 1990, with employment falling more than 10%, and the budget deficit rising to more than 10% of GDP. By then Sweden had fallen to between 15th and 20th place in international income comparisons, a decline from which it has never
since recovered.

After this deep downturn, Sweden has performed much better for a number of reasons. The 20% decline in the value of the krona in late 1992 gave a strong boost to exports and together with the dramatic lowering of interest rates, this helped kick-start a cyclical recovery in late 1993. Moreover, a number of free market reforms implemented during Ingvar Carlsson and conservative Carl Bildt (who was Prime Minister between 1991 and 1994) had helped raise the structural growth potential of the Swedish economy.

Apart from the already mentioned reforms of reduced marginal tax rates and abolished currency controls, deregulated bank lending and significantly lower inflation, this included privatizations of several state-owned companies and deregulation of several key sectors, including the retail sector, the telecommunications sector and the airline industry. Also, when the massive budget deficit was eliminated, even the Social Democrats realized the need for deep spending cuts, which together with the typical cyclical decline in the burden of spending during booms helped reduce the extremely bloated burden of government spending somewhat.

All of this has helped Sweden recover in relative terms from the stagnation of the 1970s and 1980s and the deep economic downturn in the early 1990s. It is this relative recovery that is now seized upon by the Social Democrats and their sympathizers inside and outside of Sweden when they claim that the Swedish model of high taxes and a big welfare state is successful.

Yet as should be clear, the relative improvement of performance is due not to high taxes (lower now than previously), but to free-market reforms. (Read more from mises.org)

How the Welfare State Corrupted Sweden

How the Welfare State Corrupted Sweden by Per Bylund

Old people in Sweden say that to be Swedish means to supply for your own, to take care of your self, and never be a burden on anyone else’s shoulders. Independence and hard work was the common perception of a decent life, and the common perception of morality. That was less than one hundred years ago.

My late grandmother used to say something had gone wrong with the world. She was proud to never have asked for help, to have always been able to rely on herself and her husband. . . .

My grandmother, born in 1920, was of the last generation to have that special personal pride, of having a firm and deeply rooted morality, of being a sovereign in life no matter what – to be the sole master of one’s fate. The people of her generation experienced and endured one or two world wars (though Sweden never took part) and were raised by poor Swedish farmers and industrial workers. They witnessed and were the driving force behind the Swedish ‘wonder.’

They would gladly offer to help those in need even if they only had little, but were not likely to accept anyone’s help if offered. They felt pride in being competent to take care of themselves; they cherished independence of others, of never having to ask for help. They figured, if they couldn’t make it themselves, they had no right to ask for help.

. . . .

[Today] Swedes generally welcome proposals to hand over more power to politicians and they even tend to ask for higher taxes.

Decent morality is long gone. It was completely destroyed in little more than two generations – through public welfare benefits and the concept of welfare rights.

. . . .

[M]y parents’ generation went to public schools where they were taught mathematics and languages as well as the superiority of welfare and the morality of the state. They learned the workings of the machinery of the welfare state and gained a totally new (mis)conception of rights: all citizens enjoy a right – only through being citizens – to education, health care, unemployment, and social security.

Being an individual, they were taught, means having a right to support for your individual needs. Everybody has a right to all the resources necessary to pursue one’s own and society’s happiness, they were told. And everybody should enjoy the right to put their children in state daycare centers while working, making it possible for every family to earn two salaries (but not enough time to raise their children). The opportunities for “the good life,” at least financially, must have seemed enormous to the older generations.

This new morality permeated the populace and became the “natural” state of things, at least in their minds. This generation, born during the two or three decades following World War II, became considerably different from their parents’ generation morally and philosophically. They got used to the enormous post-war economic growth (thanks to Sweden never entering the war) and the ever-increasing welfare rights of the rapidly growing state.

. . . .

The voting masses, children of the welfare state dependent on its system of logic, supported the tax hikes, which quickly climbed to 50% and higher. And they demanded social benefits at taxpayers’ expense. . . .

Through the powerful labor unions, wage-earning Swedes were awarded raises every year regardless of real productivity, and in time annual raises of salaries became normality. People who didn’t get a raise started considering themselves “punished” by their evil employer, and there were increasing demands for legal help in the struggle against employers. One has a “right” to a better salary next year just as the current salary must be better than last year’s; so the thinking goes. . . .

The children of this generation, born in the 1970s, ’80s, and ’90s commonly had a “free” upbringing (based on the ideals of 1968), essentially meaning a childhood “free from rules” and “free of responsibility.” For this generation there is no causality whatsoever in social life; whatever you do is not your responsibility – even having children. These are the current younger adults in Swedish society.

I am myself part of this second generation of people raised with and by the welfare state. A significant difference between my generation and the preceding one is that most of us were not raised by our parents at all. We were raised by the authorities in state daycare centers from the time of infancy; then pushed on to public schools, public high schools, and public universities; and later to employment in the public sector and more education via the powerful labor unions and their educational associations. The state is ever-present and is to many the only means of survival – and its welfare benefits the only possible way to gain independence. . . .

On May 14, the national trade workers’ union demanded the state “redistribute” jobs through offering people in their 60s state pensions if they step down and their employers employ young, unemployed people in their stead. In the labor union’s calculations, such a stunt would “create” 55,000 jobs.

What this shows is that the only perceivable way of finding jobs for the young seems to be to “relieve” older people of theirs; job positions are scarce and unemployment is increasing even as demand for goods and services is going up – thanks to heavy state regulation in the marketplace. The welfare state creates problems and conflicts on many levels, forcing people to compete for shares of continuously decreasing wealth. . . .

My mother, a middle school teacher, has had to face her pupils’ parents demanding she do “something” about their stressful family situation. They demand “society” take responsibility for their children’s upbringing since they have already spent “too many years” caring for them. (“Caring” usually means dropping them off at the public daycare center at 7 am and picking them up again at 6 pm.)

They loudly stress their “right” to be relieved from this burden. . . .

What we are now seeing in Sweden is the perfectly logical consequence of the welfare state: when handing out benefits and thereby taking away the individual’s responsibility for his or her own life, a new kind of individual is created – the immature, irresponsible, and dependent. In effect, what the welfare state has created is a population of psychological and moral children – just as parents who never let their children face problems, take responsibility, and come up with solutions themselves, make their offspring needy, spoiled, and utterly demanding. (Read more from mises.org)

Sweden’s Recycling Fiasco

“As a Swede I get to hear a lot of the myths of how wonderful a country Sweden supposedly is – the ‘prosperous socialism‘ it stands for, a role model for the rest of the world. For instance, quite a few friends from around the world have commended me on Swedish recycling polices and the Swedish government’s take on coercive environmentalism.

. . . .

So what do you do with your waste? Most homes have a number of trash bins for different kinds of trash: batteries in one; biodegradables in one; wood in one; colored glass in one, other glass in another; aluminum in one, other metals in another; newspapers in one, hard paper in another, and paper that doesn’t fit these two categories in a third; and plastic of all sorts in another collection of bins. The materials generally have to be cleaned before thrown away – milk cartons with milk in them cannot be recycled just as metal cans cannot have too much of the paper labels left.

The people of Sweden are thus forced to clean their trash before carefully separating different kinds of materials. This is the future, they say, and it is supposedly good for the environment.

. . . .

Their first measure was to redesign all containers so that it is more difficult throwing the ‘wrong’ trash in them. For instance, containers for glass have only small, round holes where you put your bottles, and containers for hard paper and carton materials have only letter-slit shaped holes (you need to flatten all boxes before recycling – that’s the law).

Well, that didn’t do the trick. People kept on cheating. And the more difficult the authorities made it to cheat, the more difficult it was to get rid of the trash even if you intended to put it in the right place. So people went to these centers and simply put everything next to the containers instead – why bother? The authorities responded by appointing salaried ‘trash collection center spies’ (!) to document who was cheating so that they could be brought to justice. (There have actually been a few court cases where people have been tried for not following recycling laws.)

. . . .

The structure works the way all centrally planned structures work: it increases and centralizes power while the attempted (expected) results do not materialize. In this case, the structure works: people do sort their trash in different bins – they have no choice. Also, government garbage collection companies do not have to do as much work while getting paid more than ever before.

. . . .

What is interesting about this Soviet-style planned recycling is that it is officially profitable. It is supposed to be resource efficient, since recycling of the materials is less energy-consuming than, for instance, mining or the production of paper from wood. It is also economically profitable, since the government actually generates revenues from selling recycled materials and products made in the recycling process. The final recycling process costs less than is earned from selling the recycled products.

However, this is common government logic: it is “energy saving” simply because government does not count the time and energy used by nine million people cleaning and sorting their trash. Government authorities and researchers have reached the conclusion that the cost of (a) the water and electricity used for cleaning household trash, (b) transportation from trash collection centers, and (c) the final recycling process is actually less than would be necessary to produce these materials from scratch. Of course, they don’t count the literally millions of times people drive to the recycling centers to empty their trash bins; neither do they count, for instance, energy and costs for the extra housing space required for a dozen extra trash bins in every home.

Economically, Swedish recycling is a disaster. Imagine a whole population spending time and money cleaning their garbage and driving it around the neighborhood rather than working or investing in a productive market! According to the government’s books, more money flows in than flows out; therefore recycling is profitable. But this ignores the costs of coercion.

. . . people’s garbage piles up next to the overflowing containers while the government contractors sit idle: they are only paid to empty the containers on schedule, not to pick up the trash sitting next to these containers. The result? Disease and rats. Newspapers have been reporting on a ‘rat invasion’ in Stockholm and in other Swedish cities in recent years.

. . . .

Interestingly enough, the system is too socialist even for Sweden’s number one socialist newspaper, Aftonbladet. In an op-ed on January 4, 2002, Lena Askling wrote on the public garbage collection system:

We [consumers] are supposed to sort, compost, parcel, store, and transport the trash. We are supposed to keep on with this cockamamie of storing compost garbage in small containers in apartments and villas and then transport the stinking, leaking trash to dedicated bins or collection centers, which seem to always be brim-full.

Why in the name of the Lord cannot the government introduce ‘market incentives’ to stimulate industry and producers to develop rational packaging and garbage disposal systems enabling recycling, energy production and future import revenue? And perhaps a consumer friendly and hygienically acceptable system instead of the current trash and filth chaos?

While I’m waiting, mice are scurrying around in my garbage compartment.

Even Askling, who writes socialist propaganda for a living, knows the Swedish recycling scheme doesn’t work; and she concludes it is in need of more market.

Please enlighten me, wherein lies the so-often-acclaimed success of this system?

”