Change Up North

The other day James Delingpole and I were discussing (amongst many other matters) how Sweden has evolved in a manner very different from the familiar stereotype deployed in debate by right and left over here in the US. Where Ricochet leads the Economist follows. The magazine’s new issue includes a fine survey of the Nordic region.

 Here’s a key extract from one section:

Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare’s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%. Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy. Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly….

 There can be no doubt that Sweden’s quiet revolution has brought about a dramatic change in its economic performance. The two decades from 1970 were a period of decline: the country was demoted from being the world’s fourth-richest in 1970 to 14th-richest in 1993, when the average Swede was poorer than the average Briton or Italian. The two decades from 1990 were a period of recovery: GDP growth between 1993 and 2010 averaged 2.7% a year and productivity 2.1% a year, compared with 1.9% and 1% respectively for the main 15 EU countries.

Worth adding was the role in this success story played by Sweden’s decision to stay out of the Euro in a 2003 referendum. That decision was, for the most part, taken on the wrong (leftish) grounds, but it produced currency that reflects Swedish economic and competitive realities and allowed the country to operate an independent fiscal and monetary policy that helped to navigate the financial crisis far more successfully that those nations trapped within the Eurozone.