C. Fred Bergsten in the Washington Post on Sweden:

The Swedish model for economic recovery

[...] Sweden remains a social welfare society, and government spending still accounts for half of its economy; it finances all education and health care, as is common throughout Europe. Sweden did not dismantle the social system but, in addition to drastically reducing its costs, adopted macroeconomic and structural reforms to make it sustainable and greatly enhanced its efficiency by privatizing the delivery of many educational and medical services. [...]


Paper forthcoming in New Political Economy

My working paper “The Rise, Fall and Revival of a Capitalist Welfare State: What are the Policy Lessons from Sweden?” has now been accepted by the journal New Political Economy (which was my first choice, although it took a while)

During the review process I was asked to add and explain a number of things that I initially intended to spare the reader, so the accepted version is longer than the working paper that has been available for some time now.

The (not proof read) forthcoming version accepted can be downloaded here, and the working paper can (still) be found here.


On Sweden in The Economist

The are two good texts on Sweden and the nordic countries in The Economist, feb 2nd:

The Next Supermodel and The secret of their success (where I am actually cited – wohoo!)

Scandinavia freeriding?

A new paper by Acemoglu, Robsinsson and Verdier has an interesting idea…

under plausible assumptions, the world equilibrium is asymmetric: some countries will opt for a type of “cutthroat” capitalism that generates greater inequality and more innovation and will become the technology leaders, while others will free-ride on the cutthroat incentives of the leaders and choose a more cuddly form of capitalism. Paradoxically, those with cuddly reward structures, though poorer, may have higher welfare than cutthroat capitalists; but in the world equilibrium, it is not a best response for the cutthroat capitalists to switch to a more cuddly form of capitalism

Krugman vs Coburn on what to learn from Sweden

The lessons from Sweden’s success are debated once again.

From the Washington Post:

TC [Tom Coburn]: Go look at Sweden. Here’s what Sweden did. They cut their spending and their taxes. They have the best growth rate in Europe. They had a surplus this year. They had growth at six-plus percent. They actually did a Reagan style approach to their problem by cutting spending and cutting taxes. And they’re the fastest growing with a decline in their debt-to-GDP ratio.

EK: But correct me if I’m wrong, but if I recall, Sweden’s monetary policy went towards a very sharp devaluation, they’ve been driven by export growth, and alongside Israel, they’ve been more aggressive than any other central bank in the world. They’ve done stuff that if we did it here, people would lose their minds.

TC: I think there are monetary parts to that. But their finance minister put in place tough stuff. They had people who left Sweden because of the tax ratio. Now they’ve moved back. And it’s not a perfect example, but it’s an exception to the Krugman story.

Krugman comments:

But Ezra didn’t challenge Coburn on the claim about spending cuts; why don’t we look at what Sweden has actually done, as opposed to the official right-wing line? Look, in particular, at actual government consumption — purchases of stuff.

So, who is right?

In terms of the facts, they are both right: Sweden did lower taxes and expenditure and did increase economic freedom a lot, especially from the late 1980s to the mid 1990s. Importantly, budget rules were reformed.

As a result of these reforms, Sweden ran a large budget surplus and had low public debt when the financial crisis came in 2008. Because of this, Sweden could afford a more expansionary policy during the crisis (as indicated by the graph in Krugman’s post).

Does the expansionary policy during the crisis also explain why Sweden did reasonably well? Maybe. It is hard to know.

The important (and politically more tricky) part, however, was to implement the reforms before the crisis.

The welfare state’s reckoning?

Robert J Samuelson in the Washington Post is not very optimistic about the welfare state:

The modern welfare state has reached a historic reckoning. As a political institution, it hasn’t adapted to change … The paradox is that the welfare state, designed to improve security and dampen social conflict, now looms as an engine for insecurity, conflict and disappointment.

For sure, this does not apply to the nordic welfare states. On reform and adaptation of the welfare state, see for example

Bergh, A., and Erlingsson, G.Ó. (2009). Liberalization without Retrenchment: Understanding the Consensus on Swedish Welfare State Reforms. Scandinavian Political Studies, 32, 71-94. Link.


Bergh, A. (2008). Explaining the Survival of the Swedish Welfare State: Maintaining Political Support through Incremental Change. Financial Theory and Practice, 32, 233-254. Link.

Andrew Brown on Sweden in the Guardian

In the Guardian, Andrew Brown summarizes many of the latest political discussions in Sweden:

Social democracy spent decades smashing up the old authority structures, among them God and the traditional family, in order to take over their authority. From the 1980s onwards the neoliberals spent decades smashing up Social Democratic beliefs. And at the end of this process, the future has let both sides down.

What follows…

The idea of society as a place of mutual service has disappeared or at least attenuated to an ideal.

is somewhat of a stretch.

More here.

Southern Economics Association

This weekend, the paper “The rise, fall and revival of a capitalist welfare state: What are the policy lessons from Sweden?” will be presented at the meetings of the Southern Economics Association in Washington. The session is 25J for those attending the conference.

Podcast and paper from Legatum Prosperity Symposium

The paper “What explains Sweden’s success?“, presented by Andreas Bergh at the 2011 Legatum Prosperity Symposium in now available online, as well as a short podcast on the role of trustworthiness for the Swedish welfare state.

Many look to Sweden…

This summer, Sweden was portrayed as a “rock star of recovery” according to the Washington Post, as a “north star” according to the Economist. Right wing editorial writers are happy – as expected.

Sure, things look good. But some comments are still called for:

1. Don’t make too much of the 5 percent growth rate.

As a small, open and highly trade oriented economy, Sweden is very dependent on the world economy, and relative growth rates react a lot. Growth was -5 percent in 2009. During the recovery, growth rates have been around 5 to 6 percent. It is not “tiger growth”,  it is only mathematics. (similar remarks here and here)

2. Don’t forget the heroes of the past.

While many are keen on giving the current right-wing government credit for Sweden’s success, most tough decisions and reforms were made and implemented a long time ago – by both social democrats and by previous right wing governments. So while Fredrik Reinfeldt and Anders Borg are impressive in many ways, let us not forget Ingvar Carlsson, Carl Bildt and Anne Wibble – to name just a few who were involved in handling the crisis of the early 1990s in Sweden.