Government 1B: Lesson 65
The standard claim about Sweden is that it shows society can prosper without a free market and with extensive government intervention. But the fact of the matter is, economists and politicians who use this claim have not studied the history of Sweden and know next to nothing about its culture, people, and how its economy got to where it is today with the reputation it has.
Today, Sweden manages to maintain a high standard of living despite the high levels of taxation. However, history shows that Sweden could have been even more affluent and prosperous without high taxes, welfare, and government intervention hindering economic development.
A Protestant Work Ethic
Max Weber, a German sociologist in the early 20th century, observed that the social success of protestant countries in northern Europe was the cause of a strong “protestant work ethic”. Sweden has always had strong ethics and morals which are closely tied with Christianity and has continuously taught to their children. Weber notes that Sweden, as well as neighbouring countries, have maintained higher standards of living, stronger social cohesion, and high levels of trustworthiness than the Catholic and Orthodox countries of Southern Europe.
These stark cultural differences are not exclusive to Scandinavians in Scandinavian nations but carried over the Atlantic when Swedish and Dutch immigrants landed in North America during WW1 and WW2. According to the Sweden Paper by Nima Sanandaji in August 2012, “The 4.4 million or so Americans with Swedish origins are considerably richer than average Americans, as are other immigrant groups from Scandinavia. If Americans with Swedish ancestry were to form their own country, their per capita GDP would be $56,900, more than $10,000 above the income of the average American. This is also far above Swedish GDP per capita, at $36,600. Swedes living in the USA are thus approximately 53 percent more wealthy than Swedes (excluding immigrants) in their native country (OECD, 2009; US Census database).”
An economist in Scandinavia once told Milton Friedman, ‘In Scandinavia, we have no poverty’. To which Friedman replied, ‘That’s interesting, because in America, among Scandinavians, we have no poverty, either’ (quoted by Kotkin, 2009).”
It is important to note that according to many foreign businessmen who work with Scandinavians, the Scandinavian people are generally trustworthy. Although trustworthiness is a difficult aspect to measure, it is vital in creating a well-functioning economy and society. The higher a society’s trustworthiness, the more reliable economic transactions become and cheaper transactions cost. Sweden, Denmark, Finland, and Norway are known as the most trusting societies in the world (Delhy and Newton, 2005; Berggren, Elinder and Jordahl, 2008).
This combination of protestant work ethic and general trustworthiness has made the perfect environment for a productive and growing economy in Sweden, which has grown famous.
Economical growth of Sweden
In the 1870s, Sweden was a relatively poor nation, but a capitalist system evolved from a poor agrarian society and the country steadily grew richer. Farmers and businessmen were able to develop private businesses and low taxes ensured the start of the industrial and entrepreneurial age of Sweden. The integration of property rights, the free market, and the rule of law boosted this economic growth and saw the founding and development of famous Swedish companies like IKEA, Volvo, Tetra Pak, Ericsson and Alfa Laval in the following hundred years. This success was not aided by government intervention, as it is commonly thought, but by lack thereof.
Suddenly in the 1960s, government policies veered to the left, and the tax burden, which had previously been low, rose to new heights, and a new system which discriminated against private businessmen was put into place. Thankfully the new “capitalism without capitalists” trend did not end the entrepreneurial age in Sweden or limit its economic growth. This I believe had something to do with Sweden’s philosophy of work. As Nima Sanadaji puts it, “It was well before the welfare state, when hard work paid off, that a culture with a strong work ethic and strong trust and social cohesion developed.”
Effects of the welfare state
The welfare system has always negatively affected the economical and social growth of a nation, and Sweden was no different despite its strong Christian heritage and history. Welfare systems create huge amounts of dependence on the government rather than one’s own work. As higher taxes are put in place and more red tape hinders private businessmen, the idea of accepting “free” government handouts becomes more attractive to the young generation. This is illustrated perfectly in Sweden by the many young adults who have been classified as early retired, in order to hide the growing unemployment statistics. The benefits given to these early retired adults are amongst the least generous in the Swedish transfer system, however a consequence of this is that the people born with disabilities preventing them from working now receive even lower public transfers when it is they that need them the most.
The “protestant work ethic” is slowly undermined as the nation becomes accustomed to high taxation and evermore dependent on government handouts. Nima Sanadaji writes, “In the World Value Survey of 1981-84, almost 82 percent of Swedes agreed with the statement ‘claiming government benefits to which you are not entitled is never justifiable.’ Sweden was still a nation with very strong morals related to public benefits. As the population adjusted its norms to the higher tax regime, the number who held this view dropped steadily in further surveys. In the survey of 1999-2004, only 55 percent of Swedish respondents believed that it was never right to claim benefits to which they were not entitled (Heinemann, 2007).”
The deterioration of morals and work ethic is being observed all over the world. The amount of men who called in sick during sporting events, such as the World Cup, has significantly increased over the last 50 years. Cultural norms do have strong persistence through generations, which has been especially shown in Scandinavian nations, but in the long run, they are apt to change due to social and economic circumstances.
The Freedom Cycle
Scottish economist, Alexander Tytler, came to the conclusion that there is a Freedom Cycle. It is based on human nature, which is perennial, and spans over 200 years. The average age of the most of the world’s greatest civilizations has been 200 years, and they have always progressed through this cycle:
From Bondage to Moral Certitude;
from Moral Certitude to Great Courage;
from Great Courage to Liberty;
from Liberty to Abundance;
from Abundance to Selfishness;
from Selfishness to Complacency;
from Complacency to Apathy;
from Apathy to Dependency;
from Dependency to Bondage.
This pattern cycle cannot be reversed or changed. Writer Jeff Thomas explains that “Historically, the generation that is in charge at the time of bondage is never responsible for the eventual rebirth. The bottom must continue long enough for a new generation of adults (who, all their lives have witnessed that “free stuff” is a lie) to create the rebirth. They understand, only too well, that their only hope to have more, is to develop a work ethic and stick to it. (Their still-whining parents continue to hope that a leader will come along and finally deliver on the free lunch.) (Thomas, The Freedom Cycle)”.
The claim that Sweden is a perfect model of a prosperous society with extensive government intervention is false. Sweden’s economy began to grow long before the introduction of a welfare state because of the cultural norms held so strongly among the people.
Sweden started as a poor agrarian nation that grew into a booming entrepreneurial society, with the founding of famous companies like IKEA and Volvo, because of a protestant work ethic, strong social cohesion and trustworthiness, as well as low taxes, the rule of law, and a free market. Sweden is the model of a prosperous society that once had a free market and is now at risk of losing its cultural ethics and morals due to a crippling welfare state and government intervention.
“The golden age of Swedish entrepreneurship – when one successful firm after another was founded in this small country and gained international renown – occurred at a time when taxes and the scope of government were quite limited” (Nima Sanadaji, the Sweden Paper).
The probability of Sweden turning back to its original hard-working ways is very slim. As Alexander Tytler shows, the Freedom cycle does not reverse or change, and we can see from the development of other western countries that are further in the cycle, that Sweden has a couple more generations to go before the people take great courage and embrace liberty.