What we can learn from Sweden

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It came as a surprise to me when I saw a Burger King in Sweden. I imagined that the country would be a social democratic paradise with workers skipping down great fast food free roads, merry with the knowledge that they lived in paradise. Although Sweden may have Burger Kings and McDonalds, expensive cars and big houses, and it was not quite the egalitarian heaven I naively expected, it does have an economy that is popular with investors and a welfare state that is the envy of the world. Sweden can teach the United Kingdom a lot about how to run a well functioning economy that delivers for its citizens.

Scandinavian countries like Sweden, Denmark, Norway and Finland have managed to combine a strong private sector and also a relatively large and successful state sector. In all those rankings that any self-respecting nation wants to come out on top, it is the Scandinavians who consistently do so. In the 2011 Human Development Index (HDI), which takes into account education and life expectancy, Sweden came tenth, compared to the United Kingdom’s twenty-eighth. Furthermore, as we teeter on the edge of recession, Sweden is enjoying an exceptional growth rate of 4.4 per cent. Although growth is unlikely to continue at this rate, as Sweden’s export-based economy is deeply interconnected with the economic fortunes of its European trading partners, it is probable that the Swedes will weather the storm better than other European countries.

Sweden and the other Nordic states manage to combine a great state with a great economy. The flaw that many on the left make is to ignore the fact that before the thousand days of maternity leave or the gold and platinum hospitals, or whatever else is over the rainbow, there needs to be a strong private sector to pay for it. Put simply you can only tax and spend if you have money to spend. The Scandinavians have long recognised this fact and the world has long recognised their ability to do so. If you are sitting on an Ikea sofa sipping a Kopparberg you are enjoying the fruits of Swedish labour. And the Swedes are enjoying the consequences of large numbers of people around the world importing Swedish goods.

Britain, with its over-reliance on a financial sector immersed in dark and beguiling arts, needs to develop its manufacturing side of the economy. The UK’s manufacturing sector accounts for 12.8 per cent of GDP. In contrast Sweden’s industry is 26.9 per cent of GDP. In the UK a great deal of industry has vanished since the 1980s. This has not only brought about a dangerous emphasis on the banks, but has brought unemployment and deprivation to many parts of the country. If we hope to rebalance our economy in a fairer way, growing our manufacturing base is extremely important.

Sweden is amenable to investment and business because their corporation tax rates are relatively low. Simeon Djankov, author of a World Bank study on the most business-friendly countries, argues that you have to ‘ignore the Nordic reputation for tax burdens and you’ll see they have established a system that does not distort production, that gives people an incentive to invest in businesses and in stocks because the taxes are so low.’ Instead of taxing business it is personal income and personal consumption which is taxed at high rates. Everything from TVs to burgers carry VAT. The revenue raised is then spent on excellent healthcare, education, pensions and welfare benefits.

Overall Sweden is a great example that Britain can aim to emulate. It is a country in which people live longer and are happier and are less likely to become victims of crime. It is also not some sort of high-taxing pariah state, but an efficient and successful partner in international trade.

Article by Ben Mackay. Edited by Patrick English.

Further reading:

http://www.economist.com/node/18805503

http://www.washingtonpost.com/business/economy/five-economic-lessons-from-sweden-the-rock-star-of-the-recovery/2011/06/21/AGyuJ3iH_story_2.html

http://articles.cnn.com/2011-06-14/opinion/frum.sweden_1_fredrik-reinfeldt-swedish-way-civil-servants?_s=PM:OPINION

http://www.newgeography.com/content/002287-sweden-a-role-model-capitalist-reform

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1629940

http://www.bbc.co.uk/news/business-16655709

http://www.nytimes.com/2004/10/13/business/worldbusiness/13iht-compete.html?_r=1

http://www.guardian.co.uk/money/2008/nov/16/sweden-tax-burden-welfare