No, Sweden Doesn't Have it Figured Out (with Johan Norberg)

Guest post: Tom Woods interviews Johan Norberg

Bernie Sanders,” Tom Woods writes, “United States senator from Vermont and self-described socialist, has surprised everyone with the vigour of his 2016 presidential campaign, both in terms of size of his crowds and the strength of his fundraising.
    “His message, on the other hand, is garden-variety leftism, particularly in economics, where he speaks as if the private sector can be ceaselessly burdened with no ill effects on anyone, except a bunch of greedy fat cats who deserve what they get.”
     One of the garden-variety myths the moron is peddling is about Sweden and the alleged success of their brand of welfare-state socialism. As Scott Sumner points out:

The heart of the Democratic Party is now with Bernie Sanders, whatever the polls show. And let’s not have anyone accuse me of McCarthyism, he calls himself a “socialist.” When asked, the head of the Democratic Party couldn’t think of a single difference between socialists and Democrats. And please don’t insult my intelligence by talking about Sweden. Sweden is not a socialist country. Venezuela is socialist. When Sanders starts advocating free trade and investment, liberal immigration rules, privatization, zero inheritance tax, 100% nationwide school vouchers, a $0/hour minimum wage rate, then come back to me with your Sweden talk. For now, he just wants the bad parts of Sweden.

In the first chapter of his latest book Bernie Sanders is Wrong, [which he’s made available for free download]Tom Woods asks Swedish author, lecturer and documentary film-maker Johan Norberg about the truth behind what everyone hears about Sweden …

WOODS: Sweden comes up with surprising regularity in the United States, and it comes up not because people have some interest in Swedish history and culture, I’m sorry to say.

It’s because they want to use Sweden as an ideological bludgeon with which to beat people who are skeptical of state power. So I want to talk to you, as somebody who was born in Sweden, who is speaking to us from Sweden right now, and who is very knowledgeable about Sweden, to help clear this up for an American audience.

Are Swedes aware that their society is held up as a model for how political organization and the economy ought to be arranged?

NORBERG: I think we are aware of that. We have noticed throughout the years that people actually tend to like Sweden for some reason, perhaps because we’re kind of small and insignificant, and we’re not very threatening. So people tend to think of Sweden as a nice, decent place, peaceful. We don’t bother people.

And then they tend to like different aspects of what they see. I think of Sweden as a kind of Rorschach test, a kind of psychological test where you have some ink which doesn’t portray a particular picture or anything, but you see what you like to see.

You see what you think about in the back of your mind and in your subconscious. So some people see this as a nice, open economy – a globalized, free-trade economy. Others look at the government and think, oh, it’s the perfect, big government, socialist country. And others see other things. It could be free love or the pop music. People tend to like Sweden. That’s something we’re very aware of.

WOODS: You have an article alleging that Sweden actually succeeded economically not because of welfare state spending and government intervention, but both in spite of those things and prior to those things. So can we go back and look at the history of Sweden?

When do we begin to see robust economic growth, and what was the role of the state at that time?

NORBERG: When you start to think of when Sweden was really a successful economy that the rest of the world looked at, you begin to notice Sweden in the 1950s, ’60s. In 1970, Sweden is one of the richest countries on the planet. I think the per-capita income is the fourth most prosperous on the planet, and that’s after a 100-year period of rapid economic growth – one of the fastest in the world.

Probably only Japan beat us during those years. So you would have to say that this starts sometime in the 1870s, which is interesting, because at that time Sweden had gone through a liberalisation and deregulation process.

Between 1840 and 1870, we had a major political movement of classical liberalism, of a laissez-faire liberal attitude where they wanted to reduce government to open up to free trade, deregulating industry and so on.

And it’s sort of a funny anecdote: the minister of finance, who was one of the pioneers of these reforms, left in the mid-1860s after having really liberalised and opened Sweden up, and his opponents said, oh, now you’re leaving because you don’t want to see the failures that you brought upon us and the problems that Sweden will experience after these reforms.

But what happened was that growth really took hold. If you want to look at one particular set of numbers, between 1860 and 1910, right before the First World War, real wages in Sweden increased by 25 percent per decade in manufacturing. That’s much faster than before and much faster than afterwards -- which is interesting, because that’s 20 years before the Social Democrats ever got power in Sweden.

So the real boom happened during this laissez-faire period. Public spending was still below 10 percent, and Sweden was one of the most open economies in the world.

WOODS: This seems to be a common feature of a lot of left-wing commentary. They’ll look at a snapshot of a society in a particular year without looking at the video, so to speak, of that society. What had been going on prior to that snapshot?

We see this in the debates over the regulatory state in the U.S., for example. We’ll look at a regulatory agency, and we’ll see that after they created it, the result was that – for example – there were fewer workplace fatalities. What they don’t ask is: what was the already existing trend in workplace fatalities before we got this agency? And it turns out that workplace fatalities were already falling dramatically! Likewise, in the story of Sweden, we don’t get what you just told us about the growth in wage rates before all the interventions came, but that’s three-quarters of the story!

NORBERG: Exactly. That’s an incredibly important point. A lot of people look at Sweden and say – and especially, they used to do that when we were at the peak of the big government and the welfare state in the 1980s – look, Sweden is very prosperous, and at the same time, taxes and spends heavily. It’s a very almost socialist economy, and yet they are rich. Why is that? Well, it reminds you of the old joke: how do you get a small fortune?

Well, you start with a big one, and then you make a couple of mistakes, and then you end up with a small fortune. We had this tremendous growth during the years when Sweden had the most open economy and the smallest government. Even when the Social Democrats began to get power in the 1930s, they understood this economic model, and they didn’t want to interfere too much. They were actually heavily influenced by a couple of famous classical liberal economists.

[TW note: “Classical liberalism” refers to 19th-century liberalism, which was much closer to modern libertarianism than it was to modern American liberalism.]

So most of the time, they were open for business and chose free trade. As late as the early 1950s, Sweden had lower taxes and less public spending than in the United States and the rest of Europe, and that gives you a perspective on why this happened. You built this big fortune under these circumstances.

In early 1970, Sweden was one of the richest countries, and then the Social Democrats began to hike public spending, increase taxes, and so on, but they could do that only because we already had that wealth because of this free-market period -- and also, obviously, because Sweden had stayed out of two world wars. That meant that our industry was intact, we exported to both sides, and the young men of the country were still alive and able.

WOODS: I think a skeptic might come back at you and say, if Sweden really had been doing that well, then how could the arguments for the welfare state have gotten any traction?

NORBERG: Yeah, and that is a good question. It’s one that both historians and economists think about quite a lot when that happens, but actually, it follows a fairly normal pattern in most countries around the world.

You get rich, and then you begin to take that wealth for granted. He who has satisfied his thirst turns his back on the well in a way. You begin to take it for granted. You don’t think of the preconditions for creating more wealth, building these new businesses, and the kind of fierce competition and openness that it takes.

So instead, you begin to demand all of it at once. You begin to build these pressure groups who want more access to this wealth and more evenly distributed wealth. And that’s, I think, what began to happen in the 1970s. We were so rich so that we thought that we couldn’t make any mistakes anymore.

We could throw out the economics textbooks, and we could begin to think of other things, like a fairer distribution of wealth, how to make sure that everybody got a piece of the action.

WOODS: And that is one of the arguments that is made by American progressives today. They will say: whatever else you can say about Sweden, it has more economic equality than we see in the United States.

NORBERG: And that is true, partly because of more redistribution. But also, even here you need some historical perspective to understand where we’re coming from. Sweden had a fairly equal distribution compared to many other countries during this openness period as well, partly because it’s a very small country -- even today just 10 million inhabitants -- and a homogenous country, which meant that there weren’t these huge diversities when it came to wealth. Sweden didn’t even have a feudal period like the other European countries.

So we were all, in a way, property-owning farmers when we started out. So we had a history of more equality, more trust, societal trust, between people. This social trust, though, also made it easier for people to accept bigger government. Because when that happened in other places, people were very suspicious: what happens when they take our money away? Will they just divert it to their own use?

Will it be inefficient? Will it be bureaucratic? Well, Sweden has always had in a way a fairly efficient and non-corrupt public sector and civil servants. And a lot of trust: you don’t think of the government historically as someone who is there to loot and take it all away from you. They’re more like your neighbours, in a way.

So you trust them, and then you trust them a bit too much. And of course, all power corrupts in some way. And that’s what happened during these years, when the government grew rapidly in the 1970s and the 1980s and public spending actually doubled in just two decades, from 30 percent to 60 percent. That was really the start of the welfare state in Sweden.

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Johan Norberg -- a native of Sweden, a classical liberal and a globalist -- is an author, lecturer, and documentary filmmaker.  Visit his website at www.JohanNorberg.net. 
This post first appeared at Laissez Faire Books.