Based on a CF&P video from back in 2010, as well a video from Johan Norberg I shared in 2016, there’s a lot to learn by looking at Swedish economic history.

Here’s a more recent video that also looks at that nation’s economic track record.

You’ll notice a similar message in all three videos, as well as in a study from a Swedish think tank that I wrote about almost 10 years ago (which was Part I in this series).

• An era of rapid growth during a laissez-faire period that lasted from about 1870 to 1950.
• A period of government expansion that then lasted until a major crisis in the early 1990s.
• A shift back toward government restraint and pro-market policies in recent decades.

For today’s column, let’s look at some new research on Sweden’s rise and fall and subsequent renaissance.

The bad news is that the study, authored by Lars Jonung, is in Swedish.

The good news is that Hannes Gissurarson from the University of Iceland has an English-language summary of this new research.

Here are some excerpts (and please note that “liberal” is being used in the European sense, meaning classical liberalism or free market).

In a recent paper, Swedish economist Lars Jonung…distinguishes between three Swedish models: liberal in 1870–1950, social democratic in 1950–2000, and neoliberal since 2000. In the liberal period, Sweden experienced rapid economic growth, her average income (GDP per capita) increasing from 60 per cent of the average income in fifteen comparable countries to 120 per cent. In the social democratic period, however, she began to lag behind these countries, her average income decreasing to 90 per cent of their average income. In the third period, Sweden recovered somewhat, but she has not yet caught up fully with these countries of reference. Jonung’s results are shown in the chart…, where the broken line represents the data of each year while the continuous line represents a nine-year average.

Here is the aforementioned chart, which shows how Sweden’s per-capita GDP compared to other western nations.

Being above the horizontal line means above-average income, which happened during the “Liberalism” period.

Sadly, Sweden then entered its period of democratic socialism (“Socialdemokrati”) and then fell below average.

More recently, it has begun to catch up again during a neoliberal period (“Nyliberalism”). And you’ll notice that the chart looks almost identical to the one I shared 10 years ago.

That’s not a coincidence.

Here’s more of Hannes’ summary, starting with the liberalism period.

In the mid-nineteenth century and onwards, the Swedish economy was greatly liberalised. The guild system was eliminated, restrictions on mobility and several regulations in agriculture were abolished, private property rights strengthened, and tariffs reduced or scrapped. It was, Jonung holds, of particular importance that in 1855 financial institutions were allowed to set interest rates freely and that soon thereafter a stock market was established.

Here’s some of what he wrote about the slow-growth era of democratic socialism (which is best understood as the era of the welfare state rather than actual socialism, as discussed in Part II of this series).

…the Social Democrats, in power continuously from 1932 to 1976…sought to regulate the capital market, directing investment away from private initiatives. One effect was that the total value of stocks, as a proportion of GDP, declined. Another effect was that newcomers, entrepreneurs and innovators, found it difficult to compete for capital with the already established firms and with public institutions. From the 1950s to the late 1990s, the number of public employees increased significantly, whereas no new jobs were created in the private sector.

By the way, Hannes’ one sin of omission is that he doesn’t mention the enormous expansion in Sweden’s fiscal burden that happened during these decades.

Last but not least, here are a few sentences about the neoliberal period.

Swedes began to retreat from the social democratic model. …Taxes became less progressive. The non-socialist coalition government under Carl Bildt in 1991–1993 introduced competition in various sectors previously dominated by public institutions. It abolished the government monopoly of broadcasting, allowed the currency to float, and abolished the so-called wage-earner funds, which had been designed to transfer control of the economy to the trade unions. The reforms continued thereafter, both under Social Democrats and coalitions of the non-socialist parties. The tax burden was eased somewhat, and public companies were privatised. …the reforms have led to renewed economic growth.

This recent period of pro-market policies is noteworthy for several reasons. Here are my four-favorite policies:

• Partially privatized Social Security.
• Lower marginal tax rates.
• Strong spending restraint.
• Nationwide school choice.

I’ll close with the should-be-obvious observation that Sweden’s fiscal burden is still far too high.

According to the Fraser Institute’s Economic Freedom of the World, Sweden ranks as one of the worst nations (#160 out of 165) for fiscal policy.

But since it does well (or, in the case of monetary policy, decent) in every other category, it ranks #35 for overall economic freedom.

So Sweden is still a rich nation by global standards. But it could be doing much better.

No wonder Swedes in America are so much more prosperous than their counterparts who remained in Sweden.

P.S. Sweden deserves credit for a very sensible approach during the pandemic.