I’ve also opined favorably about Sweden’s school choice policy (in 2009), its partial privatization of Social Security (in 2023), and its tax cuts (in 2024).
Indeed, I even have a three-part series (here, here, and here) on Sweden’s economic renaissance.
Now, some folks in the media are finally catching on to Sweden’s transition. For Part IV in this series, here are some excerpts from a major report in the Wall Street Journal by Thomas Fairless.
For decades, Sweden was shorthand for the brand of high-tax, high-spend government that managed people’s lives from cradle to grave through state-run hospitals, schools and care homes. No longer. With little fanfare, this Nordic country of 11 million has embraced capitalism. Today, nearly half of primary healthcare clinics are privately owned, many by private-equity firms. One in three public high schools is privately run, up from 20% in 2011. School operators are listed on the stock exchange. …The capitalist makeover has allowed Sweden to do what few industrialized countries have managed in recent years: shrink the size of the state. That has enabled the government to sharply lower taxes and, economists say, sparked a surge in entrepreneurship and economic growth. …“Sweden is a real land of opportunity,” said Elisabeth Svantesson, the country’s finance minister. “I want people and capital to stay here and grow.” While many European countries are raising taxes, Svantesson has cut them three years in a row. Sweden’s top income-tax rate has fallen close to 50% from nearly 90% in the 1980s. …As the state retreated, the private sector expanded. A study published in April by the Stockholm School of Economics found that after Sweden removed inheritance and gift taxes in 2005, private firms with potential family successors grew faster, invested more and paid higher corporate taxes than firms without natural heirs. …Stefan Fölster, an economist and former Finance Ministry official, argues that the vast majority of Swedes have benefited from the reforms. Households’ inflation-adjusted incomes have doubled on average since the 1990s, after stagnating during the 1970s and ’80s under high taxation.
There are several noteworthy passages above. The Finance Minister says she wants people and capital to stay, unlike Norwegian socialists and Seattle’s Mayor.
I guess Swedes have at least partially figured out the relationship between good policy and national prosperity.
And the nation’s welfare state is now significantly smaller than the ones in France and Italy. Heck, it’s not that much bigger than America’s welfare state, as shown by this table from the WSJ article.
Let’s look at more of the article, starting with these passages about Sweden’s system of school choice.
Sweden’s embrace of the market goes even further than the U.S. The country has increasingly allowed public schools to be run by either nonprofits or for-profit companies. Roughly one in 10 teenagers now attends a secondary school operated by AcadeMedia, which is listed on the Stockholm stock exchange. These schools receive public funds based on enrollment, but what they do with that money is largely up to them. …Private direction allows for nimble decision-making. …school choice is now deeply entrenched in Sweden, with broad backing among parents and within both the current center-right government and center-left opposition Social Democratic Party.
Last but not least, the WSJ‘s report also correctly observes that Sweden became a rich country when government was small (which I’ve documented here), then languished when government grew, and now is trying to fix those mistakes.
The country climbed from being one of the poorest to the third-richest country in Europe over 100 years through 1970 without high levels of taxation. But starting in the 1960s, the center-left Social Democratic Party—which dominated the country’s postwar politics—sharply raised taxes and spending, ultimately taking government spending as high as 70% of GDP by the 1990s. The changes triggered a long period of weak growth, stagnant after-tax incomes and ballooning budget deficits and debt that culminated in a banking crisis in the early ’90s.
This is why this series of columns uses the rise-fall-rise theme.
Sweden became rich with limited government and free markets.
It then went crazy in the wrong direction.
And now it’s moving back in a sensible direction.
The bad news is that it still needs to engage in several more decades of economic reform to get back to where it started.
