The Crumbling Swedish Welfare State

There is a mysterious obsession with Sweden among American libertarians. They superficially glance at some isolated piece of legislation and suggest America follow the Swedish example. Having grown up in Sweden, and having escaped its oppressive tax system, its depressing social collectivism and cultural mediocrity, I am baffled by these Swedeophiles. The country I left for good 14 years ago had deteriorated pretty badly already then, and things have not gotten better.

If anything, Sweden is a prime example of what happens when you go out of your way to try and save a welfare state that is sucking the life out of its host organism, the private sector. From deteriorating schools to a health care system in real crisis, Sweden serves only one meaningful role: as a scarecrow  in the cornfields of big government, deterring the sane, common-sensical observer from ever setting his foot there.

In previous articles I have explained how Sweden’s “successful” welfare state, recently praised by The Economist, is little more than an attempt at selling welfare-state snake oil; I explained that young Swedes are not only unemployed by the masses, leaving the country in desperate pursuit of a life, but those who stay are stuck living with their parents at alarming rates; I have pointed to the explosive problem with mass immigration of welfare-dependent illiterates from the poorest corners of the Third World; how the Swedish police is literally capitulating before the onslaught of organized crime; I have asked why such friends of liberty as Freedom Works are so appreciative of the grotesquely big Swedish welfare state, and I dispelled the myth that the Swedish treasury secretary, Anders Borg, is some kind of low-tax crusader.

In fact, On February 13 Mr. Borg explained in a tax policy debate in the Swedish parliament that he opposed flat income taxes and favors a steeply marginal, multi-bracket income tax code because, he said, it is an important income redistribution instrument.

In other words, Sweden is still the full-fledged, “democratic” socialist welfare state it has been since the 1970s. The fact that the treasury secretary has a pony tail and knows folksy-talk does not make a tangible difference.

What does make a difference, but for the worse, is that yet another hallmark of the Swedish welfare state is now crumbling. The retirement system, overhauled 20 years ago in a reform praised as “free market based”, is under such severe pressure that the parliament may have to raise the retirement age to 75. Euractiv reports:

Swedes should be prepared to work until they are 75 and to change careers in the middle of their work life if they are to keep the welfare standards they expect, Swedish Prime Minister Fredrik Reinfeldt said. The retirement age is being debated in the Swedish parliament ahead of an expected pension reform package in April. In its proposal, the government wants to give people the right to remain at work until 69 instead of the current 67 cut-off age.

Let’s just make a brief stop here and notice something. The government in Sweden bans you from working when you turn 67. It is illegal for you to seek employment above that age. People get around that by starting small consulting businesses, but the law is still a good example of how the big, Swedish nanny state operates: anything that is not explicitly permitted is forbidden by default.

Back to Euractiv:

Meanwhile, the right to early retirement would be delayed by two years, to 63. However, Reinfeldt said in several interviews over the weekend that Sweden must consider taking the step even further by raising the retirement age to 75. “This is a time of changes in the global world economy. The nations we meet in open competitions don’t have our welfare ambitions. They don’t put taxes on production to finance the pension system or welfare solutions. Therefore the question remains, is our equation correct?”

The man is delusional. This has nothing to do with saving the export industry. The big corporations that have characterized the Swedish private sector since at least the 1950s are either dead (SAAB Automobile), gone abroad (ABB; Pharmacia), gobbled up by foreign corporations (Ericsson; Volvo Cars; Scania) or in the process of leaving Sweden (Volvo Heavy Trucks). This is part of a natural industrial cycle, where big, mature corporations lose out to new, more dynamic business models. Just look at how the Japanese car manufacturers capitalized on the stale, bureaucratic inefficiency that characterized the Big Three in Detroit back in the ’80s.

Mr. Reinfeldt’s problem is instead that his welfare state has suppressed private-sector activity outside of the big, old manufacturers. Up until a few years ago the corporate landscape in Sweden looked almost exactly the same as it did half a century earlier. Since about 2007, the big old dinosaurs have been in an increasingly ailing condition, unable to function as the “engines” of the private sector. But since Swedish tax policies, labor market laws and other regulations have been tailored to the needs of those big corporations, they have made it very difficult for small, new, dynamic businesses to grow.

Therefore, what Mr. Reinfeldt is really seeing is that his country’s private sector can no longer feed the welfare state because it is dominated by over-subsidized, under-challenged industrial behemoths with bureaucratic arthritis. And he is utterly incapable of dealing with the situation, because he wants to protect the welfare state at all cost.

Including this ridiculous retirement reform, of which Euractiv has more to say:

Reinfeldt, who leads a centre-right government, also said half of today’s children in Sweden can expect to become 100 years old and there has to be a change in the way the Swedes view their work life. “Therefore, Sweden must as a society ask ourselves the question: are we ready to meet these changes? The changes are basically positive. But if we want good pensions and welfare then we need to start discussing what our work lives should look like,” the prime minister said in a radio interview.

To begin with, I would seriously question the suggestion that half of Sweden’s children will live to be 100. Given how their health care system has deteriorated over the past 15 years, and such socially destructive factors as widespread depression and serious levels of alcohol consumption among the young, I would question if the average life expectancy will in fact stay where it is today. It is more likely that it will actually decline over the next couple of decades.

More importantly, though, is the fact that Mr. Reinfeldt – an alleged conservative – adamantly believes that it is the business of government to dictate when people are allowed to retire, and when they are allowed to work. All this shows is that Mr. Reinfeldt is just another statist European social democrat.

A far better approach would be to say that “we see such dramatic changes in the ability of the economy to support today’s retirement system that we will allow everyone to keep their own money and invest for retirement as they see fit”.

Some would rightly point out that Sweden already has a system of private retirement accounts within the government-run model. This is correct, but the ability of that system to fund future retirement is entirely dependent on an ailing economy. The pay-as-you-go part suffers from the same problems as our American Social Security system, while the private account part can only give good returns on investments if the Swedish economy is doing well.

Which it is not. More on that later. For now, back to Euractiv:

To be able to work until the age of 75, the Swedish prime minister says he envisions at least one career change during a person’s work life as the job one may have as a young person could become too tough or stressful later on. Reinfeldt acknowledges that this will require a huge change of mindset among the Swedish population. “It’s a very challenging idea. Our whole life is affected by the fact that we speak to a career counselor, make a decision, and then think we will work with the same things for the rest of our lives,” the prime minister stated.

The real issue here is that Sweden has a serious under-employment problem already as things are today. Youth unemployment is among the highest in Europe, and laid-off 40-somethings have enormous problems landing a new job. The work force is being expanded by up to 100,000 immigrants each year, yet the labor market can only add a net of 60-70,000 new jobs annually (and that is in a strong growth year).

On top of that, Sweden has very rigid labor market laws compared to other “free” economies. Unions are exceptionally strong, with all the negative consequences that follow. Firing workers is a significant undertaking, which makes employers balk at hiring people for full-time positions. Labor-based taxes put a steep price on new jobs, as do the responsibilities that employers have for income replacement when workers are home sick.

The bottom line is that the Swedish economy does not suffer from a shortage of labor. It suffers from a shortage of jobs. To force people to stay in the work force up to the age of 75 under such circumstances is – forgive my repetitive use of the term – delusional. I can only see one logical motive: to try to cut the cost of the retirement system while keeping it in place.

In other words: the purpose of the reform is to make people pay taxes in to the retirement system for several more years and take benefits out of it over a shorter period of time. But there will be no attempt to give people a chance to opt out entirely.

A classic example of how a government applies austerity measures to save a welfare state it does not want to  let go of, come Scylla or Charybdis.

And they will come. Sweden is on a downbound path that sooner or later will hurl the country into social chaos. The fact that this has not happened yet is entirely due to Swedes still believing that their country is a stable, functional welfare state.

They are like the famous bumble bee, which can’t fly but does not know it can’t, so it does it anyway. And just like the bumble bee, once the truth dawns on them, the Swedes will fall flat to the ground. From a cynical viewpoint, it will offer us an opportunity to study the last stages of the deterioration of a welfare state in a full-scale laboratory.

From a human viewpoint, though, it is going to be one big tragedy, brought upon an entire people by simple-minded socialist politicians, determined to shove their ideological construct down people’s throats.

I can only thank my lucky star I left that place 14 years ago.

13 comments

  1. ΛΕΟΝΙΔΑΣ

    Dr Larson,
    I have just stumbled upon this site and the following two sentences leapt off the screen and seized my attention: “There is a mysterious obsession with Sweden among American libertarians. They superficially glance at some isolated piece of legislation and suggest America follow the Swedish example.”

    Did you intend to write “liberal” or “progressive” instead of libertarian? The only confused souls I have met who call themselves “libertarian” but subscribe to the collectivist/keynesian schools of thought are former aging hippies whose minds have been addled by overindulging in recreational psychedelic drugs. Indeed, virtually the only issue attracting them to libertarianism is the possibility of legal access to chemical substances by ending the state’s idiotic “war on drugs”. In most other issues they qualify as enthusiastic Marxists or at the least Fabian Socialists.

    The remainder of your posting is spot on. My current wife of 26 years is like yourself, a Swedish escapee who blogs at http://everykindapeople.blogspot.com/. She and I exchange occasional visits with her remaining kin in Sweden where her daughter and son-in-law are employed by the national police force. Most of the Swedes I have met there are completely oblivious to the impending societal collapse.

    I would suggest if you haven’t done so, that you acquaint yourself more with the writings of Murray Rothbard, Drs Walter Block, Thomas Woods, Thomas DiLorenzo, Gary North etc. all of which are available at Lew Rockwell.com.

    From my own humble exposure to Keynesian Economics vs the Austrian School via university classes and later independent study indicates that they are almost entirely incompatible.

  2. Terry Rayburn

    Sven, excellent informative article. However, in your first sentence I believe you meant, not “libertarians”, but “liberals”. Libertarians, as I’m sure you know, favor freedom, including economic freedom.

    Thanks for some great information!

  3. Snaphanen

    Hej, kunne jeg måske få din tilladelse til atr publicere denne artikel ? Svar venligst på snappost (snabel a) yahoo (punktum ) dk

  4. S R Larson

    Terry,

    I understand your confusion. In general you are correct. American liberals favor big government, libertarians don’t. However, during 2012 I gave several examples of how leading American libertarians pointed to Sweden as a role model for government reform in America. Here is one example:

    http://libertybullhorn.com/2012/05/20/bad-austerity-analysis-response-to-veronique-de-rugy/

    I realize it is illogical of libertarians to turn to Sweden for good public policy reform examples, and my criticism of, e.g., de Rugy is based precisely on that.

    Thanks for bringing it up.

  5. Axel Edgren

    About half (or 45 %) of American college grads currently live with their parents, do they not? Anyway, if the choice is between crumbling and slow societal collapse and turning into, say, Texas or some other jolly place of low taxes, low regulation and wide-spread social inequality and poverty-related problems (with all the fascist, bigoted, anti-secular and generally antediluvian behavior this breeds among the rural, impoverished population), then why bother making the change? Texan tax rates sure are nice. Their teenage pregnancy stats and “reformation camps” for gay teens sure ain’t, pardner.

    Crumbling, moribund socialist welfare states or neoliberal banana republics with ruined ecology, powerless employees (wages in the US have gone down while productivity has gone up, millions of *full-time workers* wait for food stamps while republicans and libertarians call them parasites for their trouble), people being incapable of surviving financially due to health problems and unbound corporations?

    Jeez. Easy choice.

    Got a third alternative?

  6. Axel Edgren

    So hey, recently Texas defunded those filthy parasites at Planned Parenthood at the tune of 73 million. Except now the spike in unwanted pregnancies in low-income families is gonna cost 273 million dollars anyway, and of course a bunch of suffering. It’s almost as if dismantling the welfare state isn’t a panacea.

    Again: third alternative?

    • S R Larson

      Axel,

      You don’t come to my blog and rant. Your previous comment made very little sense and bordered on ranting. This one still makes very little sense. In fact, the numbers in the Atlantic article do not show what you claim – define “family member”, to begin with… If you have a coherent argument, then try to articulate it, and keep your voice down while doing it. This is an American blog, not some Swedish chat forum.

  7. Pingback: The Crumbling Swedish Welfare State « Snaphanen
  8. jdm

    From a human viewpoint, though, it is going to be one big tragedy, brought upon an entire people by simple-minded socialist politicians, determined to shove their ideological construct down people’s throats.

    You need more simple-mindeds. The simple-minded socialist politicians were elected by an entire simple-minded people who agreed to swallow the simple-minded ideological construct. ;-)

    People usually get the gov’t they deserve.

  9. Swede in Exile

    For anybody intersted in a real world example of a low tax, small governement state that is also very socially stable, with low crime, low unemplyment and very high average incomes; Take a look at Switzerland.

  10. Terry

    Wow, Sven, that “austerity analysis” article is very insightful. I look forward to reading more of your writings. Thanks for your response.