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.

More Victims of the European Crisis

The European economic crisis has already caused widespread financial hardship across the continent. Roughly estimated, about one hundred million Europeans are affected, either directly by having lost their jobs or having no prospect of finding a job this side of the Second Coming; or indirectly as government cuts or eliminates entitlements that they have become critically dependent on. The fact that taxes remain constant or even go up only adds insult to injury: government creates a net drainage of resources from the economy that the private sector would have made very good use of.

This human suffering is of course the most serious consequence of the crisis. Beyond that, there is a great political irony in this. The very purpose of the welfare state was to eliminate this kind of suffering in a recession, yet when it came down to business and the economy got bad back in 2008, the welfare state did not pass the test. It let people down, right and left, and as the crisis continues, it continues to default on promises to take care of the poor and needy.

During this crisis the welfare state has failed to do the one thing that we were told it would do. It is hard to find a more serious, systemic failure of government than this.

At almost every turn, this failure leaves Europe in much worse shape than it otherwise would have been in. I have reported on numerous such examples on this blog, and one more is added below. But before we get there, let us look at one of the very rare positive effects of the squeeze on government spending. Der Spiegel reports:

The debt crisis is finally catching up with wind energy, once a fast-growing sector in Europe. After more than a decade of double-digit growth, austerity, rapidly changing energy policies and skittish investors are putting a damper on the industry. It is often the elephant in the room at any conference on renewable energy. Sometimes, it’s mentioned simply as the “s” word and other times it’s not mentioned at all. But subsidies remain crucial, with wind energy still struggling to achieve price parity with coal and natural gas.

If it was not for the global warming hoax, there would have been no subsidies to wind energy in the first place. But thanks to Medieval-level fear mongering among “scientists” and more than a little lack of responsibility on behalf of countless politicians, taxpayers have been forced to waste hard-earned billions both in Europe and in America on a form of energy production that, obviously, cannot stand on its own two feet on the free market.

Once again, there is an element of irony in this. The statists who wanted to look good by promoting wind energy now pull the plug on it because they want to look fiscally responsible. Yet the need to look fiscally responsible is caused in good part by the kind of reckless spending that wind energy subsidies represent. Of course, the big waste bucket is the welfare state itself, but wind subsidies exemplify the same kind of do-goodery that the welfare state is built on.

When it matters, the do-gooders run away from their commitments.

One problem, of course, is that wind energy subsidies have created a new class of tax moochers, namely the bureaucrats whose entire careers are devoted to fighting the global warming windmills (pun intended…). Back to Der Spiegel:

This week in Vienna, at the European Wind Energy Association’s annual conference, subsidies came up right away. This time, it was the source of the comments that was unexpected. During the opening keynote, Fatih Birol, the chief economist at the International Energy Agency, proclaimed fossil fuel subsidies to be the “Public Enemy No. 1” of sustainable energy developments. This, from a man who just eight short years ago was urging “substantial” increases in new oil and gas drilling investments. His argument was simple. Renewable energies right now are suffering from a dual problem: Governments around the world are slashing aid for clean energy, and massive subsidies propping up the fossil fuel industry are making it impossible to compete with the cheaper energy.

He is wrong, at least when it comes to America. Here, the federal government is stifling traditional fuel production, with new and rather ridiculous regulations on coal. The federal government has also made itself such an unreliable, not to say hostile, partner in extraction and production of oil that its lease sales in Alaska have hit historic lows two years in a row. Lease sales on state lands in Alaska are doing well, though, and that without subsidies.

The oil boom seen in, e.g., North Dakota is entirely due to the fact that the drilling is taking place on private lands. So if anything, the American increase in oil and natural gas production is happening despite the “involvement” of the federal government.

Der Spiegel again:

Even in an [alleged] uneven playing field, the wind industry has been growing rapidly in recent years. There are now 22 countries with at least a gigawatt of wind power installed (enough to provide electricity to 200,000 homes). In the European Union, countries installed 11.6 gigawatts of new energy capacity last year, up from 9.4 gigawatts put in place in 2011, according to the European Wind Energy Association (EWEA).

And here is an example of what kind of complete waste of money that this expansion leads to. But as Der Spiegel reports, that does not stop the wind energy industry from demanding even more money from taxpayers:

Wind has long since become a mainstream player in the global energy market. The problem is that the gains Europe made this year came mostly from orders placed before the debt crisis that has gripped Europe since 2010, Kjaer said. And if national policies aren’t adjusted to reflect a changing reality, the growth rate is expected to drop to 6 percent by 2020 and 4 percent by 2030, according to a report released in November by Greenpeace and the Global Wind Energy Council.

In other words: more money into the black hole created by the global warming hoax.

While Europe’s envirocrats continue to demand more money from taxpayers, retirees are taking a beating from the perennial recession. From EU Business:

Retirees in the United Kingdom are feeling the pinch as annuity rates continue to fall to historic lows in a trend – given momentum by Europe’s economic woes amongst other factors – that shows little sign of reversing. Beginning with the credit crunch in 2007, annuity rates in the UK have been steadily declining over the last five years, leaving people with the prospect of reduced incomes in retirement. Several compounding factors are cited as the cause of this by experts. The eurozone crisis and poor UK gilt returns, as well as increasing life expectancies are working synergistically to suppress rates of income on both fixed and investment-linked annuities,says James Daly, annuities editor at the Banking Times. There is no one factor to blame but the questions surrounding the European economy are without question one of the biggest influences on the poor annuities market.

This goes for private retirement investments as well as government-run retirement systems (except the most rigid, traditional pay-as-you-go versions).

The turbulence in stock markets, largely caused by questions over the solvency and state of the Eurozone economies, is causing increased demand for UK government gilts which are seen as a relative safe haven for investors. High demand for gilts results in their prices being pushed up and causes a decrease in their relative interest payouts thus affecting the returns offered for annuity purchases.

How about that? Government over-spends, then imposes taxes that depress growth and aggravate a recession, then add insult to injury with reckless austerity policies, thus driving large segments of the labor force into unemployment – and retirees into poverty.

A socialist Swedish prime minister once said that poverty is endured more easily if it is shared by everyone. They tried that in the Soviet Union. I don’t think that in hindsight we can say that the experiment worked very well… That aside, the suffering among Britain’s retirees – which is not very different from the experiences of retirees in other European countries – is yet another reminder of what damage big government does. Even when it is not directly involved in your life, its clumsy, misguided activities in the economy inflict harm on much more than just those who immediately depend on it.

There is only one permanent remedy: eliminate the welfare state, shrink government to its minimal-state responsibilities and protect economic freedom at every turn.