Sweden

“Communism doesn’t work because people like to own stuff.”

Frank Zappa

The belief in socialism seems to be popular among the younger demographic these days (those under the age of 40) in the United States. Such individuals do not recall the horrors of failed socialist regimes and reject the current manifestations of oppressive socialist regimes such as the Democratic Peoples Republic of Korea, The People’s republic of China, The Republic of Cuba, and Venezuela. Following this, they promote the ideal of democratic socialism and use the Scandinavian countries as an ideal the United States should aspire to achieve. Often the country that comes to represent this standard is that of Sweden. Sweden is known for Volvo (now a Chinese company), IKEA, meatballs, socialized medicine, and a capital whose name is associated with a psychological condition where hostages sympathize and form alliances with their captors. Sweden is many things but it is not a poster child of a socialist regime as the government does not own or control the means of production. Sweden once had a system that resembled socialism in the 1970s-1980s. This period was marked by heavy taxation, big government, poor service, and a faltering economy. Socialists within the country began to complain about the arrangement in place, the most vocal being that of Astrid Lindgren the noted children’s author of Pippi Long Stocking whose marginal tax rate was at 102%. Despite the tax extremes, there was still not enough revenue to fund the government’s extensive welfare state. The state had to make reforms and they did so successfully by cutting government spending, privatizing the national railroad, abolishing the inheritance tax, eliminating government monopolies, and selling state-owned businesses such as Absolut Vodka. Following the reforms, the state went from a country of impoverished peasants to one of the richest countries in the world.

Privatization has been a force that has propelled innovation in two areas this has significantly benefited the state is in the arena of the primary education system and the pension system. First, in the education system schools operate on a voucher system; parents have the ability to chose the schools their children will attend. The private school system in Sweden performs better in most metrics than the public schools, however as a consequence of this voucher system public school performance has increased dramatically. Public schools within the vicinity of private schools have improved as public schools have an incentive to attract good teachers, develop an engaging curriculum, perform well on standardized tests in order to attract and retain students. Second, the other very successful area of privatization has occurred with the reform of the state pension system. Sweden privatized its pension system, pension payouts are now contribution defined. If Sweden does well payouts go up, if the country does poorly payouts go down. This has many positive externalities first there is a vested interest from people who reside in the state to ensure Sweden does well. Second, the reforms decouple the state pension system from politics, the pension is no longer a political football where politicians can buy votes promising higher pension payouts on the backs of the younger generation’s paychecks. The privatization occurred following revelations the previous public system was unsustainable and would inevitably bankrupt the country.

In many ways, Sweden is more of a free market system than the United States. The socialist Scandinavian model Americans purport to want all share a common characteristic, they all require a strong free market in order to pay for their state’s strong respective welfare programs. In order to achieve this, the free market needs the ability to maneuver and operate without too many constraints. Individuals who advocate for the system don’t address the drawbacks and shortcomings associated with such systems. One egregious argument that is made either in bad faith or ignorance is the notion that the rich are taxed disproportionately in order to subsidize lower earners and bestow them with a higher quality of life. In Scandinavian countries the poor are squeezed, this is seen in Sweden. People who earn less than the average €33,000 ($37,000 USD) pay approximately 60% of their income in taxes. This in tandem with a higher cost of living than much of the United States prevents many from transcending their current socioeconomic standing. People in such circumstances after all expenses have little money to devote to investments or starting their own business which will lead to residual income. However one benefit of the Scandinavian system is minimum wage laws do not exist in Norway, Denmark, Sweden, and Iceland, as a result, there is a lower barrier to entry for workers to get a job, learn valuable skills, and climb up the employment hierarchy or seek employment where their skills are in demand.

Sweden and the Scandinavian system, in general, have a variety of issues, however, they have quite a bit they can teach the United States a country in which public programs that do not serve all face $211 trillion USD in future unfunded mandates. In order to fulfill these obligations, the US would have to engage in significant deficit spending which is an unsustainable practice. Furthermore, individuals treat such government programs as guaranteed, however, these funds are not guaranteed. This is apparent from the 1960 Supreme Court case of Flemming v. Nestor where the Court held that the American pension or Social Security is not insurance or property you’re entitled to, however, the law mandates you make FICA (Federal Insurance Contribution Act) contributions. If reforms are not made in the American system a sovereign debt crisis will inevitably ensue. This led to the downfall of the prior world power the British Empire which culminated in the Suez Crisis. A watershed moment such as this will almost certainly occur in the future of the US, such an event will likely be at a very advanced date, but if the government holds fast to its fiscally irresponsible methods that date may be sooner than the world realizes. The Scandinavian countries can show the United States how to implement better government management through classical liberal economic strictures. The main lesson people should take from Sweden is not that it is a socialist utopia, but rather if a country wants to survive and thrive it must be fiscally responsible and cannot turn its back to wealth generation.