Sweden Unhappy with Its Social Model

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Sweden Unhappy with Its Social Model

Post by Corlyss_D » Sat Sep 09, 2006 6:06 pm

Economist.com

The Swedish model

Admire the best, forget the rest
Sep 7th 2006 | STOCKHOLM
From The Economist print edition

Outsiders look enviously at Sweden's economic success. So why are the Swedes thinking of voting out the ruling Social Democrats next weekend?

FOR much of Europe, the past decade has been depressing. Slow growth, high unemployment and the burdens of rising public debt and falling competitiveness have renewed doubts about the sustainability of the European “social model”, which is also starting to creak under the weight of an ageing population. The youthful dynamism of America, and now of China and India, seems to be leaving the decrepit old continent in the shade. Yet there has always been one bright spot amid the gloom: Scandinavia.

In recent years defenders of the European social model—capitalism tempered by a generous and interventionist welfare state—have taken to praising Scandinavia to the skies. The Nordic region, to go a bit wider, has the world's highest taxes and most generous welfare benefits. And yet Sweden, Finland and Denmark (Norway's oil sets it apart) have delivered strong growth and low unemployment, and rank among the world's most competitive economies. Nordic companies are strong in technology and research and development. Their health-care and educational systems are much admired. And, unlike other European countries, most Nordic states run healthy budget and current-account surpluses.

Sweden, whose 9m people make it by some way the biggest Nordic country, is a particular favourite. A year ago the Guardian, a British newspaper, said it was the most successful society the world had ever known. As if to bear this out, the Swedish economy grew at a sizzling annual rate of 5.6% in the second quarter of 2006, enough to trigger a spate of interest-rate rises by the central bank. Sweden's big companies, such as Ericsson, SKF, Telia and Volvo, are breaking export records.

A visit to the capital, Stockholm, confirms that life for most Swedes is pretty good. Yet there is disgruntlement in the air, and it is causing nervousness among the Social Democrats, who have ruled Sweden alone or with other parties for 65 of the past 74 years, and must on September 17th again face the voters in a general election. Sweden's Social Democrats are always difficult to defeat: they are well entrenched, well financed and their leader, Goran Persson, who has been prime minister for a decade, is tried and tested. But three years ago Mr Persson lost a referendum on joining the euro and, though the polls show a narrowing gap, most now favour the centre-right opposition, a four-party alliance under Fredrik Reinfeldt, leader of the Moderate Party.

Given Sweden's economic performance, this may seem like rank ingratitude. Many say that it reflects merely the passage of time. Jan Eliasson, Sweden's impressive foreign minister, notes that “We have been in power a long time. Democratic societies are affected by a desire for change.” But critics of the government point to other factors. One is a string of scandals, including several cases of nepotism, that have made the Social Democrats seem a party that has grown arrogant and too accustomed to the perks of government. Another is incompetence, notably the government's slow response to the Asian tsunami of December 2004, in which 543 Swedes died.

But the biggest beef is, perhaps surprisingly, the economy. The opposition maintains that Sweden's economic record is nothing like as good as its fans believe. If so, that has implications for other Nordic economies—and raises doubts about whether other European countries are wise to look northwards for a model.

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In truth, the Swedish economy's best years are long gone. Between 1870 and 1950, average growth in Swedish GDP and productivity was, by some measures, the fastest in the world. In 1970 Sweden was the fourth-richest member of the OECD club of industrial countries. But for most of the past 50 years the story has been one of relative decline, including a deep recession in the early 1990s (see chart 1). By 1998 Sweden had fallen to 16th in the OECD rankings. It has since climbed back a bit, but the relatively strong growth of the past decade should be seen mainly as a rebound from the 1990s trough.

For all that, even the opposition accepts that Sweden has some enviable economic advantages. Anders Borg, Mr Reinfeldt's chief economic adviser, praises the country's well-managed, export-driven, high-tech companies and its well-educated workforce. Female participation in the workforce is higher than in most other countries; English is widely spoken; and Swedes are thoroughly computer-literate. Sweden is one of the few rich European countries for which globalisation has been a benefit, not a threat. Most other European governments would be pleased if they could only emulate Sweden's success.

Too few jobs

Set against this are two big weaknesses. The worst is employment. Par Nuder, the finance minister, makes much of Sweden's having the highest employment rate in the European Union after Denmark, at just over 70%. The official unemployment rate is 6%. But Sweden is a world champion at massaging its jobless figures, which exclude those in government make-work programmes, those forced into early retirement and students who would prefer to be working. Sweden's suspiciously large number of workers on long-term sick leave are counted as working, and included in the employment rate (sickness benefits account for 16% of public spending). Absenteeism is common.

Earlier this year the McKinsey Global Institute, a think-tank, studied Sweden's labour market. It found that the rate of employment among working-age people had declined in the past decade. Indeed, Magnus Henrekson of the Research Institute of Industrial Economics says that Sweden has created almost no net private-sector jobs since 1950* (see chart 2). Youth unemployment is among the highest in Europe. The McKinsey boffins conclude that the “true” unemployment rate is around 15-17%, which puts Sweden among the worst job-fillers in the EU. It translates into more than 1m people without work.

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The shortage of jobs is felt most acutely by Sweden's fast-growing immigrant population. Thirty years ago Sweden was a largely homogeneous country, but today 10% of its people (and one-seventh of those of working age) are foreign-born. Sweden's new immigrants—especially the country's fast-increasing Muslim population—have integrated poorly compared with the arrivals of the 1970s and 1980s. But the biggest problem for immigrants, as for young Swedes, is work. A study of comparable Somali groups in Sweden and Minnesota found that less than a third of working-age Somalis in Sweden had jobs, half the share in Minnesota.

The result is a worrying new group of excluded people in Swedish society. Mauricio Rojas, who arrived from Chile in 1974 and is now a member of parliament for the (opposition) Liberal Party, says that the number of “excluded areas”—places that are most deprived in terms of jobs, housing, access to transport, protection from crime and so forth—has risen from three in 1990 to 157 now. Most of these areas are heavily populated by immigrants.

Obstacles to job creation are everywhere in Sweden. Although the country's big companies have long thrived, the regulatory and tax climate is chilly to newer and smaller companies. Only one of Sweden's 50 biggest companies was founded after 1970; and Sweden has the lowest rate of self-employment in the OECD. The much-vaunted trilateral partnership between government, employers and unions works if the employer is an established large company; for a new or smaller one, it simply adds to costs. High personal taxes and generous welfare benefits—which pay people who lose their jobs as much as 80% of previous incomes for three years—discourage work. The “tax wedge” (ie, the non-wage cost of employment) is too thick, especially for low earners.

Above all, the labour market is heavily regulated. The government's labour-market board, once praised for active labour-market policies that got most of the long-term unemployed back into work, now manages to find only one-tenth of the jobs that the unemployed eventually take. Assar Lindbeck, a veteran economist, suggests that the board has become a Social Democratic holy cow that should be slaughtered by any new government.

Although there is no formal minimum wage, Sweden's powerful unions enforce one in practice. The terms of labour contracts are largely set by unions, which dislike temporary or part-time work. In Waxholm, north of Stockholm, the unions managed in 2004-05 to force a Latvian firm that had won a contract to build a school to apply Swedish collective agreements to Latvian workers. The firm went bust—and the flow of cheaper workers from eastern Europe, which Sweden was one of only three EU countries to accept openly in 2004, dried up. In contrast to Denmark's unions (see article), Sweden's also make it expensive to sack anybody, which discourages hiring.

Too many in the public sector

An overweening public sector has stifled growth in jobs in service industries. Sweden's public sector is, indeed, the economy's second big failing. Mr Nuder asserts that it is no worse than any other, and he claims that the Social Democrats welcome choice in education and health care. Yet Sweden's public sector accounts for 30% of total employment, twice the share in Germany. And, although public-sector productivity figures are unreliable, one recent assessment of efficiency of input use puts Sweden at the bottom of all OECD countries (see chart 3).

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It is true, as Mr Nuder says, that Sweden has introduced choice more widely than, say, Britain. Parents can use what are, in effect, taxpayer-financed vouchers at private schools. Private health-care provision is expanding fast. Yet the culture of, to say nothing of the union influence on, the Social Democrats is against competition and private provision of public services. Carl Bildt, who was the Moderate Party prime minister during the recession of the early 1990s, notes that the government now crows about how the huge expansion of privately provided child care has helped to keep up female participation in the workforce. Yet when he pushed through the necessary legislation, it was in the teeth of fierce Social Democratic opposition.

Given Sweden's poor employment record and high taxes, why do so many voters stick with the Social Democrats? One answer, says Mr Lindbeck, is that so many are dependent on the state: some 30% work for it, and a bit over 30% receive transfer payments. Another answer is offered by Mr Rojas. Asked why the opposition's programme is a lot more centrist than it was in 2002, Mr Rojas suggests that a big lesson from the past has been that it is a mistake to attack the government too fiercely, since “all Swedes are to some extent Social Democrats.” An attack on social democracy risks, in other words, being seen as an attack on Sweden itself.

Mr Reinfeldt is now duly cautious. Since his party lost heavily in 2002, he has redefined it, even changing its name to the New Moderate Party. In the past the centre-right has suffered from being split into four warring parties. This time Mr Reinfeldt has got all four to agree to a common programme, and to stick together during the campaign. In contrast, the Social Democrats refuse to deal with the smaller Green and Left parties, which at present back the government but are not part of it. After the election, these parties say they will carry on only in a coalition, which Mr Persson rules out. The uncertainty that hurt the right in the past has been replaced by lack of clarity on the left.

As for policies, the alliance is no longer proposing to slash taxes, nor to dismantle the welfare state. But it is proposing a cut in payroll taxes at the bottom, plus a new working tax credit, both of which should boost jobs. The alliance would pay for this in part by cutting unemployment benefit, from about 80% of previous income to 65%. It also promises further deregulation, especially of services, and more privatisation. Although Sweden's Social Democrats, unlike other left-wing parties in Europe, never nationalised big swathes of industry, the government still has large shareholdings it could sell. And most utilities are publicly owned.

For their part, the Social Democrats' programme amounts to no change. Far from cutting unemployment benefits, the government promises to raise them. As for liberalisation, Mr Nuder says baldly, “We have done enough deregulation.” Indeed, he sees little need for any further economic reforms. To Swedes who have full-time jobs, especially in the public sector, this promise of continuity may seem appealing. To the jobless young and immigrants, it will be less so. These are the groups that, according to the polls, are tilting the election towards Mr Reinfeldt.

In its closing weeks, the election campaign has turned ugly. An outbreak of acerbic name-calling has been aggravated by accusations of hacking and espionage by opposition parties, which led this week to the dramatic resignation of the Liberal Party secretary. This week's debates between the two main leaders on television have had a new, bitter edge.

That will not bother Mr Reinfeldt so long as he wins, but the opposition could split if he does not. The Social Democrats, too, may face trouble. Whether Mr Persson wins or not, most pundits expect him to step down within a year or two. But since the murder three years ago of Anna Lindh, the foreign minister, he has had no obvious successor. The ruling party is sure to start bickering if it loses next weekend.

Gorgeous, if assembled bit by bit

Where will all this leave the much-trumpeted Swedish model? Most Swedes are weary of listening to foreign claims about the perfection of their society. Mr Lindbeck suggests that, where it does have economic strengths, they are of an essentially Anglo-American, market variety. Johnny Munkhammar, who runs a pro-market think-tank, Timbro, argues similarly that history shows Sweden's economy to have flourished when it has been more liberal and low-tax—and to have gone off the rails when higher taxes and more regulation have been imposed.

The truth is that there is never a single economic model for other countries, even the Nordic states, to follow. Neither membership of the EU nor adoption of the euro seems necessary: Sweden is in the EU but not the euro, Finland is in both, Norway is in neither. Different countries have different strengths. Mr Bildt puts forward his own tongue-in-cheek recipe for the perfect “Nordic model”, stretching the geography: Finland's education, Estonia's progressive tax policy, Denmark's labour market, Iceland's entrepreneurship, Sweden's management of big companies and Norway's oil. The right conclusion, in other words, is that it is wisest not to look for a single-country model at all, but just to take best practice wherever you find it.

* “Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s”, by Steven Davis and Magnus Henrekson. NBER papers, forthcoming

Copyright © 2006 The Economist Newspaper and The Economist Group. All rights reserved.
Corlyss
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Barry
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Post by Barry » Sat Sep 09, 2006 6:12 pm

There is an article on this same topic (on the decline of the once envied Swedish socialist model......it ain't what it used to be) in the summer edition of The National Interest.
"If this is coffee, please bring me some tea; but if this is tea, please bring me some coffee." - Abraham Lincoln

"Although prepared for martyrdom, I preferred that it be postponed." - Winston Churchill

"Before I refuse to take your questions, I have an opening statement." - Ronald Reagan

http://www.davidstuff.com/political/wmdquotes.htm
http://www.youtube.com/watch?v=2pbp0hur ... re=related

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Post by Corlyss_D » Sat Sep 09, 2006 6:39 pm

Barry,

NI has changed it's website and I can't find a damn thing. Whose the author?
Corlyss
Contessa d'EM, a carbon-based life form

Barry
Posts: 10344
Joined: Fri Apr 02, 2004 3:50 pm

Post by Barry » Sun Sep 10, 2006 12:50 am

"If this is coffee, please bring me some tea; but if this is tea, please bring me some coffee." - Abraham Lincoln

"Although prepared for martyrdom, I preferred that it be postponed." - Winston Churchill

"Before I refuse to take your questions, I have an opening statement." - Ronald Reagan

http://www.davidstuff.com/political/wmdquotes.htm
http://www.youtube.com/watch?v=2pbp0hur ... re=related

Corlyss_D
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Post by Corlyss_D » Sun Sep 10, 2006 12:54 am

Thanks, Barry. Disregard my PM.


Swedish Models
by Johan Norberg

TO BE A Swede is once again to be admired. Sweden is "the most successful society the world has ever known", declares the left-wing British newspaper the Guardian; "Swedes lead Europe in reform", claims the free-market-oriented Financial Times; only the Nordic model "combines both equity and efficiency", explains a recent report initiated by the European Commission.

In a contentious European debate marked by hostility, riots and unrest, Sweden looks like a safe bet--neutral, uncontroversial and with no natural opponents. Sweden is a Rorschach test: The Left sees a generous welfare state, and the Right sees an open economy that pushes for deregulation in the European Union. The only thing British reformists and French protectionists could agree on at the EU summit in Brussels in March was that Europe should learn from the Scandinavian model's combination of generous social provisions and a high-growth economy. Sweden is seen as the proverbial "third way", combining the openness and wealth creation of capitalism with the redistribution and safety nets of socialism. It is the best of both worlds.

But things in Sweden are not as good as the advocates would like to believe. Long the paragon of social democracy, the Swedish model is rotting from within. Ironically, the unique social and economic foundation that first allowed Sweden to construct its political edifice--and which makes it such a difficult model for other countries to emulate--has been critically weakened by the system it helped create. Far from a being a solution for the new sick men of Europe, Sweden must face serious and fundamental challenges at the heart of its social model.

The Origins of the Welfare State

TO SAY that other countries should emulate the Swedish social model is about as helpful as telling an average-looking person to look like a Swedish supermodel. There are special circumstances and a certain background that limit the ability to imitate. In the case of the supermodel, it is about genetics. In the context of economical and political models, it is about the historical and cultural background.

Gunnar and Alva Myrdal were the intellectual parents of the Swedish welfare state. In the 1930s they came to believe that Sweden was the ideal candidate for a cradle-to-grave welfare state. First of all, the Swedish population was small and homogeneous, with high levels of trust in one another and the government. Because Sweden never had a feudal period and the government always allowed some sort of popular representation, the land-owning farmers got used to seeing authorities and the government more as part of their own people and society than as external enemies. Second, the civil service was efficient and free from corruption. Third, a Protestant work-ethic--and strong social pressures from family, friends and neighbors to conform to that ethic--meant that people would work hard, even as taxes rose and social assistance expanded. Finally, that work would be very productive, given Sweden's well-educated population and strong export sector. If the welfare state couldn't work in Sweden, the Myrdals concluded, it wouldn't work anywhere.

Sweden's economic success story began in the late 19th century, after a fundamental political shift towards free markets and free trade. Swedish traders could export iron, steel and timber, and entrepreneurs created innovative industrial companies that became world leaders. Between 1860 and 1910, real wages for factory workers rose by about 25 percent per decade, and public spending in Sweden didn't surpass 10 percent of GDP.

The Social Democratic Party came to power in 1932 and has governed Sweden for 65 of the last 74 years. They realized early on that a party of class struggle wouldn't be able to hold on to power in Sweden. Instead, they became a party of the middle class by creating social security systems that gave the most pension, unemployment, paternal-leave and sick-leave benefits to those with high wages. (Most benefits were proportional to the amount paid in, so the wealthy middle class would have an interest in supporting the system.) It was a policy of socialization from the consumption side: The government would not take control of the means of production, but would instead tax workers, in the form of sales and income taxes, to provide welfare. It was markets and competition for big business, a welfare state for the people. Still, as late as 1950 the total tax burden was no more than 21 percent of GDP, lower than in the United States and Western Europe.

This meant that the Social Democrats were eager to please industry and not allow the social agenda to interfere with the economy's progress. Free trade was always the rule. Regulations that were introduced were adapted to benefit the biggest industries--for example, wages were equalized, but for the purpose of keeping wages low for the big companies, while small and less productive companies were forced out of business. The trade unions, for their part, were relatively positive to the creative destruction of capitalism, so they allowed old sectors like farming, shipping and textiles to pass away, as long as new jobs were created.

These policies, and the fact that Sweden stayed out of two world wars, meant that the economy yielded amazing results. Sweden was rich: In 1970 it had the fourth-highest per-capita income in the world, according to OECD statistics. But at this stage the Social Democrats began to radicalize, with coffers filled by big business and heads filled with ideas from an international leftist trend. Social assistance was expanded and the labor market became heavily regulated. Public spending almost doubled between 1960 and 1980, rising from 31 percent to 60 percent of GDP.

This was also the time when the model began to run into problems. From 1975 to 2000, while per-capita income grew by 72 percent in the United States and 64 percent in Western Europe, Sweden's grew by no more than 43 percent. By 2000, Sweden had fallen to 14th in the OECD's ranking of per-capita income. If Sweden were a state in the United States, it would now be the fifth poorest. As the Social Democratic Finance Minister Bosse Ringholm explained in 2002, "If Sweden would have had the same growth rates as the OECD average since 1970, our common resources would have been so much bigger that it would be the equivalent of 20,000 SEK [$2,500] more per household per month."

Too Much of a Good Thing

THE SOURCE of the problem was the fatal irony of the Swedish system: The model eroded the fundamental principles that had made the model viable in the first place.

The civil service is a powerful example of this phenomenon. The efficiency of the civil service meant that the government could expand, but this expansion began to undermine its efficiency. According to a European Central Bank study of 23 developed countries, Sweden now gets the least service per dollar spent by the government. Sweden still reports impressive results on living standards (just as it did before the introduction of the welfare state in the years following World War II), but not at all what you would expect from a country with the world's highest tax rates, currently at about 50 percent of GDP. If the public sector were as efficient as Ireland's or Britain's, for example, the expenditure could be reduced by a third for the same service. The Swedish Association of Local Authorities and Regions reports that Swedish doctors see four patients a day on average, down from nine in 1975. It is less than in any other OECD country, and less than half of the average. One reason is that a Swedish doctor spends between 50 and 80 percent of his time on administration.

On the economic side, the old Swedish system of encouraging investments in big industry worked well, as long as there was little need for innovation. Once that occurred, however, the system ran into trouble. The competitiveness of industry had to be propped up several times by depreciating the currency. Globalization and the new knowledge and service economy made it more important than ever to invest in human capital and individual creativity. High marginal tax rates on personal income, however, reduced individuals' incentives to take risks and to boost earning potential by investing in their education and skills, and made it extremely difficult to attract skilled workers from abroad.

Furthermore, the Swedish model was dependent on having a small number of large industrial companies. As these diminished in importance, or moved abroad, Sweden needed something to take their place. But the policies that benefited the biggest firms created a deficit of small- and medium-sized businesses. Those that did exist didn't grow, partly because of the risks and costs of highly burdensome employment rules that prevented the firing of workers. Indeed, the most important Swedish companies today are those that were born during the laissez faire period before the First World War; just one of the fifty biggest Swedish companies was founded after 1970. Meanwhile, services that could become new private growth sectors, like education and health care, were monopolized and financed by the government. As they grew in importance and size, a steadily growing part of the Swedish economy thus became protected from international market forces and investments that could have turned them into successful and productive enterprises.

In the early 1990s a deep recession forced Sweden to abandon a lot of the excesses from the 1970s and 1980s. Marginal tax rates were cut, the central bank was made independent, public pensions were cut and partially privatized, school vouchers were introduced, and private providers were welcomed in health care. Several markets were deregulated, like energy, the post office, transportation, television and, most importantly, telecom, which opened the way for the success of companies like Ericsson.

But Sweden retained the world's highest taxes, generous social security systems and a heavily regulated labor market, which split the economy: Sweden is very good at producing goods, but not at producing jobs. According to a recent study of 35 developed countries, only two had jobless growth: Sweden and Finland. Economic growth in Sweden in the last 25 years has had no correlation at all with labor-market participation. (In contrast, 1 percent of growth increases the number of jobs by 0.25 percent in Denmark, 0.5 percent in the United States and 0.6 percent in Spain.) Amazingly, not a single net job has been created in the private sector in Sweden since 1950.

During the recession in the early 1990s, Sweden had an unemployment rate of about 12 percent. The official rate has been halved since, but the difference has been offset by a dramatic increase in other forms of absenteeism. For example, there are 244,000 openly unemployed workers in a total population of 9 million. But this does not include 126,000 working in labor-market projects (the largely unsuccessful programs geared towards helping people acquire the skills to find employment) or the 89,000 job-seekers who are receiving some form of education. And there are another 111,000 in "latent unemployment", people who are not defined as part of the work force, but who can and would like to work. If all of these workers are included in the calculation, Sweden's true unemployment rate is still 12 percent. (Although other countries' unemployment figures, including those for the United States, also fail to reflect the real rate joblessness, Sweden's array of government-funded projects for work and education particularly distort the data. In addition, Sweden does not include in its figures students that are seeking employment, breaking with international norms.)

Moreover, the unemployment rate says nothing about another hidden labor problem: rampant absenteeism. Swedes are healthier than almost any other people in the world, but they are also out sick more often than any other people, according to available data. In 2004, sickness benefits absorbed 16 percent of the government budget, while health absenteeism has doubled since 1998. With a sickness benefit of up to 80 percent of a recipient's income (depending on his or her wage level), it is not surprising that there is an epidemic of absenteeism. Moreover, about 10 percent of the working-age population has retired with disability benefits. A researcher at the main trade union, LO, recently left his job when he was not allowed to publish his estimate that close to 20 percent of Swedes are unemployed, either openly or hidden in labor-market projects, long-term sick-leave and early retirement.

Immigration and Politics

SWEDEN HAS no official minimum wage, but trade unions with political power set de facto minimum wages through collective bargaining. That de facto minimum wage for workers in Sweden is equal to about 66 percent of the median wage in the manufacturing sector, compared to 32 percent in the United States. In economic terms, this means that if you are less than 66 percent as productive as the median Swedish manufacturing worker--perhaps because you are unskilled, have no experience or live in a remote area--you will probably not find a job. Any company that would hire you would be forced to pay you more than what you are able to produce. And if you are never successful in gaining employment, you will not gain the skills and experience to raise your abilities and productivity.

Immigrants are the hardest hit. Since the early 1980s, Sweden has received a large number of refugees from the Balkans, the Middle East, Africa and Latin America, which has ended the country's homogeneity. Today, about one-seventh of the working-age population is foreign born, but no where near that proportion is actually employed. Sweden has one of the developed world's biggest differences between the labor-market participation of natives and immigrants. Many immigrant families are discouraged by the lack of job prospects and end up in welfare dependency.

Unemployment problems in turn result in de facto segregation. Despite little history of racial conflict, the labor market is more segregated than in America, Britain, Germany, France or Denmark--countries with far more troublesome racial histories than Sweden. A report from the free-market Liberal Party ahead of the election 2002 showed that more than 5 percent of all precincts in Sweden had employment levels lower than 60 percent, with much higher crime rates and inferior school results than in other places. Most of these precincts are suburban, so outsiders rarely see them. The number of segregated precincts has continued to grow. In some neighborhoods, children grow up without ever seeing someone who goes to work in the morning. Pockets of unemployment and social exclusion form, especially in areas with many non-European immigrants. When Swedes see that so many immigrants live off the government, their interest in contributing to the system fades.

Like in other parts of western Europe, the segregation of immigrant areas leads to insularity, crime and, in some cases, radicalism. Last year, Nalin Pekgul, the Kurdish chairman of the National Federation of Social Democratic Women, explained that she was forced to move out of a suburb of Stockholm because of crime and the rise of Islamic radicalism. The announcement sent shock waves through the entire political system. "A bomb waiting to explode" is one of the most common metaphors used when social exclusion in Sweden is discussed.

Those immigrants who do keep their entrepreneurial spirit intact often take it elsewhere. Hundreds of unemployed Somalis and Iranians leave Sweden every year and move to Britain, where they are often successful in finding work. The contrast in experience can be staggering. The Swedish economic historian Benny Carlson recently compared the experiences of Somali immigrants in Sweden with those of Somali immigrants in Minneapolis, Minnesota. Only 30 percent had a job in Sweden, about half as many as in Minneapolis. And there are about 800 businesses run by Somalis in Minneapolis, compared to only 38 in Sweden. Carlson quoted two immigrants who together summed up the disparity. "There are opportunities here", said Jamal Hashi, who runs an African restaurant in Minneapolis. His friend, who migrated to Sweden instead, told a different story: "You feel like a fly trapped under a glass. Your dreams are shattered."

A Model No More

SO IF THE Myrdals were right when they said that if the welfare state couldn't work in Sweden, it wouldn't work anywhere, what will it mean if Sweden's system fails? The answer seems obvious.

The Swedish model has survived for decades, but the truth is that its success was built on the legacy of an earlier model: the period of economic growth and development preceding the adoption of the socialist system. It is difficult to see how other countries--especially the troubled systems of Western Europe so keen to adopt the Swedish approach, but which lack the unique components for a welfare state first noted by Gunnar and Alva Myrdal--could cope with a similar welfare state. Bigger and more diverse countries with a weaker faith in government and more suspicion towards other groups would likely see an even stronger tendency to exploit the system, work less and abuse social assistance. The United States and much of Western Europe face immigration challenges at least as daunting as Sweden.

The economy has rebounded since the recession of the 1990s and the reforms that followed--in contrast to the stagnant continental economies--mostly because of a small number of successful global companies. But the problem is that a growing part of the population is left out and old attitudes about work and entrepreneurship are fading. Since 1995 the number of entrepreneurs in the European Union has increased by 9 percent; in Sweden it has declined by 9 percent. Almost a quarter of the population of working age does not have a job to go to in the morning, and polls show a dramatic lack of trust in the welfare system and its rules.

The system of high taxes and generous welfare benefits worked for so long because the tradition of self-reliance was so strong. But mentalities have a tendency of changing when incentives change. The growth of taxes and benefits punished hard work and encouraged absenteeism. Immigrants and younger generations of Swedes have faced distorted incentives and have not developed the work ethic that was nurtured before the effects of the welfare state began to erode them. When others cheat the system and get away with it, suddenly you are considered a fool if you get up early every morning and work late. According to polls, about half of all Swedes now think it is acceptable to call in sick for reasons other than sickness. Almost half think that they can do it when someone in the family is not feeling well, and almost as many think that they can do it if there is too much to do at work. Our ancestors worked even when they were sick. Today, we are "off sick" even when we feel fine.

The real worry is that Sweden and other welfare states have reached a point where it is impossible to convince majorities to change the system, despite the dismal results. Obviously, if you are dependent on the government, you are hesitant to reduce its size and cost. A middle class with small economic margins is dependent on social security. This was Bismarck's plan when he introduced a system that would make those dependent on it "far more content and far easier to handle."

Sooner or later, politicians begin to identify a new, influential bloc of voters--those who live at others' expense. A former Social Democratic minister of industry recently explained what his party meetings in northern Sweden looked like: "A quarter of the participants were on sick-leave, a quarter was on disability benefits, a quarter was unemployed."

This creates a damaging cycle. With high taxes, markets and voluntary communities are crowded out, which means that every new problem has to find a government solution. If change seems too far off, a large part of the electorate becomes more interested in defending good terms for unemployment and sick-leave than in creating opportunities for growth and jobs. And that goes even if you have a job. If regulations make it difficult to find a new job, you worry more about losing the one you have and will see suggestions of labor market deregulation as a threat. OECD interviews show that well-protected workers in Sweden, France and Germany are much more afraid of losing their jobs than workers in the less regulated United States, Canada and Denmark.

In that case, sclerosis creates a public demand for policies that create even more stagnation. This might help explain the lack of reform in Europe, despite all the political ambitions. The more problems there are, the more dangerous radical reforms seem to the electorate: If things are this bad now, the logic goes, think how bad they'll be without state protection. For example, it seems like the Swedish voters are now willing to oust the Social Democratic government in September. But that is only after the center-right opposition abandoned the more radical suggestions--such as labor-market reform and reduction in social security benefits--that it used to champion.

Radical reform seems far off. On the other hand, just like the step-by-step construction of the welfare state that slowly but steadily reduced the willingness to work and the sense self-reliance, incremental reforms to expand freedom of choice and reduce the incentives to live off fellow-citizens might rejuvenate these fundamental values and increase the appetite for reform.

Johan Norberg is a Swedish writer and a senior fellow at the Centre for the New Europe, a Brussels-based think-tank. He is the author of several books, including In Defense of Global Capitalism (2003).
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Post by jbuck919 » Sun Sep 10, 2006 5:18 am

You know, you are doing a pretty good job on this issue. Even Ralph supports it with regard to the Canadian health care system. And The Economist is a pretty impeccable source.

The general impression I am getting is that some models of social welfare are not all they are cracked up to be. (Please, no post of the day award for saying the obvious.) Is that a reason to turn in the libertarian direction? I don't think so. The US is a very bright and innovative country and we should be able to come up with our own models. I have thought that vouchers, not such a great idea for education, are a good one for health care. It is still unacceptable to have a quarter of the population covered by nothing at all except unpaid bills for visits to the emergency room.

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Post by Corlyss_D » Sun Sep 10, 2006 1:05 pm

jbuck919 wrote:You know, you are doing a pretty good job on this issue. Even Ralph supports it with regard to the Canadian health care system. And The Economist is a pretty impeccable source.

The general impression I am getting is that some models of social welfare are not all they are cracked up to be. (Please, no post of the day award for saying the obvious.)

:lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol: :lol:

Can I give it to you for knee-slapping self-awareness and uncommon humility? :D

Post of the Day Award To Ya, John.
Is that a reason to turn in the libertarian direction?
It's about recognizing what works and what don't. The first milestone along the way back from crushing social programs that eat the budget and destroy the business base is the realization that capital goes where it is treated best. That's one reason why we have so much foreign investment in this country. If social programs are going to cause businesses to relocate as long as they have the freedom to do so (and you don't want to hold them prisoner in the nation because that's totalitarianism), then you have to figure out how to reform or discontinue the social programs in order for the businesses to stay in your country so that average wealth in the nation can grow. That's why people are looking to libertarian solutions, perhaps the voucher idea that you suggest.
It is still unacceptable to have a quarter of the population covered by nothing at all except unpaid bills for visits to the emergency room.
Well, let's be realistic. It's not about who's covered, because everyone is treated as long as they have a hospital within reasonable distance. It's about who pays. Right now, you are pleading for big health care and big pharma to be paid. That's fine. They are being paid now, by you, me, and Ralph. How? The hospitals and drug companies have to recover their money somehow. So they raise their fees to the insured. Our insurance companies pay and recover their losses thru increased premiums. And we pay the premiums. In some respects, I prefer that to a comprehensive system that's going screw me over (and you) because we have an antiquated health care model, i.e., the system that Congress set up for itself 60 years ago. As long as Congress arranges preferential treatment for itself, we will be okay. The minute there's a comprehensive system, one that lashes up Congress (as Gingrich's reforms sought to prevent Congress from exempting itself from burdensome laws it blithely enacts for the general public), we be in deep doo-doo.
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Post by living_stradivarius » Sun Sep 10, 2006 3:07 pm

Cost-shift (from the uninsured to the insured) statistics are often inflated due to inaccurate calculations. A lot of the stats out there incorporate a hospital's maximum charge for a particular procedure used on an uninsured patient even though insured patients under certain health care plans would play substantially less (while accounting for how much insurance forks in along with fees "owed" the hospital forgives).

That said, rising health care costs will also deprive more lower middle-class families from access to basic health insurance.

Controlling rising health care costs is what the policy analysts worry about, more so than "insurance."
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Post by RebLem » Mon Sep 11, 2006 8:21 am

I want to discuss one of the reasons the welfare state and socialism are so popular in Scandanavia, and in some other countries in Europe. It is a factor which is often overlooked: language.

In order to survive in a free market, a language has to have a certain number of readers. The smaller the number of readers a language has, the more expensive its goods--newspapers, magazines, books--have to be in order to survive. And the more expensive it is, the more likely people are to turn to similar products in languages with more readers for practical reasons. But they hate themselves for it. Or they hate those of their countrymen who succumb, raising prices still further for those faithful to their language.

So, the socialist come along, and says, "Let's subsidize publishing in our language." Yes, it means extra taxes. But the out of pocket expense for voluntary purchases will be lower, because the subsidies will pay for a substantial part of the expense. In a market driven economy, only the rich could afford writings in their own language. If you tax everybody a little to provide subsidies, many more can affod it.

People go for this because they get very emotional about their languages. If their language is lost, they feel substantially diminished. Subsidies help preserve small audience languages. Then people start looking around and saying, "Well, that worked. Maybe we could apply this technique to some other areas of our national and individual lives as well."

This is all very hard for a speaker of a language like English, which needs no subsidy to survive, to understand. But it is a very real force in many countries.
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Post by Corlyss_D » Mon Sep 11, 2006 11:56 am

RebLem wrote:I want to discuss one of the reasons the welfare state and socialism are so popular in Scandanavia, and in some other countries in Europe. It is a factor which is often overlooked: language.
:shock:

Is this another one of your "people don't mind paying high taxes" insights?
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Post by Haydnseek » Sun Sep 17, 2006 6:39 pm

Center-right alliance wins power in Sweden
By Simon Johnson
September 17, 2006

A Center-right alliance led by Moderate Party leader Fredrik Reinfeldt won power in Sweden in an election on Sunday, ending 12 years of Social Democrat rule by vowing to lower taxes and trim the welfare state.

Reinfeldt, who will be the next prime minister, declared victory in a tight election. Social Democrat Prime Minister Goran Persson, one of Europe's longest-serving leaders, conceded defeat after 10 years in office and will quit as party chief.

According to almost complete results from Sweden's Election Commission, the four-party opposition bloc had won 48.0 percent of votes to 46.2 percent for Persson and his allies.

Taking the stage with his arms raised, a jubilant Reinfeldt told supporters: "We campaigned as the New Moderates, we won as the New Moderates and together with our alliance partners we will rule Sweden as the New Moderates."

The result was a victory for the alliance's pledges to stimulate job growth by fine-tuning, but not dismantling, the welfare system. Persson, whose party has ruled Sweden for six of the last seven decades, had vowed to continue government largesse and keep one of the world's heaviest tax burdens.

Despite Sweden's strong economic performance under the Social Democrats, opinion polls had shown many favored change in the Scandinavian country of just over 9 million people due to voter fatigue with Persson and a perceived lack of new ideas.

Persson, clutching a bunch of red roses, vowed his party would fight back, though without him at the helm.

"We have lost the election, but we are not a defeated party. Now we are aiming for a comeback, but it is not a comeback I will lead," he told a crowd of supporters.

Many Swedes believe in the principle of a tightly woven social safety net but say the system conceived by the Social Democrats needs reform.

The election was closely watched by governments of other countries in the European Union facing the need of welfare reform because of aging populations and creaking pension and healthcare systems.

In Asian trading, the Swedish crown firmed against the euro. Economists expect an alliance government, with its tax cuts and plans to sell off government stakeholdings, to be positive for financial markets.

REINFELDT REVIVES THE OPPOSITION

The Moderate Party was crushed at the last election in 2002 but 41-year-old Reinfeldt enhanced his party's appeal by shifting it toward the center and paring down earlier tax and benefit cut promises.

He leads an alliance with the Folk Liberals, Christian Democrats and Center Party that says years of excessive benefits and high taxes have eroded Swedes' will to work. Reinfeldt also said the real unemployment rate was about 20 percent, almost four times the official level.

Reinfeldt says changes are necessary now to preserve the welfare system for the future, a theme of reform across Europe.

German Chancellor Angela Merkel and her conservative-Social Democrat coalition have been trying to fix a troubled healthcare system, cut corporate taxes and tweak jobless benefits.

In Britain, British Prime Minister Tony Blair has reformed the pension system, while neighboring Denmark has cut taxes and launched more flexible labor market rules.

Reinfeldt intends to sell off some 200 billion Swedish crowns ($27.6 billion) worth of state-owned shares in listed companies over four years. His privatization push could include government holdings in bank Nordea, telecoms company TeliaSonera and airline SAS.

Reinfeldt favors NATO entry, if there is broad agreement on the issue. He wants Sweden more involved in the EU but has no plans to hold a referendum on the euro currency in the next four years. Swedes rejected adopting the euro in 2003.

Copyright © 2006 Reuters Limited.

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