Wednesday, June 21, 2006

Sweden! What Have They Done To You?

Thanks to Static Noise blog for the link to this National Interest article on the "Swedish Model" of government, and what it has done to Sweden. Sweden was once a wonderful place to live and visit. But gradually under 65 years of the Social Democratic Party, Sweden has become a failing state. Read on:

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.

....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."

.... 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.

....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.

....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.....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.

.... 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.
Read the rest at The National Interest.

When you combine a decline in economic vitality and human spirit, with increasing lawlessness and growing numbers of deadender unemployed foreign immigrants, and you have the recipe for disaster. Without serious reform, Sweden is dead--and Swedes dependent on the system, corrupt and crumbling though it is, will not tolerate reform. The spirit of Sweden has died, and anyone still in Sweden who has hopes of a better life will likely be leaving for greener pastures soon.

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