I know, I know! The title of the video must have triggered some people already.
But, let us settle this debate once for all.
By now, you must have heard people, especially Americans,
saying they do not like Capitalism. They say they have something better… Socialism!
When presented with the facts of what happened with socialism, in countries like Venezuela,
and its authoritarian tendency, they say they have a new variant of socialism, called
democratic socialism, that fixes this issue, and in return gives you something perfect,
like a utopia, like in Scandinavian countries, like Denmark and Sweden.
But is Sweden a socialist country? Let us dig deep into it.
If you are finding a country that fits the first definition,
your search won’t take you to Sweden. The simple fact is that Scandinavian countries
are not socialist by any stretch of the definition or imagination.
Sweden is a ‘free market’ economy, with private companies operating for their profits first, which
is a hallmark of Capitalism. Here a classical capitalist would just leave the discussion saying
there is nothing more to discuss. While having a free market system, Sweden also has very generous
welfare programs operated by the government that apparently gives it a socialist-leaning.
Technically, most of the countries in the world are what we could call
‘mixed economies’ with some elements owned by private companies and others by the government.
But if you insist on calling it anything other than capitalist,
you can call it a mixed economy or a ‘compassionate version of capitalism’.
There have been numerous occasions when
people from Nordic countries have denied being a Socialist economy.
The Prime Minister of Denmark, in a lecture at Harvard’s Kennedy School of Government,
addressed the topic without any hesitation and gave a straightforward answer by stating that
Denmark is far from a ‘socialist planned economy’ and instead they are a ‘free market economy’.
The Executive Editor-in-Chief of Politiken, a leading Danish Newspaper'
noted that the idea that Denmark is a highly regulated society with a closed economy
is far from their national reality.
The reaction from the Swedes to claims that Sweden is a
socialist utopia is similar to that of the Danes.
A Swedish Public Policy Analyst named Nima Sanandanji gained global notoriety when he
published a book that argued that the Global Left's obsession with Sweden, being a standard
for Socialism, is premised on myths, fallacies, outright falsities, and some half-truths.
Back in the 1970s and 80s, the government heavily controlled the economy by collecting and spending
high taxes. It was not technically what you could call socialism,
but it was something a bit close to it.
The current welfare system, and labor unions big influence in politics,
and high taxes ushered in an era of slow economic growth. As a result,
the economy plummeted significantly. Sweden’s GDP dropped from 4th to 13th.
After two decades of slow economic growth, they took a smooth turn with major economic reforms by
reducing the government’s role in certain aspects including cutting public spending, privatizing
many state-owned companies, eradicating some government monopolies, and changes in
inheritance rules. That has to be done to save the stagnating economy. As a result, a change in
economic growth was seen. but, what did not change was the welfare programs because you can’t give
something to the citizens and then take it away. How are you going to get the votes then? Right?
So most of the welfare programs remain intact including state-paid colleges and universities,
elderly care, health care, child care programs, pensions, 18-month paid parental leave,
state-paid childcare, etc. But, the government’s regulations on these welfare programs didn’t work
in the best possible ways. Solution? Well! they privatized many of these programs too.
While you keep hearing how big of a Utopian heaven Sweden is,
no one talks about how Sweden’s economy heavily relies on the free market, free trade, and
competition. The same free-market economy is what pays for Sweden’s attractive welfare programs.
If you are under the impression that Sweden takes from the rich and give to the poor,
we have bad news for you, Sweden is no Robin Hood!
Just like any other tax system, the average and low average earners are the ones who
are squeezed more. Sweden has a lower corporate income tax compared to what an individual pays.
The constitution of Sweden does not have any specific economic, political or religious
ideology attached to it. In short, nothing like the “People’s Republic of China” or the “Islamic
Republic of Iran”. It is officially called “The Kingdom of Sweden” because first, it is a
monarchy. But, it also has a parliament. In short, Having a parliament and democracy makes it look
like any other western country. While Sweden has a King and a royal family but their role in politics
is limited. Long story short, Sweden is a monarchy along with a democracy. A king and a parliament.
Scandinavian countries sit at the very top of almost every global index including
life expectancy index, quality of life index, prosperity index, democracy index,
global entrepreneurship index, least corrupt countries index,
happiness index, work-life balance index, etc. So it’s no surprise that Sweden and other
Scandinavian countries show up in the news even during the election campaigns of many countries.
But, let’s highlight some of the facts that no one usually talks about.
The country is notorious for its high-income taxes on the middle class
while significantly low corporate tax rates.
In Sweden, the ownership of the means of production
and the allocation of capital is largely a private affair.
Swedes like to own things. They can start companies and in fact, its easy to start
a company. Many famous names started from Sweden including Ikea, Minecraft, Spotify etc.
Sweden’s high schools are a perfect example of a free-market economy. Many schools are private,
also referred to as “independent schools” but students receive vouchers from the government
for their tuition, but the students are in charge of choosing which school they want to join. This
is very similar to ‘charter schools’ in the United States or ‘academies’ in the United Kingdom. The
competition between private schools is what makes them offer a better quality of education etc.
The population is an important factor too. Sweden has a population of over 10 million
whereas America has at least 10 states that have more population each.
The kind of model Nordic countries have implemented could only have been possible
in smaller countries where people are most like-minded. In short, there is less diversity of
beliefs and values and everyone is more or less on the same page compared to other countries.
Sweden ranks very high on the equality index. Income equality is calculated by the
World Bank using Gini Coefficient. An easy way to understand is that it’s a number between 0 to 100.
‘Zero’ would indicate that everyone in the country has the same income.
100 would indicate that one person gets all the income.
South Africa and Zambia are some of the countries with the highest inequality and are marked by the
Gini Coefficient of 57 and 54 respectively. The United States and the United Kingdom
are at 41 and 34. Sweden has a Gini Coefficient of 28. Only a few countries rank above that.
They also don't have any overarching price control policy or a policy on minimum wage.
But the wages for low-skilled jobs are higher than that in the US. That is influenced by the
labor unions. Some also say that labor unions have disproportionate power in the country.
Marginal taxes, also known as progressive taxes, is another reason for income equality.
At its maximum, the top Swedes pay at 57 percent and it applies to all income over 1.5 times the
average income in the country. If we compare it to the Americans, their top marginal tax
rate is 37 percent. Another difference is that you need to be making over $518,000 per year
in the US to be taxed at 37 whereas in Sweden you are taxed 37 when you make 82000 per year.
While Sweden has one of the least ‘income inequality’,
the ‘wealth inequality’ is a different story.
When it comes to wealth inequality, Sweden is the second most unequal country in the world after
the US. Their wealth genie coefficient is 84. In short, their wealth gap is one of the highest.
So, if you think Sweden is just taking money from the rich to transfer it to the poor,
you could not be more wrong. Sweden has the second-highest number of billionaires
per capita after Switzerland. And the business owners and entrepreneurs know
how to be taxed at a flat rate of 30 percent by taking dividends from their companies.
The short answer is, Scandinavian’s case as socialist heaven is discussed more by
the politicians and social justice warriors, than the economists.
This debate is particularly well and alive in the political theater of the United States of America,
where some politicians name drops Denmark, Sweden,
Finland, and others as the epitome of democratic advancement.
These politicians rhapsodize about the gains available to citizens of Sweden
especially when they are on the campaign trail canvassing for votes during elections.
They woo the American electorate with promises of benefits akin to what the Swedes enjoy.
When Barack Obama was still the American President, it was reported that he remained
amazed that most countries weren't governing like the Nordic countries
because that seemed to be the way to go, in his estimation.
Hillary Clinton and Bernie Sanders have also suggested,
on different occasions, that the US has a lot to learn from countries like Sweden and Denmark.
In short, your opinion on Sweden’s case is more influenced by who you are listening to
and your preferred political ideology.
All Nordic countries are free-market capitalist countries. They operate like any other free
markets, they are fully open and can trade worldwide like most of the countries in the world.
The difference comes in their welfare state. Social security in Scandinavia
is much more generous compared to other free-market economies.
This may come as a surprise but most of the western countries have a social
democracy where governments intervene to give some welfare benefits to the citizens,
although that happens to different extents in different countries.
That does not mean the country has become socialist. Neither ‘Social democracy’ nor ‘welfare
state’ is synonymous with socialism. And Social democracy does not mean the end of capitalism.
For any system to work, trust is one of the key factors.
And it looks like people in Nordic countries have a high level of trust in the government.
Just like many countries have a cycle of high corruption and low trust in the
government continuously feeding into each other, Nordic countries have a cycle of
high trust in government and low corruption feeding into each other. Applying the same
model in other countries or suggesting it, is just unwise. But everyone should learn from it.
Is Sweden’s welfare system great? Yes! Can you call Sweden a capitalist country? Yes!
Can you call it a mixed economy? Yes! Is Sweden a socialist country?
No! Can we apply the same model in other countries? No!
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