International Policy

The "Stockholm Syndrome" of Big Government

For generations, Sweden was held up as a Social Democratic "middle way" between Communism and Capitalism -- promising "cradle-to- grave" social welfare benefits for everyone while a vigorous private sector paid the bills. However, over the last 30 years the "Swedish model" has become tarnished as Sweden's economy has declined, say observers.

The reasons for Sweden's decline can be seen by contrasting it with another small European country -- Switzerland. Both Sweden and Switzerland were neutrals in World War II, both were independent countries for centuries, both have a highly educated workforce, both are industrialized and technologically advanced, and both have export- oriented economies.

  • Yet while Sweden was third and Switzerland was second in per capita gross domestic product (GDP) among industrialized countries in 1970, by 1997 Switzerland was still second but Sweden had fallen to 17th place.

  • Between 1976 and 1981, public spending rose from 50 percent of GDP to 65 percent of GDP -- compared to public spending of 37 percent of GDP in Switzerland.

  • Swiss inflation between 1963 and 1995 was 40 percent of Sweden's.

  • And since World War II the Swedish krona has lost more than 85 percent of its value relative to the Swiss franc.

Today taxes equal 55 percent of GDP in Sweden, compared to 33 percent for Switzerland.

Observers say the increasing burden of government in Sweden is partly due to institutional factors. Unlike Switzerland, for instance, Sweden's government is highly centralized, contains few constitutional safeguards to protect property or individual rights, and is based on simple majority-rule in its one-chamber national parliament.

Because of the difficulty in changing government policies, say observers, international businesses based in Sweden and wealthy individuals facing effective income tax rates above 100 percent simply leave the country.

Source: Nils-Eric Sandberg, "What Went Wrong In Sweden?" (Stockholm: AB Timbro, 1997).

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