Friday, May 24, 2013
It is hard to be Swedish
A group of American and Swedish economists lead by Harvard professor Richard B. Freeman published in 2010 an analysis of the reforms undertaken by Sweden to recover from an acute financial crisis in the early 1990s. Against all forecasts, these reforms were rapidly successful, and allowed Sweden to recover the balance in the public accounts, to increase productivity and to rapidly restart economic growth, at the same time as keeping a large welfare state and high fiscal pressure. Many of these reforms included short term painful measures such as reducing the benefits of unemployment insurance and the pension system. Perhaps the most important lesson for other countries from the Swedish experience is that it isn’t easy to be Sweden, or as the economists like to say, there is no free lunch. But the experience proves that it is possible to fight against a financial crisis and at the same time keep intact the essence of the welfare state and the institutions that make it possible to fight poverty and inequality. Sweden was helped by the fact that it had its own currency (which was left to free float) and by economic growth of its main trading partners, but many of the reforms had to do with policies that can be implemented by any country, and that try to find the best combination of economic efficiency and social justice. Not by coincidence, Nordic countries, having been exposed to social democratic policies for decades, are at the top in the rankings for income per capita, income distribution, low corruption, respect for the environment and many other good things. The challenge is to apply the same principles and similar policies to societies that are larger and less homogeneous. It will not be easy, but there is no better example to follow.