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.
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