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Source link: http://archive.mises.org/5436/the-sweden-myth/

The Sweden Myth

August 7, 2006 by

The so-called Swedish model has been getting great press lately. In fact, Sweden’s economic boom is wholly artificial. It will have to come to an end, and although the ensuing crisis will likely not be as deep as in the early 1990s, the seemingly impressive Swedish boom will certainly be revealed as a fraud — just as the whole story of the success of the Swedish economic model is a fraud. FULL ARTICLE

{ 23 comments }

Roger M August 7, 2006 at 10:35 am

A few years ago, the opposition party in Sweden did some research into Swedish standards of living and found that on average Swedes were poorer than African-Americans. The researchers chose African-Americans for comparison because Europeans consider them to be especially oppressed.

M E Hoffer August 7, 2006 at 12:47 pm

Thomas “Mr. “The World is Flat”" Friedman can oft be heard trumpeting: “Sweden is the model we should be looking to…”.

I would think one would do well by forwarding Mr. Karlsson’s sound piece to : info@roycecarlton.com

the general contact for Mr. Friedman’s handlers.

Richard August 7, 2006 at 1:18 pm

I would be interested to see a similar analysis of the British economy which has been supposedly been booming since the early 1990s. According to the Austrian theory of the business cycle we should be on our way to a bust at some point. I am just wondering how long until it kicks in.

Ohhh Henry August 7, 2006 at 1:22 pm

An excellent article.

Along the lines of Roger M’s comment above, it was pointed out a few years ago that the average person in Ontario (Canada’s largest and second-richest province per capita) has disposable income at about the same level as the average person in the USA’s poorest state, which I think is Arkansas. This was even after allowing for the Americans buying health insurance – an especially noteworthy fact since nearly all Canadians think that their 100% “free” socialist health care system is miles and miles ahead of America’s “greedy, private” health care system. This story appeared in the back pages of the newspapers and was quickly forgotten as most of political parties concentrated on building election platforms based on deriding the Conservative Party’s proposal for (they claimed) “American style” tax cuts. The Conservative Party themselves did not even highlight this news, evidently because their advisors were convinced that economic facts will get you nowhere in Canada.

With apologies for highjacking the thread I would like to bring up another “booming” country which Stefan and was discussed on this blog some months ago: China. I stated at that time that from my (admittedly shallow) reading, it sounded like China had a pretty big credit bubble underway and that it didn’t look like a very healthy economy. Stefan however was of the opinion that because the savings rate of the Chinese people was so much higher than in the West, the economic boom in China was therefore more healthy and sustainable – based more on organic savings and less on artificial stimulus.

Well now I have just returned from a 3-week pleasure trip to China, and I think that what I saw makes me lean even further towards the opinion that China is undergoing a fake boom and that there will be a hell of a price to pay someday soon. As far as I can tell, practically nothing is profitable in China. Every city has a large number of hotels, which are mostly deserted. I saw practically no other guests in the halls, only a handful of people in the lobby, and in the hotel restaurants sometimes not a single other customer. Every city also has a large number of huge, new department stores. These stores have a gigantic stock of merchandise and a gigantic staff, but hardly any customers. It’s embarrasing to shop in many of them, because as you get off the escalator and look around the floor you see 50 or more sales staff are standing there staring at you, and often there is not one other customer in sight.

I saw a Chinese TV news story about water parks in the Shanghai area – a large number of these were constructed recently, but practically none of them were profitable and most of them were shut down. In the example of a successful water park the reporters found, the manager admitted that their park was still open because it was being used to attract customers to buy the condominiums they had built in the surrounding area. In other words, the success is tainted (in my opinion) by the real estate bubble.

This anecdotal evidence of a widespread lack of profitability fits in with some analysis I read a couple of years ago which claimed that practically none of the tens of thousands of new factories built in China are profitable, but instead are only sustained by larger and larger loans from government-owned banks.

In terms of public works there are many thousands of miles of new freeways in operation. They are fairly heavily travelled and they seem to be funded by tolls, but I didn’t travel in the remote areas – if there is little traffic in those places then it is possible that the highways have been overbuilt and that this development is more symptomatic of a bubble and less a result of organic development.

A large number of tourism-related public works have also been constructed. These are noteworthy for the huge amounts of money that have been lavished on them, with tons of intricate decorative carving, polished-marble walkways, brass signage, elaborate landscaping, etc. Yet they too are notable for a remarkable lack of patronage. There is something eerie about visiting a huge, new museum complex during normal daylight hours and not seeing a single other person there except for the staff and a local guy walking his dog around the grounds. Despite the massive amounts of money sunk into the initial construction, many of these facilities are already crumbling and are not being maintained, or they’re already closed for renovation, or in some cases they appear to have never opened. An exception is the Buddhist temples, which are heavily patronized by Chinese, and appear to be at least partly sustained organically by admission receipts and donations.

A Chinese friend told me what he thinks is going on in China: the central government is obsessed with GDP growth and is putting pressure on the provincial and local governments to make it happen. The credit is being made available through government banks, and the local officials are therefore throwing money at anything they can think of. Evidently some kind of central planning guidelines are being followed, e.g. “you must have this many 4-star hotels, this many museums, so many miles of freeway, an airport with X number of gates”, and so on. Which reminds me – Beijing aiport has a stupendously huge new terminal building, and two or three more equally huge new terminal buildings are under construction. Yet there is still only a single runway in operation and every departing flight has to queue up for an hour before it can take off. Are the planners fooling themselves that they will be “ready” for the Olympics in 2008?

While the Chinese personal savings rate is still apparently very high compared to other countries, I am afraid that their savings (unless they are of gold and silver) are likely to get wiped out in a tsunami of inflation and malinvestment. This is however only my subjective opinion based on a little bit of reading and a little bit of direct personal observation. I would be very happy to hear more facts and opinions …

Som August 7, 2006 at 3:20 pm

Mr. Karlsson,
You mentioned that Sweden’s trade with other countries has declined as well, so does that mean Sweden has more restrictions on trade now? I remember many writers describing Sweden as a free trade country. If it still has (relatively) free trade, does that mean the trade levels in Sweden have eroded because the massive welfare state has diminished their capital stock and competitive edge in the world market? If so, the situation for europe is far worse than I thought.
Som

Jayant Bhandari August 7, 2006 at 5:58 pm

Ohhh Henry:

Interesting contrarian views on China. I might have written something similar on India, although not in terms of “tsunami…”.

I recently read a statement by a top Canadian bank economist saying that he saw china literaly growing in front of his eyes by more than the stated GDP growth rate.

On side is your view and on the other the views of this economist and what is typical media hype about China (and India).

I don’t know what the full reality is but I indeed think that people who make outrageous statements about china and india should also visit some villages and isolated cities, the places where the real population lives.

Again, thanks for your interesting comments.

quincunx August 7, 2006 at 8:07 pm

Ohhh Henry,

You have an interesting view on China. I have read your prognosis before, as well as other similar views. I have also read the opposite view.

Who is right?

I think both views are correct, they are both occurring simultaneously. Only time will tell where the genuine savings landed, and where the fake boom ate it up.

I think your view also holds true for another place: United Arab Emirates. They seem to be building amazing structures on wads of debt.

Bill, they never learn August 7, 2006 at 8:48 pm

Another perfect example of the simply way to stop the business cycle and promote economic growth in the long term:

STOP PRINTING MONEY!!!!!

Such a simple solution….

I guess the US has to learn that lesson first. ;-|.

Kiwi August 7, 2006 at 9:22 pm

If Sweden is so bad under high social welfare , then
is it that this is the reason why the Swedish like the their country , (and many others too).

It is also noted that your measuring of their economy is only in terms of capital , not in the well being of their human capital.

Maybe they could improve their healthcare systems by adopting the US system. That would be amusing.

Before you hit the numbers with the Swedish people , just ask them , “What is the purpose of an economy?”

You will find that “inclusion , not exclusion” will win the day.

Mixed economies under Proportional Representation are best. That is not the UK or US. And of course the right of a State to choose it’s economic direction ; something which is often absent these days.

Cornelius van Vorst August 7, 2006 at 9:46 pm

If I could make a request to Mr. Karlsson, et al., would you please cite your sources. When articles such as this receive a wider audience (e.g., Digg) claims without citation are often dismissed by those who have a default bias against such thinking.

Derek August 7, 2006 at 10:04 pm

Hi Ohhh Henry,

I am a resident of Ontario, and find the vague reference to disposable income in Ontario being roughly equal to Arkansas quite interesting. Would you be able to retrieve a source?

Being a lifelong resident of the province, I find this “stat” quite shocking, unless I’m being told I live somewhere I don’t. I have travelled to many states in the US (I have American relatives living in quite a few), as well as across this province, and I keep a close eye on what happens in this province and the financial shape it and its people are in. To be frank, I find that claim you reference quite dubious and even farfetched, based on what I know. I have often heard that some Americans have a perception of Canada as being some backwards semi-socialist state with a low standard of living, so perhaps this attitude is the origin of the factoid.

In the science/art of economics, there always exists ways of spinning data to look favourable to one viewpoint or another (this is no startling revelation, I’m sure, to readers on this site). Further, economics tends to also be a morally-charged field, meaning that a country with a certain ideological leaning “just couldn’t” find any success if it isn’t your own ideology. No doubt this affects how people read statistics.

While I have never been to Arkansas, I have visited Louisiana and Mississippi, among other states, and I assure you that when it comes to my dollars and cents, I would take Ontario any day.

I find the usual amusement in your comparisons between Canadian and American healthcare, and it seems to be a favourite touchpoint on all sides of the healthcare-debate. Of course, healthcare in Canada isn’t 100% free, although most services are, and, unlike the American system, people won’t sit around dying just because they don’t have insurance. It’s fun, I’m sure, to point out some individual problems that need fixing within our healthcare system (wait times for some services being the preferred example, although I have a daughter with considerable medical issues and we have received timely EEGs, an MRI, and a host of other procedures in world-class facilities), but the bottom line is, more people have access to more medical services, on a percentage basis, in Canada than in the United States, and we pay less per capita for delivery.

I know this often doesn’t fit into the framework of the die-hard libertarian, who views his ideas as the only feasible model in this world of corrupt government officials, but perhaps someday he may wake up to the reality that a socialized healthcare system has actually worked in practice. Maybe in the libertarian textbooks, a fully private system would work better – who knows, maybe even in practice, and I’m not being sarcastic – but just because a system is different than your own does not preclude it from some success.

And I would also suggest that most Canadians don’t think our system “is miles and miles ahead of America’s”; most are aware that the actual services are roughly the same. What they do know is that all Canadians actually have access to this standard of care – something tens of millions of Americans can’t say.

coisty August 7, 2006 at 11:11 pm

For years I’ve been reading about studies showing Europe and Canada to be falling behind the US, especially with regards to living standards. All I can say is this American wealth seems to be well hidden. When I go there I see shoddy public roads and lots of depressed looking lower class neighbourhoods and towns. You meet people who can’t afford to go on holidays and are deep in debt. Then there are your cities! In many parts of Europe and Canada cities are still livable, not Third World crime-infested hellholes – though we’re catching you on that score.

The welfare state was working well in most of Europe, including Sweden, until mass immigration caught up with it. If you’re importing millions of hostile unemployable people who are happy to live on the dole or even low skilled workers who need more social services (and will vote for them) than the average indigenous person requires then your welfare state will get too big and then the trouble begins.

Francisco Torres August 8, 2006 at 1:46 am

If Sweden is so bad under high social welfare , then is it that this is the reason why the Swedish like the their country , (and many others too).

Why wouldn’t they like their country? And what does that have to do with the facts forwarded by Mr. Karlsson?


It is also noted that your measuring of their economy is only in terms of capital, not in the well being of their human capital.

The reason Mr. Karlsson measures the economy in terms of capital is because capital is needed to produce goods which ELEVATE the living standards of people. If there is little capital to produce goods, then speaking of the well-beingness of people becomes a sad joke.


Maybe they could improve their healthcare systems by adopting the US system. That would be amusing.

Maybe both couold improve their health systems by leaving health care in totally private hands. What IS amusing is seeing people thinking that continuously failing systems are the “best” in the world – talk about self-deception.


Before you hit the numbers with the Swedish people , just ask them , “What is the purpose of an economy?”

If you ask an intelligent Swede, he would probably say that such a question is as ridiculous and dumb as asking “what is the purpose of evolution?”. The economy is a phenomenon, it does not have a purpose.


You will find that “inclusion , not exclusion” will win the day.

Indeed. And people have been wrong about many things before – it comes as no surprise.


Mixed economies under Proportional Representation are best.

Seems like a statement of fact more than a substantiated allegation. What is your proof?

And of course the right of a State to choose it’s economic direction

The “Right” of the State? You mean, above the desires and choices of people? Kiwi, since when have humans become the playthings of States, and why do you think the State has power of choosing for us?


; something which is often absent these days.

Hmmm, maybe NOT abstent in a couple of places: in termite mounds or ant hills, which is what you most likely wish as dwells for humans, under a well-intentioned, powerful overseer.

Paul Marks August 8, 2006 at 7:53 am

On the positive side I have often heard it said (by people who know the country) that Sweden is less dominated by Red Tape than many other countries.

Things that would take a vast amount of time and form filling to do in, for example, Belgium are normally quickly allowed in Sweden.

On the British comparison:

Even back in the 1930′s people such as the late Harold Macmillan were citing Sweden as a wonderful “Middle Way” that Britian should follow – which was odd as both government spending and taxes were considerably LESS in Sweden (even as percentage of the economy) than they were in Britain.

Sweden not only avoided the government spending orgy of both World Wars (and the many other wars), but even in peace time its govenment spending and taxes only got ahead of Britian after the 1960′s.

As for “booming” Britian.

Well, Britian is one of the few nations in the world where industrial output is actually falling.

There is indeed a credit-money boom in Britian (thus showing that an “independent” central bank is no better than any other kind), which will (as stated above) lead to a bust at some point.

Of course (like Mises and Hayek in the 1920′s) none of us can name the exact day of the bust (otherwise we would make a lot of money) – all we can say is that the bust will come.

The basic economic fundamentals of Britian are actually worse that the United States.

For example, a lot of the boom in government spending in the United States has been on things like the wars and also farm subsidies (given a change in the political wind such things could be dealt with quite fast).

In Britain the govenment spending increase of recent years has been on the Welfare State programs (this has also happened in the United States but not nearly as much).

The basic domestic programs of the British government have exploded out of control – and the opposition “Conservative” party is not even talking about cutting them.

The United Kingdom is in for very hard times indeed.

Ohhh Henry August 8, 2006 at 9:39 am

Derek -

I think it was this report. I was misremembering some of the facts. Ontarians’ average disposable income was calculated to be 52nd out of the 60 US states and 10 Canadian provinces. This report does not state (anywhere that I can find) that the calculation of average disposable income was after the average cost of health insurance – however I remember this fact was brought up at the time in the brief media discussion that occured. I will leave it up to you to either believe or disbelieve this, or to do some more googling and get to the bottom of it yourself.

As for your experience with Ontario’s socialized health care system: I’m pleased to hear that you are satisfied with the care your family has been receiving. The experience of my family and friends has been quite different. While some services have been delivered satisfactorily, there have been a large number of problems which were misdiagnosed, mistreated, and/or the treatment was delayed to the point where their lives were endangered. In fact one family member died of a disease which was misdiagnosed. The other cases would be funny, such was the level of stupidity and incompetence achieved by “the system”, if it wasn’t so damn expensive and if it wasn’t my own kith and kin being endangered. Speaking of expensive, I have received private information from an economist involved with Ontario’s health care system who had access to information which has not been published, which indicated that 75-80% of the cost of Ontario’s health care system is consumed by bureaucratic overhead. Does this sound like an efficient system to you? Do you think that the private retailers from who you purchase goods and services such as Canadian Tire, Pizza Hut, Honda, Esso, etc. would survive very long if they lost 80% of their revenue to office overhead? Don’t you think that you would get things like vaccinations and hip replacements a lot more easily and cheaply if you could buy them from an organization as lean and customer-focused as Wal-Mart, instead of having to queue up to have them allocated to you by a Stalinist bureaucratic apparatus run out of Toronto?

In short, Canada’s monopoly-provider health care system is about as effective as North Korea’s monopoly-provider food system. No doubt in North Korea there are many people who are happy with the amount and quality of food they receive and who fret and worry about how they would manage in a greedy, capitalistic system. All I can say is this: dare to be free.

Yancey Ward August 8, 2006 at 10:42 am

One can see the rot within all of the socialized states and cultures- it manifests itself in birthrates that decline to the point of oblivion. With present trends, the cultures of Europe will disappear within a century and a half, subsumed by mass inmigration from the cultures of Asia- either through voluntary immigration, or by simple conquest. The trends appear to be irreversible, and the reason appears quite simple to my eyes.

Socialism subsidizes sloth, leading each person to try to live off of the others. The ultimately declining production and wealth makes it less and less possible support the raising of children in a society in which child labor is not allowed; and the cultures disappear, overtaken by those with far higher birthrates and different ethics on the issue of child labor.

The real crisis is coming within the next 25 years when the demographic calamity reaches its zenith. You think the birthrates of the native Europeans is low now? Wait until the elderly make up 25+% of the population, which is just around the corner.

adi August 8, 2006 at 11:44 am

I live in Finland, but our experiences are quite similar as in Sweden. Most Nordic countries have similar characteristics. Mr Karlsson’s article was very good, but he is preaching to those who are already converted.

Finnish welfare state was build very quickly starting in 1960:s and was expanding fast until recession in 1991-1993. States share in GDP reached its height during this crisis, when private sectors income was falling.

Next crises are just approaching; How to pay increasing medical expenses ? How to pay pensions for the growing number of pensioners ?

Logic of socialists defy all economic facts; only answer you can nowadays get is something like this “Finland is now richer than ever and it is just value choice if we put money for the X “. Our “friends” Kiwi, Derek and coisty should rethink their position.

Jonathan August 8, 2006 at 5:29 pm

http://www.lindselltrain.com/rep/MonthlyReports/LTIT_MR_2006-03.pdf

This is a link to a UK Value fund manager’s monthly report in which he speaks about his conclusions after reading Dimson, Marsh and Staunton’s magnum opus “Triumph of the optimists. 101 Years of Global Investment Returns”

It is worthy of note that Sweden had the best returns. Interesting heh ?

Ohh Henry August 9, 2006 at 9:13 am

Jonathan -

It is very interesting. It suggests to me that living in a Warfare State is far more harmful to one’s wellbeing than living in a Welfare State.

Tom Rapheal August 9, 2006 at 12:57 pm

Dereck

The waiting list problem in Canada can only be solved by a different rationing system. Waiting lines are the only way right now for the healthcare system to ration its avalible recsorses. If more recsorses were made avalible and the waiting lines went down more people would come to get at a “free” service, quickly overloading the new rescorses untill the waiting line got long enough again so that people have to “pay” with time so that the system can get control of the number of patients. So what is going to replace the waiting lines, witch puts people through tons of avoidable pain. Rationing cards? or will Canada just keep the same system. Also, you can’t say that Canada has the same quailty of service untill you mesure how much people would pay to get around the waiting list.

Marco August 10, 2006 at 4:00 am

I’m an avid reader of Stefan Karlsson’s posts, but this article disappointed me. The main problem is that the author quotes a huge amount of numbers but gives no sources whatsoever. I’m sure he didn’t make them up, but if you are trying to convince a socialist and tell him to read this article, he will probably ask you “where are the numbers from?”. Also, some of the details are a bit imprecise. For example, the author states “Money supply rose 11.5% in Sweden in the year to May, even higher than the 8.9% seen in the Euro-zone.” (again, with no sources to back this up). Which money supply is he talking about? M1? M3? Earlier he writes “this advantage disappears when taking into account that Sweden’s terms of trade have deteriorated significantly.“. Then he goes on to talk about something else. Never mind the fact that the average reader probably has no idea what “terms of trade” means, but it would have been nice of Mr Karlsson to elaborate a bit on this and explain how they have deteriorated.

Stefan Karlsson August 10, 2006 at 8:40 am

Comments on comments:

Marco & Cornelius: Yes, you’re right, I should have explicitly mentioned my data sources . Most of the statistics some from either the Swedish statistical central bureau or the OECD, with the statistics for total real unemployment coming from the various Swedish government agencies that provides financial support for those who don’t work.

As for money supply definition, it was M3 for both Sweden and the Euro-zone. Statistics on that of course comes from the ECB in the case of the Euro-zone and from the Riksbank in the case of Sweden.

And Marco, I assumed that terms of trade was such a basic concept that it didn’t need explaining, but perhaps I should have linked to a post I wrote on my blog on what it is and why it needs to be taken into account.

Som comments here presumably do reflect a misunderstanding on what terms of trade is.

Ohhh Henry: There are certainly a lot of malinvestments in China, I don’t think ever denied that, but I don’t believe it is as bad as you say it is. And with the investment rate being so extremely high, there is still more than enough of sound investments in China.

As for the U.K. economy, it had a manufacturing recession recently and for a while it seemed like the economy as a whole would fall into a recession, but then for a variety of reasons (including increased Eastern European immigration that gave support to the housing market and a cyclical upswing in continental Europe(and Sweden) that gave support for exports), the recession was avoided-temporarily.

Rob T. November 20, 2008 at 7:28 pm

Risible ideologues, all of you. I hope that your mutual group therapy helps you to sleep better at night.

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