Bernie Sanders has placed ”democratic socialism” at the center of his presidential campaign and his vision for a better America. For proof, he points to Scandinavian countries like Sweden.
Sanders’ argument takes as its starting point the perception that the Scandinavian “third-way” economic model of democratic socialism — combining the wealth creation of capitalism with the safety net of socialism — works well, and that the U.S. could reach the same socioeconomic outcomes and prosperity by expanding the role of government.
A prosperous economy was built before the welfare states we know today were established.
But as a Scandinavian political scientist who has studied Nordic politics, economy and history in depth, I do not feel the Bern. The Vermont senator has embraced an urban legend; his love affair with Scandinavian socialism gets it all wrong.
Contrary to the prevailing narrative, the success of Nordic countries like Sweden — as measured by relatively high living standards accompanied by low poverty, with government-funded education through university, universal health coverage, generous parental-leave policies and long life spans — precedes the contemporary welfare state.
In fact, when we examine Nordic politics, economy and history as exemplified by Sweden, we find that the Northern European success story was not achieved thanks to a welfare model funded by high taxes, but perhaps despite it. It is high time Sanders stops misleading his followers on this score.
Research has suggested that the Northern European success story has its roots in cultural rather than economic factors. The Scandinavian countries of Sweden, Norway and Denmark, which have a combined population roughly comparable to the greater New York City area, historically developed remarkably high levels of social trust, a robust work ethic and considerable social cohesion, according to economic experts and scholars such as Assar Lindbeck and Nima Sanandaji.
These societal qualities predate — and are independent from — the formation of the modern welfare state. Indeed, on that foundation, a prosperous economy was built before the welfare states we know today were established.
Eleven years before Adam Smith published his classic book “The Wealth of Nations” in 1776, regarded as the foundation of contemporary economic thought, a Swedish parliamentarian had already published his own work advocating for the necessity of free markets in fostering economic prosperity.
During the following century, Sweden introduced extensive economic laissez-faire reforms deregulating the financial sector and promoting free enterprise, free competition and free trade. These reforms prompted Sweden’s transition to capitalism.
During the following 60 years of prosperity - during the first half of the 20th century - tax rates were generally lower than in other European countries and in the U.S. The fact that the country had participated in neither the First nor Second World War, which had devastated other European industrial nations, further contributed to Sweden’s development.
That economic freedom didn’t last — and neither did its economic growth. The 30 years to come were characterized by the expansion of the generous cradle-to-grave welfare state that Sanders admires, characterized by government intervention, an increase in tax rates and the re-regulation of previously free markets. The country’s total tax load peaked in 1990 at a rate of 52.3 percent, with a corresponding negative impact on business and job creation.
Talent and capital moved out of Sweden to escape the tax burden, with furniture giant IKEA leaving for the Netherlands and the world’s leading food packaging company, Tetra Pak, for Switzerland. In 1970 Sweden was the fourth-richest member of the Organization for Economic Cooperation and Development (OECD) club of industrial countries, but had dropped to 13th in 1993.
The hardship didn’t end there. A subsequent financial crisis in the 1990s saw the growth of the gross domestic product sink and unemployment spike, while the government raised interest rates to a staggering 500 percent in an effort to avoid devaluing its currency. Sweden’s long-standing social democratic Minister of Finance Kjell‐Olof Feldt concluded: “That whole thing with democratic socialism was absolutely impossible. It just didn’t work. There was no other way to go than market reform.”
The true lesson to be learned from the Scandinavian experience is that the Nordic-style welfare-state models haven’t worked nearly as well as American democratic socialists like to pretend.
Since then, Sanders and his supporters should be aware, Sweden actually worked to revise its economic model based on lessons drawn from its recession. State-owned companies were sold and financial markets were deregulated; public monopolies were replaced with competition.
The Nordic country needed healthy companies and skilled workers, so top tax rates were rolled back while government welfare programs were redesigned. These reforms laid the ground for today’s competitive market-oriented economy based on international openness and the promotion of global free trade.
Rather than persistently suggesting that the American Dream can be realized by expanding government or raising taxes, it is time for Sanders and his comrades to go back to school and study history. The true lesson to be learned from the Scandinavian experience is that the Nordic-style welfare-state models haven’t worked nearly as well as American democratic socialists like to pretend.