Debunking the Myth of Swedish Socialism—Again

Whenever I lecture around the world, whatever I talk about, there is almost always someone in the audience who wants to ask me about Sweden. Is it the successful example of socialism that many assume?

I try to explain that we have been socialists and we’ve been successful—but never at the same time.

I’ve written about this in a Cato Policy Report and I’ve done a documentary about it for U.S. public television, but people keep asking me. So I decided that I had to write a book about it for the Fraser Institute to tell the whole story, The Mirage of Swedish Socialism: The Economic History of a Welfare State.

And it’s actually one of the best examples we have of the benefits of free markets and the perils of socialism. Between 1870 and 1970, Sweden had a smaller government and a more open economy than most comparable countries, and that was the era when Sweden grew faster than any other developed country but Japan.

Then, when Sweden had already become one of the richest countries in the world, Sweden began to experiment with socialist ideas. From 1970 through 1990, government was massively expanded, taxes were raised, and the economy was regulated. This was not the golden era of socialist nostalgia, but more like an Atlas Shrugged moment: Swedish companies like IKEA and Tetra Pak and lots of successful entrepreneurs left Sweden and not a single net job was created in the private sector. It was the one moment in Sweden’s modern history that we lagged behind other countries.

After a devastating financial crisis in the early 1990s, politicians from both the left and right agreed to end this experiment. Instead, they reduced public spending, taxes, and regulation to get back to the growth model that made Sweden successful. Sweden started to outperform its neighbors again.

If Bernie Sanders and AOC wants to imitate actually existing Sweden today, they would have to liberalize markets in many ways, reform Social Security, introduce school vouchers, get rid of the minimum wage and most occupational licensing, and abolish taxes on inheritance and property.

Sweden still has a bigger welfare state than the United States, but the receivers pay for it themselves. The tax burden falls heavily on low‐ and middle‐​income households in Sweden, making the tax system much less progressive than in the United States and almost all other rich countries.

The lesson Swedes took from the 1970s was that you can have a big government or you can make the rich pay for it all, but you can’t have both.

I explain this history and detail how Sweden’s welfare state works in the book, but if you want the shortest possible takeaway from Sweden’s modern political history, listen to Kjell‐​Olof Feldt, Social Democratic Minister of Finance (1983–1990): “What we believed in as young socialists simply turned out to be impossible in practice.”