In The Swedish Model Reassessed, Nima Sanandaji offers a novel historical perspective on the development of the Swedish economy. Contrary to the commonly-held view, he believes the success of Swedish society is not due to the welfare state. Rather, it is a Johnny-come-lately: expansion of public welfare started only around 1970. By 1985, taxes exceeded 50% of GDP, and by the mid 1990’s Sweden had dropped from one of the top positions to a mid-level rank in terms of wealth and economic growth.
Sanandaji’s key insight is the primacy of the prevailing values. Honesty, frugality, and thrift were part of Swedish culture even before the Reformation, which institutionalized basic virtues. This moral capital, arduously built up over centuries, has sustained Sweden (and the other Nordic countries) through many vicissitudes and supported entrepreneurship, inventiveness, and economic growth. It also brought Swedish emigrants in the United States well above average financial benefits.
The welfare state depends on high taxation, which is made possible by the presence of moral capital. Yet the bureaucratic welfare structure is inexorably eroding the very moral resources which make it feasible. In due course, economic decline is inevitable. This has become apparent in Sweden, and contributed to a political swing after decades of social democratic rule. The new right-of-center administration has already made an appreciable difference.
The present treatise should inspire a closer examination of the long-term interaction between values and economic success. Comparisons between different countries and regions would be illuminating. To measure morality will no doubt be methodologically difficult. Nevertheless, the revelation of the cause and effect mechanisms would be well worth the effort. Democracy itself is built on the basis of morality.
This excerpt is the Preface of The Swedish Model Reassessed – Affluence Despite the Welfare State.