Paradise Lost: Sweden, Europe Struggle for Economic Survival

CBN News ^ | 12/6/04 | Dale Hurd

[dukeman]

STOCKHOLM, Sweden -- The good times just keep rolling along in Sweden's social-democratic paradise. Welcome to a veritable welfare wonderland, where everyone is taken care of from the cradle to grave; where alcoholics can retire on government pensions; where the average worker calls in sick one day a week, even if he or she is not sick; where drug addicts get disability checks and the where the real unemployment rate is close to 25 percent. If all this sounds like a recipe for disaster, congratulations for grasping some basic economic principles that most Swedes, and in fact, most Europeans, still haven't figured out.

If Sweden ever was an economic paradise, welcome to what is turning into paradise lost. Economists here seem to think that all that is needed are a few tweaks. But this bloated welfare state needs more than a tweak. That's not likely, because most Swedes, and most of the world, assume Sweden has found a combination of socialism and capitalism that works. But does it work?

“Uh, No,” comments Frederik Erixon. “It's quite simple. No, it doesn't work.”

Erixon, one of the few free market economists in Stockholm, says Sweden's standard of living continues to fall farther and farther behind.

“Sweden is much poorer today in comparison to other countries than say 10, 20, 30 years ago,” Erixon continues. “The GDP (gross domestic product) growth has been declining for a number of decades.”

Sweden's official unemployment rate is six percent, but that figure is "cooked", to use an economic expression. Because it doesn't include another six percent on sick leave, at least 10 percent on disability, and a significant chunk of the nation's high school and college graduates are well, just loafing. This according to top Swedish Economist Stefan Folster:

“If one adds all that together, it's probably fair to say that one in four people is not in work but could be,” Folster says.

All Swedish workers get a minimum of five weeks of vacation every year. Not enough, apparently, because, as we mentioned, the average worker also takes one sick day a week, often to work a second job, because taxes take at least half of their first income.

Sweden's welfare state has even managed to turn alcoholism into a career option, since government policy effectively pays people to stay home, drunk.

But if you want to be a Swedish entrepreneur, then you have a problem. Most small businesses in Sweden consist only of the owner. It's too expensive to hire employees and too difficult to fire them. Just ask Trucking Company owner Lars Jansson.

"Somebody said it's easier to divorce your wife than to terminate an employment,” explains Jansson. “When you hire someone it's extremely difficult to fire him if he's not doing his job."

"Economically productive behavior is very difficult to pursue," agrees Erixon.

But it's a similar situation across most of Europe, which continues to fall farther and farther behind the United States.

A study by the Swedish free market think tank Timbro found that the United Kingdom, France, Germany and Italy now have a lower per capita Gross Domestic Product than all but four U.S. states.

So you might think that would make Europeans want to change their economies to be more like ours, and you would be wrong.

First off, most Europeans don't know that they're poorer than Americans are. Their media, which is largely anti-capitalist, and people like Michael Moore, tell them that the quality of life in America is awful.

In fact, there are so many European misconceptions about America that it took a book to hold them all. In “Cowboy Capitalism”, German journalist Olaf Gersemanna, a business reporter who lives in the U.S., demolishes the strange myths that many Europeans believe about America: that most of us have to work three low-wage jobs just to make ends meet; that America only has low unemployment because we throw so many people into prison, and that most Americans don't have healthcare.

Even the head of one of Germany's most pro-business parties has said that in America, "…freedom is the freedom to sleep under bridges."

Our cameraman discovered that's also a freedom enjoyed by Europeans.

But Swedish economist Folster says Swedes would rather be poor than have an American-style economic system, which is so cruel.

"Poverty is to a greater extent than in most European countries,” points out Folster. “Homelessness, wide income distribution, and things like that that many Swedes are afraid of."

They should be afraid of their own future. Mauricio Rojas, a free market economist from Chile, who has lived in Sweden for 30 years, says the welfare state is turning what was once one of the hardest working nations in the world into a nation of idlers, which is also killing the welfare state itself.

Says Rojas, "Because the welfare state needs people paying taxes, working, behaving in a moral, responsible way. But people say, ‘I don't need to go work. I have too much. I'm tired. My children need me.’ And the state's going to pay."

And Sweden's problem is Europe's problem: high taxes, low growth, huge welfare payouts, and a shrinking population.

Gersemanna says these days, German politicians refer to "the American way" with a sneer. But compared to Europe, the American way looks pretty good.

[A Ruckus of Dogs]

This deaf and blind bureaucrat doesn't want to know what poverty in the U.S. is.

Back in the 1980s, one of the channels (PBS?) did a documentary about poverty in America, called 'How the other half lives ...' or something like that. The Soviet Union decided to show it to their people, with the intention of convincing them how bad things were in the land of the capitalist enemy. Well, it had the opposite effect. The Russians saw how poor Americans had TVs, homes, refrigerators and so on.

[IronJack]

the welfare state needs people paying taxes, working, behaving in a moral, responsible way.

Preach on!

However, let it be noted that people paying taxes, working, behaving in a moral, responsible way DON'T need the welfare state.

[mark502inf]

The Heritage Foundation report on economic freedom ranks Sweden very high--12th in the world; somewhat different from what the author says. Here's an excerpt:

"Sweden has high taxes and a large welfare state. The level of unemployment is low, but workers take excessive sick leave; according to the Economist Intelligence Unit, an average of 430,000 employees, or 10 percent of the workforce, are on sick leave at any given time. Despite these drawbacks, as was pointed out in the 2003 Index, the economic landscape of Scandinavia is changing. Economic freedom in Sweden has grown with the implementation of policies that increase opportunity and attract investment through low trade barriers, stable money, open domestic financial markets, an openness to foreign investment, reduced regulation, market-determined wages and prices, and relatively little informal market activity. In addition, Sweden’s history of political stability, strong rule of law, and protection of property rights provides fertile ground for such policies to take root."

[mgist]

I have family in Europe . .

Then you know exactly what I'm talking about. But this is true all over the world. It is simply more surprising to realize it is so pervasive in Europe and Canada. I think that the propaganda is almost to the point of dangerous. I don't understand why we don't have a better public relations system in place. Even Blair spends millions on public relations experts and the like.

[wu_trax]

its not that bad, but never let get reality in the way of a little country bashing.

[t_skoz]

I only know 2 kinds of Swedes: socialists and libertarians.

:-)

[Luddite Patent Counsel]

Run the same chart back 5 years or 7 years, and it's your analysis that falls on its face. The long-term trend for Swedish biz is not positive.

[henderson field]

What is the benefit of "diverse"? Cultural pollution? Why engage in name-calling ("xenophobic")? All I want to do is retain my national culture. That's not unreasonable. If you are intolerant of that, please go back where you came from.

[Conservomax]

Hmmm, apparently blondes are stupid.

[farmfriend]

But it's a similar situation across most of Europe, which continues to fall farther and farther behind the United States.

We must have Kyoto to kill the US economy!

[Grampa Dave]

"Despite these drawbacks, as was pointed out in the 2003 Index, the economic landscape of Scandinavia is changing. Economic freedom in Sweden has grown with the implementation of policies that increase opportunity and attract investment through low trade barriers, stable money, open domestic financial markets, an openness to foreign investment, reduced regulation, market-determined wages and prices, and relatively little informal market activity. In addition, Sweden’s history of political stability, strong rule of law, and protection of property rights provides fertile ground for such policies to take root."

Below is the link to the two graph of the Swedish ETF, EWD, comparing it to our common market indexes. This graph backs up what you highlighted above.

Below is the link for the two year comparison:

http://finance.yahoo.com/q/bc?s=EWD&t=2y&l=on&z=m&q=l&c=^GSPC,^IXIC,^DJI

[Luddite Patent Counsel]

"Researchers took into account not just income, but other factors considered important to people's satisfaction and well-being.

They included health, freedom, unemployment, family life, climate, political stability and security, gender equality and family and community life."

Nice commie survey. When I start to put "gender equality" on the same footing as freedom, I hope they just shoot me.

[Conservomax]

That's an intersting and informative not to mention unbiased and accurate list.


~snicker.

Ireland is nice thogh... If you're not Irish and can actually afford to buy stuff there.

[Grampa Dave]

Sweden is starting back away from its interference in markets.

5 years ago it was an economic waste land. The past two years show that it is coming around.

Another Euro country, Austria has done similiar things including reducing their tax burden. The results the past two years are outstanding. The Austria etf is EWO.

France and Germany are not on the same trends as Austria and Sweden. They are the true real life pictures of socialism, high taxes, runaway unions and anti capitalism.

Will Sweden continue to grow its way out of what its socialist leaders brought about in 40-50 years? It depends on if they stick to their current behavior and don't revert to their previous tax and spend behavior.

[wu_trax]

you do know that money isn't everything, don't you?

[Luddite Patent Counsel]

I love Swedish culture, so I really hope they pull it off. My snapshot of Swedish business is about 7 years past, having headed up a US department for a large Swedish company through the late 1990's.
An aside: at my R&D facility, we had 150 engineers, equally divided among Americans, Japanese expats, and Swedish expats. We had a saying that "The Japanese do all the work, the Americans do all the complaining, and the Swedes take all the vacation". Good times!

[mondonico]

Well, the "Swedish Model" still has some attractive attributes:

[E.G.C.]

BTTT!!!!!!

[mgist]

All I want to do is retain my national culture.

Unless you are an American Indian I'm not sure what you would consider our National Culture. We are a nation of immigrants and I'm very proud of that. Everyone has something to offer and I recognize that there are other cultures that I can learn from. I judge people as individuals, fortunately our constitution supports this.

[Billthedrill]

Poor child is evidently suffering from swollen indices...