What (if anything) can other countries learn from Sweden? Slides from a talk for students at the Stockholm School of Economics, Oct 29, 2019.

1. Hayekian welfare states
and Viking Economics –
What (if anything) can other
countries learn from Sweden?
Andreas Bergh

2. “The Swedes
themselves are
not entirely sure
what they have
done right.”
Paul Krugman

3. • How exactly?
• Can you really?
• Some economic
history
• Some (Hayekian)
theory

4.  In 1840, Sweden was poor: 40% of UK’s
GDP/capita
 Severe starvation in
1868 and 1869,
other European
countries giving aid to
Sweden
Sweden’s history as a developing country

5. Achieving prosperity and income equality
▪ 1870-1970: Sweden became 4th richest in the
world
▪ …and in 1980, Sweden (probably) had the
world’s most egalitarian income distribution

6. Explaining growth
▪ Standard explanations: Export driven growth (timber, iron ore),
avoiding the world wars.
▪ Better explanations: Property rights, low corruption.

7. Explaining Swedish income equality
▪ Equality increased before peak welfare state
▪ The policies of the 1970s are not the explanation
▪ High taxes, progressive taxes, progressive social policies, labor
market regulations.
Rather:
▪ Land reforms
▪ Unions & central wage bargaining
▪ School reforms
▪ Early social insurance reforms
▪ Female labor participation (1960s-70s)

8. The three phases of Swedish economic
history
▪ 1870 - 1970: Fantastic!
▪ 1970 - 1995: Horrible.
▪ 1995 - ??: pretty good

9. In the early 1990s, no country wanted to copy
Sweden…
Sweden:
FromCapitalist Success to
Welfare-State Sclerosis
by Peter Stein
Cato Policy Analysis No. 160 (10
sept, 1991)
”Worse and worse”
The Economist on
Sweden, 1993
0
50
100
150
200
250
1970 1975 1980 1985 1990 1995 2000 2005
USA
Swe
EU15
Real gpd/capita,
USA1970 = 100

10. After the 2008 financial crisis, things
changed (again)…

11. So… does the case of Sweden show
▪ …that high taxes and a generous welfare state is the way forward?
▪ or that big government leads to decline and stagnation?
▪ No!
▪ Big government has caused problems in Sweden – but Sweden has learned
from its mistakes

12. What is meant by ’big government’?
▪ Fiscal: requires high taxes and public expenditure
▪ Hayekian: requires a lot of central knowledge

13. The knowledge problem
Hayek (1945)The Use of Knowledge in
Society, American Economic Review
Knowledge is decentralized,
discovered through experimentation (trial & error).
A central decision maker is likely to make mistakes
due to having insufficient knowledge
(even a well-meaning and benevolent one).

14. Different types of government size
Knowledge needed to succeed
Fundsneeded
more
more
Keynesian
Stabilization
policies
Low basic
income
Means tested
welfare
Swedish
pension system
1960-2002
Encouragement of
entrepreneurs
Swedish pension
system 1999 -

15. In summary
▪ Swedish policies failed when they required a lot of public expenditure and a
that decision makers had lot of knowledge
▪ If policies make use of decentralized knowledge among households and
firms, having a big government in a fiscal sense is much less of a problem
▪ Lessons for other countries: learn from experimentation, aim for policies that
do not require that politicians know things that they cannot reasonably know

16. Read more:
Bergh 2014, New Political Economy
Bergh (2019), ”Hayekian welfare states”
(J of institutional economics)
English blog:
https://tcw.postach.io/
Swedish blog:
https://bergh.postach.io/