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Sweden

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Country summary

Capital

Stockholm

Borders

Finland 614 km, Norway 1,619 km

Government type

constitutional monarchy

Population

9,059,651 (July 2010 est.)[1]

Population growth

0.158% (2010 est.)[1]

Life expectancy

80.86 years[1]

Unemployment

8.3% (2009 est.)[1]

Index of Economic Freedom

21[2]

Corruption Perceptions Index

3[3]

Doing Business ranking

18[4]


A military power during the 17th century, Sweden has not participated in any war for almost two centuries. An armed neutrality was preserved in both World Wars. Sweden's long-successful economic formula of a capitalist system interlarded with substantial welfare elements was challenged in the 1990s by high unemployment and in 2000-02 and 2009 by the global economic downturns, but fiscal discipline over the past several years has allowed the country to weather economic vagaries. Sweden joined the EU in 1995, but the public rejected the introduction of the euro in a 2003 referendum.[1]

See also: Scandinavia

Sweden, free market and the social stateEdit

Main article: Scandinavia and the social state

Until the second half of the 19th century, Sweden was fairly poor. But far-reaching free market reforms in the 1860s allowed Sweden to benefit from the spreading Industrial Revolution. And so, during the late 19th and early 20th centuries, Sweden saw its economy rapidly industrializing, driven by the many Swedish inventors and entrepreneurs.

Another factor which continued Swedish prosperity was the fact that Sweden was able to stay out of all wars, including both World Wars. Sweden is the country with the longest consecutive period of peace since 1809, when Sweden was invaded by Russia, losing Finland in the process. As a result of its free market policies, the resourcefulness of its people, and its successful avoidance of war, Sweden had the highest per-capita income growth in the world between 1870 and 1950, by which time Sweden had become one of the world's richest countries, behind only the United States and Switzerland, and Denmark (who have since also fallen behind because of high taxes).

In 1932, the Social Democrats rose to power in the face of the Great Depression. Until 1932, government spending had been kept below 10% of GDP in Sweden, but the Social Democrats, under their leader Per Albin Hansson, wanted to change this and remake Sweden into a "folkhem" ("people's home"), a term Swedish Social Democrats adopted from the Fascists in Italy.

Even in the early 1950s, Sweden was still one of the freest economies in the world, and government spending relative to GDP was in fact below the American level. But between 1950 and 1976, Sweden experienced an expansion in government spending unprecedented during a period of peace, with government spending to GDP rising from about 20% in 1950 to more than 50% in 1975. Virtually every year, taxes were increased while the welfare state expanded, both in the form of a sharp increase in the number of government employees and ever more transfer payment benefits.

During the first 20 years, this relentless government expansion took place seemingly without ill effect, as Sweden benefited from rapid global growth — although Sweden's growth had already started to slip in relative terms, from well above average to just average. This changed in the 1970s after Olof Palme, from the left wing of the Social Democratic party became Prime Minister. Palme stepped up the socialist transformation in Sweden, rapidly increasing anti-business regulations and sharply increased payroll taxes.

The payroll-tax increases, along with increasing wage demands from unions, made Swedish businesses highly uncompetitive on the global markets, something which was to be solved by devaluing the Swedish krona. As a result, price inflation rose sharply, leading to repeated devaluations.

After Palme was killed by an unknown assassin in February 1986, pragmatist Ingvar Carlsson became prime minister. Worried that Swedish growth had trailed most other countries, Carlsson's government implemented a number of free-market reforms. Among these were the lifting of all currency controls in 1989 and a tax reform that dramatically reduced marginal tax rates. Although these reforms have arguably contributed to improving the long-term economic performance of Sweden, they would contribute to precipitating the deep economic downturn in the early 1990s.

Meanwhile, as the economy started slowing significantly in 1990 after a series of tightening measures, consumer price inflation slowed. With the combination of continued high nominal interest rates, reduced capital gains taxation (and with that, reduced deductions for interest payments) and falling price inflation, real interest rates started rising significantly, helping to end the asset price bubbles. On top of all of this came the oil price shock following Saddam Hussein's invasion of Kuwait and an economic downturn in key trading partners such as the United States, the United Kingdom, and Finland. The end result was that Sweden slipped into a recession in late 1990.

In the collapse in November 1992, the dramatic increase in interest rates and the deep recession had at the same time created a large amount of bad loans, making almost all major banks in effect bankrupt. Only after the Swedish government pledged they would bail out the banks with whatever money they needed was a widespread banking collapse averted.

The recession became Sweden's deepest by far since the Great Depression, with GDP in 1993 being 5% lower than in 1990, with employment falling more than 10%, and the budget deficit rising to more than 10% of GDP. By then Sweden had fallen to between 15th and 20th place in international income comparisons, a decline from which it has never since recovered. After this deep downturn, a number of free market reforms and budget cuts were implemented and Sweden underwent a recovery.[5]

The jobless rate was traditionally very low in Sweden, averaging about two percent. Over the past two decades, however, the official unemployment rate has more than tripled, and the official numbers almost certainly undercount the true rate of unemployment.[6] The McKinsey Global Institute estimates that the real unemployment rate is 15 percent.[7]

Estimates usually put total Swedish unemployment, including the so called hidden unemployment, at somewhere between 15 and 20 percent, about three times above the official unemployment figures. In 2005, Mr. Hans Karlsson, a member of the prime minister's cabinet as secretary of labor, was quoted in Dagens Industri, a major business daily, as saying that about 20 to 25 percent of the work force is unemployed and that most of them are "stashed away" in the statistics on long term sick leave, in labor market programs, or in early retirement and similar programs.[8]

Impact of high taxesEdit

High taxes and excessive regulations have encouraged many large corporations to leave the country. Almost the entire pharmaceutical industry has moved: the most significant examples are Pharmacia, which was bought by Michigan-based Upjohn, and Astra, which was effectively taken over by Zeneca. Research and development has moved abroad, while some low tech production has remained in Sweden. The automobile industry met a similar fate in the 1990s: Volvo Cars was broken out of the Volvo Corporation and sold to Ford; GM took over SAAB Automobile. SAAB is already building two of its four models for the American market outside Sweden and Volvo has expanded its Netherlands and Belgium operations significantly.

IKEA and TetraPak also moved abroad. IKEA was founded by Mr. Ingvar Kamprad soon after World War II. Having become one of the world's richest men on low price, "self assembly" furniture, Mr. Kamprad has relocated his corporation to the Netherlands. He himself resides in Switzerland. The TetraPak Corporation, founded by the Rausing brothers, gave the world the "sausage stuffing" procedure for manufacturing and filling milk cartons. The technology made the brothers billionaires, and motivated them to relocate to England.

By taxing professionals so onerously, the tax system also discourages education. This leads to a lack of highly skilled professionals and mounting recruitment problems in sectors of the economy that are based on human capital. Between 1993 and 2000, emigration of college graduates grew by 48 percent. College graduates account for half or more of recent emigrants, with their share increasing slightly between '93 and 2000. Since then, emigration has continued to grow at 5-7 times the growth rate of the population as a whole, and anecdotal evidence from newspaper reports indicates that college graduates continue to dominate emigration.[8]

One of the people who were burdened with this tax was Astrid Lindgren, the famous author of children's books best known for her Pippi Longstocking series. In 1976 she wrote a satirical short story published in one of Sweden's biggest newspapers, where she told the tale of a troubled children's-books author called Pomperipossa, who lived in the fictional kingdom of Monismania. Among other things, Pomperipossa pondered why the more she earned, the less she got to keep, and why people like her were being economically punished by the government simply for writing popular children's books. The story also mentions that in Monismania one could escape some of the taxes by purchasing real-estate property, which is exactly what the Swedish secretary of the treasury, Gunnar Sträng, had been doing at that time. Lindgren's story stirred up a fierce tax debate in Sweden, and for the first time in 44 years the incumbent Social Democratic Party lost the general elections.

Economical characteristicsEdit

  • Currency: Swedish krona (ISO code: SEK)
  • Central bank discount rate: 2% (31 December 2008)[1]
  • Commercial banks lending rate: NA% (31 December 2008)[1]
  • Stock of money (M1): $185.4 billion (31 December 2008)[1]
  • Quasi money (with M1 makes M2): $54.55 billion (31 December 2008)[1]


StatisticsEdit

Statistic / Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
GDP (million USD)[9] 257 065 245 573 225 206 248 612 311 038 357 191 366 008 393 157 453 316 478 961
Govt. debt (% of GDP)[10] 60.653 52.883 53.023 47.344
Govt. revenue (% of GDP) 37.189
Govt. expenses (% of GDP)[11] 36.663
Debt to revenue (years)

ReferencesEdit

Note: statistical data was rounded. Different sources may use different methodologies for their estimates. Debt to revenue is calculated by dividing the two variables from their original ('unrounded') values. It represents how long it would a government take to repay its entire debt if it used its whole revenue for this purpose.

  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 CIA - The World Facebook. "Sweden", from The World Facebook. Referenced 2010-09-29.
  2. Heritage Foundation. "Sweden", Economic Freedom Score. A lower ranking is better; but please be careful when comparing between different countries or years. Referenced 2010-09-29.
  3. Transparency International. "Sweden", Corruption Perceptions Index 2009. A lower ranking is better; but please note that the numbers cannot be compared between countries or years due to different methodology. Referenced 2010-09-29.
  4. Doing Business. "Sweden", Doing Business 2010 (part of The World Bank Group). A lower ranking is better; but please be careful when comparing between different countries or years. Referenced 2010-09-29.
  5. Stefan Karlsson. "The Sweden Myth", Mises Daily, August 07, 2006. Referenced 2010-10-10.
  6. Daniel Mitchell, Ph.D. "Hoping to Restore Growth, Voters Rebel Against Sweden's High-TaxWelfare State", The Heritage Foundation, published on September 21, 2006. Referenced 2010-10-12.
  7. McKinsey Global Institute. "Sweden's Economic Performance: Recent Development, Current Priorities" (pdf) McKinsey Global Institute, May 2006. Referenced 2010-10-12.
  8. 8.0 8.1 Sven R Larson, Ph.D. "The Swedish Tax System: Key Features and Lessons for Policy Makers" (html, pdf), Center for Freedom and Prosperity Foundation, June 2006, Vol. VI, Issue II. The article referred to the this article (in Swedish) for its claim. Referenced 2010-10-12.
  9. World Bank. "Sweden: GDP", from World Bank Data. Referenced 2010-09-29.
  10. World Bank. "Sweden: government debt", from World Bank Data. Referenced 2010-09-29.
  11. World Bank. "Sweden: government expenses", from World Bank Data. Referenced 2010-09-29.

External linksEdit

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