Capitalism Makes Big Government Possible in Sweden


MYTH: Sweden is a socialist model that the US should follow. It proves that tax and spend policies, along with a massive government are a blueprint for success to lower income inequality and lead to prosperity.

REALITY: The free-market made it rich.

Sweden in the 19th century was one of Europe’s poorest countries, but by the 1950’s, due in large part to capitalism, Sweden was already one of the richest countries in the world, not because of government, but because of free markets and smaller government (reforminstitute). Sweden had lower taxes than in the US during that time (Johan Norberg).

By 1970, Sweden had the 4th richest economy in the world. This free-market prosperity, lead to tax increases, more spending and a increase in the size and scope of government (the economist). By 1993, Sweden had dropped to the 14th richest economy, and in that same year, with no new private sector jobs added, government spending had reached and astronomical 67% of GDP.

That same year, per capita GDP dipped from a 1990 high of $32,327.76 to a low of $30,367.84 in real terms (google, world bank). The size of government was impeding economic growth.

Since then, Sweden has reversed course, governments share of GDP has dropped considerably and is now lower than France’s and catching up to Britain’s.

From 1976 to 1996, growth was roughly half the average of other OECD countries, and one percentage point lower than EU-15 counties, after 1996, Sweden exceeded both measures, it’s growth rate can be seen in the graph below (Tradingeconomics).

Taxes have been cut, including the corporate tax rate to 22% nearly half that of here in the US. Sweden also made moves to balance their books, by 2013 their deficit was 0.3% of GDP compared to 7% in the US.Sweden has a universal system of school vouchers that has improved their school system markedly from what it once was (the economist).

This is not to say that Sweden is an example of an ideal free-market system because it is not. What Sweden has done is prop up large government programs and expenses on a wealth generating free market. Without the creation of new wealth, it cannot survive. The government itself ballooned by politicizing and taking advantage of the wealth that came before. They soon realized that without robust markets to create wealth, they would not be able to afford the 30% of the workforce that is employed by the government.



  1. Much of this is due to intervention into the housing market. Homes are bought with loans that are never really paid off and are interest only. Huge subsidies for construction were given until the early 1990s. Lending and real estate bubbles.

    Then there was rent control, which was kept in place since the war era – despite the fact that Sweden never participated in either WWI or WWII and kept its entire housing stock intact.

    Rent control over the entire housing stock (there are no free market rents in Sweden, yes really) continues to this day. Rents are set according to whole-of-city negotiation between landlord and tenant unions. And they are not set to supply/demand of course.

    To get a rental contract for property, one must sign up to an wait in a queue system run by the local council. This process takes around 5 – 7 years (yes, you read that correctly) to perform.

    Rent Control in Stockholm, Alex Tabarrok

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