Why Sweden Embraced Capitalism

**Ryan Knutson** (0:05)
In recent years, Europe's economy hasn't been doing that well.

**SPEAKER_2** (0:10)
Britain's economy shrank unexpectedly in the three months to October.

**SPEAKER_3** (0:15)
Germany is facing a third straight year of economic crisis, with most Germans increasingly worried about making ends meet.

**SPEAKER_4** (0:22)
They're unlikely to be able to get France's debt under control anytime soon. It reached 3.3 trillion euros in June.

**Tom Fairless** (0:32)
The main picture has been somewhat sad over the last few years, that there has been little growth, just repeated shocks that the economy struggles to rebound from.

**Ryan Knutson** (0:43)
Tom Fairless is our global economics correspondent. Are there any countries in Europe that are doing well?

**Tom Fairless** (0:51)
Certainly Sweden does stand out.

**Ryan Knutson** (0:56)
Sweden.
Its economy is growing at roughly the same rate as the US, which is to say pretty fast. The Nordic country that was once synonymous with big government is doing something else.

**Tom Fairless** (1:09)
Sweden, from an American point of view, from most countries' point of view, is the sort of gold standard of democratic socialism.
What I found through this reporting is that actually, what drives the dynamism is the extent to which it's rolled back to state. That's what a lot of the economists, I suppose, said that in the 20 or 30 years since they've been liberalizing, incomes have doubled. Real incomes have doubled after inflation. So this kind of gold standard of democratic socialism is actually a laboratory for free market capitalism.

**Ryan Knutson** (1:47)
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson. It's Monday, June 8th.
Coming up on the show, how Sweden embraced capitalism.

**SPEAKER_6** (2:13)
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**Ryan Knutson** (2:52)
Sweden's reputation for big government and high taxation comes from the 1960s and 1970s, when the government was growing rapidly. And when I say high taxes, I mean really high taxes.

**Tom Fairless** (3:07)
There was an author, a Swedish author, who wrote an essay about how her marginal tax rate was 102%.

**Ryan Knutson** (3:13)
102%, how is that even possible? You tax more than you make?

**Tom Fairless** (3:17)
Exactly, yeah, you lose, you end up paying more than you actually earn in the extra income.

**Ryan Knutson** (3:21)
You got to dip into your savings account.

**Tom Fairless** (3:22)
Exactly.

**Ryan Knutson** (3:24)
That author was Astrid Lindgren, who wrote the famous children's book Pippi Longstocking, and ironically, appears on some Swedish currency.

**Tom Fairless** (3:33)
So it was extremely high levels of taxation, and I think Sweden is, you know, it's not like the US., it's a small, homogeneous country, and there's some big family-owned companies that own lots of the stock market, and there was a feeling that they were all in it together.

**Ryan Knutson** (3:53)
All that taxation came with a very cushy safety net.

**Tom Fairless** (3:58)
Yeah, it means cradle to the grave welfare state, that's extremely generous childcare, extremely high unemployment benefits, and yeah, extremely heavy spending on things like health care and pensions.

**Ryan Knutson** (4:15)
But there was a trade-off. In the 80s, wages were stagnant, while inflation grew.
Then came an economic crisis in 1990 Major banks collapsed, and property prices plummeted by about 50%.

**Tom Fairless** (4:29)
So there was a general feeling that the economic model wasn't working. And then there was this big, this great depression. So there was affection for this big-state idea, and we're all in it together, all for one, one for all. But there was a sense that it wasn't cutting it in the modern economy.

**Ryan Knutson** (4:48)
So in the 1990s, Sweden started undergoing a capitalist makeover. At first, it was just to stabilize the economy.

**Tom Fairless** (4:57)
So they started by bailing out all the banks, and then I think they put in these strict government spending rules.

**Ryan Knutson** (5:04)
Then it was ending government monopolies in certain industries.

**Tom Fairless** (5:08)
And then they started to privatize, and to privatize lots of different sectors, like electricity and the postal service, telecoms to introduce some private energy into those.

**Ryan Knutson** (5:20)
It also partially privatized its healthcare system.
Today, nearly half of the country's primary clinics are privately owned, many by private equity firms. Tom went to see one.