Lean Government

The efffects of functional socialism, comparing Sweden and Switzerland

If one wants to measure the impact of functional socialism, the social democracy,you should compare Switzerland with Sweden. The so called Swedish model is what I call functional socialism, “central directive and regulation socialism”. Ronald Reagan called it “control and regulations socialism”. Sweden is also a near perfect example of the corporatist (fascist) state economics, the running of the country by the state in cooperation with labor unions and confederations of employers. (By fascist economic policies I don’t mean its pejorative meaning but its text book meaning.)

Sweden and Switzerland had after WWII an identical starting point, a workforce that was intact, no devastation of factories and great natural resources and industries.

Switzerland’s median income earner PPP per capita is today is USD 27.228 and Sweden’s is 19.895 i.e. the cost of the functional socialism Sweden is a reduction of GDP some 30 % over time. Sweden went from pragmatic to ideological functional socialism 1970-1990, it ruined the Swedish economy. Sweden feel in GDP ranking in those years from number 3 to number 17.

Because of Sweden’s corporatist and functional socialist polices the very rich, top 1 % was left intact, income redistribution did not affect them i.e. Sweden has one of the world’s highest wealth GINI factors, measuring wealth inequality, far more wealth inequality than the US. On the surface income GINI, income equality, is low in Sweden but it is a false perspective, income mobility is lower to the top 10 % than in the US. To move to the top deciles is very difficult. Studies in Sweden show that admissions to universities from the top 10 % is the same as it was in the 1920s, 50 % of the students.

Sweden reversed the disastrous ideological functional socialist policies in the 1990s, drastically cut marginal taxation, abolished wealth and gift tax, privatized social security and sold of all federal owned utilities as well as banks and railroads. Massive deregulation took place and school vouchers was introduced. Unfortunately Sweden still suffers from the excesses and the expansion of the sclerotic welfare state. It’s impossible to shrink the public sector, government subsidies dependence and the extreme taxation it demands. Public spending as well as taxation is above 50 % of GDP and will stay there.

As a result of having tax even low income earners, among other things a VAT of 25 %, Sweden has one of the world’s most regressive taxation systems whilst for instance the US has one of the most progressive taxation systems.

Sweden can be seen as an example of the “Road to Serfdom” Hayek warned us about, the point of no return. So what road should the US take?

April 12, 2010 Posted by | Uncategorized | Leave a comment