1. The rise, fall and revival of the Swedish welfare state: what are the policy lessons from Sweden?
Andreas Bergh, 2011
Abbey Little
ECO 5338

2. Andreas bergh
Associate Professor in Economics at Lund University in Sweden
Research Fellow at the Research Institute of Industrial Economics in Stockholm
Research Interests: Welfare state, Institutions, Development, Globalization, Trust, Social norms

3. Why Sweden?
1870 – 1970: one of the poorest countries in Europe to the 4th richest country in the world
Country with one of the smallest income distributions between the rich and the poor.
Standard Explanations for success: natural resources, absence of war, higher tax rates, regulated labor market, and progressive social policies
Bergh rebuttals the standard explanations for Sweden’s success by synthesizing existing research and answers the following questions…

4. Questions to be answered
How did Sweden become rich?
What explains Sweden’s high level of income equality?
Why did Sweden run into problems from 1970 and onwards?
Why has Sweden, after the crisis of the early 90s, grown faster than most EU countries despite its high taxes and generous welfare state?

5. How did Sweden become rich?
The connection between institutions and growth…
Land reforms and property rights
Expansion in trade
Anti-corruption big bang
Investments in infrastructure
Taxes paid monetarily, rather than by goods
New patent laws
Basic Education
Immigration to US  Sweden
Freedom of movement for people, goods and capital, within and across borders. (Schon, 2000)

6. What explains Sweden’s high level of income equality?
Land Reforms
Trade Unions and Centralized Wage Bargaining
Primary School Reforms
Introduction of Social Insurance Schemes
Increased Female Labor Participation
Sweden’s middle class consists of 79% of the population.
(Bergh, 2011)

7. Why did Sweden run into problems from 1970 and onwards?
Economic Policies:
Short term fixes to longer term problems in the industrial sector
Labor market regulations increased labor costs
Unstable capitalistic institutions.
Labor costs increased more than labor productivity
Tax avoidances because of higher taxes
Political Institutions:
Short-terms
Unpredictable decisions made by parliament

8. Why has Sweden, after the crisis of the early 90s, grown faster than most EU countries despite its high taxes and generous welfare state?
Economic Openness
Increased exports by 14% ( )
Inflation Control
Lowered annual inflation rate by 9% ( )
A high number of reforms toward economic freedom contributed to sustainability.
“Think of a bumblebee. With its overly heavy body and little wings, supposedly it shouldn’t be able to fly…
but it does.”
- Goran Persson

9. conclusions
Growth  liberalizations and well-functioning capitalistic institutions
Equality  decrease in income inequality occurred before the expansion of the welfare state
Lagging behind in 70s  combination of unsuccessful macro-economic policies and generous welfare state caused BIG problems
High taxes and welfare systems  macroeconomic factors are crucial and a high degree of economic openness may actually foster policies that promote competitiveness

10. “the welfare state seems to survive because it coexists with high levels of economic freedom and well-functioning capitalistic institutions.”
Andreas Bergh, 2011