Why The Swedes Again--This Time, With An Answer

I made some not-quite flip remarks a few weeks ago about the conservative obsession with –and repeated attempts to demonize—Sweden (link). I followed up with a link to the World Economic Forum rankings on global competitiveness, with particular attention to Sweden, and the invidious contrast with the United States (link). Turns out (not surprisingly) that someone out there has been taking this issue more seriously than I. Tyler Cowen links to a remarkable new study undertaking to find out exactly why the Swedish economy (well, okay, Scandinavian economies) perform so well.

Tyler’s link to the study seems to be broken at the moment so the best I can do for now is to quote Tyler:

First, if we look at measures of economic freedom, especially those measures which track freedom independent from the size of government expenditures, the Scandinavian countries have become much freer. (Note that the Netherlands, which until very recently was outperforming the other European welfare states, experienced the greatest gains in this category.)

Second, the Scandinavian economies have become much more globalized. The old story was that globalization rendered welfare state expenditures unsupportable; it is more likely that the opposite is true, at least provided trade is open, credibility is high, and business regulation is light.

Note to self: keep looking for a link fix: it’s interesting and important. And while waiting for the link to be fixed, note some of the byplay in the comments, suggesting that Tyler is not really as snarky and simplistic as the term “libertarian” might suggest.

Intellectual history footnote: Aside from the surface issue, there is at least one important subtext here. Recall the great libertarian icon, Friedrich von Hayek, and his conviction that state meddling must inevitably lead to totalitarianism (see, e.g., link). On its face, this study counts as one (further) piece of evidence that in macro, Hayek was flat wrong.

This doesn’t necessarily discredit Hayek. I suspect the more interesting point is how often great economists can be flat wrong: think Schumpeter on how we must all congeal into bureaucratic entropy or (inevitably?) Marx on proletarian revolution. The point would be that a seer can be flat wrong on the big issue and still be worth reading and understanding. As Hayek certainly is. And Schumpeter, and Marx.

Cultural footnote on Swedes: My friend Paul is a Jewish lawyer; he used to represent a Swedish firm—I think it was pharmaceuticals. Pardon me if I garble the details, Paul, but I think the broad outline goes like this. Management at the Swedish client firm would fight hammer and tongs, tooth and toenail, among themselves over pricing. The goal was to set a price that was “fair.” After they had chosen a “fair,” price, they would not budge. No bargaining, nada, none—unless, by chance, you could show them that their price was not “fair.” In which case, they would reopen the issue.