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Stockholm Syndrome

Thursday, October 4, 2007

Western Europe’s most famously socialist country is slowly plodding toward free-market reforms.

Sweden’s ’Center Right’ STOCKHOLMThere is a magnificent slowness to most everything in Sweden. Even during the coldest of winter days, Swedes stroll lazily through Stockholm, oblivious to the punishing winds beating their skin pink and the impatient non-natives attempting to find shelter from the furious Scandinavian cold. The Swedish language also lumbers, punctuated by odd breaths and awkward noises that, while not verifiable parts of speech, convey a full range of emotions. 

But the most frustratingly ponderous aspect of Swedish life is the slow project of political reform. In a country of onerous taxation, where the government still controls the distribution of both ibuprofen and Absolut vodka (which it also distills), and where the center-left Social Democratic Party has ruled for an astonishing 65 of the last 75 years, it should not be surprising that the one-year-old center-right government of Prime Minister Fredrik Reinfeldt has made only incremental adjustments to the Swedish social model.

Yet even humble free-market reforms have caused domestic rancor. Indeed, Reinfeldt’s governing coalition—one would be wise not to call it a “conservative” coalition, as many in the English-language media have—now finds itself in parlous condition. If recent opinion polls are any indication, the Social Democrats’ political exile might again be brief.

Elected on a platform of economic revitalization and lower taxes—with concurrent guarantees to maintain a generous welfare state—the coalition has made some genuine progress. It has trimmed Sweden’s notoriously generous unemployment benefits, slashed property taxes, and eliminated the so-called “wealth tax.” But like its predecessors, the government has pointedly refused to decrease alcohol taxes (some of the world’s highest), and has also shifted from advocating a reduction in gasoline taxes to supporting a modest increase in those taxes.

Reinfeldt’s coalition has made some genuine progress, trimming Sweden’s unemployment benefits, slashing property taxes, and eliminating the so-called “wealth tax.”

But what drives the opposition socialist coalition and its media allies into fits of apoplexy is the supposed “privatization” of the country. To hear Reinfeldt’s critics, one could be forgiven for thinking that the George Mason University economics department had invaded Stockholm and occupied parliament. Left Party leader Lars Ohly recently thundered that, after a year in office, “Reinfeldt continues with policies of tax reduction, privatization, and anti-feminist politics.” A columnist for the country’s most prominent tabloid recently told an interviewer that the biggest threat to Swedish democracy is “the extensive privatization of the country’s public sector.” Noted author and journalist Maria-Pia Boëthius crowed that the government is “on a mission to submit Sweden (Sweden!) to a Milton Friedman-type program of shock therapy.”

If only.

Johnny Munkhammar, program director at Timbro, a free-market think tank in Stockholm, explains that, even with its piecemeal approach, the Reinfeldt government is swimming against the tide of public opinion. “This government plans to sell a number of companies,” he says, “but because they have failed in communicating how and why, public opinion is not behind the measures.” Recent polling data show that a plurality of Swedes are opposed to offloading state companies (which could add some $22 billion to the government’s coffers). Given such public hostility, few expect Reinfeldt to engage in an aggressive privatization campaign.  

Fredrik Erixon, a Swedish economist with the Brussels-based European Center for International Political Economy (ECIPE), laments that, despite reforms of income taxes, social security, and school policy, “nothing much has happened yet” on privatization. “The government has prepared for privatizing six companies,” he says, but “that’s not much considering the government’s portfolio of 55 companies.”

To its credit, the Reinfeldt government has sent a clear message to voters by targeting for privatization six well-known Swedish brands: the telecom giant Telia Sonera, the banking group Nordea, the alcohol manufacturer Vin & Sprit (makers of Absolut vodka), the stock market operator OMX, the mortgage lender SBAB, and the real estate company Vasakronan. Minister of Financial Markets Mats Odell has previously indicated that the government’s stake in the airline SAS might also be put up for auction.

But for now, two of the state’s biggest assets have avoided deregulation and privatization: the country’s monopoly control of alcohol and over-the-counter prescription drugs. (Unlike its British counterparts, the Swedish right is largely, though not uniformly, positive towards the European Union, in part because these alcohol and drug monopolies frequently run afoul of EU antitrust regulations.) When, in June, the European Court of Justice ruled that a portion of Sweden’s alcohol policy violated EU statutes, Swedish health minister Maria Larsson paid the court no heed, declaring that “Swedish alcohol policy stands firm.” Anders Borg, the finance minister (and once a free-market evangelist), told reporters that the government would “do everything in our power to protect the alcohol [monopoly] and the tax rates.”

One Swedish economist laments that, despite reforms of income taxes, social security, and school policy, “nothing much has happened yet” on privatization.

Despite this uneven record, Erixon offers Reinfeldt a back-handed compliment: “We have by far the most liberalizing government in Europe,” he says. “But that speaks more about Europe than the Swedish government.” There have been free-market reforms, Erixon adds, but “the government views itself more as an heir of the social democratic orthodoxy than an opponent.” Indeed, the coalition’s incrementalism is a response to voter desires, since “Swedes are, for the moment, content with the country’s welfare.”

Munkhammar also believes that Reinfeldt’s first year has been a mixed bag, though significantly more reformist than previous Social Democratic governments. “Almost all health care, schools, and elderly care are tax-funded and delivered by the state in Sweden, though private deliverers have become more common,” he says. “The government has promoted entrepreneurship in health care and will allow the hospitals to be purchased by private individuals, for example.” Even still, Munkhammar says, the “latest budget proposal even seems to contain limits on private insurance, which would, of course, be a negative measure.”

The glacial pace of reform in Sweden is frustrating, but hardly surprising. This is a country of minor modification, led by a government reflexively averse to the “shock therapy” it is often accused of implementing. As Swedish political columnist P.J. Anders Linder recently told an interviewer, Swedes “don’t like too much change,” nor will they accept a full-scale dismantlement of the country’s massive welfare state. In that sense, moving ever so gradually may be the only way to maintain political support for real liberalization. At least that’s what Prime Minister Reinfeldt is hoping.

Michael Moynihan is an associate editor at Reason magazine and a visiting fellow at Timbro, a free-market think tank in Stockholm.

Image by Darren Wamboldt.

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