What's not to like about Sweden?

One of the fastest-growing developed economies in the world. Plenty of jobs. Generous welfare and a stable currency. What's not to like about Sweden? Quite a bit -- at least according to the Swedes.

So writes Bloomberg columnist Matthew Lynn today: Sweden Sends Message to Europe as Election Looms. Lynn continues:

As the country of 9 million people prepares for a general election on Sept. 17, there is a good chance the most consistently left-of-center of European nations will take a rare step toward the right. The four-party opposition spearheaded by the Moderate Party had a lead in recent polls ranging from 3.5 percentage points to 11.5 points over the governing coalition led by the Social Democrats.

That is more than enough to make a change of government a real possibility. "Almost 10 years without reforms have passed and problems are mounting,'' Johnny Munkhammar of the free-market think tank Timbro in Stockholm said in an e-mailed statement. "Lower real employment, increased poverty, very high youth unemployment. This only shows that Sweden should do much more of the market-oriented reform that created improvements 10-15 years ago,'' he said.

Plenty of his fellow countrymen are thinking the same way. If the Social Democrats are voted out, there may well be an important message for the rest of Europe. If they can't hang on to power even with the success of their economic policies, the outlook is less than rosy for other European governments that support expensive social systems.

On the surface, Sweden has done well in recent years -- far better than most other European countries. The government says the economy will expand about 4 percent in 2006, after growing 2.7 percent last year. The unemployment rate dropped to 7.5 percent in July, down from 7.8 percent a year earlier. Property prices have been strong, making everyone feel a lot richer ...

Sweden's government doesn't even need to borrow any money to fund all those generous Swedish social benefits -- this year it is expected to record a budget surplus of 2.7 billion kronor ($372 million), and that should rise over the next few years.

Not much sign of a crisis there.

Indeed the economy has been strong enough for the Swedish central bank, the Riksbank, to raise its benchmark interest rate to 2.5 percent. Some analysts say gross domestic product will grow even faster than forecast. London-based Capital Economics Ltd. said last week it expects the economy to grow "by something close to 5 percent'' this year.

So how come the Swedes are so grumpy? Most governments with that kind of record could expect to be swept back into power.

While unemployment levels are low by European standards, the government massages the figure by redefining some jobless as ill. "On a normal day, nearly a fifth of the potential workforce is on sick leave or receiving a disability benefit,'' the Paris- based Organization for Economic Cooperation and Development said in a report on the Swedish economy. More days are lost due to sickness than in any other OECD country.

Youth unemployment is running at more than 20 percent, one of the highest rates in the region. Most Swedes might have jobs now -- but they worry about whether their children will.

Economic growth might look strong, but it has been helped along by high levels of immigration. Sweden, like Ireland and Britain, is one of the European Union countries that grant eastern Europeans unrestricted access to the labor market.

...The country may be getting richer overall, but if people's living standards aren't rising, they won't feel any happier with the government. As Timbro's Munkhammar says, GDP per capita hasn't been growing nearly as fast as the general economy. In short, people aren't getting richer -- and they don't like it.

Meanwhile, taxes remain prohibitive, even by European standards. Sweden's income-tax rates can be as high as 60 percent, among the most punishing in Europe. With a total tax burden of slightly more than 50 percent of GDP, according to Eurostat, the Swedish government takes more of its people's money than any other country in Europe...

Also worth reading is a recent European Commission brief, The Swedish labour market model: performance under outside pressures, by Jonas Fischer in the Directorate-General for Economic and Financial Affairs.

Comments

[finnsense]

Why can't I read anything negative about Sweden without the names TIMBRO, Munkhammer or Norberg being in the mix? TIMBRO is a think-tank ideologically bent towards promoting a smaller welfare state in Sweden and Munkhammer and Norberg are its chief cheerleaders. They simply aren't credible as a not very close look at any TIMBRO report will show you.

Even supposing all the negative stuff is true, it doesn't signal anything about the other Nordic countries. Finland is doing just fine, with growth clipping along. Norway is always doing fine and Denmark is doing pretty well too. All these countries have some of the highest growth rates in Europe while offering generous benefits and running budget surpluses and only Finland has a problem with unemployment which is coming down all the time. (The debate about Sweden massaging it's figures is old and it's not exactly clear how they do it - do they simply lie when they say people are sick or do they tell the people to lie or what? In my book if you're sick or unable to work through disability, you are not unemployed.)

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