STOCKHOLMNot everything in the European Union is rotten. A few countries stand out for grounding their economic model on sounder foundations in the second part of this waning decade. They show the rest of Europe the way.
Sweden is one such case. In the last quarter, this Scandinavian kingdom achieved an Asian-style rate of economic growth6.9 percentcompared to last year. Although the reforms of the governing “bourgeois” blocthe Moderates, the Centrists, the Liberals and the Christian-Democratsare more gradual than bolder spirits would want, Sweden has been steadily paring down the statist excesses of the socialist era that for most of the 20th century was eponymous with the country. This is why the coalition was re-elected three months ago.
Before and after the financial crisis of 2008, the government maintained a prudent fiscal policy, substantially reducing the debt in times of plenty. Even in the aftermath of the bursting of the housing bubble, when government stimulus was the universal policy du jour, Sweden incurred a deficit of barely 1 percent of the size of the economy (the fiscal purse will soon be in the black again). In the last four years, taxes, especially those that hampered job creation, came down while subsidies that encourage idleness were slashed. In turn, private banks, which had lent heavily in the Baltic states, have weathered the financial storm thanks to the rebound of that region.
By contrast, economic growth in the troubled eurozone will average between zero and 1 percent this year, while the markets continue to bet, despite the bailouts, that Greece and Ireland will default on their sovereign debt; that Portugal will be the next theater of financial drama; and that Spain, struggling under government deficits and private debt, is too big to fail and too big to be rescued.
It is particularly ironic that the shining star in this dark firmament is Sweden, long regarded as a socialist paradise. Sweden ceased to be that a long time ago, as many scholars have explained. This is a country where education and health care underwent the type of reformthe adoption of choice and competition, a decentralization that returned power to parents, students and patientsthat causes howls of protest in the United States and other European nations. In 2009, the government expanded the reforms: Patients are now free to choose their care centers, and private companies are free to enter the system as primary health providers.
Over the years, Sweden did a much better job publicizing its multinationalsEricsson’s technology, Ikea’s furniture, Volvo’s luxury cars, SCA’s paper products, etc.than its gradual break from the socialist myth that fed the imagination of intellectuals and politicians.
The Swedes were able to build a highly interventionist model during part of the 20th century because they had accumulated, since the 19th century, an extraordinary amount of capital due to their innovative businesses. Their entrepreneurial rise had in part been rooted in a history of bottom-up structuresa rule-of-law tradition and a peasantry steeped in private propertythat spared Sweden the feudal legacy that preserved stark class distinctions in other parts of Europe. The subsequent socialist era consumed part of the capital and sapped a big deal of the productive energy. But once it reached a crisis point, it was gradually reformed during part of the last couple of decades. The current government has gone further.
Will Sweden continue to succeed despite the rigors of the European environment in the years to come? After all, there is $2 trillion of sovereign debt outstanding in so-called peripheral countries of the EUand most of the creditors are European banks. Sweden’s prime minister, the popular 45-year-old Fredrik Reinfeldt, is convinced that some countries, particularly Britain, where painful remedies are being adopted, will be successful. Sweden, half of whose industrial output is related to engineering and whose economy is geared toward worldwide trade, should continue to play a salient role in global technology.
However, the Swedish government is also highly pessimistic about Spain. And if it is right in its prognosis, it is hard to see how the general European environment will not directly challenge Sweden. Given its economic magnitude, a Spanish crisis of the Greek and Irish kind would probably impair the chances of recovery for the European Union for years to come.
Alvaro Vargas Llosa
Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America.
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