Barron's on MarketWatch: Why Nordic socialism is a myth
Polls tell us that 20-somethings today feel better about socialism then they do about capitalism. Among those reclaiming the term are supporters of Jeremy Corbyn in the U.K. and Bernie Sanders in the U.S. To them, socialism doesn’t mean a state-controlled system like the one we saw in the old Soviet Union, but the dream of a “democratic socialism” based on the Nordic model. But their dream is based on a big misunderstanding.
In the late 1960s, Sweden’s government spending was in the same ballpark as other OECD states. This changed starting in the late 1960s. Between 1965 and 1975, the number of civil servants grew from 700,000 to 1.2 million, alongside increasing government intervention in economic affairs and the creation of a number of new regulatory authorities.
Pushback against these socialist ideas gathered momentum, and by the 1990s there was a comprehensive counter-movement that—without fundamentally questioning the Swedish model of high taxes and comprehensive welfare benefits—nevertheless eliminated many of its excesses. A major tax reform in 1990/91 slashed corporate taxes from 57% to 30%. Income from shares was exempted from taxation, while capital gains from shares were taxed at only 12.5%.
Between 1993 and 2000, social spending dropped from 22.2% to 16.9% of GDP, economic subsidies from 8.7% to 1.8% and public-sector payroll costs from 18.2% to 15.6%.
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