February 8, 2013

Here's how you run a nation

From The Economist:
Northern lights
Thirty years ago Margaret Thatcher turned Britain into the world�s leading centre of �thinking the unthinkable�. Today that distinction has passed to Sweden. The streets of Stockholm are awash with the blood of sacred cows. The think-tanks are brimful of new ideas. The erstwhile champion of the �third way� is now pursuing a far more interesting brand of politics.

Sweden has reduced public spending as a proportion of GDP from 67% in 1993 to 49% today. It could soon have a smaller state than Britain. It has also cut the top marginal tax rate by 27 percentage points since 1983, to 57%, and scrapped a mare�s nest of taxes on property, gifts, wealth and inheritance. This year it is cutting the corporate-tax rate from 26.3% to 22%.

Sweden has also donned the golden straitjacket of fiscal orthodoxy with its pledge to produce a fiscal surplus over the economic cycle. Its public debt fell from 70% of GDP in 1993 to 37% in 2010, and its budget moved from an 11% deficit to a surplus of 0.3% over the same period. This allowed a country with a small, open economy to recover quickly from the financial storm of 2007-08. Sweden has also put its pension system on a sound foundation, replacing a defined-benefit system with a defined-contribution one and making automatic adjustments for longer life expectancy.

Most daringly, it has introduced a universal system of school vouchers and invited private schools to compete with public ones. Private companies also vie with each other to provide state-funded health services and care for the elderly. Anders Aslund, a Swedish economist who lives in America, hopes that Sweden is pioneering �a new conservative model�; Brian Palmer, an American anthropologist who lives in Sweden, worries that it is turning into �the United States of Swedeamerica�.
Wonderful to hear -- we need to be doing this in the United States. The longer we put it off, the more painful things will get. How did Sweden get into such a dire position:
For most of the 20th century Sweden prided itself on offering what Marquis Childs called, in his 1936 book of that title, a �Middle Way� between capitalism and socialism. Global companies such as Volvo and Ericsson generated wealth while enlightened bureaucrats built the Folkhemmet or �People�s Home�. As the decades rolled by, the middle way veered left. The government kept growing: public spending as a share of GDP nearly doubled from 1960 to 1980 and peaked at 67% in 1993. Taxes kept rising. The Social Democrats (who ruled Sweden for 44 uninterrupted years from 1932 to 1976 and for 21 out of the 24 years from 1982 to 2006) kept squeezing business. �The era of neo-capitalism is drawing to an end,� said Olof Palme, the party�s leader, in 1974. �It is some kind of socialism that is the key to the future.�
Government creep -- starts off small but it snowballs. Big Governments do not work -- they are toxic to their citizens. Posted by DaveH at February 8, 2013 2:17 PM
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