Bernie Sanders candidacy for Presidency of the United States has put Socialism back on the political agenda. How could such a failed ideology garner so much support? Particularly from the young.
Mises said Socialism wouldn’t work. And it didn’t. He pointed out that without the price mechanism it is impossible to allocate resources efficientlyand to make choices between economic alternatives. He explained that seventy years before the Berlin Wall fell.
The students who today support Sanders were not alive to witness the failure of communism in post-War USSR and Eastern Europe.
On 9 November 1989, the Berlin Wall fell and the communist experiment was over. Established with so much hope and intellectual support, it had delivered poverty, destroyed trust among its citizens, and terrorized, censored and imprisoned those who disagreed with the party line.[i]
Supporters of Socialism will tell you that it differs from the Communism which failed so spectacularly. And they will not even consider the Nazi version which had such an evil impact on Western Europe: National Socialism is different too. Nor are North Korea or Venezuela held up as exemplars. Today’s supporters prefer the Swedish Model.
The Swedes, the Danes and the Norwegians enjoy a high standard of living and a stress free lifestyle in an egalitarian society. Yes they pay high taxes, but this Welfare State is utopia. This is the model that Paul Krugman[ii] and Bernie Sanders are hoping will become the standard for America.
The problem is, it is not true. The Swedish model too has failed. Let me tell you about it. But firstly, let us review a little history.
In 1850, Sweden was one of the poorest countries in the world. Over the next hundred years, income increased eight times and the population doubled. Infant mortality fell from 15 to 2 per cent and life expectancy increased by 28 years. By 1950 Sweden was the fourth richest country in the world.
The benefits that began in 1850 had their genesis in the work of Anders Chydenius whose advocacy of a free market and a minimal state preceded Adam Smith by 11 years. His support for freedom of the press in 1766 had a crucial influence on Sweden’s economic development. In the early 19th century, it enabled Lars Johan Hierta to establish an evening newspaper, Aftonbladet, in which he promoted his views of classical liberalism – especially the right to private property and equal treatment before the law. This led to significant practical changes.
Between 1849 and 1865, joint-stock company law was introduced; banks were allowed and interest rates deregulated; regulations restricting the iron and timber industries were lifted; the guild system was abolished; it became easier to start a business; immigration and emigration were permitted; education became more universally available; and women were permitted to own and inherit property, be educated and to have a career.
These changes created a fruitful environment for entrepreneurs. Most of Sweden’s great companies were established at this time. These include Atlas Copco (1873), L.M.Ericsson (1876), ASEA (1883), Alfa Laval (1883), Scania (1891), AGA (1904), SKF (1907), and Electrolux (1910).
So Sweden thrived. It also benefitted by staying out of two world wars except to supply the protagonists.
The Social Democratic Party came to power in 1932 and dominated Swedish politics for most of the rest of the century. They began cautiously, maintaining capitalist institutions, and were keen to keep big business and the middle class on side. By 1950, taxes were still lower and the public sector smaller than comparable countries.
It was later, in the sixties and seventies, that welfare state policies were implemented. Between 1960 and 1980, public spending rose from 31 to 60 percent of GDP. And that is when it all started to unravel. They expanded the scope of government benefits, introduced rigid labour market regulations, propped up stagnating sectors of the economy and dramatically increased taxes. Growth rates declined. The currency had to be devalued. By 1990 the public sector had increased by over a million employees, but not one net private sector job had been created in forty years. Compared to the USA, by the end of the 1990s, the median household income was two-thirds and the proportion of the adult population with a bachelor degree was about half.
There have been other adverse social effects. There has been a decline in the institution of marriage; a high proportion of adults now live alone. Crime rates have increased, particularly violent crime. Swedish academic, Per Bylund, bemoans the loss of bourgeois virtues. Within two generations, he writes, Swedes went from being a proud, hard-working and self-reliant people to a nation of immature, irresponsible, needy, spoiled and utterly demanding individuals.[iii]
Sweden’s wealth in the middle of the last century was due to the intellectual input of men like Chydenius and Hierta, and the operation of a free market economy for a hundred years from 1850 to 1950. Whilst the Social Democrats kept a free market economy in place the country remained wealthy. But when they thought that they could squander its capital on cradle to grave welfare they quickly destroyed everything. It took less than 30 years to drop from the fourth richest country in the world to the 14th.
In recent years, Sweden has reduced taxes, privatized sectors of the economy and reformed its pension system. It is publicly honouring Chydenius and Hierta. Things are looking up. They have recognised that the Swedish model failed.
[i] Peter Fenwick, The Fragility of Freedom p 2
[ii] Paul Krugman is a Nobel Prize winning economist who writes a column The Conscience of a Liberal for the New York Times. He promotes a Keynesian view.
[iii] Per Bylund, How the Welfare State Corrupted Sweden, Mises Daily, May 31, 2006.