Thursday, April 9, 2015

Swedish Economy Has Been Resilient, But Could Use Some Economic Reform

The entire world felt the shock of the Great Recession more than half a decade ago. Europe has been hit hard by the Great Recession. However, as the Organization for Economic Coordination and Development (OECD) points out in its latest economic survey of Sweden, Sweden has done a good job weathering the economy chaos, something I think was in no small part due to the fact that Sweden did not join the Euro Zone. If your one of the few countries whose economic output is greater than that of 2008, then that says something right there. That being said, what has allowed for Sweden to be so resilient? Are there things upon which Sweden can improve? The best way to tackle these questions is to go in bullet-point form, so I'm going to take some of the key takeaways from the OECD report. However, given my current time constraint, it's going to be more abridged than I would like, especially since I'm regrettably unable to cover the banking sector:

  • Sweden has a comparative advantage in knowledge-intensive activities (p. 4). However, Sweden has pushed itself towards the end of its production possibilities curve. (p. 8) In order to  improve, Sweden needs to expand its production possibilities curve, which means improving upon its innovation, i.e., research and development. I'm sure the OECD has R&D subsidies from the government in mind, but as I mention below, some deregulation, dismantling of bureaucracy, and decreased taxes would go a long way.
  • Going off of that idea, Sweden's success hinges on high-value-added services involving high skills and intangible capital intensity (p. 19-20). This means developing a workforce able to take on those jobs. The OECD laments that Sweden's education system has declined, particularly after the implementation of decentralization (read: school vouchers) in the early 1990s (p. 26). I disagree with that assessment, particularly with using standardized testing as a basis for educational success. Finland doesn't have nationalized testing, and its education system is lauded. I can least agree that providing teachers with more flexibility and better allocating funds are aspects upon which Sweden could improve (ibid).
  • Sweden has good macroeconomic, fiscal, and financial fundamentals (p. 4). It's why Sweden has a 40 percent debt-to-GDP ratio and its government assets exceed its liabilities (p. 12). Much like I did three years ago with my last analysis on Sweden, I still take issue with Sweden's higher-than-average tax rates, but it's something for Sweden to improve. Plus, I like how the OECD suggests raising the pension age (ibid). 
  • Sweden has some ridiculously complicated regulatory procedures, particularly with licenses and permits (p. 22). I could have told the OECD that such licensing is burdensome for those trying to start a business. Ditto for Sweden's zoning regulations (p. 23). The ability to start a business is one of those conditions that the World Bank assesses in its Ease of Doing Business Index. Removing these sort of market rigidities, particularly with making it less costly to register property (p. 25), is something the Swedish government should keep in mind.

If Sweden wants to keep its competitive and diversified business sector, as well as better economic health, it would be wise to create the sort of environment that encourages entrepreneurship and innovation. Maintaining a welfare state with a high tax burden is not the way to increase productivity in the global market, and I hope that the Swedish government is cognizant of that as it moves forward to strengthen its economy.

In addition to the OECD Economic Survey, if you're interested on reading more on Sweden's economic state, go to:


  1. Sweden is a dirt poor country because of it's government. GDP is just this side of jack shit. If Sweden were a US state, she would rate below Mississippi in economic output.

    1. Forgetting for a moment that the GDP is a flawed metric, what is your basis of that assertion? Looking at economic data, not only does Sweden have a GDP per capita of about $46K, which is not "just this side of jack shit," but it has a real GDP growth rate that is projected to slightly outpace that of the United States.