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Hayekian welfare states and viking economics
- 1. Hayekian welfare states and Viking Economics – What (if anything) can other countries learn from Sweden? Andreas Bergh
- 2. “The Swedes themselves are not entirely sure what they have done right.” Paul Krugman
- 3. • How exactly? • Can you really? • Some economic history • Some (Hayekian) theory
- 4. In 1840, Sweden was poor: 40% of UK’s GDP/capita Severe starvation in 1868 and 1869, other European countries giving aid to Sweden Sweden’s history as a developing country
- 5. Achieving prosperity and income equality ▪ 1870-1970: Sweden became 4th richest in the world ▪ …and in 1980, Sweden (probably) had the world’s most egalitarian income distribution
- 6. Explaining growth ▪ Standard explanations: Export driven growth (timber, iron ore), avoiding the world wars. ▪ Better explanations: Property rights, low corruption.
- 7. Explaining Swedish income equality ▪ Equality increased before peak welfare state ▪ The policies of the 1970s are not the explanation ▪ High taxes, progressive taxes, progressive social policies, labor market regulations. Rather: ▪ Land reforms ▪ Unions & central wage bargaining ▪ School reforms ▪ Early social insurance reforms ▪ Female labor participation (1960s-70s)
- 8. The three phases of Swedish economic history ▪ 1870 - 1970: Fantastic! ▪ 1970 - 1995: Horrible. ▪ 1995 - ??: pretty good
- 9. In the early 1990s, no country wanted to copy Sweden… Sweden: FromCapitalist Success to Welfare-State Sclerosis by Peter Stein Cato Policy Analysis No. 160 (10 sept, 1991) ”Worse and worse” The Economist on Sweden, 1993 0 50 100 150 200 250 1970 1975 1980 1985 1990 1995 2000 2005 USA Swe EU15 Real gpd/capita, USA1970 = 100
- 10. After the 2008 financial crisis, things changed (again)…
- 11. So… does the case of Sweden show ▪ …that high taxes and a generous welfare state is the way forward? ▪ or that big government leads to decline and stagnation? ▪ No! ▪ Big government has caused problems in Sweden – but Sweden has learned from its mistakes
- 12. What is meant by ’big government’? ▪ Fiscal: requires high taxes and public expenditure ▪ Hayekian: requires a lot of central knowledge
- 13. The knowledge problem Hayek (1945)The Use of Knowledge in Society, American Economic Review Knowledge is decentralized, discovered through experimentation (trial & error). A central decision maker is likely to make mistakes due to having insufficient knowledge (even a well-meaning and benevolent one).
- 14. Different types of government size Knowledge needed to succeed Fundsneeded more more Keynesian Stabilization policies Low basic income Means tested welfare Swedish pension system 1960-2002 Encouragement of entrepreneurs Swedish pension system 1999 -
- 15. In summary ▪ Swedish policies failed when they required a lot of public expenditure and a that decision makers had lot of knowledge ▪ If policies make use of decentralized knowledge among households and firms, having a big government in a fiscal sense is much less of a problem ▪ Lessons for other countries: learn from experimentation, aim for policies that do not require that politicians know things that they cannot reasonably know
- 16. Read more: Bergh 2014, New Political Economy Bergh (2019), ”Hayekian welfare states” (J of institutional economics) English blog: https://tcw.postach.io/ Swedish blog: https://bergh.postach.io/