Hayekian welfare states
and Viking Economics –
What (if anything) can other
countries learn from Sweden?
not entirely sure
what they have
• How exactly?
• Can you really?
• Some economic
• Some (Hayekian)
In 1840, Sweden was poor: 40% of UK’s
Severe starvation in
1868 and 1869,
countries giving aid to
Sweden’s history as a developing country
Achieving prosperity and income equality
▪ 1870-1970: Sweden became 4th richest in the
▪ …and in 1980, Sweden (probably) had the
world’s most egalitarian income distribution
▪ Standard explanations: Export driven growth (timber, iron ore),
avoiding the world wars.
▪ Better explanations: Property rights, low corruption.
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
▪ Land reforms
▪ Unions & central wage bargaining
▪ School reforms
▪ Early social insurance reforms
▪ Female labor participation (1960s-70s)
The three phases of Swedish economic
▪ 1870 - 1970: Fantastic!
▪ 1970 - 1995: Horrible.
▪ 1995 - ??: pretty good
In the early 1990s, no country wanted to copy
FromCapitalist Success to
by Peter Stein
Cato Policy Analysis No. 160 (10
”Worse and worse”
The Economist on
1970 1975 1980 1985 1990 1995 2000 2005
USA1970 = 100
After the 2008 financial crisis, things
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?
▪ Big government has caused problems in Sweden – but Sweden has learned
from its mistakes
What is meant by ’big government’?
▪ Fiscal: requires high taxes and public expenditure
▪ Hayekian: requires a lot of central knowledge
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).
Different types of government size
Knowledge needed to succeed
system 1999 -
▪ 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
Bergh 2014, New Political Economy
Bergh (2019), ”Hayekian welfare states”
(J of institutional economics)