Friday, September 7, 2012


Sweden’s long-time Prime Minister from 1946-1969 has spoken of the entitlement programs of the country in terms of “the discontent of growing expectations.” In other words, as entitlements grow, the demands for more and more money from the government grows even faster.

The Prime Minister’s misgivings turned out to be accurate. The entitlement society is indeed a beast that feeds on itself. From 1959 to 1990 the total tax burden in Sweden grew from a moderate 25.2 percent to 52.3 percent. During the same time, the public sector share of GDP doubled, while private payrolls fell, predictably causing a decline in economic growth. In 1970 Sweden’s growth was second in the world only to Japan’s; in 1990 it was second-lowest in the 34 member countries of the Organization For Economic Co-operation and Development, even as entitlements and the public sector kept growing. Hence, a familiar choice: Either stop spending, or keep borrowing on the backs of future generations.

Sweden found out that a universal welfare state has consequences that run deeper than the economy, and are more difficult to reverse even than a two-decade-long economic disaster. Fundamental structures of civil society wilt when human responsibilities—including those towards future generations—are subsumed under government entitlements (in Sweden, giving to charity, absurdly, came to be considered a lack of solidarity, since it undermined the need for the welfare state); a sense of passivity spreads when people feel that personal happiness or despondency is independent of their own actions. The bureaucratic framework of the welfare state strongly affects the behavior of the electorate--why vote yourself out of a job? All of these factors made the prospects for Sweden to break the vicious spiral bleak indeed.

 So how did it turn out for Sweden? Against all odds, voters defied political expectations. In 1991 they removed the Social Democratic government that was in power and put in place a center-right government that attacked the fundamental problems of the welfare state. Economic monetary reforms and a sensible economy were established.

Sweeping reforms of the social security system were established, allowing individuals to invest part of their social security tax in private funds. These reforms secured the solvency of the system for future generations. Today, more than half of the population has, at some point, actively chosen to participate in the private market (the money for those who choose not to participate goes automatically into a state-run investment fund).

 In addition to the system’s -market-based aspects, it also contains a circuit-breaker that kicks in when the economy is in recession, which in effect means that retirees receive a lower pension in hard times.

 It is not easy to say whether all of this happened because of good political leadership, or if it was a case of popular sentiment forcing politicians to take action. Either way, a retirement reform with clear similarities to the Ryan plan for Medicare stands as the symbol of a remarkable development in a country that only 30 years ago was on the brink of socializing corporate profits so as to continue down the road to ruin. It is all the more remarkable considering that Sweden was the paradigm of a European entitlement society.

 Questions we, Americans need to answer are these: Is the federal government supposed to cater to our every need or desire? Does government have the responsibility to redistribute property in accordance with theoretical and arbitrary ideas of fairness, or should it rather concentrate on ensuring that property is earned fairly and in accordance with the rule of law?

 Americans have become increasingly dependent on the government—for jobs, benefits, pensions, and health care. We are dependent on overseas energy and on cheap goods from China. We are dependent on consumer debt issued by a consolidated financial system in which the largest institutions game the financial system in their favor. Thanks to the Federal Reserve, they are allowed to borrow money at almost no interest; and we, the savers, get no interest payments for our investments.

We need to vote this kind of government out of business. But…it will be very hard to vote a give-away party out of power. Many people are surviving because they have government jobs. Who are they to vote their privileges away?!





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