All Commentary
Saturday, January 1, 1966

Sweden’s Great Society


Sweden frequently is offered as a shining example of successful so­cialism. A picture is drawn of the attractive, cheerful, and socially-conscious Swede living out his days in the euphoria of the wel­fare state; and the visitor to that country finds his cursory observa­tions seem to confirm that ap­praisal.

The accuracy of that picture, however, depends on —

1.    How prosperous the people are,

2.    Whether Sweden’s prosperity is because of, or in spite of, its de­gree of commitment to social­ism, and

3.    The cost of state intervention in material as well as human terms.

As an American banker manag­ing a Scandinavian branch of his bank recently told me, “The Swedes are too smart to kill the source of the wealth which makes possible their massive welfare pro­grams. There are few nations in the world that rely more on the free enterprise system in the pro­duction end of the economy.” The following figures confirm this point by indicating the extent of private ownership of production in promi­nent areas of industry and trade.

Not only has the productive end of the economy remained for the most part in private hands, but the Swedes have also made sure that within a framework of gov­ernment guidelines, there remain some real incentives and rewards for producing.

While there are both local and national corporate tax rates, the national rate is 40 per cent and the combination will seldom reach 50 per cent. In turn, the determin­ation of income for tax purposes shows the relatively liberal treat­ment the corporation receives in Sweden. Swedish tax law is es­pecially lenient on inventory evaluation, depreciation, and certain investment reserves. Swedish tax rules allow a corporation discre­tion within a wide area to take large or small deductions in any one year. This discretion allows a corporation considerable latitude in leveling out annual results in building up reserves. Though de­tails of the three areas would be too extensive to present here, the liberality of depreciation of ma­chinery and equipment is worth noting.

In areas of capital gains and losses, the Swedes are again relatively liberal in their tax treat­ment. Stocks and bonds and other capital assets (apart from real property) are not subject to in­come taxes if the capital gain is taken after five years — real prop­erty is nontaxable if held for ten years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PERCENTAGE OF OWNERSHIP OF INDUSTRY

(Based on Number of Employees in 1951) ¹

 

 

                                             Private       Gvt

Cooperatives

Forest                                       82.5           17.1

          –

Mining & Manufacturing              92.4            6.1

1.5

Timber                                    96.7            2.6

0.7

Pulp & Paper                            97.0            1.5

1.5

Food                                       83.5            7.9

8.6

Textiles                                   97.7            1.1

1.2

Chemicals                                90.9            8.5

0.6

Electric, Gas & Water Power        31.7          61.7²

6.6

Building                                   71.6           27.7

0.7

Wholesale Trade                       97.4            0.6

2.0

Retail Trade                             88.3            1.1

10.6

Transport & Communication         45.7          54.3

         –

Shipping                                  97.5            2.5

 

 

Railways                                   5.5           94.5

 

 

Bus & Tram Companies              61.4          38.5

0.1

Commercial Banks3                   92.6            7.4

 

 

Insurance                                92.8            7.2

 

 

 

 

1 Stockholm’s Enskilda Bank, Some Data About Sweden, 1965.

2 State 10.2 per cent, municipals 51.5 per cent.

3  Number of employees 1963.

 

A Lot of Welfarism

Does this relatively liberal pol­icy toward corporate enterprise and capital gain mean that Swe­den is, in fact, the world’s best example of the free enterprise state? Hardly — Sweden, like al­most all of the Western nations, embraces a mixture of the free market and considerable state di­rection. In Sweden, however, the line seems rather clearly drawn be­tween the relative freedom of the productive end, and the massive interference of the government in the distributive or consumptive end of the economy.

Social security, compulsory health insurance, a recently-enact­ed supplementary pension to the basic old-age pension, family and child welfare programs, unemploy­ment insurance programs, direct rent subsidies, and government housing loans are well known insti­tutions to the Swede (as they now are to Americans). Rent control was enacted in 1942 with rents on housing built as of that date fixed at the 1942 level. Rents on new housing are set to supposedly re­flect the cost of construction. But rent control has affected the hous­ing supply to the extent that some 400,000 persons are on the waiting list for housing in Sweden — 120,­000 in Stockholm alone. Admitted­ly, were rents allowed to stabilize at free market equilibrium, many of those now applying for housing at below market rates would no longer be applicants. But the free market advocate would maintain with much empirical evidence that, to the extent government inter­feres in any market, including the housing market, the consumer is denied the standard of living and personal freedom he would other­wise achieve.

Welfare Costs to a Typical Swedish Wage Earner

What is the actual cost of so­cialist schemes to the Swedish wage earner?

It is, of course, impossible to arrive at an actual monetary price. Seldom are government welfare programs funded from taxes at­tributed to a particular program. General tax revenues invariably are drawn upon for the major por­tion of the cost of a “social bene­fit.” At the least, this blurs the price to the individual of the gov­ernment services. However, read­ing between the lines of Some Data About Sweden, one discovers that a typical Swedish household has earnings of about $3,000 a year, of which $1,050 goes for tax­es. In return for such taxes a typi­cal household might anticipate some $150 worth of free education, another $150 worth of free medi­cal care, $150 worth of national defense, and an old-age pension promise of about that same $150 current value. Supplemental pen­sion benefits recently have been promised, but these will call for higher tax rates, too, before they can be realized. These four major governmental services thus ac­count for approximately $600 of the $1,050 paid in taxes. What of the remaining $450? There is a family allowance of about $140 a year for each child under 16. Un­employment insurance, housing loans and rebates, and miscellane­ous costs of government should ac­count for the remainder.

It would seem obvious that the wider the dispersal of tax-paid services among the entire popula­tion, the wider the tax base must be. Lawrence Fertig says that “in the United States 80 per cent of tax revenue is derived from tax­able income up to $6,000. If the government actually confiscated all income remaining to taxpayers whose annual income was $50,000 a year or more, the Treasury would collect about $173,000,000, hardly enough to run the Federal government for a few hours.”5  The principle applies to Sweden as well. It is obvious that for prac­tical purposes capital accumulation must occur in Sweden as it must in the United States, through cap­ital gains. Materially, any citizen of an ever-growing socialist state finds he must work harder and harder to keep up with the tax burden treadmill, which in turn progressively binds him to the state. The loss of spiritual values resulting from ever-present gov­ernment can only be measured in the hearts and minds of individ­ual citizens.

Must America Follow Sweden?

The socialist would defend the Swedish pattern, and probably treat its welfare programs as only a step in the right direction. Though many Western world so­cialists have dropped nationaliza­tion of industry from their design for utopia, they all advocate con­tinually increasing government in­trusion into service areas and equality of material possessions through redistribution of income. Their defense is invariably that their policies provide for “the peo­ple’s security” (and one might add, “whether they like it or not”). However, the pattern of life which one sees emerge, while perhaps on a higher material scale, is merely another one of the au­thoritarian social structures which evolved from the revolutionary doctrines of Rousseau, Hegel, Ba­beuf, and Marx.

The American can no longer smugly claim this country as the last defender of the free market and individualism, when it is ob­vious that almost every device for effecting the eventual total welfare state in Sweden is now a feature of our own system of government. And both nations prosper relative to their more socialistic neighbors only to the extent that the social planners pragmatically allow the free market to function.