Sweden's Conservative Revolution
Joachim Bamrud
Wednesday, May 23, 2007
With the ascension of conservative Nicolas Sarkozy in France and his
promises of free-market reforms, the new French president may find an
ally and example to emulate in Sweden, once considered a pioneer of
socialism.
Long infamous for its high tax level - forcing celebrities like tennis
legend Bjorn Borg to flee to tax havens such as Monaco -- Sweden is now
becoming a more competitive economy.
Much credit for this development belongs to the new center-right
government of Fredrik Reinfeldt. The 41-year-old economist assumed the
prime minister job last October, leading a four-party coalition of the
Moderate, Center, Liberal People's, and Christian Democrat parties. He
succeeded Goran Persson, the Social Democrat who had ruled Sweden for a
decade.
"They are very focused on the economy and job creation," Johan Norberg,
a native of Sweden and the author of the international best seller In
Defense of Global Capitalism, says of the new government.
Reinfeldt's policies could come right out of the playbook of Margaret
Thatcher and President Reagan. The new Swedish prime minister has
implemented a series of reforms, including tax cuts on personal income,
abolishing wealth taxes, lowering property taxes, lowering unemployment
benefits (among the highest in the world), privatizing state companies
and services, and looking at lifting monopolies like the one held by
Apoteket (a state-run pharmacy chain).
It may be too early to see the results of Reinfeldt's overhaul, but there are optimistic signs.
"Sweden is likely to be more competitive," says Berit Salheim, managing director of the American Chamber of Commerce in Sweden.
To start with, they will likely boost employment, says Stefan Fölster,
chief economist of Svenskt Naringsliv, Sweden's chamber of commerce.
"The effect on large firms' competitiveness is small so far," he adds.
Reinfeldt's privatization program aims at selling six state companies
for 250 billion Swedish kroner (approximately $36.6 billion) by 2010.
The most prominent example: the sale of TeliaSonera, Scandinavia's
largest telecommunications operator.
The government started by selling 8 percent to institutional investors
for $2.7 billion in early May and plans to sell its remaining shares
later. Industry analysts and investors are praising the move, as it
gives TeliaSonera more flexibility in its operations - key to competing
in the highly competitive European telecommunications market.
The government also plans to sell its shares in Vin & Sprit (the
state alcohol company that produces the world's second-most popular
vodka brand, Absolut); Nordea (one of the leading banks in
Scandinavia); the OMX (which owns stock exchanges in Scandinavia and
the Baltics); real estate group Vasakronan; and mortgage lender SBAB.
Vin & Sprit alone could be worth more than $5 billion, industry
analysts say.
But the Reinfeldt government also is looking at a President Bush-style
improvement of Sweden's education system, focusing more on knowledge
and order, evaluation, and standardized tests in schools.
Furthermore, Reinfeldt is steering Sweden's foreign policy closer to
the United States and a free-trade agenda. "There are too few in the
world fighting for free trade, so we need the president on that," he
told Bush during a visit to the White House on May 15.
Pending Reforms
Reinfeldt inherits an economy in need of reforms after 12 years of
Social Democrat rule (Persson succeeded the two-year government of
fellow Social Democrat Ingvar Carlsson). In 1993 (the last full year
before the Social Democrats took power), Sweden had the third-highest
unemployment rate in Scandinavia. Last year, it had the second-highest.
Its gross domestic product (GDP) per capita was the highest in
Scandinavia in 1993, but fell to the second-lowest last year, according
to data from the International Monetary Fund.
Fixing decades of socialist-driven policies won't be easy. As a result,
the government still needs to implement other reforms, experts say.
"We are happy with the reforms, but believe that much more needs to be
done in order to reach full employment over the business cycle and lift
Sweden from 14th place in the [Organisation for Economic Co-operation
and Development's] comparison of GDP/capita to the fourth place that
Sweden could have, and was at in the early 1970s," Fölster says.
Just like Sarkozy in France, Reinfeldt will face challenges taking on the country's powerful trade unions.
"There is a substantial need for less government intervention in the
labor market, so there should be deregulations of hiring and firing,
for example, and there should be free wage bargaining," says Johnny
Munkhammar, program director at Timbro, a Swedish free-market think
tank. "Today the trade unions and their collective bargaining are very
powerful."
The government also needs to keep cutting taxes further, business
leaders and private-sector economists say. "The tax pressure … is still
the highest in the OECD and should decrease," Munkhammar says.
He also favors private funding in social security and welfare services.
"In general, people should be allowed to keep more of their own money
and run their own lives," Munkhammar says.
Norberg also argues in favor of more labor immigration, which will help
offset the population decline in Sweden and help integrate the
country's large refugee population.
Outlook
Norberg, for one, is somewhat optimistic, believing that the Reinfeldt
government has at least a 50 percent chance of being re-elected despite
the current polls.
"People who grow richer and get more freedom of choice often begin to
demand more of the same," he says. "So unless we see an international
economic downturn, there is at least a 50-50 chance that they will win
again. But even if they don't, they will have introduced some reforms
that will make the economy work better, and will make life for the next
government easier. That's something."
With Reinfeldt at the helm, Sweden may just be able to replace its
image as a socialist model with that of a free-market bastion.
Joachim Bamrud is editor and publisher of the Latin Business Chronicle, www.latinbusinesschronicle.com
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