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Bolder steps needed to get Sweden's economy moving

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19:46 CEST+02:00
The budget unveiled by the new Swedish government is far from being "neo-libertarian", as the Social Democrats have suggested. But the Alliance will need to embrace a more radical agenda if it is to deal with Sweden's economic problems, argues Nima Sanandaji, of think-tank Captus

The Swedish centre-right government was elected on the back of promises to put hard work and entrepreneurship in focus. The representatives of the Alliance are well aware of the fact that their chances of being re-elected in 2010 are slim if they do not manage to push down unemployment during the coming four years.

The new budget that the government recently presented contained a number of positive economic reforms, such as removing the obligation for companies to partially finance sick leave for their workers and the introdution of a tax deduction for those who are working.

Another reform is that unemployed students will become included in the official government statistics unemployment. Previously Sweden has, in contrast to almost the entire industrialized world, simply not classified this group as openly unemployed. This has been one of many ways in which the previous Swedish government has hidden the true rate of unemployment. The reform is a step in the right direction since in order to solve a problem one must first acknowledge it.

The Social Democrats, now in oposition, are harshly critisizing the new government for being "neo-libertarian" in their policies. But the reality is quite the opposite, as the new center right government is very close to the middle ground in Swedish politics and is conducting a relatively slow and careful reform of the Swedish economy.

Indeed, the new budget even includes tax increases for some small companies (as a previously possible deduction of the "employer fee" is removed) and increased taxes on tobacco products.

If the new government wishes to remain in power for more than 4 years they should always remember their own message during the election campaign. In the long term Sweden has many economic problems. The true unemployment rate is according to some estimates up to 15-20 percent. Welfare dependency is widespread and Sweden is doing much worse than the majority of industrialized nations regarding the creation of new companies.

That the Swedish economy has managed to develop during the past few years is to a large extent thanks to a number of successful Swedish multinational companies. But few of the large companies that the Swedish economy is so dependent on have been created after 1970, and the existing ones are increasingly establishing themselves in other countries.

Other problems include an aging population, the world's highest taxes and perhaps most importantly that the Swedish work ethic is weakening due to many years with a generous welfare system that has punished hard work and rewarded those that do not work.

Given all the economic challenges that Sweden faces, the few reforms that the centre- right government is implementing might not be enough to again make Sweden a dynamic economy. If the government wishes to make a difference it should embrace a more radical agenda.

Nima Sanandaji

Nima Sanadaji is CEO of Captus, an independent Swedish free-market think-tank

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