Reinfeldt should listen to criticism from business owners

Reinfeldt should listen to criticism from business owners
For the first time ever, a centre-right government has failed in its first year in power to improve Sweden's business climate, says Nima Sanandaji from the Captus think tank.

Entrepreneurial activity typically tends to flourish in Sweden under centre-right governments before once again diminishing under socialist rule. But a survey recently published by the Confederation of Swedish Enterprise shows that the current centre-right ruling coalition has bucked the trend. For the first time ever, entrepreneurship has not increased during the first year of a right wing government’s term in office.

Stimulating the growth of businesses has for a long time been a winning argument for the four centre-right parties in Sweden. But the current government has done little to improve the entrepreneurial climate. Surveys indicate that business leaders have reduced their support for the government. Shortly after the last general election in 2006, a survey by pollster SIFO showed that just 10 percent of small business owners lacked faith in the government’s business policies. Six months later, the figure had risen to 27 percent.

The parties of the centre-right frequently attribute the government’s low opinion ratings to the implementation of drastic, but necessary, reforms which seek to stimulate workfare and entrepreneurship over welfare. But in reality, the Reinfeldt administration’s unpopularity may be partially explained by its failure to bring about business climate reform.

Rigid labour market regulations, which make it difficult to hire and fire workers, represent an important hindrance to the ability of companies to expand. Matters are complicated further by extremely powerful labour unions, which are free to attack businesses they dislike. The leading centre-right party, the Moderates, have previously been staunch supporters of opening up the labour market. But Moderate Party policy reform has led to a situation whereby the party now supports labour market regulations in their current state. According to a survey conducted by polling agency SKOP on behalf of the Confederation of Private Enterprises, 69 percent of business leaders believe that the government has not made it easier to hire workers.

The so-called 3:12 rules, which regulate how profits can be taken out of small firms, represent another important obstacle to private sector growth. Viewed by many as bureaucratic and difficult to follow, the Board of Swedish Industry and Commerce for Better Regulation estimates the annual cost of following these rules at 13,000 kronor for a sole trader. The total cost for the Swedish economy is estimated to be as high as 1.5 billion kronor.

Traditionally the centre-right parties have focused on improving opportunities for companies to grow. But the ideological shift occurring within the Moderates has meant that there is less interest than before in liberalizing the regulations faced by companies.

The transformation that has occurred within the main centre-right party in Sweden can be clearly observed in the policies of the Reinfeldt administration. According to Anders Bornefalk, economist at the Confederation of Swedish Enterprise, the ruling Alliance risks being the first centre-right government to fail to increase entrepreneurial activity within its four year mandate. If this turns out to be the case, one of the main arguments for supporting centre-right governments at election time – their ability to improve the business climate – will suddenly lack any semblance of credibility.

Nima Sanandaji is president of the Swedish free market think tank Captus and publisher of Captus Magazine.