The Nordic countries have fared better than other parts of Europe in the crisis. What is this down to?

In Sweden we had a crisis 20 years ago and learnt important lessons. Over the past three or four decades Sweden has made a series of reforms that made us more resilient. After the Second World War, Sweden expanded its welfare state to become the largest in the world. The total tax burden as a percentage of GDP in Sweden peaked in 1987 at 52.1 per cent and now it's down to 44 per cent.

Is there anything left of the generous welfare state?

The perception that people abroad have of Sweden is of cradle-to-grave welfare. It used to be huge, but there has been significant reform. Governments have strengthened the incentives to work by significantly lowering benefits for unemployment, sick leave and disability pensions. Not only has the welfare sector become relatively smaller, it has also become a lot more efficient due to market-oriented reforms.

When we try that in Britain, we get street protests and there isn't much more efficiency. What are we doing wrong?

You cannot copy other countries' reforms. Sweden is a very trusting country by international standards. You can trace these levels of trust back to at least the 17th century. That is a good explanation for why Swedes trusted the government to grow so large and take care of all these things for us. That's also why we trust reform. There is also a high level of trust towards politicians, that reforms are in the interest of everyone and not for political elite to benefit themselves.

In southern Europe austerity leads to unemployment and debt, while in Sweden it provides budget surpluses. How come?

This has more to do with the background over many years than what is happening today. We have a budget rule: it must be balanced over the economic cycle. We have consensus-based and economically robust pension reform providing for a flexible pension age. This has all been done by both centre-right and social democratic governments. And the Bank of Sweden is independent.

Britain just chose a Canadian governor of the Bank of England. Should we have chosen a Swede?

We got ours from Finland, actually.

Name a market-oriented reform.

We have a well-functioning system of free schools. Sweden is the only country where poor people have the same access to private schools as rich people do. No one has to pay. There is a school voucher. Every pupil gets a cheque from the government and can take this cheque to any school -- private or a state.

Why does anyone go to the state schools?

You put the question in an interesting way. In Sweden you would ask it the other way round. Why do people go to private schools? We don't care if the school is state or private. We ask about the quality.

Free marketeers cite Latvia as the poster boy for austerity. But one in 10 Latvians emigrated. Would you recommend that for Spain?

The same medicine does not work for all patients. The experience of Sweden in the 1990s and Latvia more recently is that you have to make tough choices. There is no easy way out. The problem is real, and there has to be a real solution.

America has found growth with a stimulus package. Why can't Europe keep borrowing?

Keynes said, 'in the long run, we are all dead'. He was wrong. We tend to live on. In the long run, the money will run out. There is indeed a case to be made for economic stimulus: if you do everything exactly right, and you get the timing exactly right, you can avert a crisis. But it's very hard to do that. And after the crisis, when politicians say, 'well now it's time to do the hard things', there's no longer any incentive to do it.

Britain is heading for a referendum on EU membership. Could Britain live prosperously outside the EU?

From a Swedish perspective, it's hard to make the case that you will have the benefit of the common market without any of the problems you get when you join the club. If you tag along as an outsider, a big country like Britain cannot get all the benefits. It might work better for a smaller country. Small countries don't have much say even when they sit at the table.

What is the Nordic model's future?

Some features of the Swedish model are still intact. But if you take a closer look, you can see that high taxes and a generous welfare state are diversions from what is really going on. They are a leftover from the past. Thanks to a non-corrupt bureaucracy, high levels of trust, an otherwise very open and globalised economy, Sweden has managed to succeed, despite high taxes. The high taxes are not the explanation. When you get everything else right, the damage to the economy from high taxes becomes less significant.


Håkan Tribell is Director of ideas and programme development at Timbro, Swedish free-market think-tank


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