The dynamic welfare state: how adaptation can save the Swedish economy.

Transfer payments in the form of welfare and pension benefits also contribute to the inefficiencies that are slowly rotting the core of this model. Because the government is taking so much money from certain citizens and gifting it to others, there is a corresponding loss of consumerism on the side of the former and loss of a drive for productivity on the latter. High taxes further decrease consumer spending, leading to the need of more government interference in the market and creating a cycle in the economy. While individually they have been ignored, all of these small factors of inefficiency aggregate and contribute to the ongoing harms inherent in the Swedish welfare model.

A new issue altogether is increased apathy toward the Swedish government. Decreasing voter turnout reflects a populace that cares less for its government. There are two possible explanations for this drop. First, the Swedish people could be disillusioned with the government and its policies, possibly heralding a fledgling discontentment that has in the past resulted in troubles for other welfare states. Once a country's citizens are unhappy with governmental policy, they are much less likely to be pleased with paying for it. This could prove to be a disrupting factor in the seemingly well-run model.

An alternative explanation lies in the changes and modernization taking place throughout the country. The Sweden of today features an increasingly diverse population. This results in less emotional and cultural investment in the nation as a whole, as well as less willingness to shoulder the burden of welfare for one's fellow Swede. The homogeneity that differentiates this Nordic nation from other European welfare states is starting to dissipate, and with it possibly the security of the model's success.

Time for Reform

Sweden progressed past its European counterparts over a decade ago in its first series of reforms. In order to overcome further hurdles, it needs to adopt the same adapting spirit seen in the years after 1993.

In 1997, economists recognized that the Swedish income tax was much more reasonable that year than it had been during the 1980s. Today, the same drastic change needs to be made once again. High taxes, while assisting in the maintenance of government programs, also fuel increased government spending and stifle consumer spending. It is mainly the former that will harm the system far into the future. The perceived sustainability of government spending, resulting from high tax revenue, lulls the government into a false sense of complacency.

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In order to address this issue, the Swedish government needs to not only reduce taxes, but also cut government bureaucracy. This would lead the way in reducing the inflated government figures of employment and stability, thereby allowing Sweden's actual economic reality to be observed. Furthermore, the Swedish government needs better regulations for sick leave, so as to create a greater disincentive toward unemployment and absenteeism. Not only would this system greatly reduce the inefficiencies of the government, it would also contribute to mitigating the high government spending problems. Because of the abuse of social programs, many welfare benefits are not serving to help the masses, but are instead being milked by undeserving individuals. With more stringent law enforcement and tighter individual accountability, social programs would be more effective and the government would reduce spending.

The government in Sweden plays the same role that cellular giant Nokia plays in neighboring Finland, dominating both the job market and the country's GDP. Yet unlike Nokia, the government does not produce much of anything, nor does it call forth massive profits from abroad. What results is taxing of jobs created and paid for by the same government, creating a cyclical dependence on bureaucracy. To break this cycle, further privatization is a must. Reforms have already been made to privatize the pension system, but more needs to be taken out of government hands if even for the sole purpose of deflating statistics. Sweden has traditionally had a "buffet socialism," selecting the perks the people deem necessary and abandoning harmful ideologies. This method of picking and choosing policies has helped Sweden ford the straits of the great wars, prosper despite the economic chaos that followed, and adapt to the changes of the last two decades. If Sweden's welfare economy is to continue its surprising growth, the government must revisit some of its policies and adapt even further. Doing so may help save Sweden's unique economy from the growing tide against socialism.

staff writer

TIAN FENG

RELATED ARTICLE: OVERTAXED AND UNDEREMPLOYED

Top Ten Countries, Tax Revenue as Percentage of GDP (2005) Sweden 51.3% Denmark 50.3 Belgium 45.5 Norway 44.3 France 44.0 Finland 43.9 Iceland 42.4 Austria 42.0 Italy 40.6 Slovenia 40.5 Note: Table made from bar graph.

Sweden has the world's highest tax rate as a percentage of Gross Domestic Product, as well as a high unemployment rate relative to the rest of Western Europe. Of course, Eastern European countries such as Poland suffer from even higher unemployment.

Unemployment Rates as Percentage of Civilian Labor Force (1995-2005 Avg)

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EUROSTAT; OECD Factbook 2007