7 March, 2014

Twenty five years of Swedish Reforms

A new report published by the Reform Institute describes the growth-oriented reforms implemented in Sweden from the early nineties onwards. In the 1990s, the entire tax system was reformed, a public expenditure ceiling was put in place, collective wage bargaining found an entire new form, Sweden entered the EU, state owned monopolies became subject to competition and the fixed exchange rate was abolished. Moreover, privately owned companies were allowed to start schools and enter healthcare markets. Also, completion legislation was strengthened thereby reducing the number of cartels and their impact.

The results of this wave of reforms are remarkable. During the twenty years before 1995, GDP and productivity growth was substantially lower than in other countries. Virtually no net jobs were created in the private sector and government debt increased rapidly. Moreover, disposable income of Swedish households grew only in a very slowly.

Since 1995, every aspect of the Swedish economy has changed. GDP and productivity growth have been higher than in comparable countries. Employment in the private sector has grown by more than 1% annually, while public sector employment has decreased. Public finances are now stronger than in most countries. Furthermore, median disposable income of Swedish households has grown 4 times faster after 1995, compared to the previous 20 years.

One would expect that these results would induce further efforts from policy makers to continue reforming the Swedish economy. Much room for improvement remains. Unemployment among youth and immigrants remains high, and growth has slowed considerably in recent years. Despite these indicators, as we show in the concluding section of this paper, the pace of reforms in Sweden has slowed considerably. In particular, Sweden’s reform efforts in last five years have slowed to half the world average and lag behind the pace in the rest of Europe.