Sweden and the Revival of the Capitalist Welfare State

Sweden and the Revival of the Capitalist Welfare State

New Thinking in Political Economy series

Andreas Bergh

This book tackles a number of controversial questions regarding Sweden’s economic and political development: • How did Sweden become rich? • How did Sweden become egalitarian? • Why has Sweden since the early 1990s grown faster than the US and most EU-countries despite its high taxes and generous welfare state? The author uses new research on institutions and economic reforms to explain the rise, the fall and the recent revival of the Swedish welfare state. The central argument is that a generous welfare state like Sweden’s can work well, provided that it is built on well-functioning capitalist institutions and economic openess.

Chapter 8: Challenges ahead: can the capitalist welfare state survive?

Andreas Bergh

Subjects: economics and finance, austrian economics, economic psychology, political economy, politics and public policy, european politics and policy


In the 1980s and the early 1990s, the debate on the welfare state was very different from the debate today. Many scholars predicted a dismal future for large welfare states. For example Snower (1993) argued that universal welfare states will come under budgetary pressure and concluded that welfare state services should be redirected from the middle class to the poor, turning universal welfare states into smaller targeted welfare states. The problems for the welfare states were often connected to a perceived threat from globalization (Martin and Schumann, 1997; Strange, 1996). Many argued that increased mobility of capital and labour will lead to skilled labour and capital leaving the welfare state, thus eroding the tax base. There was talk of a race to the bottom, such that welfare states would be forced to lower taxes and welfare benefits (Sinn, 2003). A related and often mentioned threat was population ageing, as falling birth rates and increasing longevity would increase expenditure on pensions and health care, putting pressure on welfare states to increase taxes further, with the risk of worsening the flight of skilled labour and capital, eroding the tax base even further. Many predicted a dismal future for Sweden in particular. In 1984 Swedish political scientist Elisabeth Langby argued that Swedish politicians would be unable to implement the changes necessary to avoid a collapse of the system.

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