Sweden Goes More Free-Market

Swedish economist Anders Aslund describes the radical change. "Americans still think of Sweden as a tightly regulated social-welfare state, but in the last two decades the country has been reformed. Public spending has fallen by no less than one-fifth of gross domestic product, taxes have dropped and markets have opened up....

"Sweden’s traditional scourge is taxes, which used to be the highest in the world. The current government has cut them every year and abolished wealth taxes. Inheritance and gift taxes are also gone. Until 1990, the maximum marginal income tax rate was 90 percent. Today, it is 56.5 percent. That is still one of the world’s highest, after Belgium’s 59.4 and there is strong public support for a cut to 50 percent.

"The 26 percent tax on corporate profits may seem reasonable from an American perspective, but Swedish business leaders want to reduce it to 20 percent. Tax competition is fierce in some parts of Europe. Most East European countries, for example, have slashed corporate taxes to 15-19 percent.

"In the bad old days, the annual centralized-wage bargaining between the Trade Union Confederation and the Swedish Employers’ Confederation was a prized custom. But in the 1970s, this system led to both inflation and strikes. Today, it is long gone. Wage bargaining is still collective, but it is decentralized. Wage inflation is no longer a concern and strikes are extremely rare. The employers have won, but real wages are rising with productivity, so the workers are benefiting, as well. As everywhere, trade unions are losing members, money and power. "