X-Message-Number: 21848
From: "aschwin de wolf" <>
Subject: Sweden: Poorer Than You Think 
Date: Sun, 1 Jun 2003 06:20:10 -0400

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Although the main problem with european style welfare states is the massive 
coercion and paternalism that comes with it, the idea of the (northern) european
social-democratic "paradise" is largely a myth. Not only are many people under 
the median income poorer than in the US, there is much (hidden) unemployment. 

For example, in the Netherlands (where I lived for more than 25 years) 
unemployment is defined in such a way that it many people without work just 
don't show up in in the stats!!!

But again, the main problem with european welfare states is that the government 
treats you like an object instead of a human being. This (and cryonics) is one 
of the reasons I moved to the US (although this country has also seen better 
days as far is liberty is concerned).


Sweden: Poorer Than You Think 
by William L. Anderson

One of the enduring myths of the "Third Way" welfare state is that a nation as a
whole can have a high standard of living--even if no one really has to work--as
long as government transfers massive amounts of wealth from those who are well 
off to those who are less well off.  For the past four decades, we have been 
inundated with news stories, books, and public commentary, all of which have 
exhorted us to be like Sweden.

The Swedes, we have been told, enjoy free medical care, generous welfare 
benefits, time off from work, and subsidies for just about everything. When one 
counters that Swedes pay enormously high taxes, the standard reply is, "That is 
true, but look at what they receive for their payments."

According to a recent study, however, the cat is out of the bag.  Relative to 
household in the United States, Swedish family income is considerably less. In 
fact, the study concludes, average income in Sweden is less than average income 
for black Americans, which comprise the lowest-income socioeconomic group in 
this country.

The research came from the Swedish Institute of Trade, which, according to 
Reuters, "compared official U.S. and Swedish statistics on household income as 
well as gross domestic product, private consumption and retail spending per 
capita between 1980 and 1999."

The study used "fixed prices and purchasing power parity adjusted data," and 
found that "the median household income in Sweden at the end of the 1990s was 
the equivalent of $26,800, compared with a median of $39,400 for U.S. 
households." Furthermore, the study points out that Swedish productivity has 
fallen rapidly relative to per capital productivity in the USA.

In defense of the Swedes, let me first say that simple comparisons of income can
be deceiving. While I have never been to Sweden (even though I have relatives 
there), I would think that even the poorest sections of Stockholm and other 
Swedish cities are more livable and attractive than what one finds in many U.S. 
cities. Even with the high taxes, I think I would rather live in downtown 
Stockholm than in downtown Detroit or Newark.

However, the study alerts us to something that is much more important, and that 
is that the European welfare states are not making their citizens wealthier. 
Over time, the cracks in these relatively wealthy nations are growing larger, 
and if the disease is not arrested, much of Europe will tumble off into real 
poverty in the not-so-distant future. Europeans--and, most likely, 
Americans--seem destined to learn the hard way that large, seemingly intractable
welfare systems have their way of destroying the Goose that Laid the Golden 

While people can debate the present condition of Swedes in Stockholm versus 
blacks in Harlem, there is a deep issue here that people seem to forget when it 
comes to welfare states: they are destructive at their roots. Advocates of 
welfarism concentrate only upon distribution while vilifying production. Such a 
state of affairs cannot go on forever as governments are forced to cannibalize 
their own capital structure over time in order to make the system to continue to

The premises of the welfare state are as follows: (1) free markets, if not 
regulated by the state, lead to continuing inequality, as wealth becomes 
increasingly concentrated in the hands of a few people, while more and more 
people become poorer; (2) the only way to combat this problem is for the state 
to take a large portion of earnings from the wealthy and distribute it among 
others; and (3) such distribution actually enables the economy to grow, since 
growing concentration means that fewer people will have the ability to consume 
the products that are created within a private-market system.

Karl Marx developed the first premise into his theories, calling this the 
"internal contradiction" of capitalism. However, the statement contains its own 
internal contradictions, as it creates an impossible scenario.

As Ludwig von Mises and Murray Rothbard have pointed out, in a private-market 
society, individuals cannot gain wealth unless they produce goods that are 
demanded by large numbers of people. For example, it was Henry Ford who became 
rich producing cars, not the producers of early luxury automobiles that were 
accessible only to the wealthiest people in American society. Ford developed a 
method in which he could create cars that most people could afford, yet keep his
costs low enough to where he could still make a profit. The most successful 
producers in our economy have been those people who make goods accessible to 
people across all socioeconomic levels.

Wal-Mart, which is another example, became the largest corporation in this 
country--and one of the most successful--by creating a retail system that would 
enable large numbers of people to conveniently do their shopping. In fact, 
Wal-Mart began its route to success by building discount stores in rural areas 
and small towns that were shunned by larger department stores and enterprises 
like the now-bankrupt Kmart.

Therefore, it seems that if producers are becoming wealthier, it can only occur 
if consumers are purchasing on a large scale what the the producers are 
producing. The first statement justifying the welfare state does not have a good
causal mechanism, for it does not explain how this transfer of wealth from poor
to rich takes place, especially since it makes the implicit assumption that the
voluntary purchase of goods is actually a wealth transfer.  Such a statement 
turns the age-old theory of exchange--that economic exchanges create mutual 
beneficiaries--upon its head.

If anything, wealth transfers inhibit economic growth, not increase it. For one,
it violently penalizes entrepreneurs for being successful. By accusing those 
who create wealth of actually being the ones who destroy wealth, welfarists do 
violence to language itself. If enough people are punished for creating wealth, 
less wealth will be created in the future. The more government impedes the 
creation and distribution of wealth, the less that will be created, which means 
that those people who are on the margins--that is, those who are less 
productive--are the first to be hurt. Thus, the welfare state actually makes the
poor worse off in the long run.

This notion that the welfare state actually "helps" an economy is also bogus. As
I stated earlier, consumption of goods must first take place before producers 
can reap the rewards from creating them. Furthermore, welfare regimes that 
attack business enterprises by  confiscating their profits also impede future 
capital formation.

This became quite apparent to me in 1982 when I went to Central Europe, 
including what was then East Berlin, the capital of the former communist East 
Germany. While East Berlin was likened to being the "Paris" of the 
then-communist world, it was more like a huge time warp in which one was placed 
back in 1948. The entire city was shabby, and what new construction there was 
had the appearance and attractiveness of a typical American public housing 

While the western portion of Germany was better kept and more modern than its 
eastern counterpart, it was still like traveling back to the 1960s. West Germany
had a well-developed welfare state by then, having shunned its earlier model as
an engine of free enterprise. A close friend who is a dentist brought this 
point home to me.

Like other medical care, dentistry in Germany is run on socialist principles. 
That means that individuals do not pay directly for dental (or medical) care, 
which is provided by the state. My friends, who were vacationing in Germany, 
visited a number of dental offices and found that the facilities looked like 
dentist offices in the United States four decades ago. In other words, the 
German dentists are still depending upon old capital.

One of the worst aspects of socialism, economically speaking, is that it has the
perverse tendency to turn new capital from an asset--as is the case in a 
free-market economy--into a liability. German dentists have no incentive to 
purchase more modern equipment, since it is expensive and patients have nowhere 
else to go. In fact, wherever socialist medicine has been practiced for a long 
time, one can readily see deterioration of capital stock.

For many years, Sweden, like its European counterparts, has been eating its 
capital stock instead of replenishing it. Some high-profile Swedish companies 
like Volvo have been able to remain well capitalized, but even those companies 
are now finding it more attractive to locate in other nations, where their 
profits are not so readily confiscated.

The Swedes and other northern Europeans are somewhat lucky in that they have had
a relatively high standard of living. People in southern European nations like 
Italy and Spain--where high taxes and vast regulatory agencies abound--find 
themselves to be much poorer and with no prospects of real improvement.

Unfortunately, many Europeans (like our Canadian neighbors) believe that a vast 
welfare apparatus makes them morally superior to nations that do not have the 
same scope of benefits. (While one can point out that the United States has a 
huge welfare bureaucracy itself, it does not offer the same "generous," 
long-term benefits of the European states.) While they prattle on about their 
moral superiority and their egalitarianism, however, something else is 
happening.  They are slowly becoming poorer and poorer, and the welfare state 
cannot save them.  It can only accelerate their downward slide.

William Anderson, an adjunct scholar of the Mises Institute, teaches economics 
at Frostburg State University. 


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