It seems that every week, a new email, blog or news article suggests a global top ten list of some importance. Whether it be the world's best city, entrepreneurial IT hubs, area of greatest economic growth or simply perhaps the place with the world's most beautiful people. Each author and assessment will introduce different cities, however what is curious, is how frequently Sweden features in the breadth of 'top ten' lists.
One of those curiosities, is that seems Sweden forgot there we are in a period of financial crises recovery and has happily being going along its business of breaking economic records whilst the rest of Europe continues to flounder. In fact Sweden recorded is highest economic growth in 30 years at the same time as the rest of the world was posting figures in the red.
What we can learn from the Swedish model is perhaps a little painful, it is a lesson that grates on our capitalist sensibility, yet one that we can no longer ignore, the lesson of austerity. Sweden is of course the poster child for 'prosperity through austerity', the oxymoron that proved it isn't. Following years of careful budget planning to avoid a social welfare meltdown, Sweden was not only able to cut tax during the 2008 crises, but increase economic output whilst continuing to maintain the leading standard of living and the envy of first world nations.
With a population of a mere 9 million people, it has accomplished what the US, UK, Japan and Australia could only have dreamt of: rapid growth, job creation, technological innovation, increased bank lending and a booming housing market, plus a balanced budget. Sweden's 5.5% growth rate trounces that of US 2.8% and is much stronger than any other developed nation in Europe. Unemployment is not only lower than the US, but is also dropping faster than that of the US. Walking through Stockholm's laneways and you're likely Abba's 'Money, Money, Money' as people make their way to the bank. Okay, I made that last bit up, but what how did the Swedes get it so right?
1. Grab The Economy By Its Values
During the Swedish economic downturn in the early 1990s, the government didn't simply trudge through hoping it would get better, nor did it base it plans merely on short run election cycles. Instead, it applied serious brakes to social welfare, reconstructing the entire system to not only improved customer outcomes, but make it cheaper in the process. These two achievements are usually mutually exclusive, but not in Sweden.
This good practice gave the economy the buffer it needed so that when bad times returned in the GFC a decade later, the terms of the crises were more manageable. In fact, whilst the US and UK carried a budget deficit of 3% in 2007, Sweden enjoyed a 3.6% surplus. Sweden's gross debt is 45% of its economy, compared to the US at 100%. This buffer not only cushioned the downturn by avoiding huge debts, but also avoided the risk of magnifying the impact of a future crises, which we will certainly encounter in the cyclical nature of economics.
2. People Centred
Unlike Australia and its peers, Sweden did not depend on a financial stimulus, or a single big-buying customer, to turn things around. Aside from some infrastructure spending and income tax rates, the focus of the response was on social welfare, and particularly, on health care, income and services to the unemployed. Unlike the US $800b stimulus package enacted by the Obama administration in 2009, Sweden response did not take months of negotiation of planning, it was quick, direct and effective. It was also invested where it mattered most, in people, people who build a country, people who repay with loyalty, people who vote.
3. Aggressive Monetary Policy
Sweden's federal bank, the Riksbank, not only lowered its short-term interest rate to effectively zero, but expanded is balance sheet to flood the financial system with cash. By 2009, the Riksbank had assets equivalent to 25 percent of GDP, compared to the US which wavered around 15. The Riksbank went a step further to manage a interest rate below zero, encouraging bank to lend money to each other rather than park it in the central bank and incur a 0.25 percent fee. Clever.