In the late 1980s and early 1990s people used to tell me that Sweden proved you could have high public spending and economic success. There was no need to keep public spending as a percentage of output down as they did then in the US, no need to go in for raw capitalism like America. I was urged to love the Swedish model.
As often with these things just as people urged others to follow, the weaknesses of the chosen example were about to become plain. In 1992 the Swedish crisis started. It all looks very familiar. It was a combination of an Irish/ Spanish style property crash and banking crisis, and a state finance crisis all rolled into one.
The Swedes nationalised their problem banks, but on tougher terms than the UK did in 2008. It cost them around 4% of GDP, but they got some of it back later when they resold the banks once restored to health. They had their own sub prime crisis.
The state also decided that its welfare programmes were too generous, and its borrowing levels unacceptable. They settled on fiscal rules designed to eliminate state borrowing in future. Between 1994 and 1998 they eliminated their deficit. They cut all sorts of welfare benefits to make them less generous. It was not what politicians wish to do, nor was it friendly to the many now out of work.
Unemployment benefit, originally paid with no waiting period at 90% of previous earnings (up to a limit) was cut to 75% of past earning with a 5 day delay. It was limited to 300 days of claim. Eligibility for disability pension was tightened. To receive a basic pension an individual had to show 40 years of residence. They tightened the definition of a work injury to make a substantial reduction in work injury claims. Health insurance was made meaner. In 1993 and again in 1996 they cut the pension indexing payments. In 1996 they cut Child Allowance and withdrew the supplement for more than 2 children.
Once Sweden made her spending cuts, got to a balanced budget, and following devaluation of the krona, the economy started to perform better. I’m not sure that was the Swedish model my advisers had in mind.