Towards A Good Samaritan World

Monday, December 04, 2006

THE SWEDISH ECONOMY

An extended debate on the merits of the Swedish economic model, which developed in the comments of this post, probably deserves a post of its own.

One thing that is established is that US GDP per capita (in purchasing power parity terms) is 40% higher than in Sweden: the US is at about $42,000, Sweden, about $30,000. But what about growth rates. Nato chides me for persisting in the claim that Sweden "is now gradually falling further behind the US" when he thinks he disproved that:

To review, Sweden's per-capita growth rate beat that of the US. Accounting for differences in population growth rates, Sweden's GDP grew .25% faster than ours last year.


But one year doesn't mean much; what matters is the trend. Nato cites some "35-year tables" which he says give Sweden the edge. Unfortunately I couldn't get the link to work. But these 76-year tables do show that Swedish economic growth outpaced US growth in the 1920-96 period. Swedish GDP per capita grew at 2.46% over that period; US GDP per capita, at 2.27%.

But a stylized fact of US-Europe growth comparisons is that the US started the 20th century quite a bit richer; Europe spent much of the 20th century closing the gap, especially during the "Golden 30 Years" after World War II; but since then the European economies have been mostly stangant, while the US has enjoyed an economic renaissance. These variations in growth rates over time are masked, of course, by the 76-year figures I quoted. Nato's "35-year tables" may be similarly misleading, depending on the precise start and end dates. I'd have to see them to check. (Maybe try putting the url in as text rather than as a link, Nato? Sorry for the inconvenience, I'm not sure what went wrong.)

I'll post more recent statistics if I find them (my suspicion is that Sweden has not matched the productivity boom the US has enjoyed since 1996) but here's an International Herald Tribune story that underlines my point about the Swedish model not being one to copy:

As a resource-rich and neutral country that remained out of two world wars, Sweden was able to achieve extraordinary economic growth in the century from 1870. By 1970, it was the fourth richest country in the world after Switzerland, the United States and Luxembourg as measured by gross domestic product per capita, with one of the world's most extensive welfare systems. By the same measurement, it had declined to 18th place among the industrialized countries by 1998.

After 1970, per capita income relative to the average in the member countries of the Organization for Economic Cooperation and Development declined some 18 percent, Mr. Lindbeck said, while the current recovery has made up only about 3 percent of this loss. (my emphasis)


To the extent that there's been a turnaround in recent years, it reflects that Sweden is retreating from the Swedish model.

These unhealthy trends are now being reversed. For example, the ratio of public expenditure to GDP has fallen to under 60 percent from more than 70 percent in the early 1990s...


UPDATE: Nato provides the correct link, and draws attention to the "GDP per employed person" statistic. It turns out there's a very interesting story there. The PDF file contains this statistic over many years for 15 countries. I focused on the period since US welfare reform, i.e. since 1996. The results:

GDP per employed person
Absolute change; % change
Anglosphere
USA: $13,369; 19.8%
Canada: $7,486; 13.5%
Australia: $8,841; 16.9%
UK: $8,966; 16.3%

Scandinavia
Norway: $11,202; 17.1%
Sweden: $11,203; 21.5%
Denmark: $7,584; 13.7%

Continental Europe
Germany: $5,181; 9.6%
Italy: $943; 1.6%
Netherlands: $2,440; 3.9%
France: $7,321; 11.3%
Belgium: $7,517; 11.0%
Austria: $7,761; 14.5%

Note that not only did the US start off with the highest GDP per employed person in this set (well, okay, it was #2, slightly behind Belgium, but it soon became #1), but America also enjoyed the largest absolute increase in GDP per employed person, by a hefty margin (over $2,000). It also enjoyed the second-highest percentage increase in GDP per employed person-- after Sweden. So in this sense Sweden has been, just slightly, closing the gap with the US. (But in absolute terms, the gap is still increasing.)

In general the Scandinavian and Anglosphere countries exhibit similar performance for this statistic, while every Continental European country except Austria falls behind every Anglosphere or Scandinavian country. (Austria beats Denmark and Canada, just.) It's in the euro-zone that the stagnation in productivity is concentrated. Curious-er and curious-er...

4 Comments:

  • Sorry, looks like a bad cut-and-paste job. www.bls.gov/fls/flsgdp.pdf is the URL. Note it's a PDF.

    Relative declines just mean that other countries were catching up between 1970 (near Sweden's peak) and 1998 (at the bottom of its trough). Do I think Sweden is now going to zoom back ahead? No, probably not unless that "retreat" is far more dramatic than it has been so far.

    Regarding productivity, Sweden has actually increased its GDP per employed person relative to the US since 1990, though its relative improvement since Sweden's mid-90s unemployment spike has been slim. Still, that does imply to me that Swedish productivity is keeping pace fairly well.

    By Blogger Nato, at 10:27 AM  

  • I think it's also worth noting that folks would probably be plenty fond of dictators if they consistently ran their countries well. The problem is that they don't, and despite interludes with good royals, it's an unstable matter of luck that returns to base despotism again later.

    Swedish socialism is, I think, like a monarchy where a royal and, say, a couple generations of offspring have so far luckily turned out to be good administrators. At any time, though, the next generation may turn out rotten, and then the fundamental instability of good outcomes in top-down economies reasserts itself.

    Still think they've had quite unusually good kings, though.

    By Blogger Nato, at 11:11 AM  

  • That's a pretty nifty link. How did you find it, Nato? I love good hard data. It makes debate so much more pleasant. If only we had some reliable metric for politicians... :/

    By Blogger Thomas Reasoner, at 12:42 PM  

  • My interpretation is that the other countries with socialist policies along the Scand lines do not enjoy the unusual Scand aversion to corruption that (I think) seems to allow Scand government-private cooperation to work as well as it does.

    This is a fine thing, but we cannot legislate a culture of integrity, and if your economic model depends on the sainthood of bureaucrats, well...

    By Blogger Nato, at 1:09 PM  

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