Equity, welfare and Keynes: the recipe of Sweden where only 2% has become poorer – The Republic

Swedish Paradiso, Italian hell. The report by the McKinsey Global Institute generational impoverishment, already shown on the Republic on Saturday, enhances the Scandinavian model as an antidote to the regression in living standards that affects the most advanced economies. It puts our country index, the worst in the West for the economic performance measured over a decade. “At one end there is Italy, where incomes have stagnated or declined for nearly all of the population. At the opposite pole there is Sweden, where only 20% of the population had their income reduced or blocked” . So we read in the recent survey entitled “Poorer than Their parents? A new perspective on income inequality” (Poorer parents? A new perspective on inequality of incomes). This quote is also refers to “market income”, ie before calculating the impact of social safety nets, tax, of all public policies on household budgets. What matters even more is the end result in the pocket to the citizens, they are the “disposable income”: those that remain after the intervention of the tax authorities and the eventual help of Welfare. Well, in the end the gap between Sweden and Italy is accentuated even more. Stagnation or depletion decade went from 97% to nearly 100% Italian. While the Swedes go down from 20% to 2% of the population “blocked or impoverished”. Yet all the countries examined in the survey (North America and Western Europe) have undergone the same external shock: after the global financial crisis of 2008, the GDP fell in all economies without exception.

The McKinsey report is very detailed on what makes the difference between the two extremes of Italy and Sweden. The Swedish model is based on a series of original recipes. Beginning with the relationship of social forces. “About 68% of Swedish workers are unionized”, a record in the West.

This has enabled them to move in their favor of the national income distribution, the distribution of the “pie” between profits and wages. It is a strong theme throughout the West because this is a period dominated by a dynamic quite the opposite: “Corporate profits have climbed to record levels for the last three decades, + 30% compared to 1980″. Go back to the fore the distribution battle, which had been the center of attention in the seventies, then was opposed by liberalism that gave priority to growth. Ronald Reagan and Margaret Thatcher onwards, has imposed the dogma that does not count the inequality between the rich and the rest of society, because “when the tide raises all boats, big and small.” More than thirty years later, the scholar of Thomas Piketty inequalities defeats the father of neoliberalism Friedman. Excessive inequality contributes to the “secular stagnation”, stopping the growth. The same McKinsey report is generous awards to Piketty: confirming that now the attention to inequality is transverse, is not a theme “ideological”. (The company McKinsey, best known for its business consulting, has a reputation for being a radical think tank).

The Swedish model, as this survey shows, contains several other ingredients that can be traced back the importance of public intervention. They have been put in place “regulations to protect the wages”. After the global financial crisis the Swedish government “has operated in agreement with the unions to reach agreements of temporary reduction of working hours as an alternative to layoffs, in order to maintain high levels of employment”. They were “increased recruitment on fixed-term contracts in the public services”, always in order to combat rising unemployment. “Social contributions and the tax wedge for business have been reduced. Tax incentives have been offered for the recruitment of young people and the long-term unemployed”. Here it should be noted that, at least in part, Italy changed its mix of recipes in recent times, but this does not appear in the McKinsey Report, which is mainly based on data from 2005 to 2014.

Lessons Sweden still no shortage; together with difficulties to export from Stockholm to Rome. On one hand the “Swedish paradise” is the confirmation of the goodness of Keynesian recipes: in a recession or prolonged stagnation, the state is the only one with the ability to revive an economy bloodless. Sweden has more autonomy in deciding to neo-Keynesian fiscal policies, as it is not part of the Eurozone and therefore is not subject to the same stiffness (refused to join the euro with the 2003 referendum).

Sweden also by a much more prosperous situation of our budget: its public debt was below 40% of GDP before the great Depression, it has increased since then, but remains well below the Italian levels. It has tax evasion among the lowest in the world; and a notoriously efficient public spending, not tainted by patronage and waste.

A very model, in every sense.

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sweden

McKinsey

McKinsey report

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