From the U.K. Spectator's report
on the amazing success of supply-side economics in Sweden, and finance minister Anders Borg
, the man behind it:
"When Europe’s finance ministers meet for a group photo, it’s easy to
spot the rebel — Anders Borg (pictured above) has a ponytail and earring. What actually
marks him out, though, is how he responded to the crash. While most
countries in Europe borrowed massively, Borg did not. Since becoming
Sweden’s finance minister, his mission has been to pare back government.
His ‘stimulus’ was a permanent tax cut. To critics, this was fiscal
lunacy. Borg, on the other
hand, thought lunacy meant repeating the economics of the 1970s and
expecting a different result.
Three years on, it’s pretty clear who was right. "Look at Spain,
Portugal or the UK, whose governments were arguing for large temporary
stimulus," he says. "Well, we can see that very little of the stimulus
went to the economy. But they are stuck with the debt." Tax-cutting
Sweden, by contrast, had the fastest growth in Europe last year, when it
also celebrated the abolition of its deficit. The recovery started just
in time for the 2010 Swedish election, in which the Conservatives were
re-elected for the first time in history.
All this has taken Borg from curiosity to celebrity. The Financial Times
recently declared him the most effective finance minister in Europe.
"Everybody was told 'stimulus, stimulus, stimulus'," he says — referring
to the EU, IMF and the alphabet soup of agencies urging a global,
debt-fueled spending splurge. Borg, an economist, couldn’t work out how
this would help. "It was surprising that Europe, given what we
experienced in the 1970s and 80s with structural unemployment, believed
that short-term Keynesianism could solve the problem." Non-economists,
he says, "might have a tendency to fall for those kinds of messages."
He continued to cut taxes and cut welfare-spending to pay for it; he
even cut property taxes for the rich to lure entrepreneurs back to
Sweden. The last bit was the most unpopular, but for Borg, economic
recovery starts with entrepreneurs. If cutting taxes for the rich
encouraged risk-taking, then it had to be done. "In most cases, the
company would not have been created without the owner," he says. "There
would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak
without [Ruben] Rausing. They are probably the foremost entrepreneurs we
have had in the last few decades, and both moved out of Sweden."
But they were not rich, I say, when they were starting out. "No, but
they were becoming rich. If you have a high wealth tax and an
inheritance tax, people emigrate because it becomes too costly to own a
company. Ownership is a production factor. Entrepreneurs are a
production factor. Yes, these people are rich and you can obviously
argue that we want to encourage social cohesion. But it is also
problematic if you drive out entrepreneurs from your country, because
they are the source of job creation."
: The chart below displays constant dollar GDP growth rates for Sweden vs. the U.S. from 2002 to 2011, and shows that Sweden's economy has outperformed the U.S. economy over the last ten years by 0.8% per year on average (OECD data here
). Over the last two years (2010 and 2011), Sweden's real GDP growth has averaged 5%, or more than twice the U.S. average of 2.35%, and provides evidence that Sweden's supply-side approach to the 2007-2009 recession has been more successful than the demand-side Keynesian approach in the U.S.