How Laissez-Faire Made Sweden Rich by Johan Norberg, Senior Fellow, Cato Institute
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How laissez-faire made Sweden rich By Johan Norberg, Senior Fellow, Cato Institute The bad old days Once upon a time, I became interested in theories of economic development after studying a low-income country, poorer than Congo, with an average life expectancy half as long and infant mortality three times as high as that of the average developing country. That country was my own, Sweden – less than 150 years ago. Back then, Sweden was incredibly poor – and hungry. When crops failed, my ancestors in Ångermanland, in Nothern Sweden, had to mix bark into their bread because of flour shortages. Life in towns and cities was no easier. Overcrowding and lack of sanitation and waste disposal claimed lives every day. Well into the 20th century, an ordinary Swedish working class family with five children might have to live in one room with a kitchen that doubled as dining room and bedroom. Many people lodged with other families. According to Stockholm housing statistics, in 1900 there could be 1,400 people living in a building of 200 one-room flats. In conditions like these, disease was rife. People had large numbers of children, not only because lack of contraception, but also because of high infant morality. As Vilhelm Moberg, our greatest author, observed when he wrote a history of the Swedish people: “[O]f all the wondrous adventures of the Swedish people, none is more remarkable and wonderful than this: that it survived all of them.”1 Then, over the course of a century, everything changed. Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen. Between 1850 and 1950 the average Swede’s income multiplied eightfold, despite a doubling of population. Infant mortality fell from 15 to 2 per cent, and average life expectancy rose by an incredible 28 years. A poor peasant nation had become one of the world’s richest countries. Many people abroad credit this triumph to the Swedish Social Democratic party, which somehow found the perfect middle way – wisely taxing, spending and regulating in a way that did not hurt the country’s productivity but only made the results more equitable. And so Sweden – a small country of 9 million inhabitants in northern Europe – became a source of inspiration for people around the world who believe in state-led development and government distribution. But something is amiss in this explanation. In 1950, when Sweden was known worldwide as the great success story, taxes in Sweden were lower and the public sector was smaller than in the rest of Europe and the United States. It was not until that point that Swedish politicians started levying taxes and disbursing handouts on a larger scale, redistributing the wealth businesses and workers had already created. Widely distributed wealth preceded the welfare state. Sweden’s biggest social and economic successes took place at the time when Sweden had a laissez-faire economy. 1 Vilhelm Moberg, Min svenska historia, 1971, p. 72. This is the story about how that came to be.2 It is a story that countries that want to be where Sweden is today must learn, so they can do what Sweden did then – that is, create the institutions Swedes developed then – and not what Sweden does today, when it is already rich. The father of Swedish liberalism In 1763, Anders Chydenius, a young priest from Österbotten in Finland (then part of Sweden), submitted his entry for an essay competition. The question was the most important in Sweden at the time: “Why do so many people leave Sweden?” Emigration had increased and was seen as a big problem. The common view was that people were lazy and greedy and, rather than assume responsibility and work hard, they were lured by promises of an easier life abroad. Chydenius took the opposite view. There is nothing wrong with emigration, he thought. The problem was the oppressive and corrupt system that made it impossible for people to stay in Sweden and build a good life there. When detailing all the abuses, regulations and taxes that destroyed opportunities, Chydenius outlined a radical laissez-faire critique of the Swedish government. He argued that all the privileges, license requirements and trade prohibitions protected a small, lazy and indolent aristocracy, and stopped hardworking people from making their own fortune. High taxes confiscated whatever the people managed to create, a corrupt justice system made it impossible for them to win against the powerful and restrictions on the press made it illegal for them to complain about it. “Fatherland without freedom and merit is a big word with little meaning,” he pointed out. Anders Chydenius was a modern priest, steeped in Enlightenment ideas. He spread scientific and medical ideas throughout the region and helped farmers improve agricultural production with modern methods. He was also familiar with the French physiocrats’ economic ideas, but above all, it was the firsthand experience of the people’s struggles that built his political and economic worldview. Others thought the poor lazy and hopeless, at best the object of charity. Chydenius turned this view on its head. The poor are intelligent and hard working – they had to be to survive in such a harsh geographical and economic climate. The problem was that they had to devote most of that energy and hard work to avoiding regulations, taxes and corruption. One of his most consistent struggles was against class legislation that forced the poor to work for aristocrats and large landowners, and prevented them from changing employers or negotiating wages. Chydenius looked at specific abuses, but he extended his belief in human liberty to new areas, and universalized it to create a system of ideas that was consistently laissez–faire liberal. He wanted a minimal state that guaranteed “security of our lives and properties,” with the only task to prevent “foreign violence and domestic oppression.” Apart from that, the government shouldn’t intervene. The size of government and the taxes that support it should be drastically reduced. Markets and trade should be completely free. Chydenius opposed subsidies even to economic sectors he favored, like farming and fishing. Even the government had to abide by the seventh commandment – thou shalt not steal – said Chydenius. Farmers should be given full title to their land, and even the poorest peasants should have control of their own labor. The country should open its borders and allow people to move freely to and from 2 For the whole background, see my history of Swedish liberalism, Den svenska liberalismens historia, Timbro, 1998. Sweden/Finland. People should be free to discuss and make up their own minds. Even in matters of religion, he thought that the government should be liberal and give the same rights to all beliefs. As he concluded, “I speak exclusively for the small, but blessed word, freedom.” Drama in parliament What made Chydenius a pivotal figure in Swedish political history was the fact that he was not just a theoretician. His defense of local farmers’ right to trade freely made him popular and he became a representative of his region’s priests at the parliament in the capital, Stockholm. In 1765-1766 he traveled there and made a lasting mark on the country. It was in a brief era when Sweden had a weak monarch and a very strong parliament. In 1765, the anti- Russian ”hat party” had lost power and in came the ”caps,” who were more interested in peace and restraining the public finances, but lacked a coherent ideology. Chydenius would give them one. Because of his political talent and several well formulated pamphlets that he published during his time in parliament, Chydenius became a leader of the cap party’s non-aristocratic wing. This led to victories in parliament in the form of trade liberalization, reduction in subsidies and tax cuts. But most important was Chydenius getting support for a freedom of the press statute, which led to censorship being abolished in Sweden and the authorities’ decisions and documents made public. In 1766 such a law was unique in the world and Sweden got a reputation for being a country where debates were free. One pamphlet that Chydenius published while in parliament was especially important. The National Gain put forth a short but very forceful argument for economic freedom. Chydenius explained how a free market regulates itself, as the profit motive and the price mechanism keep us all in check, while it motivates us to help others and produce the kind of goods and services people most want: “[E]very individual spontaneously tries to find the place and the trade in which he can best increase National gain, if laws do not prevent him from doing so. Every man seeks his own gain. This inclination is so natural and necessary that all Communities in the world are founded upon it. Otherwise Laws, punishments and rewards would not exist and mankind would soon perish altogether. The work that has the greatest value is always best paid, and what is best paid is most sought after. […] This conception of the National gain, however hard it may seem to be on our new enterprises, is nevertheless the simplest and easiest in itself. It gives liberty to all lawful trades, though not at the expense of the others. It protects the poorest business and encourages diligence and free trade. It weighs everybody in the same scales, and gain is the right measure that shows who should have the preference. It relieves the Government from thousands of uneasy worries, Statutes and supervisions, when private and National gain merge into one interest, and the harmful selfishness, which always tries to cloak itself beneath the Statutes, can then most surely be controlled by mutual competition.