Sweden Made a Miraculous Turnaround When Its Banks Failed. Could the U.S. Imitate It?

How to make a huge change, and succeed.
Oct. 17 2012 7:30 AM

How Sweden Saved Itself

When its banks failed, the Scandinavian country made a miraculous turnaround. Could the U.S. imitate it?

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Because the nation as a whole is so invested in the welfare state, social mobility, and economic equality, the benefits of balanced budgets are easier to see and the risks of drifting into debt again and potentially risking popular benefit programs are politically unpalatable.

“If we run into trouble, it will be those who are most depending on welfare services and are most depending on the public transfer systems that will be hurt the most,” said Borg.

Widespread economic equality has created a system in which everyone has some skin in the game. This gives politicians leeway to work together.

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“You cannot have a society where the conflicts that are built in become so strong that you undermine the political ability to deal with problems,” Borg said. “If I compare Sweden with Spain or Italy and Greece, one of the reasons why we have been able to do this is that our income differences are substantially much lower, which also much means that the political tension is on a completely different level. … I would argue that the combination of broadbased and social cohesion is very, very important.”

This was the conservative finance minister giving this speech, mind you. While Sweden has taken a hit with the dual impact of the American financial crisis, followed by the European debt crisis, the country has weathered the storm a lot better than other EU nations—even those that are also not on the euro like Great Britain.

The results of the country’s political reforms, meanwhile, have been astonishing: After lagging behind for years, Sweden’s economy grew at a faster rate than the American economy throughout most of the aughts. It has recovered more strongly from this latest international recession, with 5.5 percent GDP growth in 2010 compared with 2.9 percent growth in the United States. Sweden’s unemployment rate has been consistently around 1 percent below the American rate during the recovery. Meanwhile, government debt as a percentage of GDP has shrunk to 45.5 percent, as compared with the United States where it has ballooned to more than 100 percent.

Still, the severity of the recent debt crisis in Southern Europe is beginning to be felt in Sweden with the unemployment rate ticking up unexpectedly from 7.0 percent to 7.2 percent in August (still, a full percentage point lower than the rate in the United States). The conservative government has now decided to lower interest rates and expand the deficit in the short term with a financial stimulus that includes business tax cuts and infrastructure spending. They are able to do this because of flexibility from years of surpluses. When the conservative party announced the 23 billion kronor ($3.5 billion) stimulus last month, the leader of the opposition Social Democrats had one major objection: He complained that the conservatives had stolen his party’s ideas.

Jeremy Stahl is Slate's social media editor. You can follow him on Twitter.