Sweden is iconic, like Marilyn Monroe or Karl Marx. It is supposed to stand for something special: a kind of paradise where socialism and a big welfare state go together with being a successful, rich country. The left use it as a triumphant example: ‘See! It works in Sweden! High levels of equality, a big welfare state, socialism — and it works!’ People think that Sweden proves it is possible for a socialist welfare state to be prosperous, happy and civilised. They think it shows that relatively high levels of tax do not make much difference to economic performance. In fact, for the left, Sweden demonstrates that all that they dream of is possible.

An article in the Guardian of 16 November 2008 (‘Where tax goes up to 60 per cent, and everybody’s happy paying it’) shows the idea is alive and well. The left can’t work out why similar ideas in Britain have never led to the same success.

The main trouble is that, when Sweden was as close as it ever has been to being a socialist welfare state, it went bust. For a while it may have seemed like a great model, but the Swedish government ran out of money.

Why? Because Sweden found, like Britain, that if you pay people to be unemployed, take early retirement or be sick, you get a gradually increasing number of people who claim the relevant benefits. And if you have sky-high taxes, people don’t work as hard, or they cheat, or they leave.

Then came the financial crisis of the 1990s. Unemployment surged, until there were simply too many well-remunerated claimants for too few taxpayers. More than one out of every five people of working age was on one benefit or another.

The ideal of Sweden still worshipped by the left did not actually work. But Sweden is different from Marilyn Monroe and Karl Marx. Those icons are dead and unchanging. For Sweden, though, life went on. Going bust could not be the end of the story. The country woke up from the dream and had to face reality. This is the untold story of Sweden. It went bust and then it made changes.

It toughened up its benefits. The money you could get for unemployment benefit was reduced. So was the length of time for which you could get it. A claimant is required to take menial jobs more quickly than before. This is a process that has applied to virtually all the benefits and continues to this day.

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The Swedes gave up a tradition lasting a generation. They started voting for non-socialist governments. These parties have won the past two elections in a row. In response, the Social Democrats have joined in the movement towards greater realism. It is reminiscent of Labour giving up on state ownership.

There has been a series of measures over the past 20 years aimed at making Swedish capitalism freer and more effective. You could call them Thatcherite reforms. A variety of industries from trains to taxis have been deregulated. Competition has been allowed in business post. Farm prices are now set by the market. The production of electricity has been opened to competition. Taxation is complicated because there are local as well as national taxes but broadly speaking, the top rate of tax has been brought down from over 80 per cent to 60 per cent.

Then Sweden went beyond what Margaret Thatcher introduced in Britain. It went further in introducing choice and competition in healthcare and education. Free schools — schools started by parents, teachers or private companies which get paid the same amount per pupil as government schools — now educate 10 per cent of children taught in Sweden. And the proportion is still growing. One director of a private school company in Stockholm told me that he expects the proportion easily to reach 30 per cent in the next 15 years.

Supposedly socialist Sweden has gone further than the British coalition government by allowing profit-making private companies to open schools. The key political thing here is that these companies are not allowed to receive a penny more per pupil than the government-run schools. So when the private schools do better in exams, no one can claim it was because they had more resources. In any case, it is up to the parents to decide. Nobody has to go to a private school. These schools only get customers who want to be there.

Sweden is also adopting a free market, capitalist approach to health that would give Cameron and Clegg the vapours. If you go to a hospital or clinic there is no cult belief in medical care being ‘free at the point of delivery’. You pay about £20 for a first visit. Nearly a third of all primary healthcare — that is, of the work of general practitioners — is provided by private practices. Private competition is now to be opened up in specialist care, too. The idea is that consultants will be taken out of the hospitals, where overheads are high, and people will increasingly be able to choose private providers of specialist care at no extra cost. The money will follow the patient. Meanwhile some government hospitals are contracted out to private companies to operate.

Beyond all that, there is a complete ignorance in Britain of just how capitalist Sweden is. The steel industry has been privatised, as has forestry (remember the furore over this sort of thing in Britain?). Inheritance tax has been abolished. Yes, that’s right, abolished. The country found that too many rich people were leaving, so they got rid of a tax which remains in Britain at 40 per cent.

Mistakes about the nature of Sweden go on and on. People think it is unambiguously an equal and happy society. But while Sweden appears relatively equal in income terms, in terms of wealth it is more unequal than the United States. You can argue that this bare statistic is misleading, but then the statistic about income equality could be misleading, too. If the super-rich leave a country, as quite a few did when tax rates were higher, that would make it appear a more equal society. That is one of a several factors which could exaggerate income equality in Sweden.

Sweden is also probably not such a happy society, either. The incidence of unmarried and lone parenting and divorce is very high. Research from around the world tells us that these things cause unhappiness and alienation for all those concerned – the father and mother as well as the children. Beneath the happy surface of a sunny evening in beautiful Stockholm is a lot of loneliness. There are said to be more single-person households there than in any other city in the world. Certainly there are more such households in Sweden than in any other country in the European Union.

There is also high unemployment among the young and immigrants. This is surely partly because of an effective minimum wage imposed on the various industries by the still-powerful unions. Those who cannot command a good wage are not allowed to work for a lower one. The consequence is a high unemployment rate among those with lower skills or less experience.

Another illusion is that the welfare state in Sweden is endlessly generous. It isn’t. The main benefits are strictly based on paying insurance premiums. If you have not got a record of those payments, the social assistance you will get (commonly known as ‘income support’ in Britain) is a great deal less and is also difficult to obtain at all. It is administered by local regions out of their own funds and they are reluctant to hand out more than a minimum.

To put it bluntly, Sweden is not a socialist, welfare state paradise of equals because it is not socialist; its welfare state is in some ways tougher than ours; it is not a paradise; nor are the Swedes as equal as assumed. In fact, take any popularly accepted belief about Sweden and it is probably wrong.

The Swedes are still averting their eyes from two major problems — unemployment caused by the high effective minimum wage and the lone parenting issue. But in general, they have been more realisti
c and active in dealing with the sort of problems normal in modern democracies. They saw how socialism and over-generous welfare statism were causing potential disasters. And they reacted. The political atmosphere in Sweden is very different from that in Britain. There is a strong desire to reach consensus wherever possible. One almost gets a feeling there that this is a democracy that is actually grown-up.

Yes, we have some things to learn from Sweden. But it is not how to be a socialist paradise. It is, rather, how to react when the idea of a socialist paradise is shown to be fatally flawed.

This article first appeared in the print edition of The Spectator magazine, dated