Mything the Point on Sweden (the Korea Times)

By Casey Lartigue, Jr.

The message was clear: “Don’t do what we’re doing” when it comes to welfare and economic policies.

That’s what (former) Senator Franco Debendetti and lawyer Alessandro De Nicola of Italy, and University of Athens professor Aristides Hatzis said in policy forums organized by the Center for Free Enterprise (CFE) in Seoul last August and October. Professor Hatzis took it one step further, in a speech that caught the attention of Korean president Lee Myung-bak: “If you see Greece doing something, then do the opposite thing.”

“But what about Sweden” was the response from those pushing for universal welfare policies in Korea. That has become the common refrain from politicians and academics around the world for several decades in the West and recently in Korea. “What about Sweden?”

With that in mind, CFE invited Johnny Munkhammar, a member of the Moderate Party in the Parliament of Sweden, to Seoul from March 5 to 7. Munkhammar surprised the audience and Korean media with his talk, “Sweden’s Welfare State: Fact and Fiction.”

Munkhammar said the lesson to learn is that free markets created success in Sweden and that the country’s turn to bigger government led to an array of problems that Sweden is trying to recover from now. He cites the 1870s as a turning point in Swedish history, when, rather than hiding behind trade protectionism and the “infant industry” argument favored by popular Korean author Chang Ha-joon, Sweden opened its economy to the world with free trade and economic freedom.

That continued for a century until the 1970s when the welfare state was greatly expanded and increased regulations and taxes were imposed on the economy. Sweden began to reverse that in the 1990s, implementing reforms that would have made Adam Smith proud: state-owned enterprises were sold; public monopolies in health and education were replaced with free competition; product and financial markets were deregulated; and the central bank was made independent.

Universal welfare advocates point to Sweden’s generous policies, but not Sweden’s history of free markets and its recent switch back. It is unlikely that South Koreans will be ready to accept such reforms during this election cycle. For example, Munkhammar shocked reporters in one-on-one interviews when he informed them that Sweden has no inheritance tax (it was abolished in 2005). In contrast, Korea’s emotional debate on “polarization” makes it unlikely that local politicians will push to repeal or lower estate taxes.

Sweden has few restrictions on trade imports. In contrast, since the late 1980s, Koreans have fiercely battled against efforts to open various markets and, even now, opposition lawmakers are trying to nullify the KORUS FTA. Sweden doesn’t have a wealth tax, but Korea’s majority party recently implemented the Buffett tax and the minor parties are threatening to impose more taxes if they win April 11’s parliamentary elections.

Cherry-picking in research and politics is the process of ignoring information that may undercut one’s argument. Welfare state advocates point to Sweden’s welfare state, but ignore Sweden’s historical model of having free markets and free trade.

If the proponents of a universal welfare state are serious about following Sweden’s model, then they might want to consider the following grand compromise based on Sweden’s history: Eliminate tariffs and barriers on imports, eliminate wealth and inheritance taxes, eliminate subsidies for business with more of a laissez-faire approach, set up a school voucher program, and sell off state enterprises. After that is done, set up a universal welfare state.

But that’s only if they are serious about following the Swedish economic and welfare model. It is more likely that they will keep perpetuating the myth about Sweden in order to keep pushing for universal welfare policies while blocking market liberalization.

The writer is director for international relations at the Center for Free Enterprise in Seoul, Korea. He blogs at cfekorea.com and can be reached at cjl(at)cfe.org.

This article was originally published in the Korea Times on March 14, 2012.
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