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By Alex Newman
STOCKHOLM, SWEDEN – As headlines continue to trumpet the economic tsunami swamping much of Europe, there are at least two countries that are weathering the storm better than the rest: Switzerland and Sweden.
Experts told WND that there are several reasons why the Swiss and Swedish economies are doing so well relative to the European Union: economic freedom, national currencies, work ethic, and more.
Other governments could learn something.
The largely free Swiss economy is performing the best by far, but even Sweden, after a decade of market reforms, is doing very well compared to the rest of Europe. Both economies are still growing even as the eurozone contracts.
In Switzerland, the unemployment rate is hovering at about 2.7 percent. Sweden, even with its nightmarish regulatory regime over the labor market, has a stable unemployment level of about 7 percent.
By comparison, in socialist Portugal, the number is over 15 percent and climbing fast. With 25 percent unemployment, socialist Greece and Spain are doing even worse.
The average in Europe is about 11 percent if official figures are to be believed.
Tiny Switzerland, with fewer than eight million people, actually tops the rankings in just about every indicator: economic freedom, competitiveness, best cities, low crime, high wages, best universities, almost no poverty, great healthcare, personal liberty, and more.
While other European economies contract or even collapse, the Swiss economy has grown for 12 consecutive quarters now.
The European economy, meanwhile, is officially in a recession. Among economies that use the single euro currency, the European Commission predicts that GDP in 2012 will contract by an estimated 0.3 percent.
Despite Switzerland’s heavy reliance on foreign trade and exports, especially with Europe, its economy is still going strong.
The Swiss State Secretariat for Economic Affairs predicted in September that the Alpine nation would even avoid recession altogether.
Switzerland largely dodged the ferocious credit crunch or real-estate bubble that wreaked havoc throughout much of the industrialized world as well.
The Federal Council also announced that the Swiss government would end the year with a budget surplus.
Finally, Switzerland has a GDP per capita that is about twice the EU average, with workers in Zurich earning more than any other place on earth even in terms of purchasing power.
Switzerland is one of the richest countries in the world by far.
In Sweden, thanks largely to a huge government, the picture is not quite as rosy, but it is impressive nonetheless considering the rest of Europe.
As other economies on the continent shrink – some dramatically – economic growth in Sweden has continued to accelerate after a brief recession in late 2008.
Government debt in Sweden is estimated at about 35 percent of GDP, a fraction of the levels held by other European governments.
Swedish government bonds and the Swedish krona have both been touted by analysts as a safe haven amid the ongoing economic turmoil in Europe. Sweden-based international companies have performed relatively well, too.
Overall, Sweden is also one of the wealthiest nations on the planet.
The Role of Economic Freedom:
To attribute the relatively strong performance of the Swiss and Swedish economies to any one factor would be overly simplistic, experts told WND. Instead, there are multiple reasons for their successes.
Among the most commonly cited are high levels of economic freedom compared to other countries, low government debt levels, strong work ethic among the Swiss and Swedish populations, and the fact that neither country adopted the controversial euro.
According to the Heritage Foundation’s Index of Economic Freedom, Switzerland has the freest economy in Europe. It placed fifth globally – well above the United States.
The Canada-based Fraser Institute also ranks Switzerland first in Europe and close to the top of the pack globally when it comes to economic freedom.
Well-secured property rights, low levels of corruption, strong respect for the rule of law, an efficient legal system, openness to foreign trade, and other factors all contributed to Switzerland’s designation as one of the freest economies in the world.
Switzerland also has some of the lowest tax rates on the planet. Companies are still flocking to the business-friendly nation in droves even as the EU tries to bully Swiss voters into raising taxes.
The World Economic Forum named Switzerland the most competitive economy on Earth despite having virtually no significant natural resources.
Sweden ranked fourth, while the U.S. economy came in at seventh place largely due to wild debts and deficits.
Part of the reason that the Swiss have managed to maintain such a high degree of economic freedom is a uniquely decentralized political system – a confederation with a Constitution under a weak central government – where most issues are decided locally. Voters always get the final say.
Sweden, a parliamentary monarchy, does not come close to Switzerland in terms of economic freedom. However, compared to the rest of Europe and even the world, the Swedish economy is still one of the freest around.
The Heritage Foundation put it at 10th place in Europe and 21st internationally. It is also on the rise.
Despite a large government with high taxes and spending, Sweden has strong respect for property rights, low levels of corruption, an efficient regulatory system and open-market policies that contribute to large flows of trade and investment, Heritage explained.
After a severe economic crisis in the early 1990s, Swedish policy makers and voters apparently learned from their mistakes. Over the last decade, Sweden has been cutting taxes and spending, selling off state assets to the private sector, and implementing a wide array of market-oriented reforms.
Historically, minus a few decades of explosive growth in government and welfare schemes, Sweden has been a relative free-market haven compared to the rest of the world.
A recent widely cited report for the London-based Institute of Economic Affairs entitled “The surprising ingredients of Swedish success – free markets and social cohesion” demolishes many of the myths about the nation’s economic rise.
Rather than big-government socialism, author Nima Sanandaji explains that free markets and strong cultural norms are responsible for Sweden’s success – in spite of the bloated government.
“Sweden is indeed a nation which should be admired, but more so for its free-market success, strong norms and social cohesion than socialist policies,” Sanandaji told WND.
“It is worth emphasizing that much of what Sweden is admired for today such as low poverty, high life expectancy and high living standards were evident already in the mid-20th century when Sweden was a low-tax nation.”
According to Sanandaji, who also serves as the president of a Stockholm-based free-market think tank known as Captus, Sweden was performing far better before the rise of big-government took a brutal toll on the country.
“Also, when you examine other issues, such as the effects of taxation policies, the levels of entrepreneurship, the ability to integrate foreign-born, and more, Sweden stands out much better during periods characterized by free-markets compared to after the rise of the big state,” he added. “Perhaps it is not a mystery why Sweden and other Nordic nations have begun returning to their free-market roots?”
Indeed, the turn back toward freer markets has paid off.
Overall, the Swedes have traditionally enjoyed a relatively large degree of economic freedom, and that march continues onward today in many respects.
The Swiss, meanwhile, are some of the freest people on Earth – and they have been for centuries.
Greece, by contrast, a basket case, is close to the bottom in terms of economic freedom: It ranks 39th out of 43 countries in Europe and 119th in the world, according to Heritage’s respected index.
Portugal, Italy, Spain, and other poorly performing economies, while not in Greece’s company, also rank significantly lower than either Sweden or Switzerland.
Economic freedom “absolutely” plays a significant role in explaining the strong performance of the Swiss and Swedish economies compared to less-free countries, Madrid-based St. Louis University economics Professor David Howden told WND.
In addition to the size of government, the stark contrasts in economic performance have a lot to do with “quality of governance,” Howden said, citing “burdensome regulations and complicated paperwork” involved in trying to operate a business in countries like Greece.
Spain, for example, is also a nightmare, while Sweden and Switzerland both have efficient and simple regulatory regimes making it easy for the private sector to operate.
In terms of the dangers of big government, Greece offers a perfect example.
One of the problems, Howden said, is the fact that larger governments breed “rigidity in the economy – it loses the flexibility that the private sector has.”
The role of the euro, the EU and other factors
While crucial, economic freedom is not the only factor at work: the single euro currency and the perpetually expanding EU apparatus undoubtedly played a part.
Despite being surrounded by the EU and the euro-zone, Switzerland is not a member of the EU. It also continues to use its own currency, the Swiss franc.
Unlike many central banks, the Swiss National Bank distributes its profits to the confederation and member cantons – similar in some ways to American states, though more autonomous.
Sweden did join the EU, which today, rather than national governments, imposes the vast majority of European laws and regulations. Unlike most EU nations, however, Swedish voters rejected the euro.
Early on, countries benefited from the monetary union – especially southern economies along the Mediterranean coast, explained Howden, who also chairs the department of business and social sciences.
“But in the long term we end up with one currency – it’s a one-size-fits-all policy for 17 countries, and it is not working,” he told WND.
The problems with the euro, he added, were inherent in the system from the start. It just took some time for it to blow up.
Even though it might help certain sectors, Howden said, it would be “crazy” for Switzerland or Sweden to join the single currency – especially now.
Beyond the euro and economic freedom, though, work ethic also plays role, with Swedes and the Swiss both known for strong cultural norms and hard work. Greeks, Spaniards, Italians, and Portuguese, on the other hand – not so much.
High debt-to-GDP ratios, meanwhile, will have long-term consequences in terms of economic growth, too, putting Sweden and Switzerland on a solid footing going forward. Government in both countries has largely lived within its means.
Other European governments, however, are drowning in debt while piling on even more – particularly to bail out banks, as was the case in Ireland. That will eventually require tax hikes, hurting future economic prospects even more.
Lessons and dangers:
Despite having performed very well thus far, there are potential dangers ahead for both Sweden and Switzerland.
Sweden, with exports making up about 50 percent of GDP, could easily find itself in a crunch if the global economy continues downward. Experts have been predicting a housing bust for years, too.
Switzerland’s massive banking sector, meanwhile, could also lead to major problems in the event of another credit crisis – especially if politicians decided to put taxpayers on the hook for bank liabilities.
The fate of both economies is closely linked to what happens in Europe, of course.
Still, other governments could learn a lot from Sweden and Switzerland, experts say.
Howden said governments should work to get rid of red tape and bureaucracy while tackling out-of-control social-security entitlement systems. Privatizing government assets would help as well.
The EU, according to Howden and other economists, should be reduced to simply being a trade bloc permitting free movement of goods, labor, and capital.
“I don’t know why the EU had to get a huge apparatus to try to manage everything and homogenize all these countries,” Howden said. “It creates inefficiencies in the bureaucracy level – almost everybody recognizes that I think – and it creates hard feelings between countries.”
The lessons from Switzerland and Sweden, then, are fairly simple: The market works while big government does not, the euro was a bad idea, excessive public debt hurts the economy, and bank bailouts are terrible.
In other words, freer markets lead to more prosperous societies. If you need more evidence, just consider North and South Korea.