The Journal. - Why Sweden Embraced Capitalism

Episode Date: June 8, 2026

Sweden, once considered by many as the standard bearer of high-tax and high-spend government, has embraced capitalism. WSJ’s Tom Fairless reports on how the Nordic country privatized large swaths of its healthcare and school systems, promoted business and shrank the state. Ryan Knutson hosts.   Further Listening: - Germany’s Economy Is Spiraling. Can War Fix It? - China's Cheap Goods Are Europe's Problem Now Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

In recent years, Europe's economy hasn't been doing that well. Britain's economy shrank unexpectedly in the three months to October. Germany is facing a third straight year of economic crisis, with most Germans increasingly worried about making ends meet. They're unlikely to be able to get France's debt under control anytime soon. It reached 3.3 trillion euros in June. The main picture has been somewhat, but sad over the last few years,

that there has been little growth, just repeated shocks that the economy struggles to rebound from. Tom Fairless is our global economics correspondent. Are there any countries in Europe that are doing well? Certainly Sweden does stand out. Sweden. Its economy is growing at roughly the same rate as the U.S., which is to say pretty fast.

The Nordic country that was once synonymous with big government is doing something else. Sweden, from American point of view, from most countries' point of view, is the sort of gold standard of democratic socialism. What I found through this reporting is that actually what drives the dynamism is the extent to which it's rolled back to the state. That's what a lot of the economists, I suppose, you said, that in the 20 or 30 years since they've been liberalizing, incomes have doubled, real incomes are doubled after inflation.

So this kind of gold standard of democratic socialism is actually a laboratory for free market capitalism. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Monday, June 8th. Coming up on the show, how Sweden embraced capitalism. Sweden's reputation for big government and high taxation, comes from the 1960s and 1970s, when the government was growing rapidly.

And when I say high taxes, I mean really high taxes. There was an author, a Swedish author, who wrote an essay about how her marginal tax rate was 102%. A hundred and two per, how is that even possible? You taxed more than you make? Exactly, yeah, you lose, you end up paying more than you actually earn in the extra income. You've got to dip into your savings account. Exactly. That author was Astrid Lindgren, who wrote the famous children's book, Pippi Longstocking, and ironically, appears on some Swedish currency.

So it was extremely high levels of taxation, and I think Sweden is, you know, it's not like the US. It's a small, homogeneous country, and there's some big family-owned companies that own lots of the stock market. And there was a feeling that they're all in it together. All that taxation came with a very cushy safety net. Yeah, it means cradle to the grave welfare state that extremely generous childcare, extremely high unemployment benefits, and yeah, extremely heavy spending on things like healthcare on pensions.

But there was a trade-off. In the 80s, wages were stagnant while inflation grew. Then came an economic crisis in 1990. major banks collapsed, and property prices plummeted by about 50%. So there was a general feeling that the economic model wasn't working, and then there was this great depression. So there was affection for this, the big state idea, and we're all in it together, all for one, one for all.

But there was a sense that it wasn't cutting it in the modern economy. So in the 1990s, Sweden started undergoing a capitalist makeover. At first, it was just to stabilize the economy. So they started by bailing out all the banks, and then I think they put in these strict government spending rules. Then it was ending government monopolies in certain industries. And then they started to privatize and to privatize lots of different sectors,

like electricity and the postal service, telecoms, to introduce some private energy into those. It also partially privatized its health care system. system. Today, nearly half of the country's primary clinics are privately owned, many by private equity firms. Tom went to see one. They have these beautiful clinics where it look like kind of spas. So yeah, very, very different from the sort of, I mean, I'm British, very different from the experience we're used to in most of Europe with publicly funded healthcare. How is it, how is the system funded though? I mean, they don't have health insurance there, do they? It's publicly

funded, but privately operated. So it encourages the private operators to find efficiencies. Another third rail that Sweden's government reformed pensions. In most of Europe, government pensions, or as we call it in the U.S., social security, are a huge benefit program. But as populations of age across Europe, there aren't enough workers to continue funding pension programs and it's strained budgets. In Sweden, the pension program was reformed in the 1990s to fix that problem.

There's a sort of automatic mechanism, I think, where if the pension system is getting too expensive, then the retirement age automatically increases without any need for government intervention. And then they also introduced this private element where individuals, for the first time, could choose how to invest their pension fund. So similar to a 401k in the U.S. This might not sound all that out there for people in the US who have 401ks. But for Europe, investing in a stock market is kind of rare. It sort of kicked off this idea of private investment in the stock market,

which is unusual in Europe, that most people don't invest in the stock market. In Germany, it's very rare, and people stash money in bank accounts. In places like France or even in the UK, there's very little understanding among regular people. I mean, individuals don't really dabble in the stock market very much. in Europe, whereas in Sweden they do, and there's much more of a stock market culture there. Sweden also cut unemployment benefits and housing subsidies and imposed strict limits on government debt. Sweden's debt to GDP is just 36%, compared with 129% for the U.S.

Sweden is still paying for a lot of benefits, but working with the private sector has allowed the size of government to shrink significantly. What about those really high taxes that you mentioned earlier? Yeah, so they saved money by cutting the welfare state, and so they could gradually reduce taxes. And the people I was speaking to were saying that it's more advantageous than the US tax-wise, that they have no real estate tax, they have no wealth tax, there's no inheritance tax anymore.

So yeah, if you're a sort of regular professional, I think this guy who lived in California moved back to, to Stockholm recently said that he essentially paid less tax in Sweden than he did in California. Income tax is still high, but some of the other real estate taxes have disappeared. Research by the Stockholm School of Economics found that after Sweden removed inheritance and gift taxes in 2005, private firms with potential family successors grew faster and invested more. A combination of lower taxes and a culture of private investment has spurred Sweden's tech industry. Unlike the rest of Europe, Sweden has a lot of valuable tech companies.

And there's some of the big names that you've heard in the U.S. like Spotify and Klinner. There's one called Loveable, which is this new kind of AI startup that's doing very well too. Sweden also produces around 10 times as many unicorns per capita as Germany and France. A unicorn, by the way, is a private company with a valuation of over a billion dollars. They've had a higher value of IPOs in Sweden than maybe some of the bigger economies like Germany, UK, France put together over the last few years. There's an investment culture, there's this buzzy tech sector

and then there's also the fact that the government is pulling back from the economy and that the government share of GDP is shrinking. What impact overall has all this had to Sweden's economy? It seems to be very positive. The IMF had some projections recently that show over the next five or six years the Swedish economy should be growing about 2% a year which is similar to the US

it's more than double countries like Germany and France in the UK and yeah this economist told me the real incomes have doubled since the 1990s there's a lot of I think a lot of economic buzz around Sweden

but there are also downsides to this and there is angst and concerned that some of these privatizations have gone too far. Who's losing out under this system? That's after the break. In Toronto, every arrival is a statement, and nothing says it better than this.

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for calendar year 2025 for the Cadillac definition of luxury. Since the 1990s, Sweden has moved from cradle to the grave socialism to hyper-capitalism in some sectors, lowering government spending and spurring innovation. Has there been any backlash to this movement toward capitalism, generally speaking? I think so. I think there seems to be a general feeling, even from some of the private equity executives that I spoke to, that maybe some of these reforms had gone too far and that too much money was taken out of the hands of the state. One of the guys I spoke to has written this book called Greedy Swedes, where he talks about this sort of shift in mentality and lots of kind of internet millionaires and billionaires in Stockholm, but around the suburbs of

Stockholm, these kind of ghettos, essentially. It's a society that wasn't like that at all. It was much more uniform, and now there's much more extremes in wealth because of these reforms. One of the most controversial changes Sweden has made is to schools. One in three public high schools in Sweden are now privately run. Tom visited one of these schools in a city called Malmo. It was a school that was set up or initiated by the local skateboarding association, and it's set up inside this old brewery on the outskirts of Malmo. and it overlooks this enormous indoor skate park.

Look on YouTube, and you can find videos of the school. Regret Gymnasium. This is one from the Skate Nomad. So if you want your kids to skate like this, you just have to open a school, you know. And I spoke with the skate, there's a skateboarding professor who was... A skateboarding professor? Yeah, he is.

Can you take like a minor in kickflips or something? Major in dropping into the house. It's a school subject, yeah, they study it, and he had all sorts of psychology that he was telling me about the psychology of skateboarding. We have found that it works pretty well not to leave what you're passionate about at home, but actually bring it into school. The school is able to support students who may have become disconnected from a more typical public school. And with the freedom to spend money how they like, it chooses to invest in skate equipment and nicer computers. This school is a non-profit, but a lot of the privately run schools are for-profit,

which some believe has eroded the quality of the school system. One school operator is even listed on the stock market, and around one in 10 high school students go to one of its schools. And there's a lot of analysts in Stockholm you think that's a really terrible idea, because they think that the private operators have an incentive to cut corners. For instance, make playground smaller,

make libraries smaller, have fewer teachers. You know, the ways that they would try to save money are problematic and maybe reduce school standards. Sweden's standing and international testing has fallen recently, leading to a fierce debate about whether privatization could be a factor. The government is trying to tighten the rules around running a for-profit school so that only long-term high-quality operators remain. The private school operators argue that they're cutting administrative waste

and that they need profits to be able to reinvest. Some Swedes are also getting squeezed in the housing market. Young people, they seem to be struggling much more because the rental prices have risen. And there used to be a culture of providing social housing for young people as well. And as the money is drained out of the public sector, those kind of opportunities are less.

And I think in Europe, people in their 20s often live with their parents. Sweden was an exception for many. years, but more and more Swedes are spending longer at home with their parents because there are fewer options for them. Another group that's been hurting is immigrants. Over the last 20 years, Sweden has seen waves of immigration after major wars, from Afghanistan to Syria and most recently Ukraine.

This relatively homogeneous society had a huge influx of immigrants. So the share of foreigners in the population, increased from about 9% or so in 2000 to currently about 20%, which is higher than the US. But as the country has cut back on benefits, it's meant that these immigrants have had a harder time getting a foothold. They're giving people sort of minimal benefits when they arrive and requiring that they join the labor market for five years before they get any benefits. And because a lot of the newcomers struggle to get into the labor market and struggle with those high unemployment, there was also a lot of,

crime in some of the areas where they arrived. There was a feeling that they weren't part of this Swedish social safety net and that they were, you know, there was more reluctance to finance them and to finance their generous unemployment benefits. Sweden's shift towards capitalism seems like it might be slowing, though. There's a nationwide election in September. After a few years of center-right ruling parties,

recent polling shows the social Democrats, historically the party of big government, is in the last. lead. Despite some backlash, Sweden's economy continues to outpace much of the rest of Europe. One of the lessons maybe is that shaking up the system is helpful, that sometimes I think the tendency in Europe is to just add and add and add to sort of the public sector and get the public sector to do more and more. And Sweden just shook that up completely and injected new forces in that.

and maybe that's something that Europe could learn from. I mean, for me, I feel like the takeaway isn't necessarily that everybody should be more capitalists all the time, but that there's a balance. And sometimes you need to press the gas on more capitalism, and sometimes in some countries you need to pull back on it. Sort of like a pendulum. Yeah, that's right. I mean, I suppose there's a question of which model works better.

Should you be allowing the free market? And is that what generates the most success in wealth? Or are we in a new phase of the world economy where the government needs to take a much stronger role? And that's the only way that you can protect your way of life. It's a pendulum. And maybe over the last 30 years it's swung in one direction in Sweden and maybe now with these new pressures,

then the government will have to change direction again. So, yeah, it's just sort of a pendulum. That's all for today. Monday, June 8th. The Journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.