How Competitive is the Social Market
Economy?
May 19, 2011
Swedish Minister for Finance Anders Borg
Ministry of Finance Sweden
Agenda
• Europe’s different social models and their
performance
• The Swedish case
• The challenges ahead
Ministry of Finance Sweden
Europe’s different models
• Four distinct models (André Sapir’s typology)
– Nordic: Sweden, Denmark, Finland,
Netherlands
– Rhineland/continental: Germany, France,
Austria, Belgium, Luxembourg
– Anglo-Saxon: Ireland, UK
– Mediterranean/Southern European: Portugal,
Greece, Italy, Spain
Ministry of Finance Sweden
Sapir’s study updated: Nordic model still
performs best on equality and efficiency
Employment rates and probability of escaping poverty in European Social Systems 2009, %.
Source: Eurostat
92
90
NL
1 - poverty rate
88
AT
Nordic
FR
86
BE
IRE
Cont
LUX
DE
EU
84
DE
SE
FI
Anglo
UK
PT
82
IT
80
Med
SP GR
78
50
Ministry of Finance Sweden
55
60
65
Employment rate
70
75
80
Strongest public finances in Nordic model
Net lending and gross debt 2010, % of GDP. Source: Eurostat
0
SE
LU
DK
FI
Nordic
-5
Cont
NL
AT
EU15
DE
BE
FR
Net lending
PT
ES
-10
IT
Med
UK
EL
-15
-20
Anglo
-25
-30
IE
-35
0
20
40
60
80
100
Consolidated gross debt
Ministry of Finance Sweden
120
140
160
Smallest income inequalities in Nordic model
Income distribution measures: Gini-coefficient and 1-poverty rate. Source: Eurostat
Percentage
92
90
NL
AT
88
1 - poverty rate
Nordic
SE
FR
DE
FI
86
Cont
BE
IRE
LUX
DE
84
EU
Anglo
UK
82
IT
Med
GR
SP
80
78
24
25
26
27
28
29
Ginikoefficient
Ministry of Finance Sweden
30
31
32
33
34
Labour market performance
Unemployment and employment in 2010, %. Source: Eurostat
Ministry of Finance Sweden
Agenda
• Europe’s different social models and their
performance
• The Swedish case
• The challenges ahead
Ministry of Finance Sweden
A strong fiscal performance since the
deep recesseion of the early 1990s
Swedish net lending, % of GDP
6
4
2
0
-2
-4
-6
-8
-10
-12
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Ministry of Finance Sweden
Strong growth
Real GDP-growth. Sources: Eurostat, Bureau of Economic Analysis.
Ministry of Finance Sweden
Swedish employment increasing more
Percentage change compared with same quarter of previous year.
Sources: Statistics Sweden, U. S. Bureau of Labor Statistics, Eurostat.
3
2
1
-2
-3
-4
Sweden
-5
Ministry of Finance Sweden
United States
Eurozone
2011
2010
2009
2008
2007
2006
2005
2004
2003
-1
2002
0
The success of the Swedish model 2.0
• Commitment to sound public finances
– Fiscal policy framework, surplus going into down-turn
• Making work pay again
– Earned-Income Tax Credits, reformed benefits-systems
• Pro-growth structural reforms
– De-regulation, state-owned companies sold, competition
introduced in health care and education
– Reforms to the pension system, abolished wealth and
inheritance taxes
• Education and helping weaker groups’ employment prospects
– Improving educational outcomes, ALMP, vocational training,
cutting employer fees for weaker groups
Ministry of Finance Sweden
Actions to get more people into work
Further structural measures in the labour market to increase employment
and limit long-term unemployment
•
•
•
•
Increased labour supply
– Work-first principle
– Tax cuts on labour income
Well-functioning educational system
– Apprenticeships
– Reformed upper secondary school
– Measures to increase teacher quality
Better functioning labour market
– More efficient Public Employment Service
– Active labour market policies
Increase demand for weaker groups
– Minor adjustments in employment protection
– Lower VAT in the service sector
Ministry of Finance Sweden
Reduced marginal and average tax
rates in Sweden
60%
50%
Marginal tax rate
MTR w/o EITC + threshold
40%
30%
20%
MTR w. EITC + threshold
10%
0%
0
50 000
100 000
150 000
200 000
250 000
Earned income
Ministry of Finance Sweden
300 000
350 000
400 000
450 000
Reduced marginal tax wedge on labour
Marginal tax wedge on labour, as percentage of total labour compensation, at 100% of
average worker earnings, single person without children. OECD Going for Growth 2011.
Ministry of Finance Sweden
Swedish reforms to unemployment
benefits
Net income replacement rates for unemployment (first year), % of earnings.
OECD Going for Growth, 2011.
Ministry of Finance Sweden
Swedish reforms to disability and sick
benefits have paid off
Number of weeks lost due to sick leave. OECD Going for Growth 2011.
Ministry of Finance Sweden
Fewer people outside the labour market
Share of the population 20-64 years in various benefit schemes, 1970-2015
(forecast 2011-2015).
30
Unempoyment benefits
Labour market measures
Subsistence allowance
Sickness benefit and sick pay
Sickness and activity compensation
25
20
15
10
5
0
70
75
Ministry of Finance Sweden
80
85
90
95
00
05
10
15
Strong fiscal policy frameworks
in the Nordic model
Standardised fiscal rules index, 2008. Source: EU Commission.
2,5
2,0
Nordic avg. = 1,4
1,5
1,0
Cont. avg. = 0,8
Anglo avg. = 0,8
0,5
Med. avg. = 0,2
0,0
BE
DE
LU
-0,5
-1,0
-1,5
Ministry of Finance Sweden
FR
AT
DK
NL
FI
SE
EL
ES
PT
IT
IE
UK
Agenda
• Europe’s different social models and their
performance
• The Swedish case
• The challenges ahead
Ministry of Finance Sweden
Persistent and large deficits will
complicate future expansionary fiscal
policy
Cyclically adjusted budget balance 2016, as a share of potential GDP, %
4
2
0
-2
-4
Average advanced economies
2016
Ministry of Finance Sweden
Sweden
Netherlands
France
United
Kingdom
Germany
Greece
Austria
Italy
Ireland
Advanced
Belgium
Portugal
-8
Japan
United
States
Spain
-6
Källa: IMF Fiscal Monitor, 2011
Large future financing needs
Maturing debt and budget deficit 2011, % of GDP
60
50
40
30
Average advanced economies
20
10
pa
G n
W nit ree
ei ed c
gh
e
te Sta
d
t
Av es
er
ag
e
It
Be aly
lg
i
Po um
rtu
g
Fr al
an
ce
Sp
a
Ire in
la
U
n
ni
C
te an d
d
Ki ada
ng
d
Ge om
rm
a
Fi ny
nl
a
Sw n d
e
Au den
st
ra
lia
0
U
Ja
-10
Förfallande skulder
Ministry of Finance Sweden
Budgetunderskott
Totalt finansieringsbehov
Källa: IMF Fiscal Monitor, 2011
Dramatic increases in health care
costs
Forecast increase of public health care expenditure 2011-2030, % of GDP. Source:
IMF Fiscal Monitor, 2011.
Ministry of Finance Sweden
Europe’s educational systems must
improve considerably
PISA score in reading, 2009
550
540
530
520
510
500
490
480
470
460
Ze
al
an
d
Si
ng
ap
or
e
Ho
ng
ko
ng
So
ut
h
Ko
re
a
lia
Ne
w
Au
st
ra
No
rd
ic
Sw
ed
en
An
gl
o
O
EC
D
EU
-1
5
Co
nt
M
ed
450
Ministry of Finance Sweden
Poor labour market performance
Harmonized unemployment, % of labour force. March 2011, except EE, GR, LT,
LV, RO (Dec 2010) and UK (Jan 2011). Source: Eurostat.
25
es
20
lt
15
lv
ie
ee
gr
sk
hu
10
bg
pt
pl EU27 fr
it
fi
si
dk
be
se
uk
ro
cy
cz
de
5
0
Ministry of Finance Sweden
mt
lu
at
nl
Increased competition: China’s share of world
trade now greater than the US and Germany
Share of world trade of goods, %. Source: WTO
25
20
USA
France
Germany
Sweden
China
15
10
5
0
1948
Ministry of Finance Sweden
1958
1968
1978
1988
1998
2008
Conclusions
• The Nordic model still seems to perform the best
– Stronger public finances, stronger labour market,
lower inequality
• Performance depends on a number of institutional
factors
– Education, fiscal policy frameworks, innovation,
transparency
• Sweden’s development helped by structural reforms
• Key future challenges for all social and economic
models
Ministry of Finance Sweden