Ministry of Finance Sweden How Competitive is the Social Market Economy? May 19, 2011 Swedish...

Ministry of Finance Sweden

How Competitive is the Social Market Economy?

May 19, 2011

Swedish Minister for Finance Anders Borg


Agenda

• Europe’s different social models and their performance

• The Swedish case• The challenges ahead


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


Sapir’s study updated: Nordic model still performs best on equality and efficiencyEmployment rates and probability of escaping poverty in European Social Systems 2009, %. Source: Eurostat

AT

DEFI

FR

DE

GR

IRE

IT

NL

PT

SP

SE

UK

Cont

Med

BE LUX

Nordic

Anglo

EU

78

80

82

84

86

88

90

92

50 55 60 65 70 75 80

Employment rate

1 -

po

ve

rty

ra

te


Strongest public finances in Nordic modelNet lending and gross debt 2010, % of GDP. Source: Eurostat

ES

LUSE

FI

NordicDK

UK

NLAT

Cont

EU15FR

DE

Anglo

IE

EL

IT

Med

BE

PT

-35

-30

-25

-20

-15

-10

-5

0

0 20 40 60 80 100 120 140 160

Consolidated gross debt

Net

lend

ing


Smallest income inequalities in Nordic modelIncome distribution measures: Gini-coefficient and 1-poverty rate. Source: Eurostat

AT

BE

DEFI

FR

DE

GR

IT

LUX

NL

SP

SE

UK

Cont

Med

IRE

Nordic

Anglo EU

78

80

82

84

86

88

90

92

24 25 26 27 28 29 30 31 32 33 34

Ginikoefficient

1 -

po

ve

rty

ra

te

Percentage


Labour market performanceUnemployment and employment in 2010, %. Source: Eurostat

Employment rate in 2010

40 45 50 55 60 65 70 75

Unem

plo

ym

ent

in 2

010

2,5

5,0

7,5

10,0

12,5

15,0

17,5

20,0

22,5

BE

DK

UK

FR

IT

Med

SE

IE

Anglo

AT

LU

Cont

Nordic

ES

FI

GR

DE

PT

NL

..

.

.

.


Agenda




A strong fiscal performance since the deep recesseion of the early 1990sSwedish net lending, % of GDP

-12

-10

-8

-6

-4

-2

0

2

4

6

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


Strong growthReal GDP-growth. Sources: Eurostat, Bureau of Economic Analysis.

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

pe

rce

nta

ge c

ha

nge

-Yo

Y

-7,5

-5,0

-2,5

0,0

2,5

5,0

7,5

pe

rce

nta

ge c

ha

nge

-Yo

Y

-7,5

-5,0

-2,5

0,0

2,5

5,0

7,5

Sweden

Eurozone

United States

Sweden

Eurozone

United States

Sweden

Eurozone

United States


Swedish employment increasing morePercentage change compared with same quarter of previous year. Sources: Statistics Sweden, U. S. Bureau of Labor Statistics, Eurostat.

-5

-4

-3

-2

-1

0

1

2

3

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Sweden United States Eurozone


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


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


Reduced marginal and average tax rates in Sweden

0%

10%

20%

30%

40%

50%

60%

0 50 000 100 000 150 000 200 000 250 000 300 000 350 000 400 000 450 000

Earned income

Mar

gin

al t

ax r

ate

MTR w/o EITC + threshold

MTR w. EITC + threshold


Reduced marginal tax wedge on labourMarginal 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.


Swedish reforms to unemployment benefitsNet income replacement rates for unemployment (first year), % of earnings. OECD Going for Growth, 2011.


Swedish reforms to disability and sick benefits have paid offNumber of weeks lost due to sick leave. OECD Going for Growth 2011.


Fewer people outside the labour marketShare of the population 20-64 years in various benefit schemes, 1970-2015 (forecast 2011-2015).

0

5

10

15

20

25

30

70 75 80 85 90 95 00 05 10 15

Unempoyment benefitsLabour market measuresSubsistence allowanceSickness benefit and sick paySickness and activity compensation


Strong fiscal policy frameworksin the Nordic modelStandardised fiscal rules index, 2008. Source: EU Commission.

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

BE DE LU FR AT DK NL FI SE EL ES PT IT IE UK

Cont. avg. = 0,8

Nordic avg. = 1,4

Med. avg. = 0,2

Anglo avg. = 0,8


Agenda




Persistent and large deficits will complicate future expansionary fiscal policyCyclically adjusted budget balance 2016, as a share of potential GDP, %

Källa: IMF Fiscal Monitor, 2011

Average advanced economies

-8

-6

-4

-2

0

2

4

Japan

Unit

ed

Sta

tes

Spain

Port

ugal

Belg

ium

Advance

d

Irela

nd

Italy

Aust

ria

Gre

ece

France

Unit

ed

Kin

gdom

Germ

any

Neth

erl

ands

Sw

eden

2016


Large future financing needs Maturing debt and budget deficit 2011, % of GDP

-10

0

10

20

30

40

50

60

J apa

n

Gree

ce

United

States

Weig

hted

Ave

rage

Italy

Belgi

um

Portu

gal

Fran

ceSp

ain

Irelan

d

Cana

da

United

Kingd

om

Germ

any

Finla

nd

Swed

en

Austr

alia

Förfallande skulder Budgetunderskott Totalt finansieringsbehovKälla: IMF Fiscal Monitor, 2011

Average advanced economies


Dramatic increases in health care costsForecast increase of public health care expenditure 2011-2030, % of GDP. Source: IMF Fiscal Monitor, 2011.


Europe’s educational systems must improve considerablyPISA score in reading, 2009

450

460

470

480

490

500

510

520

530

540

550

Med

Cont

EU-15

OECDAng

lo

Sweden

Nordic

Austra

lia

New Zea

land

Singap

ore

Hongko

ng

South

Kore

a


Poor labour market performanceHarmonized unemployment, % of labour force. March 2011, except EE, GR, LT, LV, RO (Dec 2010) and UK (Jan 2011). Source: Eurostat.

es

lt lv

ieee gr sk

hubg pt

pl EU27 fr

it fi si dk be se uk ro cy czde mt

lu at nl

0

5

10

15

20

25


Increased competition: China’s share of world trade now greater than the US and Germany Share of world trade of goods, %. Source: WTO

0

5

10

15

20

25

1948 1958 1968 1978 1988 1998 2008

USA France

Germany Sweden

China


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

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