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Trading  | August 21, 2018

Authored by José Niño via The Mises Institute,

Are cracks emerging in the Swedish welfare state?

Leftist experts routinely praise the country for its generous welfare state, and cast shame on countries in the Anglo sphere, such as the United States, for not adopting Nordic style welfare systems.

Although Scandinavian countries feature sizeable welfare states, they are far from socialist. However, the presence of welfare mechanisms in an economy can still be problematic.

At the moment, Sweden is experiencing trouble in assimilating its immigrant population. Recent reports reveal a rising number of violent crimes in immigrant suburbs. Although Sweden’s overall crime rates are low, the country is experiencing increasing levels of gang violence and shootings, and the emergence of immigrant ghettoes.

This is not exclusive to Sweden, as other European countries like France, have had numerous issues with immigrant assimilation. Such troubles from new arrivals has spurred a populist uprising across Europe, with Sweden joining in the mix. In Sweden, the Sweden Democrats, an anti-immigration party, has gained steam campaigning on immigration.

The topic of immigration is nuanced, and both sides of the debate (closed vs. open borders) raise valid concerns. But there might be something more to this immigration assimilation conundrum than meets the eye.

Sweden Is not so Exceptional

Sweden’s vaunted welfare state could be the very culprit behind the recent wave of immigrant unrest. Since the publication of Nina Sanandaji’s Scandinavian Unexceptionalism, a growing number of intellectuals have started to remove the magical aura of the Scandinavian welfare model.

Scandinavian Unexceptionalism sheds light, however, on one overlooked development – immigration and assimilation. Sanandaji argues that the welfare state has impaired immigrants’ when it comes to integrating into, and contributing to, the Swedish economy.

Providing a balanced approach to the topic, Sanandaji offers a positive portrayal of immigration trends in the mid-twentieth century, highlighting how “the rate of employment for foreign-born residents was 20 per cent higher than that for the average citizen” in 1950s.

But as Sweden’s welfare state grew and its labor policies tightened, Sweden’s once rosy immigration story started to produce several worrisome trends, which Sanandaji covers in detail:

By 2000, however, the rate of employment was 30 per cent lower for the foreign-born residents. Another comparison shows that, in 1968, foreign-born individuals had 22 per cent higher income from work compared with those born in Sweden. In 1999, the average income of foreign-born residents was 45 per cent lower than that of those born in Sweden.

Middle Eastern immigrants, in particular, have bared the brunt of this integration dilemma.

Since the 1970s, Sweden has attracted immigrants from Middle Eastern countries such as Iraq, Iran, and Turkey — the author of Scandinavian Unexceptionialism himself is a Swede of Iranian origin. Initially, these immigrants were able to assimilate without issue.

However, in present times, Middle Eastern immigrants in Sweden are not reaping the same benefits as their counterparts in more labor-friendly countries such as the United States. Sanandaji’s shares how Iranian and Turkish immigrants’ work income stacks up against native Swedes:

Between 1993 and 2000, the income from work for the average Iranian immigrant was only 61 per cent, and for the average Turkish immigrant 74 per cent, of the average income of a native Swede.

In contrast, Iranian and Turkish immigrants to the United States have fared better:

According to the US Census for 2000, those born in Iran had an income that was 136 per cent of the average for native-born US residents. Those born in Turkey had an income of 114 per cent of the average for native-born residents.

Sanandaji concedes that differences exist between Iranian and Turkish migrants to the United States and those who migrated to Sweden. Nevertheless, Sanandaji contends that the differences alone cannot explain the huge gap in economic outcomes between the immigrant groups, since “many of those who left for Sweden had belonged to the Turkish or Iranian middle classes.”

Coming to Grips with the Toxicity of the Welfare State

So there may be overlooked institutional factors at play when analyzing Sweden’s immigrant dilemma. This is part of a systemic problem sweeping across Europe since bureaucratic entities like the European Commission have sponsored generous refugee programs.

These programs’ perverse incentives have created a form of “asylum shopping” where refugees bounce from one country that grants them asylum to another one with more generous welfare benefits.

A more sensible solution to this problem would be for private organizations to sponsor immigrants and refugees without having the state involved in any form of welfare provision. Ideally, there would be free movement of people to whichever location aligns with their interests.

But due to the welfare state creating distortions and questionable incentives, an open border system, as currently constructed, would not send out accurate market signals of economic opportunity.

It may be time for mainstream pundits to admit that the Nordic model of generous welfare states comes with significant costs. Although Nordic countries still enjoy high levels of economic freedom, their creeping levels of welfare socialism can still present problems.

Government’s natural tendency to grow and the presence of welfare states allow for politicians to buy votes and pursue myopic policies for the sake of political expediency. But like all government intervention, welfare policies comes with a cost — both economically and socially.

Recognizing this uncomfortable truth will bring us closer to understanding that free markets are the solution to the current problems. Flirting with another variant of statism — social democracy in this case — needs to be completely discarded just like other statist systems that have come before it.

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