The Swedish Model?
January 26, 2011 Leave a comment
More on Nordic entrepreneurship: In today’s Wall Street Journal Europe, Swedish MP Johnny Munkhammar writes about the Swedish Model and why the Nordic country survived the financial crisis relatively unscathed. Munkhammar’s historical summary does not quite correspond to the facts (especially to this writer’s interpretation) but, more fundamentally, the piece suggests, implicitly, a deep-rooted connection between economic freedoms and entrepreneurship. Indeed, the eased regulations in the health care industry are claimed to have caused “a robust surge in entrepreneurship.”
As Ludwig von Mises wrote, “[i]n eliminating the entrepreneur one eliminates the driving force of the whole market system.” While regulations and, using Robert Higgs’s term, “regime uncertainty,” perhaps do not “eliminate” the entrepreneur, they increase the cost for entrepreneurial action. Sweden has not suffered from the latter, but has enjoyed a fairly stable regulatory framework (except for the in the 1970s and 1980s). The problems have been primarily due to the former, and the increased economic freedoms Munkhammar mentions have had a very positive effect.
In fact, Sweden has had a quite unexpectedly positive experience of the changes made to the welfare system. Sweden is far from a free economy, despite Munkhammar’s view of only a few remaining obstacles, but the experience over the past couple of decades clearly show the power of entrepreneurship: how a little easing of restrictions and regulation can lead to enormous wealth creation and increased overall standard of living.
Entrepreneurship is no doubt the “driving force” of the market, and even slight increases in economic freedom may have amazing effects on the creative entrepreneurial process. But we should also remember, in the words of Douglass North, that “institutions matter” — without somewhat intact and supportive institutions, entrepreneurship may not take off. Sweden provides an interesting example of a heavily regulated economy where the market has still been allowed to create its own supportive institutional framework. The basis for entrepreneurship was already there; what was needed was but a little freedom for entrepreneurs to act on and profit from discovered and imagined opportunities. (If only Detroit could follow suit. . . .)