Real-political Entrepreneurship

The Economist discusses how Sweden is doing better than most Western countries at the moment. The article focuses on the great shape of the economy thanks to the policies of the recent (since 2006) non-socialist government, which has pushed down public spending (as a fraction of GDP; the debt level has decreased only a little in real terms) and lowered taxes. This is undoubtedly an important part of the story, since Sweden’s welfare system has been restructured to provide sound incentives and put focus on productive work.

But the origin of the sound finances can be found in the severe recession that culminated 1992. At that time, Sweden experienced a huge banking crisis, the currency’s exchange rate plummeted, and the government was forced to cut severely in the budget not to face bankruptcy. In the aftermath of the crisis, government established rules enforcing strictly balanced budgets and made it necessary to present detailed financing for reform proposals. This crisis completely changed the political climate.

As a result, and mostly under social democratic governments (1994-2006),  Sweden paid off some of its national debt and got rid of deficit spending through budget cutbacks and continuously changing the system, the so-called Swedish Model, towards a more rational incentives-based social welfare system. The crisis, in this sense, changed the political incentives and called for necessity entrepreneurship.

During this period, Mr. Reinfeldt (prime minister 2006-) almost completely did away with the leading opposition party’s ideological heritage in order to become a “social democrat light” – more economically sound, but with no promised radical reforms. This “entrepreneurial” move from within the framework of realpolitik shifted the focus of the political debate in Sweden, and resulted in a change of government – from the “real” social democrats to an alliance of “new” social democratic parties with a similar agenda.

In other words, the crisis in the early 1990s provided the social democrats incentive to step up and become more financially sound in their policies, which deprived the opposition of their comparative advantage: the image of being “better at economics.” The opposition, especially through the creation of the significantly “softer” New Moderate Party (the “less right wing” incarnation of the Moderate Party), responded by adopting social democratic rhetoric (for which there is obvious demand in Sweden) while playing on their appearance as “better managers” of the existing system.

Entrepreneurial realpolitik or public entrepreneurship at work. Or, if you will, an example of the race to the center.

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