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What Democratic Socialism Does to Economic Prosperity

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Many Americans support “democratic socialism” and point to Sweden as a successful example. However, Sweden’s experiment with socialist policies was a disaster that significantly reduced its economic growth for decades. To restore growth and prosperity, the country had to undertake major market-based reforms.

Discussion Questions

  1. Despite the results, why is there growing support for democratic socialism?
  2. Can democratic socialism ever function properly?

Additional Resources

  • Read “How Sweden Overcame Socialism” by Lee E. Ohanian and Jesús Fernández-Villaverde, available here.
  • Watch “Socialism’s Empty Promises” by Milton Friedman, David Davenport, Allan Meltzer, Thomas Sowell. Available here
  • Read “Lessons From The European Welfare State” by Allan H. Meltzer. Available here.
View Transcript

Popular support for “democratic socialism” is on the rise, with many calling for the United States to adopt policies similar to European countries that have gone down that route. 

Supporters often point to Sweden as a successful example, but in terms of economic growth, a closer look reveals that its experiment with socialist policies was disastrous. 

Sweden turned to socialism in the 1970s, raising taxes and spending, and imposing more regulation than most other Western European countries. 

As a result, its economic growth slowed to almost half as fast as the rest of Europe or the United States for two decades. 

By the early 1990s, its government was spending over seventy percent of everything earned in the economy. 

To restore growth and prosperity, Sweden then undertook major market-based reforms, cutting taxes and government spending. 

It deregulated its utilities industries, cut corporate taxes, and changed its social safety net to help those receiving assistance to find jobs. 

Sweden’s recent experience with market-based reforms have made its economy grow faster than the other major countries in the European Union and enriched its citizens. 

The lesson for the United States is clear: “Democratic socialism” diminished Sweden’s prosperity and required significant market-based reforms to bounce back.