Balancing a Budget ... Socialist Style!

PrintEmail

I am hardly one to recommend a piece by a socialist on how to balance a budget. I find the very idea of 'a red' balancing a budget anathema to socialist thinking.
 
But I was pleasantly surprised to read a succinct piece by Jens Henriksson on how the Swedish Social Democratic government addressed the country's deficit in the mid-to late 1990s. Henriksson, a former State Secretary at the Ministry of Finance of Sweden, both addresses Sweden's fiscal crisis and, more importantly, how to overcome the inevitable political obstacles to reforming the system.  
 
Sweden, that country often cited as the Left's utopia, encountered an unprecedented banking collapse in the mid-90s, which lead to a ballooning of the deficit, a rapidly declining currency and a crippling level of interest on the national debt. (The history of Sweden's banking crash can be read here and here.) In 1994 the Organisation for Economic Cooperation and Development even predicted that Sweden's national debt would reach 128 percent of the GDP within six years. But through an aggressive package of budget cuts (action that severely stretched the loyalty of Sweden's Social Democrats), Sweden went on to enjoy a robust budget surplus within a matter of years, and became one of the greatest exporters in the world.
 
Some of Henriksson’s document may well make conservatives (such as myself) squirm, particularly when he states that in order to convince the populace of the necessity to cut public spending one must also increase the top rate of income tax. This was a political rather than an economic solution to appease the Left.
 
Take the Labour government in the United Kingdom, for example, which has sought to use this argument by hiking up the top level of income tax to 50 percent. But they have thus far failed to address the urgent need for aggressive spending cuts. The Conservative Party appears to be contemplating the prospect of doing both. The fact that the UK's opposition has thus far failed to state that they would overturn the tax hike says a lot.
 
Furthermore, the Social Democrats slashed public spending across every government department, only halting the knife at pivotal frontline services. This, incidentally, did not save child benefit and other welfare programs.
 
Henriksson's piece is certainly worth scanning, and he raises a few points that those of us on the other side of the political aisle would otherwise be unlikely to contemplate. For example, why would a Swedish socialist want a high national debt when the interest only reduces the amount of expenditure on key frontline services?
 
Henriksson also debunks the argument by President Barack Obama and Prime Minister Gordon Brown that additional spending is required to stave off further economic catastrophe, saying that "if you argue like that you have to be consistent with the times and be just as strong an advocate of running a surplus in the good times."
 
Unfortunately, despite the Labour Party’s tendency to cite the Swedish model as the ideal solution to all of Britian’s woes, they appear to be avoiding their social counterpart’s fiscal path. Of course, the world has never seen a crisis quite like what is happening in the UK and the Swedish model is not a guaranteed fix. In this time of need, the world should perhaps look again to Sweden--but this time for a new fiscal model rather than for how a social democratic state should function. Henriksson is the ideal salesman.