Welfare State Sweden Overcomes the 500% Interest Rate Crisis

In the late 19th century, Sweden was a poor agricultural country whose per capita income was far below that of its neighboring European countries.

In the 1860s, it carried out trade liberalization and deregulation, and through free trade agreements with Britain and France it began exporting its abundant natural resources. This laid the foundation for the growth of today's global companies such as Ericsson and Volvo.

Thanks to its history of pursuing economic growth, Sweden came to possess a sound national finance and a strong military.

In particular, it boasted the world's fourth-largest air force and ran its own nuclear weapons development program until the mid-1960s, establishing itself as a military power. Within the Cold War system, it maintained neutral diplomacy as a third option.

From the 1960s onward, as the Social Democratic Workers' Party held power, state spending surged and excessive welfare policies were implemented.

The real income tax rate, calculated in 1976 by children's author Astrid Lindgren, reached 102%, and the tax burden became crushing. Many entrepreneurs and capitalists, including IKEA founder Ingvar Kamprad, moved their businesses abroad to escape taxes. This situation led to the 1992 financial crisis, when the central bank was forced to raise the benchmark interest rate to an unprecedented 500%.

Beginning in 1993, the Social Democratic Workers' Party, a left-leaning party, and the Moderate Party, a conservative party, set aside ideological politics and joined hands.

To save national governance, they shifted to a pragmatic course, introducing a national fiscal framework and enacting into law a budget surplus of at least 1% of GDP, among other reforms.

While other European countries and the United States struggled with fiscal crises as their national debt ratios hovered around 100% of GDP, Sweden kept its national debt ratio at about 35% of GDP.

This was the result of firmly building the nation's fiscal soundness through strict fiscal rules and a pragmatic course.

Rather than harshly taxing the wealthy and driving them abroad, it judged that eliminating the tax would better serve the national economy by keeping wealth and corporate capital inside Sweden. This encouraged business families and capitalists to return home and invest in venture capital and startups.

Thanks to this policy, more than 40% of Sweden's total population holds an ISK account, and over 50% of household financial assets are composed of stocks and funds, well above the European average of 25%.

The Stockholm Stock Exchange has become more active, and market-based competition has been introduced into public service sectors, boosting overall economic vitality.

Based on the recognition that sustainable welfare requires national competitiveness, a social consensus has formed that individuals, too, should contribute to economic growth through investment alongside the state.

After the outbreak of the Russia-Ukraine war, Sweden boldly abandoned its long-held neutral status and joined NATO as a pragmatic security policy.

Sweden has also discovered Europe's largest rare earth deposit in the Kiruna region, and it is putting into practice a self-centered pragmatic diplomacy based on strong economic power, capital, and security sense.