Why Sweden Embraced Capitalism

Summary

Podcast Summary: The Journal – "Why Sweden Embraced Capitalism"

Date: June 8, 2026
Hosts: Ryan Knutson & Jessica Mendoza
Guest: Tom Fairless, Global Economics Correspondent

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Overview of the Episode

This episode delves into Sweden’s remarkable shift from its renowned cradle-to-grave welfare state and high-tax, big-government model to a dynamic, entrepreneurial economy with much lower government spending. It explores why and how Sweden embraced capitalism in recent decades, the impacts of its economic liberalization, and the new social and political challenges that have emerged as a result.

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Key Discussion Points and Insights

1. Europe’s Economic Malaise vs. Sweden’s Outperformance

• Europe, including the UK, Germany, and France, faces economic stagnation, high debt, and repeated shocks.
  Tom Fairless (00:10): “The main picture has been somewhat sad… little growth, just repeated shocks.”
• Sweden stands out as a rare success story, with GDP growth matching the fast pace of the U.S.
  Ryan Knutson (00:55): “Sweden, its economy is growing at roughly the same rate as the US, which is to say, pretty fast.”

2. The Myth of Swedish Socialism

• Sweden is widely seen as the gold standard of democratic socialism, but the drivers of its economic dynamism are market liberalizations and state rollbacks since the 1990s. Tom Fairless (01:09): “What drives the dynamism is the extent to which it’s rolled back the state... Incomes have doubled... it’s actually a laboratory for free market capitalism.”

3. Sweden’s Socialist Era and its Crisis

• In the 1960s-70s, Sweden’s government expanded drastically, with extremely high taxes and universal welfare.
  Astrid Lindgren’s 102% marginal tax rate Tom Fairless (03:07): “There was an author... who wrote an essay about how her marginal tax rate was 102%.”
• The system produced generous benefits but led to stagnating wages and a late-1980s/1990s financial crisis.

4. Sweden’s Capitalist Makeover

• Post-crisis, Sweden bailed out banks, imposed strict spending rules, ended government monopolies, and privatized sectors like electricity, post, telecoms, and health clinics. Tom Fairless (05:08): “They started to privatize lots of different sectors... to introduce some private energy into those.”
• Primary care underwent partial privatization; nearly half of clinics are privately owned and operate efficiently within a publicly funded system.

5. Welfare State Reforms

• Pension reform: Introduced automatic mechanisms for the retirement age and individual investment options (akin to U.S. 401ks).
  Tom Fairless (06:28): “If the pension system is getting too expensive, then the retirement age automatically increases... and individuals could choose how to invest their pension funds.”
• Privatization of pensions helped spur a culture of stock market investment, rare elsewhere in Europe. Tom Fairless (07:00): “It sort of kicked off this idea of private investment in the stock market... in Sweden they do.”

6. Reduced Benefits, Lower Government Debt

• Cutbacks in unemployment benefits and housing subsidies, strict limits on government debt.
  Sweden’s debt-to-GDP: 36% (vs. U.S.’s 129%)
  Tom Fairless (07:55): “They saved money cutting the welfare state... gradually reduced taxes.”
• Abolished real estate, wealth, and inheritance taxes—Sweden now tax-advantageous for many professionals.

7. A Thriving Tech and Investment Scene

• Lower taxes/fewer restrictions encouraged tech growth; companies like Spotify emerged. Tom Fairless (08:55): “Big names you’ve heard in the US like Spotify... Lovable, a new AI startup…”
• Sweden produces 10x more “unicorns” per capita than Germany and France, with higher IPO valuations. Tom Fairless (09:16): “They’ve had higher value of IPOs in Sweden than maybe Germany, UK, France put together...”

8. The Downsides and Social Backlash

• Growing economic inequality, with suburban “ghettos” and wealth extremes unknown in “old” Sweden. Tom Fairless (11:58): “Now there’s much more extremes in wealth... around the suburbs of Stockholm, there are... ghettos.”
• Privatization of schools: Over one-third of public high schools are privately run, some for profit, with mixed results: Success story: A skateboarding school tailored to student interests (13:00) Concern: For-profit operators may cut corners, eroding educational quality. Tom Fairless (13:40): “Private operators have incentive to cut corners... maybe reduce school standards.”
• Sweden’s international test scores have fallen, fueling debate.
• Housing market squeeze, especially for young people—fewer public housing options. Tom Fairless (14:29): “Young people... seem to be struggling much more because rental prices have risen.”
• Immigrants hurt by scaled-back benefits and integration hurdles, with minimal support on arrival and delayed access to welfare. Tom Fairless (15:36): “Minimal benefits when they arrive... must join labor market for five years before any benefits.”

9. Possible Shifts Ahead

• Social Democrats now lead in polls ahead of the September election, as Sweden reevaluates the pendulum swing. Tom Fairless (16:35): “Shaking up the system is helpful... Sweden just shook that up completely and injected new forces... Maybe Europe could learn from that.”
• The future likely holds a search for balance between state intervention and free-market capitalism. Ryan Knutson (16:58): “Sometimes you need to press the gas on more capitalism and sometimes... pull back... It’s like a pendulum.” Tom Fairless (17:15): “It’s a pendulum... maybe now, government will have to change direction again.”

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Notable Quotes & Memorable Moments

• On High Taxes in the Past:
  Ryan Knutson (03:13): “102? How’s that even possible? You tax more than you make.”
  Tom Fairless (03:17): “Exactly.”

• On Privatized Healthcare:
  Tom Fairless (05:33): “They have these beautiful clinics... look like spas. Very different from the experience we’re used to in most of Europe.”

• On Pension System Innovation:
  Tom Fairless (06:28): “If the pension system is getting too expensive, then the retirement age automatically increases… and individuals could choose how to invest their pension funds.”

• On School Privatization:
  Ryan Knutson (12:45): “Skateboarding professor.”
  Tom Fairless (12:46): “Yep, he is.”
  Ryan Knutson (12:47): “Can you take like a minor in kickflips or something? Major in dropping into the half pipe.”
  Tom Fairless (12:53): “It’s a school subject. Yeah, they study it.”

• On Economic Lessons:
  Tom Fairless (16:35): “One of the lessons maybe is that shaking up the system is helpful…”

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Important Timestamps

• 00:10: European economies struggling; Sweden as exception
• 01:09: Myth of Swedish socialism—move to liberalization
• 03:07: Astrid Lindgren anecdote; taxes >100%
• 04:29: 1990s crisis triggers reforms
• 05:08–06:28: Privatization and rule changes explained
• 07:55: Taxes and debt; Sweden vs. US
• 08:55: Tech unicorns and IPOs
• 11:21: Backlash and inequality
• 13:00–14:02: Private schools; criticism and debate
• 14:29: Housing crunch for the young
• 15:11: Immigrant integration and challenges
• 16:35: Broad lessons; pendulum metaphor

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Conclusion

Sweden’s journey from socialist idyll to a beacon of reformed capitalism highlights the delicate balance between state control and market freedom. While economic liberalization spurred investment, innovation, and growth, it also generated new inequalities and social pressures—particularly in education, housing, and for vulnerable immigrant populations. As Sweden heads into a new election, the next phase of this economic and social pendulum remains uncertain, providing a compelling model—and cautionary tale—for the rest of Europe and the world.

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Transcript

[Ryan Knudsen]

In recent years, Europe's economy hasn't been doing that well.

[Tom Fairless]

Britain's economy shrank unexpectedly in the three months to October. Germany is facing a third straight year of economic crisis. With most Germans increasingly worried about making ends meet, they're unlikely to be able to get France's debt under control anytime soon. It reached 3.3 trillion euros in June. The main picture has been somewhat sad over the last few years that there has been little growth, just repeated shocks that the economy struggles to rebound from.

[Ryan Knudsen]

Tom Fairless is our global economics correspondent. Are there any countries in Europe that are doing well?

[Tom Fairless]

Certainly Sweden does stand out.

[Ryan Knudsen]

Sweden, its economy is growing at roughly the same rate as the US which is to say pretty fast. The Nordic country that was once synonymous with big government is doing something else.

[Tom Fairless]

Sweden, from an American point of view, from most countries point of view, is the sort of gold standard of democratic socialism. What I found through this reporting is that actually what drives the dynamism is the extent to which it's rolled back the state. That's what a lot of the economists I spoke to said, that in the 20 or 30 years since they've been liberalizing, incomes have doubled, real incomes have doubled after inflation. So this kind of gold standard of democratic socialism is actually a laboratory for free market capitalism.

[Ryan Knudsen]

Welcome to the Journal, our show about money, business and power. I'm Ryan knudsen. It's Monday, June 8th. Coming up on the show, how Sweden embraced capitalism.

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[Ryan Knudsen]

Sweden's reputation for big government and high taxation comes from the 1960s and 1970s when the government was growing rapidly. And when I say high taxes, I mean really high taxes.

[Tom Fairless]

There was an author, a Swedish author, who wrote an essay about how her marginal tax rate was 102%.

[Ryan Knudsen]

102? How's that even possible? You tax more than you make.

[Tom Fairless]

Exactly. Yeah. You lose. You end up paying more than you actually earn in the extra income you

[Ryan Knudsen]

got to dip into your savings account.

[Tom Fairless]

Exactly.

[Ryan Knudsen]

That author was Astrid Lindgren, who wrote the famous children's book Pippi Longstocking and ironically appears on some Swedish currency.

[Tom Fairless]

So it was extremely high levels of taxation and I think Sweden is, you know, it's not like the us. It's a small homogeneous country and there's some big family owned companies that own lots of stock market. And there was a feeling that they're all in it together.

[Ryan Knudsen]

All that taxation came with a very cushy safety net.

[Tom Fairless]

Yeah, it means cradle to the grave welfare state, that extremely generous childcare, extremely high unemployment benefits and yeah, extremely heavy spending on things like health care, on pensions.

[Ryan Knudsen]

But there was a trade off in the 80s. Wages were stagnant while inflation grew. Then came an economic crisis in 1990. Major banks collapsed and property prices plummeted by about 50%.

[Tom Fairless]

So there was a general feeling that the economic model wasn't working. And then there was this big, this great depression. So there was affection for this, the big state idea. And we're all in it together, all for one, one for all. But there was a sense that it wasn't cutting it in the modern economy.

[Ryan Knudsen]

So in the 1990s, Sweden started undergoing a capitalist makeover. At first it was just to stabilize the economy.

[Tom Fairless]

So they started by bailing out all the banks and then I think they put in these strict government spending rules.

[Ryan Knudsen]

Then it was ending government monopolies in certain industries.

[Tom Fairless]

And then they started to privatise and to privatize lots of different sectors like electricity and the postal service, telecoms, to introduce some private energy into those.

[Ryan Knudsen]

It also partially privatized its healthcare system. Today, nearly half of the country's primary clinics are privately owned, many by private equity firms. Tom went to see one.

[Tom Fairless]

They have these beautiful clinics where look like kind of spas. So yeah, very, very different from the sort of, I mean, I'm British. Very different from the experience we're used to in most of Europe with publicly funded healthcare.

[Ryan Knudsen]

How is the system funded though? I mean, they don't have health insurance there, do they?

[Tom Fairless]

It's publicly funded but privately operated. So it encourages the private operators to find efficiencies.

[Ryan Knudsen]

Another third rail that Sweden's government pensions. In most of Europe, government pensions, or as we call it in the US Social Security, are a huge benefit program. But as populations have aged across Europe, there aren't enough workers to continue funding pension programs and it's strained budgets. In Sweden, the pension program was reformed in the 1990s to fix that problem.

[Tom Fairless]

There's this sort of automatic mechanism, I think, where if the pension system is getting too expensive, then the retirement age automatically increases without any need for government intervention. And then they also introduced this private element where individuals for the first time could choose how to Invest their pension funds. So similar to a 401k in the

[Ryan Knudsen]

US this might not sound all that out there for people in the US who have 401ks, but for Europe, investing in a stock market is kind of rare.

[Tom Fairless]

It sort of kicked off this idea of private investment in the stock market, which is unusual in Europe, most people don't invest in the stock market. In Germany it's very rare. And people stash money in bank accounts in places like France or even in the uk. There's very little understanding among regular people. I mean, individuals don't really dabble in the stock markets very much in Europe, whereas in Sweden they do. There's a much more of a stock market culture there.

[Ryan Knudsen]

Sweden also cut unemployment benefits and housing subsidies and imposed strict limits on government debt. Sweden's debt to GDP is just 36% compared with 129% for the US. Sweden is still paying for a lot of benefits, but working with the private sector has allowed the size of government to shrink significantly. What about those really high taxes that you mentioned earlier?

[Tom Fairless]

Yeah, so they, so they saved money by cutting the welfare state and so they could gradually reduce taxes. And the people I was speaking to were saying that it's more advantageous than the US tax wise that they have no real estate tax, they have no wealth tax, there's no inheritance tax anymore. So yeah, if you're a sort of regular professional, I think this guy who lived in California, moved back to Stockholm recently, said that he essentially paid less tax in Sweden than he did in California. Income tax is still high, but some of the other real estate taxes have disappeared.

[Ryan Knudsen]

Research by the Stockholm School of Economics found that after Sweden removed inheritance and gift taxes in 2005, private firms with potential family successors grew faster and invested more. A combination of lower taxes and a culture of private investment has spurred Sweden's tech industry. Unlike the rest of Europe, Sweden has a lot of valuable tech companies.

[Tom Fairless]

And there's some of the big names that you've heard in the US like Spotify and Kleiner. There's one called Lovable, which is this new kind of AI startup that's doing very well too.

[Ryan Knudsen]

Sweden also produces around 10 times as many unicorns per capita as Germany and France. A unicorn, by the way, is a private company with a valuation of over a billion dollars.

[Tom Fairless]

They've had higher value of IPOs in Sweden than maybe some of the bigger economies like Germany, uk, France put together over the last few years. There's an investment culture, there's this buzzy tech sector and then there's also the fact that the government is pulling back from the economy and that the government share of GDP is shrinking.

[Ryan Knudsen]

What impact overall has all this had to Sweden's economy?

[Tom Fairless]

It seems to be very positive. The IMF had some projections recently that show over the next five, six years, the Swedish economy should be growing about 2% a year, which is similar to the U.S. it's more than double countries like Germany and France in the uk. And yeah, this economist tell me that real incomes have doubled since the 1990s. There's a lot of, I think a lot of economic buzz around Sweden, but there are also downsides to this and there is angst and concern that some of these privatizations have gone too far.

[Ryan Knudsen]

Who's losing out under this system? That's after the break.

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[Ryan Knudsen]

Since the 1990s, Sweden has moved from cradle to the grave socialism to hyper capitalism in some sectors, lowering government spending and spurring innovation. Has there been any backlash to this movement toward capitalism, generally speaking?

[Tom Fairless]

I think so. I think there seems to be a general feeling, even from some of the private equity executives that I spoke to, that maybe some of these reforms had gone too far and that too much money was taken out of the hands of the state. One of the guys I spoke to has written this book called Greedy Swedes, where he talks about this sort of shift in mentality and lots of kind of Internet millionaires and billionaires in Stockholm. But around the suburbs of Stockholm, there are these kind of ghettos. Essentially, it's a society that wasn't like that at all. It was much more uniform and now there's much more extremes in wealth because of these reforms.

[Ryan Knudsen]

One of the most controversial changes Sweden has made is to schools. One in three public high schools in Sweden are now privately run. Tom visited one of these schools in a city called Malmo.

[Tom Fairless]

It was a school that was set up or initiated by the local skateboarding association. And it's set up inside this old brewery on the outskirts of Malmo and it overlooks this enormous indoor skate park.

[Ryan Knudsen]

Look on YouTube and you can find videos of the school Brigrette Gymnasium. This is one from the Skate Nomad.

[Tom Fairless]

So if you want your kids skate like this, you just have to open a school, you know. And I spoke with the skate. There's a skateboarding professor who is.

[Ryan Knudsen]

Skateboarding professor.

[Tom Fairless]

Yep, he is.

[Ryan Knudsen]

Can you take like a minor in kick flips or something? Major in dropping into the half pipe.

[Tom Fairless]

It's a school subject. Yeah, they study it. And he had all sorts of kind of psychology that he was telling me about, the psychology of skateboarding.

[Ryan Knudsen]

We have found that it works pretty

[Tom Fairless]

well not to leave what you're passionate about at home, but actually bring it into school.

[Ryan Knudsen]

The school is able to support students who may have become disconnected from a more typical public school and with the freedom to spend money how they like it, chooses to invest in skate equipment and nicer computers. This school is a nonprofit, but a lot of the privately run schools are for profit, which some believe has eroded the quality of the school system. One school operator is even listed on the stock market. And around one in ten high school students go to one of its schools.

[Tom Fairless]

And there's a lot of analysts in Stockholm who think that's a really terrible idea because they think that the private operators have an incentive to cut corners. For instance, make playgrounds smaller, make libraries smaller, have fewer teachers. You know, the ways that they, they would try to save money are problematic and maybe reduce school standards.

[Ryan Knudsen]

Sweden's standing in international testing has fallen recently, leading to a fierce debate about whether privatization could be a factor. The government is trying to tighten the rules around running a for profit school so that only long term high quality operators remain. The private school operators argue that they're cutting administrative waste and that they need profits to be able to reinvest. Some Swedes are also getting squeezed in the housing market.

[Tom Fairless]

Young people, they seem to be struggling much more because the rental prices have risen. And there used to be a culture of providing social housing for young people as well. And as the money is drained out of the public sector, those kind of opportunities less. And I think in Europe, people in their 20s often live with their parents. Sweden was an exception for many years. But more and more Swedes are spending longer at home and with their parents because there are fewer options for them.

[Ryan Knudsen]

Another group that's been hurting is immigrants. Over the last 20 years, Sweden has seen waves of immigration after major wars. From Afghanistan to Syria and most recently

[Tom Fairless]

Ukraine, this relatively homogeneous society had a huge influx of immigrants. So the share of foreigners in the population increased from about 9%. Or so in 2000 to currently about 20%, which is higher than in the US.

[Ryan Knudsen]

But as the country has cut back on benefits, it's meant that these immigrants have had a harder time getting a foothold.

[Tom Fairless]

They're giving people sort of minimal benefits when they arrive and requiring that they join the labor market for five years before they get any benefits. And because a lot of the newcomers struggled to get into the labor market and struggle, there was high unemployment. There was also a lot of crime in some of the areas where they. They arrived. There was a feeling that they weren't part of this Swedish social safety net and that they were, you know, there was more reluctance to, to finance them and to finance their generous unemployment benefits.

[Ryan Knudsen]

Sweden's shift towards capitalism seems like it might be slowing, though. There's a nationwide election in September. After a few years of center right ruling parties, recent polling shows the Social Democrats, historically the party of big government, is in the lead. Despite some backlash, Sweden's economy continues to outpace much of the rest of Europe.

[Tom Fairless]

One of the lessons maybe is that shaking up the system is helpful, that sometimes I think the tendency in Europe is to just add and add and add to sort of the public sector and get the public sector to do more and more. And Sweden just shook that up completely and injected new forces in there. And maybe that's something that Europe could learn from.

[Ryan Knudsen]

I mean, for me, I feel like the takeaway isn't necessarily that everybody should be more capitalist all the time, but that there's a balance and sometimes you need to press the gas on more capitalism and sometimes in some countries you need to pull back on it. It's sort of like a pendulum.

[Tom Fairless]

Yeah, that's right. I mean, I suppose there's a question of which model works better. Should you be allowing the free market and is that what generates the most success and wealth? Or are we in a new phase of the world economy where the government needs to take a much stronger role and that's the only way that you can protect your way of life. It's a pendulum. And maybe over the last 30 years it swung in one direction in Sweden and maybe now with these new pressures, then the government will have to change direction again. So, yeah, it's just sort of a pendulum.

[Ryan Knudsen]

That's all for today. Monday, June 8. The Journal is a co production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcast throughout every weekday afternoon. Thanks for listening. See you tomorrow.

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