SWEDEN
Rank: 21 Regional Rank: 13 of 41
weden’s economy is 72.6 percent free, according to our 2007 assessment, which makes it the world’s 21st freest economy. Its overall score is 1.4 percentage points lower than last year, partially reflecting new methodological detail. Sweden is ranked 13th out of 41 countries in the European region, and its overall score is higher than the regional average.
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The economy is 72.6% free
100
80
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Sweden enjoys high levels of investment freedom, trade freedom, financial freedom, property rights, business freedom, freedom from corruption, and monetary freedom. The average tariff rate is low, although non-tariff barriers include distortionary European Union subsidies, and business regulation is efficient. Virtually all commercial operations are simple and transparent. Inflation is low. Foreign investment is permitted without government approval, though capital is subject to restrictions in some areas. Sweden’s financial sector is highly developed, and the Stockholm stock market is open to foreign investment. The judiciary, independent of politics and free of corruption, has an exemplary ability to protect property rights. Sweden is weaker in fiscal freedom, freedom from government, and labor freedom. The top income tax rate of 60 percent is one of the highest in the world, and total government spending equals more than half of GDP. The labor market is over-regulated, and the costs of employing and dismissing workers are significant. BACKGROUND: Renowned for its economic model of public–private partnerships, Sweden has enjoyed a buoyant economy since becoming a member of the EU in 1995. Sweden relies heavily on international trade, with total trade accounting for more that 50 percent of GDP. Job creation in the private sector remains low, and as of this writing, this was seen as a possible catalyst for the removal of Goran Persson’s Social Democratic–led coalition government in September 2006. Sweden’s main exports include paper products, machinery and transport equipment, and chemicals. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
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40
Europe Average = 67.5 World Average = 60.6
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1995
2007
QUICK FACTS
Population: 9 million GDP (PPP): $265.6 billion 3.7% growth in 2004 2.6% 5-yr. comp. ann. growth $29,541 per capita Unemployment: 5.5% Inflation (CPI): 0.4% FDI (net inflow): –$15.5 billion Official Development Assistance: Multilateral: None Bilateral: None External Debt: $516.1 billion (2005) Exports: $163.9 billion Primarily machinery, motor vehicles, paper products, pulp and wood, iron and steel products, chemicals Imports: $134.9 billion Primarily machinery, petroleum and petroleum products, chemicals, motor vehicles, iron and steel, food, clothing
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SWEDEN’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 95 76.6 53.6 31.5 85.2 80 70 90 92 52
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Prices are generally set by market forces, but oligopolies may hinder price competition, and the government influences prices through regulation and state-owned enterprises and utilities. Consequently, an additional 10 percent is deducted from Sweden’s monetary freedom score to account for these policies.
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50 100
INVESTMENT FREEDOM — 80%
Sweden presents few barriers to foreign investment. Foreign companies may purchase Swedish companies without government approval, although they are subject to controls in fishing, civil aviation, and transport and communications. Both domestic and foreign investors are prohibited from investing in the retail sale of pharmaceuticals and alcoholic beverages, in which the government maintains a monopoly. Residents and non-residents may hold foreign exchange accounts. There are no controls on payments and transfers or repatriation of profits. A permit may be required for the purchase of real estate by non-residents.
100 = most free,
= world average
BUSINESS FREEDOM — 95%
Starting a business takes an average of 16 days, compared to the world average of 48 days. The business environment has allowed entrepreneurship to flourish in Sweden. Obtaining a business license is very simple, and closing a business is easy. The overall freedom to start, operate, and close a business is strongly protected by the national regulatory environment.
FINANCIAL FREEDOM — 70%
Sweden’s financial system is sophisticated and dynamic. Credit is allocated on market terms, and financial regulation is transparent and largely consistent with international norms. Banks offer a full range of financial services. Foreign-owned banks and insurance companies may open branch offices. Nearly all commercial banks in Sweden are privately owned and operated. The banking sector is highly concentrated, with four banks, including one in which the government holds a 19.5 percent stake, accounting for over 80 percent of banking assets. The government also owns a mortgage company and a number of development funds and continues to offer concessional funds through various government agencies. The insurance sector is sophisticated, and foreign insurers are well-represented. The Stockholm Stock Exchange is modern, active, and open to domestic and foreign investment.
TRADE FREEDOM — 76.6%
Sweden’s trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.7 percent in 2005. Various non-tariff barriers are reflected in EU policy, including agricultural and manufacturing subsidies, regulatory and licensing restrictions, and other market access restrictions. The government also implements burdensome sanitary and phytosanitary regulations, and the enforcement of intellectual property rights can be problematic. Consequently, an additional 20 percent is deducted from Sweden’s trade freedom score.
FISCAL FREEDOM — 53.6%
Sweden has a very high income tax rate and a moderate corporate tax rate. The top income tax rate is 60 percent, making Sweden’s income tax burden one of the heaviest in the world, and the top corporate tax rate is 28 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. There has been debate over the wealth tax. In the most recent year, overall tax revenue as a percentage of GDP was 50.7 percent.
PROPERTY RIGHTS — 90%
The judiciary is independent and provides citizens with a fair judicial process. Contracts are highly respected, and the judiciary is of high quality.
FREEDOM FROM CORRUPTION — 92%
Corruption is perceived as almost nonexistent. Sweden ranks 6th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
FREEDOM FROM GOVERNMENT — 31.5%
Total government expenditures in Sweden, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 56.7 percent of GDP, and the government received 5.5 percent of its revenues from state-owned enterprises and government ownership of property.
LABOR FREEDOM — 52%
The labor market operates under inflexible employment regulations that hinder overall productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly. Rigid labor market regulations, including high statutory overtime payment, have contributed to Sweden’s failure to create jobs, particularly in the private service sector.
MONETARY FREEDOM — 85.2%
Inflation in Sweden is low, averaging 0.6 percent between 2003 and 2005. Such stable prices explain most of the monetary freedom score. As a participant in the EU’s Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products.
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2007 Index of Economic Freedom