The Scandinavian nation of Sweden has accomplished what the United States,… (/AP Photo )
STOCKHOLM — Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied.
And then there’s Sweden, the rock star of the recovery.
This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.
Sweden was far from immune to the global downturn of 2008-09. But unlike other countries, it is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe. And compared with the United States, unemployment peaked lower (around 9 percent, compared with 10 percent) and has come down faster (it now stands near 7 percent, compared with 9 percent in the U.S.).
Some of the reasons for the Swedish success are as unique to the nation as its citizens’ predilection for Abba, pickled herring and minimalist furniture. But there are plenty of lessons for other countries as they struggle to find a pathway toward prosperity.
The overarching lesson the Swedes offer is this: When you have a financial crisis, and Sweden had a nasty one in the early 1990s, learn from it. Don’t simply muddle through and hope that growth will eventually return. Rather, address the underlying causes of the crisis to create an economic and financial system that will be more resilient when bad times return.
Here is what that means in practice. Call them Sweden’s five lessons for a crisis-stricken nation.
1. Keep your fiscal house in order when times are good, so you will have more room to maneuver when things are bad.
In 2007, before the recession, the U.S. government had a budget deficit equivalent to 3 percent of its economy, as did Britain. Sweden, meanwhile, had a 3.6 percent surplus.
So when the recession hit, that surplus gave its government a cushion in the downturn and it didn’t run up the huge debts that in other advanced nations have now created the risk of a future crisis. Sweden’s gross debt is set to reach 45 percent of the size of its economy this year, as the United States closes in on 100 percent.
This was a lesson Sweden learned from its early 1990s crisis, in which a collapse in commercial real estate and the banking sector was exacerbated when the budget deficit rose to such high levels that the country had trouble borrowing money and the value of its currency collapsed.
The nation set a goal of averaging a 1 percent budget surplus over time and held to it — which left the government with lots of flexibility to engage in deficit spending when the economy went south.
“If you don’t have a fiscal problem, you have more degree of freedom,” said Stefan Ingves, governor of Sweden’s central bank, the Riksbank, in an interview. “This time around, the issue was not ever even close to being about solvency.”
2. Fiscal stimulus can be more effective when it is automatic.
Sweden didn’t do much in terms of special, one-off efforts to spend money to combat the downturn. There was some extra infrastructure spending and a well-timed cut to income tax rates, but the most basic response to the government was to do what the nation’s social welfare system — lavish by American standards — always does: Provide income, health care and other services to people who are unemployed.
In the United States, the battle over whether to use government spending to cushion the blow of the downturn became a divisive one. Whether to try to stabilize the economy became one more battle in the longer term war over the proper role of government.
And because the $800 billion fiscal stimulus that Congress and the Obama administration enacted in early 2009 consisted mostly of special, one-time programs, it took months for many of them to begin pumping money into the economy, thus kicking in months or even years after the economy had collapsed, and the spending expired without regard to whether the need remained.
When spending to cushion economic blows happens as part of a more carefully designed set of programs established during good times, it can be ready to go quickly right when the economy turns, and can be designed to taper off when it makes sense economically, such as when the jobless rate has fallen, rather than on some arbitrary date. And that can be true even for a safety net that is smaller than Sweden’s.
3. Use monetary policy aggressively
The Federal Reserve has won both plaudits and criticism for responding aggressively to the financial crisis, pumping money into the financial system in epic fashion. But by one key measure, the Swedish central bank was even more aggressive.