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NORBERG: How did the idea that governments should change economic outcomes become popular in the West? In a way it started here, in 1929, when the stock market crashed. FRIEDMAN: The Wall Street crash was followed by the worst depression in American history. That depression has been blamed on the failure of capitalism. It was no such thing, but the myth lives on. NORBERG: Friedman thought that the Great Depression was the result of massive government failure, of stupid monetary policies and tariffs that created a trade war, but the common interpretation at the time was that capitalism had failed, and that you couldn’t just leave things for themselves in the face of massive unemployment and widespread poverty. So politicians worldwide were looking for a new approach. FRIEDMAN: Roosevelt's first priority after his election was to deal with massive unemployment. A public works program was started. The government financed projects to build highways, bridges and dams. Roosevelt wanted to see America move into a new era. The Social Security Act was passed and other measures followed. Unemployment benefits, welfare payments, distribution of surplus food. With these measures, of course, came rules, regulations, and red tape as familiar today as they were novel then. The government bureaucracy began to grow, and it’s been growing ever since. NORBERG: The United States became a bit more like European countries, like my home country, Sweden, by introducing some wealth redistribution and more government control over the economy. My country has made an effort to make peoples’ lives more equal. We have relatively free markets in business. It’s fairly easy to start a company and compete, without being stopped by licenses, regulations and tariffs. But, when people are allowed to compete freely, some win and make a lot of money; some lose, and they lag behind. That’s when the Swedish government steps in; to reduce differences of outcome we tax heavily, and redistribute wealth among our citizens. To many, this is the best of both worlds…since we don’t really have equal chances in life. Some people have parents who give them an interest in learning, ambition and opportunities, some don’t, some are lucky in the genetic lottery, and some aren’t, some have good health, and some don’t. To reduce the gaps that such differences might lead to, our government steps in. Sweden chose to make equality a priority in the 1970s…when we were already one of the richest countries in the world. Taxes were raised, and benefit systems were made more generous. 3
Public spending almost doubled between 1960 and 1980, from 31 percent to 60 percent of GDP. Some would say that this has made our country better. But it has also reduced the rewards for working hard and taking risks. This is a museum recreation of the original workshop of Lars Magnus Ericsson. He was a very important person in Swedish history, because more than one-hundred-and thirty years ago, he produced cheap and reliable versions of the telephones that he had seen in the United States. And because of this, Stockholm became a global center for telecommunications in the late 19 th century. And it laid the groundwork for one of Sweden’s most successful companies: Ericsson. And today, it still employs more than eighty-thousand people in one-hundred-and-fifty countries. This should make me proud as a Swede, but in fact, it makes me a bit worried, because almost all big Swedish businesses share Ericsson’s heritage. And they probably all had boardrooms that looked a bit like this. The average big Swedish company is ninety-four years old. We have apparently not had the policies that encourage people to start the new businesses that might become tomorrow’s Ericsson. Today, Swedish entrepreneurs are the oldest in the world. This is the other side of the coin. The young people and the immigrants who should be our future are not starting the new Ericsson’s. In fact, we have many examples of young Swedes and entrepreneurial immigrants who moved from Sweden to Britain or the United States, because the rewards are much greater there, where taxes are lower. In many suburbs like this, outside of Stockholm… the unemployment rate is higher than 50 percent. Even in the midst of the economic boom, almost a quarter of the working-age population in Sweden did not go to work in the morning, but got their checks from the government. It does seem to support the view that economic incentives matter. With a sickness benefit of up to 80 percent of your income, perhaps it wasn’t surprising that Swedes were off sick more than any other people, even though we objectively were healthier than almost any other population. In 2004, sickness benefits absorbed 16 percent of the government’s budget. These statistics have improved since…but interestingly, only after a determined effort by the government to reduce the equality of income, by lowering taxes and making benefit systems less generous. So it seems that these changes increased incentives to work. Friedman emphasized something counter-intuitive. There is a positive benefit to inequality of outcome for everybody. Some people become millionaires, and some become billionaires, but that is because they were the ones who made their customers happy. 4
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