Labour’s plans for Britain involve a big increase in the size of the state. Government spending as a share of national output would rise to 45%. And apart from brief spikes in the mid-1970s and during the more recent financial crash, it has not reached those levels since the second world war.
To which the mature response should be: so what? A glance around the world shows that there are rich developed countries where the state is relatively small and there are rich developed countries where the state is large. In democracies, voters get the right to choose between the competing models.
Take Sweden and the US as examples of the contrasting approaches. The Scandinavian country, population just over 10 million, has a state that spends 50% of gross domestic product. The United States, population 329 million, operates with a much smaller state that accounts for 38% of national output.
The received wisdom, particularly among free-market economists, is that a small state means economic dynamism while a big state means the opposite: a sclerosis caused by governments burdening their populations with levels of taxation that stifle enterprise.
So how do the US and Sweden stack up against each other?
In terms of growth rates, there’s not been a lot to choose between the two in recent years, with both averaging around 2.5% a year in the half-decade up to 2018. If anything, Sweden’s growth rate was a tad higher.
The US has a slight edge when it comes to living standards. The average American had an income of $59,928 (£46,700) in 2017 while Sweden’s per capita income was $51,405. But the Swedes, as tends to be the way in Europe, are prepared to sacrifice income for leisure time. They work 1,621 hours a year on average compared to 1,781 hours for the average American.
What’s more, the focus on GDP per capita is a bit misleading since it says nothing about the way in which national income is divided up. In some countries, there is a wide gulf in incomes between those at the top and those at the bottom; in others there is a more even split. The US falls into the former category, Sweden into the latter.
One way of assessing income inequality is through the Gini coefficient. If income was distributed evenly in a country it would have a Gini coefficient of zero If, on the other hand, one person had all the income its coefficent would be 1. Obviously, every country is bunched around the middle of this range, but Sweden is closer to the bottom than the US. It has a Gini coefficient of 0.27 while the US’s is 0.41.
Big-state Sweden has a higher unemployment rate than the US – 6.3% against 3.9% – in 2018, but its employment rate is also higher. According to figures from the Paris-based Organisation for Economic Cooperation and Development dating back to 2016, 69.4% of Americans aged 15 to 64 are in work, compared to 76.2% of Swedes.
The two countries have very similar inflation rates of around 2%, but there is no evidence that high levels of public spending have impaired Sweden’s export performance. A current account surplus of 1.7% of GDP in 2018 was in contrast to the US’s 2.4% of GDP deficit.
The big economic numbers – income per head, unemployment, inflation and the current account – do not provide a complete picture of how successful a country is. Sweden has a much lower murder rate than the US – 1.1 per 100,000 inhabitants against 5.3 – and has a much lower incarceration rate – 59 per 100,000 people as opposed to 655 per 100,000 in the US. Swedes live more than four years longer than Americans on average.
When it comes to Nobel prize winners, the countries have similar records once their differing populations are taken into account – 383 for the US and 32 for Sweden. Here, though, the US has the edge. Only three of Sweden’s laureates have come since the turn of the millennium while 130 Americans have been awarded during the same period.
The comparison between these two quite different countries helps to illuminate the debate in the UK. Apparently, the size of the state has no bearing on whether a country is successful or not. At a guess, not many Swedes would want to see their country transformed into small-state America.
This is the right time to have just such a debate about the size of the state because there are factors in Britain that are systemically putting upward pressure on spending. Demographic changes mean all parties need to address the rising costs of an ageing population; the bills for the state pension, the NHS and social care are all going to increase. The climate emergency will require hefty state investment to make the transition to a zero-carbon economy.
But a word of warning. Sweden has evolved its model gradually whereas Labour’s plans involve abrupt change. The price for a big state is high levels of taxation – and it is a price the Swedes are prepared to pay. Overall, government revenues are 49.5% of GDP and taxes on the average Swedish citizen are substantially higher than they are in the UK. The Conservative party is going into the election promising both lower taxes and higher spending. The Labour party says a big state can be paid for by rich individuals and the corporate sector with everybody else tucking into a free lunch.
There are politicians who want Britain to be more like the US and some who favour the Swedish approach. Both are possible. What’s not possible is to have Swedish levels of public spending with American levels of tax.
