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Why is Sweden so rich? The Local answers Google’s questions 

Why is Sweden so rich? Why is Sweden so depressing? Why is Sweden called Sweden? In a new series of articles, The Local answers some of the most common questions that appear when you type "Why is Sweden..." into the Google search engine.

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Why is Sweden so rich? Let's find out. Photo: Google screenshot

Sweden is the world’s 16th wealthiest country. Its Gross Domestic Product (GDP) per capita is just below Germany’s in the OECD’s rankings

It’s a country of high-tech capitalism and extensive welfare benefits. The vast majority of enterprises are privately owned.

Daniel Waldenström at the Stockholm Research Institute of Industrial Economics says that Sweden’s economic success is due in large part “to our stable economic and political institutions, which allowed us to focus on producing wealth. That’s in addition to being in Europe, where the economic boom all started”.

So, how rich is Sweden, really? 

GDP is only one way of measuring wealth. It doesn’t tell the whole story. 

By all economic measures, Sweden is a relatively wealthy country, but this doesn’t necessarily trickle down to everyone.

Seven percent of working Swedes have an income below the EU’s at-risk-of-poverty threshold (although this is under the EU average of 10 percent). 

According to Statistics Sweden, 184,000 people were estimated to be in severe material deprivation in Sweden last year, meaning they couldn’t afford vital things like rent, a car, or telephone. This is still lower than nearly all other countries, but doesn’t square with the idea of folkhemmet, a welfare state for the people. Yet it has one of the world’s most extensive welfare systems, funded by government wealth (and debt). 

How did Sweden get so rich? 

Sweden only started to really accumulate wealth as it started to industrialise sometime in the mid-19th century. Before then, it was suffering from a period of relatively slow growth that forced more than one million Swedes to emigrate to the North America before the turn of the century. 

Through luck and well-placed geography, Sweden had the kind of natural resources (iron ore and wood) needed when countries like Britain and Germany industrialised.

“The industrial revolution made the iron in our ground very important,” Waldenström told The Local.  

The last time Sweden took part in a war was 1814. Benefitting from relative peace for more than 200 years, it also profited from exporting its iron and other raw materials to Germany during the Second World War. 

While Sweden struggled to rebuild along with the rest of Europe post-war, compared to the belligerent countries, Swedish industry was not destroyed. 

After the 1930s there was a long era of almost unbroken rule by Social Democratic governments, and according to a 2016 paper by Waldenström, this “paved the way for the emergence of one of the world’s most extensive welfare states”.

Benny Carlson, professor emeritus at the Department of Economic History at Lund University, describes Sweden’s modern-day economy as following “the middle way”.

“On the one hand the deals between well-organised employers and trade unions create fairly peaceful labour market conditions, on the other hand the welfare state guarantees social security and reasonable income equality,” he told The Local. 

Basically, Sweden is wealthy thanks to relative peace, social security, and a bit of luck. 

Member comments

  1. It is this timely distance to catastrophic events that lead to “lagom”. As an international expert who is trying to make a life for a family, it is surprising how little swedes work, to maintain this wealth. I would like to point out, that I am talking about innovation in Technology. This my and my peers experience.

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MONEY

How safe is your money in a Swedish bank account?

What protections are there for your money if your bank goes bust? We had a look at the rules in Sweden.

How safe is your money in a Swedish bank account?

US bank Silicon Valley Bank (SVB), a favourite bank to US tech firms and a well-known lender to start-ups, went bust on Friday morning after being hit by a classic bank run, as its clients sought to withdraw $42bn in a single day, a quarter of its deposits. Signature Bank, another American bank, was shut down on Sunday, after suffering a similar bank run on the back of the SVB collapse.

So, what would happen if your Swedish bank went bust? Should you rush to withdraw all your money if your bank looks to be in a precarious situation? Here’s the situation in Sweden.

Deposit guarantee

You may not have realised this when you opened your Swedish bank account, but most bank accounts in Sweden are covered by the government’s insättningsgaranti or deposit guarantee. Simply put, this guarantee means that, if your bank goes bust, the state will foot the bill and refund your money.

Most Swedish banks are signed up to the deposit guarantee, but you can check whether your bank is included on this list.

How much money does it cover?

In 2023, the deposit guarantee is 1,050,000 kronor per person per bank, so you will get all of your savings back if they are under this figure.

Note that this is per bank, so if you have accounts in multiple banks you have a separate deposit guarantee for each bank, meaning your deposit guarantee could cover millions of kronor if you spread it out over more than one bank.

If you have a joint account, you’ll each have an individual deposit guarantee, so a couple sharing an account would be able to get 2,100,000 kronor of savings back if their bank collapsed.

It’s also possible to apply for an extra supplementary amount of up to five million kronor for deposits “coupled to certain life events,” the Swedish National Debt Office explains on its website, if you’ve sold a property, received a damages payout from a court case, or an insurance payout, for example. This can’t be applied for until you’re in a situation where a payout is due. 

The guarantee applies to all private individuals (including children), as well as companies and other so-called “legal individuals”, such as the estates of deceased people, and it applies independently of any debts or loans you have with the bank in question.

Banks, municipalities, regions and government authorities are not covered by the guarantee.

How is it funded?

You may be wondering how the state is able to guarantee billions of kronor in the event that a Swedish bank fails. The answer is simple: the deposit guarantee is funded through fees charged to banks and other financial institutes which are then held in a fund.

The Financial Supervisory Authority has the power to decide when the guarantee should come into effect, and it also applies if the Swedish National Debt Office places a bank or other financial institute into administration.

Why does it exist?

The guarantee was originally introduced in the autumn of 1992, which was a turbulent time for the Swedish economy.

In order to stabilise the economy, the government introduced a general state bank guarantee, which in 1996 became a deposit guarantee covering 250,000 kronor per person per bank.

The idea behind the guarantee is to discourage people from withdrawing their money from a bank in crisis, thereby contributing to more stability in the financial system, as customers know they will get their savings back even if the bank eventually goes bust.

During the financial crisis of 2008, the guarantee was increased to 500,000 kronor. 

Since 2010, new EU rules have meant that the deposit guarantee should cover an amount equal to 100,000 euros, with the amount in local currency adjusted every fifth year to match this number.

The last adjustment was in 2021, where the guarantee was raised from 950,000 kronor to 1,050,000 kronor.

How many times have payouts been made?

Payouts have been made three times since the deposit guarantee was introduced in 1992. The first two payouts were in 2006, when two financial institutes, Custodia AB and Almänna Kapital went bust.

In Custodia AB’s case, 1,282 affected customers were reimbursed with a combined 134.2 million kronor, and 287 of Almänna Kapital AB’s customers received a combined total of 40.9 million kronor.

The third payout was in 2010, when Danish bank Capinordic went bust. As this was a Danish bank with a branch in Sweden, the Swedish deposit fund paid the difference between the Swedish guarantee, which was 500,000 kronor at that time, and the Danish guarantee, which was 50,000 euros. This meant that 825 customers received a combined payout of 10.6 million Swedish kronor.

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