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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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EUROPEAN UNION

Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information:

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp/consumer-oriented-faqs-pan_en 

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp_en 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK. 

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