'Stockholm Syndrome': Why is the U.S. Afraid of Sweden?

The worldwide financial crisis has been an eye-opener in many ways. But to a Swede, it has been a big surprise to realize just how stigmatized Sweden seems to be in the United States these days.

In response to the U.S. government taking partial ownership of the auto industry, the banks and insurance companies, several U.S. conservative TV commentators have lately worried that the United States is turning into "socialist Sweden".

In response, liberal comedian Jon Stewart of "The Daily Show" ran a report last week called "The Stockholm Syndrome," making fun of Americans' black-and-white view of the Nordic country's famous welfare system.

But the significance of this Swedish taboo and the Cold War mind-set many Americans seem to be stuck in dawned on me recently as I was about to interview Paul Volcker, former chief of the U.S. Federal Reserve and chairman of President Obama's Economic Recovery Advisory Board.

"Whatever you do, don't mention Sweden," cautioned Clarence Schwab, who runs C. Schwab LLC, an investment company in New York.

"Sadly, the first thing most Americans think of is socialism, and that is still a very sensitive issue here."

As a half-American, half-Swede, Schwab should have some insight. Schwab not only brings Swedish, green cutting-edge technology to the United States, he has tried to figure out what the United States could learn from Sweden's bank crisis in the early 1990, partly from his uncle, Nobel Foundation Chairman Marcus Storch, who was a member of Sweden's financial rescue commission at the time.

Simply put, the Swedish center-right government acted swiftly, boldly and with democratic support as it made temporary takeovers of insolvent banks to sort out their bad debts. It took about three years until they had become "healthy," at which point the state's shares were sold off without a loss.

The goal was never to gain permanent control of the banks, but to save them and the banking system. The risk and responsibility were mainly carried by the banks and their shareholders, rather than by taxpayers.

"Nationalization Is a Very Emotive Word"

But Sweden seems tainted. When I asked Volcker about the prospects of "temporary takeovers," or "partial nationalization" of the U.S. banks, he showed some alarm. "Nationalization is a very emotive word," he said.

This was at the end of February and the United States had already, de facto, started to partially nationalize some of its banks.

At a time when the concept of capitalism is being questioned, it seems some Americans even try to avoid Swedes out of the fear of being tainted by the association with socialism. Take Bo Lundgren, for example. Lundgren was Sweden's minister for financial and fiscal affairs from 1991 to 1994, and oversaw its comparatively speedy recovery from the crisis.

Lundgren traveled to Washington in March to testify to Congress about the lessons of the Swedish crisis. But neither Treasury Secretary Timothy Geithner nor the president's top economic adviser, Larry Summers, took the time to see him.

Likewise, the skepticism about the Nordic and European welfare models was apparent among some of America's top economists and financiers in an online video conversation this month about the future of capitalism.

In the Financial Times video, Nobel Prize laureate in economics Edmund Phelps dismissed the European model as "a complete failure."

"There is no way America is going to go for a paralyzed, uninnovative economy with stagnating productivity and low employment," said Phelps, a staunch defender of the U.S. free-market model.

Fellow Nobel laureate in economics Joseph Stieglitz argued in reply that the Nordic countries performed much better than the United States in all social indicators, even in social economic mobility, a virtue in which America has long prided itself.

But Phelps insisted that the Nordic model had "not delivered cutting-edge economies."

All this controversy made me wonder: How socialist is Sweden, really? Do Swedes really love the state and think as a collective?

It is true that Sweden, like its neighbors, has long favored a strong welfare state, based on the belief that everyone, including the weak and poor, has the right to state-financed health care, universal child support and a pension.

Why the Socialist Stereotype Doesn't Explain Sweden

But Sweden has many characteristics that don't fit into the socialist stereotype.

For example, Sweden is one of the world's most market-oriented countries, and has nationalized few companies. Production is run by the private sector, and the bank system is the second-most efficient in the world, according to a 2008 survey by the World Economic Forum. Sweden is also a fervent free-trade champion, which partly explains how companies like Volvo, IKEA and H&M have been able to grow into leading multinationals.

Another reason for dismissing the stuffy socialist caricature is that the market economy philosophy has dominated here in the past 15 years, allowing for a wave of deregulation. The public school system was deregulated, as well as the energy and telecommunications sectors. There were bold attempts to cut subsidies to the agricultural sector.

"We went as far as deregulating the post office, even if I think it was a failure; not even Margaret Thatcher managed that," said Leif Pagrotsky, a member of the Social Democratic Party and minister in the party's government between 1994 and 2006.

"Sweden hasn't had a strong culture of regulation since the reforms in the 1860s," he said.

The welfare state was slimmed down by the center-right alliance government, which came to power in 2006. The unemployment benefit system was scaled back and taxes were lowered for low- to middle-income workers. Even real-estate taxes, generally seen as one of the most reliable, were slashed.

So, if "socialist" is an inaccurate boilerplate tag for Sweden, how could it be better described?

Lars Tragardh, a U.S.-based Swedish historian, rebuts the cliche that the Swedes are an innately, collectively minded people. It is actually a less altruistic impulse that underpins their welfare ideology, he claims in his book "Are Swedes Human?" which explores the development of the modern Swedish state.

"The most important thing for a Swede is to be free and independent and not to be subjugated to family or other socially tightly knit communities," Tragardh said.

When the state pays for schools, child care and care of the sick and the elderly, the citizens are freed of such interdependent bonds. It has also proved to have positive effects for the economy, allowing half of the work force, the women, to enter the labor market.

But how does Tragardh, who taught at Columbia University and spent a large part of his life in the United States, explain the Swedish socialist taboo in the United States? Why pick on Sweden and not Russia or China?

Sweden is intimidating to many Americans because Sweden functions well without being America or wanting to be America, he said.

"This is unforgivable," he concluded. "Were they to realize that Swedes are even more individualistic than they are, it would be even worse. Especially as this autonomy is enabled by the state."