Malmö: A case-study in multiculturalism

Among major Scandinavian cities, Malmö has been affected most by multiculturalism. Approximately 41 percent of Malmös population consists of first or second generation immigrants. This is a fairly recent developement. In 1960 only around 5 percent of Malmö’s population were foreign born, similar number to the rest of Sweden at the time.

The large influx of immigrants makes Malmö a suitable “natural” experiment for investigating the aggregate effects of migration. Libertarians and the left argue that immigration benefits Sweden economically, increasing per capita growth and the standard of living. If this theory is true we should expect Malmö to perform well economically.

Malmö University professor Tapio Salonen has calculated interesting stats about Malmö, which I will in part rely on. For variables such as child poverty, Salonen has corrected for those who commute to and from Malmö (this adjustment only makes a minor difference).

Other than immigration, the most important development in Malmö in recent years is the Öresund-bridge to Denmark and the subsequent integration of the Copenhagen with Malmö. This has benefited the economy and has created a large number of high-skill jobs. Yet despite the new bridge, Malmö has had worse economic performance than Sweden as a whole.

* Growth: Eurostat estimates the per capita GDP of regions starting in 1995. Per capita growth 1995-2009:
Stockholm: 3.3%
Copenhagen: 3.0%
Sweden: 2.6%
Malmö: 2.0%


* Tax-base: Peter Santeson has calculated this graph of the tax-base, showing a deterioration of Malmös ability to finance the welfare state. The public sector in Malmö only functions because Malmö is being heavily subsidized by the rest of Sweden.

* Median Income: According to SCB, median earnings in Malmö were around the national average in 1991, but have stagnated compare to the rest Sweden since. While the growth rate of median personal income averaged 1.7% per year in Sweden, it was merely 0.7% in Malmö 1991-2011.

* Earnings of the poor: This graph by Tapio Salonens shows that the real income of low-income earners in Malmö has declined during the last two decades.

  

* Poverty rate: The relative poverty rate (defined as earning less than 60% of median income) in Malmö was the same as the national average in 1991, but is substantially higher than the national average today. 

* Income inequality: This graph by Tapio Salonens shows that income inequality has increased in Sweden and increased faster yet in Malmö.

 

 
* Employment: Two graphs by Tapio Salonens illustrate the employment situation in Malmö. The majority of foreign born working age adults in Malmö do not work. (Malmö has lower employment than the national average also when taking commuters into account.)

* Child Poverty rate: Between 1991-2010 the absolute child poverty rate in Sweden declined from about 15% to about 13%. During the same period Malmö’s child poverty rate increased from 25% to 33%. This gives Malmö the dubious honor of having the highest child-poverty rate among Sweden’s 290 municipalities.

* Welfare dependency: According to Socialstyrelsen Malmö ranks second highest in terms of welfare (socialbidrag) per inhabitants among Sweden’s 290 municipalities.

* Crime: According to Brå, during the last decade Malmö has had a homocide rate of around 3.5 per 100.000 inhabitants. This is significantly higher than the Swedish national average, and not far from the American murder rate of 5 per 100.000 inhabitants (thought the statistical definitions are not identical). 

* Education: Malmö ranks 14th from the bottom in terms of school results among Sweden’s 290 municipalities. 

Keep in mind that the economic disaster outlined above occurred during a period in which Malmö benefited from the new bridge to Denmark. Without the bridge things would likely be even worse.

The dismal experience of Malmö undermines the theory that immigration has benefited the Swedish economy. The historical birthplace of the Social Democratic movement increasingly resembles a blighted American city in terms of segregation, poverty, crime and poor economic performance.
 

Sweden and the Euro: Logos-driven people vs. Pathos-driven establishment

When the common European currency was launched, Milton Friedman predicted with eerie foresight: “Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.”

In 2003, Sweden held a referendum on the issue of joining the EMU. The Swedish elite on both the left and the right virtually uniformly supported joining. The Economist at the time described the referendum as “the people versus the establishment.”


Due to a guerrilla campaign and with a help of a number of independent minded economist (most prominently Lars Wohlin and Nils Lundgren), the people defeated the establishment, saving Sweden from the Eurozone meltdown. Sweden is performing better than the Eurozone countries economically. Key economic indicators from the OECD:

GDP Growth 2008-2012:
Sweden: +4%
Eurozone: -1%

Unemployment rate 2012:
Sweden: 8.0%
Eurozone: 11.4%

Government finances 2011:
Sweden: +0.1% (small surplus)
Eurozone: -4.1% (large deficit)

Increase in Debt as a share of GDP 2008-2012:
Sweden: -0.6 percentage points (reduction of debt)
Eurozone +20.4 percentage points (large increase of debt)

Debt as a share of GDP 2012:
Sweden: 38.2%
Eurozone: 90.6%

The Swedish pubic have soured further regarding the Euro as they watch the European economy burn down around us every night on the new. Here is a graph of public opinion:

What is interesting is the reaction of Swedish establishment. Despite the disastrous consequences of the Currency Union, the elites by and large still support Sweden joining the Euro! Parties currently representing 75% of the seats in parliament officially still support Sweden joining the Euro (S, M, FP, KD). Strikingly, no Swedish political party has changed its position on the Euro following the Eurozone economic meltdown.

Opposition to the Euro is still portrayed as “populism”. Sweden’s Europe-minister Birgitta Ohlsson describes opposition to the Euro as driven by “fear”. Political scientists Sören Holmberg argues that opposition to the EU among the public is due to Swedes being ”opportunistic” and temporarily laying guilt (“skuld”) for the bad times the on the EU.  

Opportunistic means selfishly taking advantage of circumstances and exploiting others. But who is exploiting whom? Sweden has always been a net contributor to the EU, paying in far in excess of what we get back.

This leads to the interesting question, of the definition of “populism” is. The definition of populism cannot simply be the view of the populous as contrasted with the view of the elite, regardless of who is right. I interpret populism as irrational views held by the public as contrasted with more scientific views held by the elite. The self-image of elites is that they have enlightened views, while the public is driven by dark and irrational emotions such as fear of The Other. The role of the elite is therefore to make decisions against the wishes of the masses, and to use its influence in academia and media to gradually alter populist views.


In the case of the Euro however, the Swedish political elite is ill-informed and wrong and the Swedish public right. The main experts on the subject, academic macroeconomists, largely side with the Euro-skeptic “populists”.  

David Frum writes: “Twenty years ago the leaders of Europe agreed on a bold step: a new currency called the euro. They promised that the euro would improve life for everybody—and denounced all opposition as ignorant, xenophobic, and backward. Their words gained extra plausibility because many of the opponents of the euro really were ignorant, xenophobic, and backward. Yet the backward critics were right, and the enlightened proponents were wrong.”

Indeed, the public is more fact-driven than the emotional elites. In 2003 the public sided with the economiss such as Milton Friedman who argued that a common Currency was not good for the economy. The European elites by contrast were driven by more romantic arguments, such as the myth that without the European Union western Europe would have been engulfed in war. After witnessing that the Euro-experiment failed, the Swedish public become more negative inclined towards the Euro. Occam’s razor is that voters have become more skeptical toward the Euro as a result of the economic meltdown caused by the Euro, a reasonable and legitimate conclusion. 

In order to undermine Euroscepticism, the media instead describes these rational cost-benefit concerns in a moralistic, emotional language. Critics are is described as driven by “fear” and “populism” and “scapegoating” (“skuldbelägger”) the EU. The purpose of using loaded terms such as “skuld” is to manipulate the reader by adding sinister a normative dimension to factual statements. 

In contrast to the public, the Swedish political parties did not change their conclusions based on new information regarding the economic performance of the Euro. They have the same view about joining the Euro in 2013 as they did in 2003, new data be damned. Why did facts not change elite conclusions? Because their conclusions were not based on facts in the first place, they were based on emotional sentiment. The philosophy of Birgitta Ohlsson can best be summarized as “EU good, Sweden bad”.

The aim of the Swedish establishment is increasingly to move public discourse away from logic and facts and Logos (where they will lose the debate) and to emotions and morality and Pathos (where the public can more easily be manipulated). This is not being enlightened, it’s the exact opposite.

The Upper Class and Wealth Inequality in Sweden

Sweden is viewed as an egalitarian utopia by outsiders, but reality is complex. In some ways Sweden has less social equality than the United States. While the American upper class is largely meritocratic, the upper class in Sweden are still mostly defined by birth.

Historically, Sweden, Norway and Finland alone in Europe never developed Feudalism (Denmark was closer to continental Europe). The Nordic nobility was a small share of the population and not as powerful as the nobility in continental Europe, though still influential. The upper class in Sweden today consists of the nobility and of wealthy bourgeoisie families that socially merged with them. Wealthy bourgeois families live in the same neighborhoods and have adopted similar behavior and identity as the nobility. Despite long Social Democratic dominance they remain a coherent social group, with a distinct and recognizable accent, way of dressing, values etc. 

Belonging to the upper-class is not defined merely by wealth, depending more on blood. Just as in historical times, a Noveau riche member of the middle class will not automatically be accepted as a member of the upper-classes, unless they actively adapt their behavior and are accepted by the upper-classes socially.

The upper classes in Sweden retain a disproportional hold on wealth and power. The formal nobility in Sweden constitutes around 0.2% of the population. A couple of years ago I looked through the list of the wealthies Swedes. Fully 10% of the richest Swedes are members of the nobility. By contrast not a single one of the richest Swedes was a non-European immigrant. Of Sweden’s prime-ministers Sweden during the modern era 20% belonged to the nobility.

Sweden is known for income equality. Increasingly, studies also point to Sweden as a country characterized by high intergenerational mobility of income. Income-distribution and wealth distribution are however not the same thing. What some may not know is that wealth-inequality is relatively high in Sweden. The top one percent own around 35% of wealth in the United States. In Sweden, because of extensive tax evasion, the number is harder to calculate. When including estimates of wealth held outside of Sweden Roine and Waldenström estimate that the top one percent richest Swedes own 25-40% of total wealth, not far from American inequality levels, and increasing more rappidly.

At the same time, the intergenerational mobility of top wealth is chokingly low. A recent study found that a astonishing 80-90% of inequality of top wealth is transmitted to the next generation in Sweden!

According to one study the share of the richest Swedes who inherited their wealth is around, 2/3 with 1/3 being entrepreneurs, while in the United States it was the opposite, with 1/3 of the wealthiest inherited their wealth while around 2/3 are entrepreneurs.

Thus while the Swedish middle class is large and has a compressed earning distribution, at the very top you have a small number of aristocratic families controlling much of the wealth. Mobility into this group is rare, probably rares than it is in the United States. One reason are stronger informal class-barriers, merely earning wealth is not enough to be accepted a member of the aristocratic upper-class. Another more interesting reason may be the unintended effect of welfare-state economic policies.

During the era of Social Democratic dominance, they wondered how to deal with wealth inequality. The dilemma facing the Social Democrats was this: The upper-class business families did a very good job managing Swedish export industry, the key to Sweden’s wealth. This is especially true for the Wallenberg family, the leading industrial family in Sweden, controlling amongst others ABB, Ericsson, Electrolux, Atlas Copco, SKF, AstraZeneca and Saab and doing an excellent job.

The Social Democrats decided to accept the unequal distribution of assets, but simply make these assets worth less using punitive high tax rates. Because of high inflation capital taxes were often 80-100%.

The upper-class families still owned most of private industry, but because of taxes those assets were simply not worth much. Paradoxically the high taxes and capital regulations which prevented foreign investments seem to have helped freeze the asset distribution into place, with the share of wealth owned by the rich being fairly constant between 1970 to the 1990s.

Though Sweden was historically a country with a high rate of entrepreneurship, the economic policy of this era made it extremely difficult to build new wealth. Of the largest firms in Sweden’s only a couple were founded after 1970. Needless to say this reduces reducing mobility into the upper-classes. Meanwhile the combination of generous pension and high income tax rates reduces the incentives of the middle class to accumulate capital.

Eventually,  free market ideas became popular in Sweden. This led to reduced tax rates, better business climate and abolished capital constraints. The result was that the hitherto depressed assets exploded in value. Between 1980-2000 Stockholm stock exchange increased by a factor of 56! Real estate values in affluent areas of Sweden also increased. Who owned those assets? Largely the upper-class.

For reasons that I do not fully understand (perhaps fear of the rich moving their wealth), Sweden has continued to lower tax rates for the already rich, while keeping taxes on new wealth through work or entrepreneurship high. In 2005 the left abolished the inheritance tax entirely. This means that today the top tax rate for someone who inherits wealth is 0%, and the tax rate for someone who creates new wealth by building a new company 67%.

The Swedish experience shows that the free market is not necessarily the enemy of social mobility. The Social Democrats reduced upward mobility and through work and entrepreneurship, helping to freeze the class society in its place instead of getting fresh blook in. It is not easy to solve wealthy inequality. Perhaps one idea is to re-introduce a reasonable inheritance tax, only for the rich, and use the revenue to lower taxes on entrepreneurs.