Sweden’s Economic Brainwave

I’m sure Tim Worstall will get around to this, but I’m going to tackle it anyway.

To combat its ‘throwaway consumer culture’, Sweden has announced tax breaks on repairs to clothes, bicycles, fridges and washing machines. On bikes and clothes, VAT has been reduced from 25% to 12% and on white goods consumers can claim back income tax due on the person doing the work.

Years ago I had a Russian friend who moved from Dubai to Sydney.  Within a few weeks of her arrival she told me she found some aspects of living in Australia frustrating.  The example she gave was that she needed an old, decrepit wardrobe removed from her house, only to do this she had to call a removal company which could come some time next week and charge $200 for the job.  Whereas in Russia, she said, you just find a couple of alcoholics and buy them a bottle of vodka or two and they’d happily do it.  They’d probably go on to sell the wardrobe, too.

One of the big differences I noticed while moving between countries as economically diverse as France, Nigeria, Australia, Russia, and Thailand is that the wealthier a country is, the more difficult it is to get simple repair or semi-skilled trade jobs carried out.  The reason for this is obvious: as a country gets wealthier and more educated, the value added by each individual in the workforce increases, and a lot of low-value jobs simply disappear.  For example, in a poor country a guy can make a reasonable wage repairing bicycles: it might be the best way for him to make money and other people can’t afford to just buy a new one.  Whereas somebody living in London can make more money doing almost anything other than repairing bicycles, and he’d anyway have to charge so much that customers would find it easier and possibly cheaper to just buy a new one.  Economics, in other words.

You would therefore expect a developed country with an educated population like Sweden to have its workforce employed doing high-value jobs: technology, services, manufacturing, etc. rather than low-skilled jobs like repairing clothes.  And funnily enough that’s what they have, but now they’ve decided this ought to change:

The incentives are intended to reduce the environmental impact of the things Swedes buy. The country has ambitious targets to reduce greenhouse gas emissions, but has found that the impact of consumer choices is actually increasing.

They appear to have stumbled on the concept that a low-tech economy in which consumers have fewer choices produces fewer greenhouse gases.  Now they want to move to such an economy, which is in the precise opposite direction everyone else is moving.  We have the developed world.  We also have the developing world.  Sweden wants to kick-start the undeveloping world.

The scheme is expected to cost the state some $54 million in lost taxes, which will be more than outweighed by income from a new tax on harmful chemicals in white goods.

Erm, okay.  But isn’t the point of this new scheme to reduce the number of new white goods being bought?  So if it is successful, this new tax take won’t materialise, will it?

Moreover, Sweden’s economy is growing strongly and the government has an $800 million budget surplus.

My bank account is in surplus.  I’m therefore going to quit heart surgery and take a job in McDonald’s.

I interviewed the man behind the scheme, deputy finance minister Per Bolund, a member of the Green party and a biologist by training.

Ah.

He spoke about nudging people towards better choices; creating jobs for skilled manual workers; and Sweden’s six-hour working day.

Moving workers from skilled to semi-skilled jobs is a better choice?  This doesn’t seem to be consistent with the history of the human race.

I think many of us have had a bike standing around broken and we don’t fix it and then start using other modes of transportation.

Which suggests the individuals concerned aren’t so interested in riding a bike, doesn’t it?

This will expand the number of companies giving these kinds of services, so it’ll be easier for consumers to have things repaired.

How many unrepaired bikes are lying around in Sweden, exactly?

And sometimes you can be surprised by how a small change in fees can really change behaviour.

Oh no, we are quite aware of how fees – especially taxes – can change behaviours.  For example:

And in white goods, the tax break is actually quite substantial since most of the cost of repair is actually labour, so it can really make a quite big difference.

You’ve taxed labour to the point semi-skilled jobs have vanished.  Now you need a tax break to bring them back again.

It’s actually a tax on chemicals. So if the appliance has harmful chemicals in the production process or incorporated in it there will be a levy, but if, on the other hand, you decrease the amount you can actually get a much lower levy, or even a zero increase. So that will give an incentive to producers to decrease the use of harmful chemicals, and we know that appliances are a major contributor to the amount of them in the everyday environment.

Great.  But what if by using less of the harmful chemical the appliance becomes less efficient, thus needing more power for the same performance?  I’m pretty sure this would apply to a fridge or air conditioner.  I’m also pretty sure nobody has thought about this.

The idea is to help the private and municipal sectors use nudges to make it easier for consumers to act responsibly and reduce their environmental impact with everyday choices.

Translation: we’ll make you pay more if you live in ways of which we don’t approve.

We don’t anticipate that this will make people avoid buying things overall, but hopefully it will be easier for people to buy high-quality products because they know it’s affordable to have them fixed if something breaks. So it’s a lessened incentive to buy as cheap as possible and then scrap something.

People generally buy high-quality products because they don’t want them to break.  Nobody buys a high-quality product thinking it is a smart purchase because when it breaks, Olaf from around the corner can fix it on the cheap.  All people will do is buy the cheaper (and probably less efficient) appliances and get them fixed if and when they break.  The high-end appliances, subject to the “harmful chemical” surcharge, will suffer a drop in sales.  And I bet the repairs will still be too expensive compared to scrapping and replacing goods made in China.

And we also know that repairs are more labour-intense than production, which has been largely automised, so expanding repairs could actually contribute to an expanding labour market and a decrease in unemployment.

So you want to go from a lower-cost, automated process to a high-cost, manual process to achieve the same result?  Progress!

Especially because repair services often require high skills but not very high education,

Highly-skilled jobs requiring no education.  I suppose this is the theory underpinning Sweden’s immigration policies.

so we believe there’s a currently unemployed part of the labour force that could benefit.

Why not get them doing jobs that need doing, rather than getting them to do tasks which without meddling with the tax system nobody has a demand for?

Of course it is a boost for the local labour market because repairs are by their nature done near where you live. So hopefully this will contribute to the growth of jobs locally all over the country. Whereas large-scale manufacturing is very centralised and can only happen in a few locations around the nation and internationally.

A blast-furnace in every garden!

We’ve managed quite well to decrease emissions within Sweden – by some 25% since the early 1990s – but we see that the environmental effects of consumption are actually moving in the opposite direction, they’re increasing. And since Sweden wants to be a leader in sustainable development on a global scale, we feel a responsibility to do what we can domestically to decrease the impact of consumption.

No new bike for you, Erik!  The government has decided you must get your old one fixed.

What do you think of the six-hour working day, which is being tried in Sweden?

There’s no national scheme, but municipalities and private employers have tried it, and in general found it quite beneficial for the labour force. They experience better working conditions and you can see some effects when it comes to health, you get fewer sick days.

The fewer hours people work, the fewer hours they spend off sick.  Who knew?

And what I think will really change consumption patterns is the growth of the sharing economy, which has so many benefits for the individual – getting easy access to things like vehicles without the responsibility of ownership and maintenance. That could be a game-changer.

Oh, it’ll be a game-changer all right.  Look at how well the Soviets got on with collective farms which had no responsibility of ownership or maintenance for machinery and vehicles.

I think this is what happens when you make a biologist the deputy finance minister of a country.

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35 thoughts on “Sweden’s Economic Brainwave

  1. Alas, no longer will the rest of us have a chance to learn from interesting social experiments in Sweden because there soon won’t be a recognisable Sweden to learn from.

  2. Sweden is importing low/no-skilled workers by the boatload. Perhaps this initiative will give them something to do.

  3. Wrong solution, but at least they have identified the problem. Western countries’ workforces are becoming polarised between the educated and well paid and the uneducated and jobless. The second group is growing at quite a pace driven in no small part by immigration.

    The flash to bang time for educating the uneducated, assuming they are willing and capable, is quite long and as we’ve seen from Brexit and Trump’s election the establishment is starting to run scared.

  4. I think the proposal has some merit given the situation.
    Sweden has recently acquired a large number of unskilled inhabitants. They will take some considerable time to acquire skills. They will therefore be poorly paid and buy cheap often secondhand goods. The cheap goods can be repaired by low skilled people- fixing bikes and washing machines is not high skilled, at least if the object is simply to keep them running somehow.
    Thus a pathway is provided for low skilled people to sustain themselves and meantime acquire extra skills.
    You cannot convert third world people into first world people overnight, and in the meantime they must be employed at third world levels.
    I note that the minister doesn’t even hint at any of the above.

  5. “repair services often require high skills but not very high education”

    translation someone with an arts (or even biology) degree couldn’t repair a washing machine to save their life, but they still consider themselves entitled to feel superior and tell others how to live.

  6. “You cannot convert third world people into first world people overnight”. In Germany, some people say that three generations hasn’t been long enough. Perhaps in the UK too?

  7. I know this is terribly ‘rayciss’ but how many of the new ‘Swedes’ (who go by the name of Mo rather than Sven) and who wear desert-like garb or burkas, actually ride bikes? When I lived in one of the north’s more ‘vibrant and diverse’ towns there were hills aplenty — which tended to discourage cycling — but lots of cycle lanes because the local councils were sure the new citizens would all want to cycle to the mosque rather than drive the taxis they all owned. I just never saw it happen.

    While I applaud Sweden getting the sons and daughters of Vikings on their bike (Alfred the Great told them to get on their bikes, too, I recall from history) I take this repair-or-perish scheme to be more as a gesture designed to make the pale and righteous people feel good.

    There is a lot to be said for recycling, pun intended here. When I worked in newspapers, the rags which employed me were dependent on pages of Classified lineage ads (and plenty of young male workers like me were equally dependent on the large number of attractive young females who worked in that department, but I digress) which of course featured every sort of unwanted furniture items, bikes, cars and even pigeon-lofts. It was a huge business and gave thousands of people every day a chance to find the coffee table they had longed for at a bargain price, buyer collects. Yes, Ikea everywhere was back then a distant dream in some Swede’s mind so for many of us northerners the lure of busy, packed Classified columns was finding useful things, such as furniture. And, naturally, jobs too.

    Cometh the modern world and the falling demand for unwanted items (and even jobs) has reduced what were several broadsheet pages down to barely a tabloid page. For what it is worth, the cycles columns of the ‘Want Ads’ never had unrepaired bikes in them, but maybe we didn’t know how to fix them where I lived.

  8. The guy’s heart is in the right place but his policy recipes are pathetic. An economist should take consumer preferences for granted. If you want to influence these individual preferences, start a movement and convince people that having one’s clothes mended by a Swede is virtuous and honorable. I can see how nationalists could latch on this idea: “When Swedes mended their own socks, Sweden was great!” (Hopefully that wouldn’t refer to the time when Swedish soldiers sacked Munich and Prague.)

    It’s true that some jobs require practical skills rather than formal education – clothes-mending in particular is an art they don’t teach at college. Whether there is demand for that art is a different matter.

    “Whereas in Russia, she said, you just find a couple of alcoholics and buy them a bottle of vodka or two and they’d happily do it.” No longer – not in the two capitals at any rate. However, a good idea would be to ask the dvornik, who would likely have Central Asian friends ready to help. It wouldn’t cost an arm and a leg but wouldn’t come as cheap as two bottles of vodka either.

  9. No longer – not in the two capitals at any rate.

    Indeed. This would have been back in about 2006, and she would have been referring to a time 10 years before that even. I saw the change myself between 2004 and 2008: when I first went to Russia you could stick your arm out in the road and suddenly everyone was a taxi. By the time I left you couldn’t do that.

    What I did in Sakhalin, and what I’d do now if I ever went back, would be to ask one of the young guys in the office if he had a mate with a van. Every young man in Russia has a mate with a van – usually belonging to his employer – and it’s just a matter of getting hold of one and slipping him a thousand rubles. His employer, and any proper customers, will just have to wait.

  10. “The reason for this is obvious: as a country gets wealthier and more educated…”

    … the dumber become the people running it because they are the ones with no marketable skills and cannot get work in wealth-creating, productive employment.

    So those who previously would have been employed doing things like emptying earth lavs., cleaning out fire grates and fetching water are in ‘government’.

  11. Rob,

    That’s a bit of Swedish honesty – 10 hours in the office but 4 of them knobbing about on Faceache and Twatter.

    Convincing people to have their clothes mended might be a good little business if the number of people walking round in torn jeans in UK is anything to go by.

  12. Right, so the VAT is halved. Great. How much do I save if my bike is being fixed? Lets work on UK prices as an example – bike repairer has to charge at least £20/hr for his labour, as unless he’s snowed under with bikes needing fixing he’s not going to earn that for every hour of the working week. Fixing a bike is going to be what, a couple of hours work plus parts, maybe £50. Plus the VAT at 25% equals £62-50 reduced to about £56. Is a potential reduction in my repair bills of £6 per time going to convince me to buy a bike rather than a nice warm car?

    No, it isn’t. Those people who like biking will continue to do so, and everyone else will get in their cars, or on the bus. No one’s behaviour is going to be changed by such a small change in price of something they might need pretty irregularly. And I can buy a new mountain bike for £99 from Halfords. It would probably make more economic sense to buy a new bike, use it until it breaks, they buy another one, than spend time and money getting the other one fixed.

  13. Totally overlooking the fact that the main reason many things aren’t repaired is that the parts aren’t available because they are not intended to be repaired. How do you repair an otherwise ok washing machine with a dead controller board if the manufacturer can’t or won’t supply you with one?

  14. This, plus importing tens of thousands of third-world peasants, seems to prove that the Swedish elite really hate Sweden.

  15. Well, if nothing else, one has to concede that the Minister’s views made entertaining reading. (Don’t they nowadays term that sort of thing ‘brain farts’?)

  16. There’s only one problem with the scheme. If you have someone who is willing to have repaired an older appliance rather than replace it you are probably just one step away from a person willing to do it themselves.

    A little time on the internet at the manufacturers web site, any number of helpful YouTube videos, the parts from a Just in Time supplier and there you go.

    No new employment, no new VAT, and lost government revenues to pay the Bicycle Repair Commisar, and The Director of the Bureau of New Appliances.

    Should work perfectly.

  17. Swedish officials must have traveled to Cuba to learn about their thriving auto repair industry.

  18. Why not simply reduce the tax rates on labor? Since there is a budget surplus Sweden doesn’t even have to look for the money. If I keep 56 of a 100 quid I earn instead of 54 quid then I now only have to earn 98* quid to have the same standard of living.

    * Actually less than 98 but we’ll keep the math as simple as possible so the under-educated can understand.

  19. Socialist governments tend to come up with drivel of this kind. I seem to remember that, when Mitterrand was first elected president in France (I know, I’m dating myself), one of the win-win programs the new government came up with was to hire more teachers (instituteurs) and to pay for them by the simple expedient of having to pay fewer unemployed people. Because, you see, in the aggregate, this was thought to be one and the same population: simply move people off the unemployment rolls and into service as teachers. Et voila!

    On the subject of the unintended side effect of regulations meant to save the planet, I also note the conspicuous success of the 1.0 gpf (gallon per flush) toilets here in the US of A. I think the old standard was 2.8 gpf, which, as I recall, did the job adequately in most cases. With the 1.0 gpf toilet, on the other hand, I find that every time I go to the loo here in the office, I have to flush first when I get there (to eliminate any, er, remnants left by the previous occupant of the stall), then once when I’m done, but before the paper goes in lest the latter clog the dam thing, and then one more time once everything is over with. If I feel in an especially good mood (which, as most of you will agree, tends to happen after you’ve taken a good dump), I will even flush a fourth time to leave the bowl pristine for the next customer (thus maybe allowing him to avoid the first flush I mentioned above). So on net I now use 3 or 4 gallons of water to do what I used to be able to do with 2.8. But undoubtedly some official somewhere feels virtuous about having resolved the water crisis here in New York City and the rest of this hallowed land of the free.

  20. “A little time on the internet at the manufacturers web site, any number of helpful YouTube videos”
    Top comment from Allen. It used to cost me £5 to have a bicycle wheel trued in the early 00s, which I gladly paid for as my attempts to do it made it worse. This is now around £7.50 a wheel, and thanks to a couple of youtube vids which explained it so much better than a printed manual, it’s now a DIY task. The job that really needs sorting is tyre wear – it’s a shame to throw the tyres out when the tread wears down as most of the rubber remains. Replacement is expensive.

    Curiously I asked the bike shop one day why a helmet was VAT free but the new tyres and brake blocks purchased at the same time were not. “No VAT on safety equipment” was the reply. I thought gripping was a safety requirement, but not according to the VAT rules it isn’t.

  21. Pat, the simple solution for Sweden, given it has imported a 3rd world workforce, is to turn itself into a 3rd world economy.

    That’s exactly what they appear to be doing.

  22. There is all the aging society who need all sorts of things (non medical things) done for them.
    Maintaining them might be more sense than repairing bikes.

  23. I followed Tim W’s link to this and am very glad I did. What an eloquent and cogent (and amusing) writer you are.

  24. It would probably make more economic sense to buy a new bike, use it until it breaks, they buy another one, than spend time and money getting the other one fixed.

    Exactly. But apparently this is a bad thing.

  25. How do you repair an otherwise ok washing machine with a dead controller board if the manufacturer can’t or won’t supply you with one?

    Yup. You’d have to get a second hand one off eBay. I’ve done just that with a washing machine door interlock this week.

  26. There’s only one problem with the scheme. If you have someone who is willing to have repaired an older appliance rather than replace it you are probably just one step away from a person willing to do it themselves.

    A little time on the internet at the manufacturers web site, any number of helpful YouTube videos, the parts from a Just in Time supplier and there you go.

    Yup. And with marginal tax rates being what they are, we might well see people doing this instead of working those extra hours.

  27. Because, you see, in the aggregate, this was thought to be one and the same population: simply move people off the unemployment rolls and into service as teachers. Et voila!

    Bwahahahahaha!

  28. There is all the aging society who need all sorts of things (non medical things) done for them.
    Maintaining them might be more sense than repairing bikes.

    Indeed. Let’s get people doing jobs that need doing, not jobs that are already being done more efficiently and cheaply elsewhere.

  29. Correction to my earlier post.
    The sort of low grade repair and maintenance I had in mind will be done in the black economy- hence tax rates will make no difference.

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