Note: this is an article about long-term effects. Short-term stabilization of the economy are not central in this article
Many a classical economist will look at the Scandinavian economies with a somewhat smug face, thinking that these countries days of glory are numbered. And their textbooks usually gives them good reason to think so. After all, these countries have high taxes, strong unions and a very generous welfare state. Those things are all supposed to have devastating effects for an economy. If you have read up on a little economic theory it is very easy to think or say "These economies will fail soon enough" .And so people have said.... for about 60 years now. So what is it that these countries so defiant of sound economic theory are doing to keep inflating this huge bubble that is inevitably doomed to burst?
Taxation is theft. Hard-working individuals do their best only to see parts of their money taken away from them. A system of income and wealth taxation incentivizes people not to work. The more you work, the higher the tax rate, and at one point it will no longer be worth it for you to put in more hours. Your reward will be too small. Yet, the money raised from taxation are not all used to fill the void or spent blowing things up. Some of the money spent can actually have a very positive impact on the economy. Scandinavian countries in particular, funnel a whole lot of money into their education system. All this revenue means that the governments can afford offering high-quality education at a very little cost for the student. With free education (no cost to the student, but nothing's free) a whole lot more people are able to become much more productive citizens and realize their productive potential. As a rather obvious result, the economy grows. One can even argue that taxing people for money needed for social programs leaves the taxed person with more money in the long run! (Though this depends heavily on the social program, and is often used as justification for unjust taxation and wasteful spending.)
Unions are ruining the economy and causing unemployment. Unions are pushing up wages for low-skilled workers, eventually causing a lot of them to lose their jobs. It is outrageous that unions force the very people they are supposed to fight for out of work, right? Apparently not in Scandinavia, but more on that later. But strong unions do inevitably cause unemployment. When manual labour is expensive, companies have a strong incentive to bring in new technology to make the most of their people, meaning that they can produce the same amount of goods and services with fewer people. This is why there are no people at toll stations in Scandinavia, but rather machines instead. It is important to stress that THIS IS ECONOMIC GROWTH! Forcing companies to apply the newest technology and use as little manpower as possible leads to a highly efficient economy! Unions do also hold down the wages of the most skilled, the people who cannot be replaced, and makes them much more affordable.
So why is it that unions dare to let people get laid off, when they are the very ones supposed to protect the working people? This does in the end boil down to the very generous welfare system in Scandinavia. Being unemployed is simply not that horrible when you can still feed your family, pay your bills and buy a six-pack of beer now and then. It is easier to lay off people in order to make your company more efficient, because you know they will be taken care of. It makes it a lot easier for the workers and executives to work together, because there is a security net. And the people who ends up unemployed for long will get retrained with high quality education at no charge.
So there you have it, a shallow overview of the main drives of economic growth and prosperity in the Scandinavian economies. Upvote and tell your friends if you liked this article and want to see more. I hope to be able to dig deeper into these and other topics in the future, but for now I am just testing the waters. Do feel free to comment and discuss if you disagree!
Creds for the flag picture: https://beinglibertarian.com/scandinavia-ticking-time-bomb/ (it is purely coincidental that that is where the picture is from)
Union picture : http://www.occupy.com/article/strength-union-labor-movement-will-be-televised#sthash.YHoSZczO.dpbs