Sweden’s experience has lessons—good and bad—for other rich countries, including the U.S., where New York City Mayor Zohran Mamdani is looking to emulate parts of the state-centric model such as universal child care and city-run stores.

The capitalist makeover has allowed Sweden to do what few industrialized countries have managed in recent years: shrink the size of the state. That has enabled the government to sharply lower taxes and, economists say, sparked a surge in entrepreneurship and economic growth.

Its total public social spending bill—which includes healthcare, education and all welfare payments—has fallen to 24% of gross domestic product, similar to the U.S. and well below the over 30% for nations like France and Italy.

Sweden’s economy is expected to grow by around 2% a year through 2030, roughly the same pace as the U.S. and double the growth rates of France and Germany, according to an April forecast by the International Monetary Fund.

“Sweden is a real land of opportunity,” said Elisabeth Svantesson, the country’s finance minister. “I want people and capital to stay here and grow.”

While many European countries are raising taxes, Svantesson has cut them three years in a row. Sweden’s top income-tax rate has fallen close to 50% from nearly 90% in the 1980s.

Considering the overall tax burden, “it’s more attractive here…than the U.S.,” said Conni Jonsson, the billionaire founder of EQT, a Stockholm-based private-equity firm.

Critics say the paring back has gone too far. Inequality is soaring in this traditionally egalitarian country. Gang violence has surged in dozens of immigrant-heavy suburbs, creating areas where local criminal networks challenge state authority and hinder policing. A public debate is raging over for-profit schools, which critics say make money by skimping on playgrounds, libraries and staff.

“The American perspective of Sweden is so far off from reality,” said Andreas Cervenka, a Swedish author who recently returned home after living in California. “We are going from a society which is like, ‘One for all, all for one,’ to ‘Everybody is on their own.’”

Spurring entrepreneurs

Sweden didn’t always have a big public sector. The country climbed from being one of the poorest to the third-richest country in Europe over 100 years through 1970 without high levels of taxation.

But starting in the 1960s, the center-left Social Democratic Party—which dominated the country’s postwar politics—sharply raised taxes and spending, ultimately taking government spending as high as 70% of GDP by the 1990s.

The changes triggered a long period of weak growth, stagnant after-tax incomes and ballooning budget deficits and debt that culminated in a banking crisis in the early ’90s.

Under pressure from investors, the government instituted sweeping economic reforms over the next two decades. They included cuts to unemployment benefits and housing subsidies and the privatization of public services, as well as tax cuts and a reform of the pension system to make it more affordable. Strict limits were imposed on government debt. (Sweden’s debt to GDP is a meager 36%, compared with 129% for the U.S.) In the mid-2000s, the government eliminated wealth and inheritance taxes.

The result: Wealthy entrepreneurs who had fled Sweden’s high taxes have been returning, said Jacob Wallenberg, a member of the Swedish industrial dynasty that owns big stakes in Ericsson, Saab and other large companies.

When Wallenberg was growing up in the 1960s and ’70s, Swedes weren’t very wealthy, he said. The country, he noted, famously only had one Rolls-Royce car.

Today, international polling suggests Swedes are far more open to wealth than the French, Germans, Spanish or Italians, and more positive about the market economy than any European country except Poland. Sweden’s Rolls-Royce count is now over 800, and when the automaker decided to open its first showroom in Scandinavia in 2016, it chose Stockholm.

As the state retreated, the private sector expanded. A study published in April by the Stockholm School of Economics found that after Sweden removed inheritance and gift taxes in 2005, private firms with potential family successors grew faster, invested more and paid higher corporate taxes than firms without natural heirs.

Businesses championed new technologies in a bout of risk-taking with few equivalents in a region dominated by older industries and ambivalent about tech.

Niklas Zennström, the billionaire founder of internet-telecommunications pioneer Skype, said the privatizations helped fuel innovation in sectors like telecoms, which have underpinned the country’s tech boom. Zennström himself started his career building fiber-optic networks for a private telecom operator in the 1990s.

“Sweden was very early with mobile phones, with a high penetration of 3G and competition in mobile networks,” Zennström said. “There was a sense of entrepreneurship.”

The country saw more than 500 initial public offerings over the 10 years through 2024, more than Germany, France, the Netherlands and Spain combined, according to a landmark 2024 report on Europe’s economy by former European Central Bank President Mario Draghi. It has now moved ahead of the U.S. in the number of billionaires per capita, thanks to a thriving tech startup scene and videogame industry that has produced hits like Minecraft and Candy Crush.

‘More for less’

At St. Göran’s hospital in downtown Stockholm, radiologist Karin Dembrower huddled over a computer screen, pointing to tiny light spots indicating cancer on a black-and-white image.

“We cannot see with our eyes that there is something going on here but somehow the AI is seeing” it, she said.