The phenomenal national income growth in the Nordic nations occurred before the rise of large welfare states. The rise in living standards was made possible when cultures based on social cohesion, high levels of trust and strong work ethics were combined with free markets and low taxes. The rise in living standards continued under moderate social democrat policies. Rather than challenging the laws of economics, the Nordic success story reinforces the idea that business-friendly and small-government oriented policies can promote growth.
The period from around the beginning of the 1960s was characterised by popularisation of radical socialist ideas. In the Nordics, previously pragmatic social democrats radicalised and moved sharply to the left. The turn towards socialism was most strongly felt in Sweden, where the famous so-called third-way orientation was formed. The basic idea was to replace free markets with a model closer to a socialist planned economy.
Undermining the basic elements of the market system proved to be a colossal failure in terms of promoting sustainable economic growth. The new model, relying on massive state involvement, was simply not sustainable. The high living standards were a result of the fruits of the previous successful policies. Sweden was no bumblebee that could escape the marring effects of socialist planning.