The first foreigner-confounding confusion was the work of neoliberal intellectuals at think tanks such as Timbro who enjoyed remarkable success in redesigning government policies. The second is the work of the Sweden Democrats who have moved from the neo-Nazi fringes to the center of power as Sweden’s second biggest party.

At first blush, Sweden is strikingly cosmopolitan. Most Swedes speak excellent English. Stockholm offers Thai and Japanese food as well as herring and meatballs. Sweden was the world’s third biggest international aid donor in proportional terms after Norway and Luxembourg, spending 0.92 of its gross national income on official development assistance. One in five residents was born abroad.

The driving force behind this cosmopolitanism is Swedish business, which specializes in turning the adventurous spirit of the Vikings to commercial ends. The country’s most venerable powerhouses were the product of the first age of globalization before the First World War. Ericsson, a telecoms giant, started selling phones in China in the 1890s. Axel Johnson Group, a food conglomerate, has constructed its headquarters in the shape of a ship, with galley-like stairs between floors and a bridge on top, to commemorate its origins trading with Argentina. They have been joined during the second great age of globalization by a new generation of internet-based giants such as Spotify Technology SA. Its reputation for egalitarianism notwithstanding, Sweden has one billionaire for every 250,000 people, one of the highest rates in the world, with their total wealth accounting for a quarter of GDP.

The Swedes combine the best features of German and American capitalism. German-style Swedish companies dominate global niches through a combination of engineering excellence, high-quality training and constant innovation. Sandvik AB, which produces everything from machine tools to steel rods for nuclear reactors, boasts that “we sell productivity not products” and has a productivity center that is devoted to pushing the frontiers of technology — creating the world’s fastest drills for example. American-style technology firms are specialists in disruptive innovation fueled by venturesome consumers.

Moreover, Swedish society at large is remarkably pro-business. The government allows private companies to run bits of the state such as schools and hospitals. The Swedish stock market is Europe’s largest, with 950 listed companies (mighty Germany comes second with around 800). Half the adult population has savings in the Swedish mutual fund account. Sweden has more venture capital investment as a share of GDP than any other European country, much of it drawn from America, and venture capital-funded investment is thought to have increased GDP by six percentage points since 2005.

Look again and you are confronted with a society that is turning inward, beclouded by angst and pessimism. Swedes talk obsessively about the spate of shootings and riots in “troubled areas,” and about the rise in crime. (The latest scam reportedly involves stealing traffic cameras and repurposing them for Russian drones.) They lament the disappearance of the old Sweden of social cohesion and low crime, the fraying of the welfare state, with hospital waiting times among the worst in Europe, and the decline of educational standards across the board.

Sweden was never able to match its generous policy toward migrants with its ability to absorb them into society. Successive waves of refugees, hailing from Bosnia, the Middle East and Somalia, have been trapped in housing developments on the peripheries of big cities such as Stockholm, Gothenburg, Upsala and Malmo. The combination of geographical isolation with low skills in a high-wage economy (with minimum wages negotiated at two-thirds of the median wage) proved toxic. Parallel societies based on clan and religious ties developed. Young people were recruited by criminal gangs. Drug-related crime and violence exploded.

The final straw came in 2016 when Sweden granted 156,031 residence permits to refugees, the most in its history for a single year. New immigrants spilled out beyond the hidden housing estates to areas where regular Swedes encountered them. The riots and crime of no-go Sweden became obsessive talking points. Since 2018, Sweden has had the highest rate of death by shootings in Europe, a tiny figure compared with the carnage in America, but a shock to a country with such a peaceable recent history.

Sweden’s angst over immigration drove the hard-right Sweden Democrats to the heart of the country’s politics. In 1993, the fledgling party organized a “riot night” in Stockholm complete with blazing torches and swastika flags. Some 150 people were arrested. Today, the Sweden Democrats are dictating many of the country’s policies. This extraordinary growth was partly a verdict on the Swedish establishment’s refusal to talk about immigration — issues don’t disappear just because you’re too polite to mention them — and partly the result of the patient leadership of the “gang of four” who took over the party in 1993. Jimmie Akesson, the party’s leader, is deliberately low-key and common-sensical, the very opposite of Donald Trump. The party has made a fuss about expelling extremists and has increased its votes in every election since 2000. In the current election it became too big to shun any longer with 20% of the vote: Conservative parties such as the Moderates agreed to work with it, though without giving its MPs government jobs.

The new government is implementing a range of policies designed to reinforce Sweden’s borders and strengthen its confidence in domestic security: freezing the asylum numbers at a bare minimum permitted under European Union law; deporting irregular migrants and making access to benefits conditional on learning Swedish and subscribing to “common values”; restricting immigration to people who have jobs with median wages; cutting Sweden’s foreign aid contributions by 15% as compared with the previous government’s targets; increasing defense spending; hiring new police officers (during a recent stay I encountered an impressive swarm of new recruits being trained in central Stockholm, though their main victims seemed to be E-scooter riders who’d neglected to put on their helmets); and building new nuclear reactors and reducing taxes on petrol.

True, the minority government could easily fall apart or lose its working majority. But even Sweden’s left-wing parties have now adopted a much more restrictive policy: The Social Democrats, for example, have produced proposals to cap the number of “non-Nordic” citizens allowed to live in “troubled areas.” And Sweden’s turn to the right is part of a wider Nordic trend: Both Denmark and Norway have preceded Sweden in incorporating far-right parties into their governments and implementing more restrictionist policies.

What does the rise of the second Sweden mean for the first? Surprisingly little when it comes to the labor market and other economic fundamentals. Forecasters worry that Sweden’s population will decline in the long run, with too few young people to look after the old. A few labor-intensive industries such as logging are complaining about possible labor shortages. But most companies are reconciled to the current tightening. Sweden’s economic success has been based on high productivity and high skills rather than, like England’s, on a flexible labor market that is good at absorbing low-skill workers. Migration has primarily been driven by moral, not economic, considerations.

Unemployment among the foreign-born is more than three times what it is for native-born Swedes. It takes about eight years for half the new arrivals to start working even part time. High immigration has imposed net costs on the wider society. The Central Bank calculates that the 2015 immigration shock, when Sweden took in the equivalent of 1% of the population, led to a reduction in GDP per capita of 1.7% and an increase in aggregate unemployment of 2.2%.

It means much more for the country’s general orientation. The aim of policy must be to preserve what is best about cosmopolitan Sweden while at the same time understanding why it generated such a powerful backlash. The respectable parties are right to turn their attention to immigration: If you try to ignore something that worries the mass of the population in a fit of moral superiority, it will simply be exploited by radical parties. But the government needs to link a more restrictive policy with a new emphasis on integrating the million or so refugees who are already there. For all the talk about training and Swedish language classes, there is no better force for integration than a job. Conservatives need to realize that it’s not enough just to improve the efficiency of the welfare state through market mechanisms, the default position of recent years. They also need to think more about the values of security and solidarity, not in the nostalgic sense of reviving the Folkhemmet or “People’s Home” of the 1930s, but in a more forward-looking sense of reinventing patriotism for a more fluid world. Liberals need to realize that posing as a moral superpower can be counterproductive if it’s not followed up by considered decisions about integrating migrants. Thankfully, Sweden’s more hard-headed approach to refugees coincides with a more hard-headed approach about foreign policy in general: yesterday’s “feminist foreign policy” is being replaced by one that is increasing military spending and joining NATO.

Sweden has an exceptional history of producing policies that combine globalization with a recognition of society’s needs for roots. The People’s Home was financed by big global companies in its global age and then saved from death through over-extension by a combination of neoliberal intellectuals who breathed new life into the model while also cutting it back and a new generation of global companies who rejuvenated the economy. Today, Sweden needs to produce a new set of policies for the current, more modest, phase of globalization, one that drops the naïve talk of a borderless world and ethical foreign policy and recognizes, instead, both the irreducible importance of the nation-state and the limits of that state’s ability to solve all the world’s problems.More From Bloomberg Opinion:

• Rishi Sunak Walks Right Into a Lose-Lose Immigration Policy: Therese Raphael

• With 100 Million Refugees, the Migrant Crisis Has Barely Begun: Andreas Kluth

• Sweden’s Centrists Can Celebrate, But Not Too Hard: Leonid Bershidsky

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adrian Wooldridge is the global business columnist for Bloomberg Opinion. A former writer at the Economist, he is author, most recently, of “The Aristocracy of Talent: How Meritocracy Made the Modern World.”

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