Bild: Linus Hallgren

Trots den förhalade finanskrisen är den svenska välfärdsmodellens grundpelare fortfarande intakta. Men mörka moln uppdagas i horisonten. Dagens Arena återpublicerar Håkan A Bengtssons text från Policy Network. Texten är på engelska. 

Rioting in the Stockholm suburb of Husby and a number of other suburban areas in other Swedish cities in the spring of 2013 made international headlines, with editorials inferring that riots in ”one of Europe’s richest capital cities have scuppered Sweden’s reputation for social justice”.

These riots have now led to a critical public debate in Sweden. Most people are aware that rifts in Swedish society (as in most other countries) have increased in recent years. But nevertheless, such riots may be seen in terms of an awakening, particularly in view of developments in the major cities and the growing marginalisation and poverty in many suburbs and housing areas.

These rifts have been exacerbated by the new work-incentive policy (”arbetslinjen”), with reduced levels of compensation in the social insurance system pushed through by the non-socialist government after the 2006 election. At the same time, major groups have benefited in purely economic terms, especially as a result of lower taxation for those in work.

One might refer to an increased polarisation between insiders and outsiders, between those who have a strong position in the labour market and those who do not.

Prior to about 1980, income differences were declining in Sweden. But according to a recent OECD report, Sweden is the country in which income gaps have increased most since 1995, even if Sweden initially had a very narrow range of income distribution. But the trend is clearly pointing in one direction. As Michael Forster, a senior OECD analyst puts it: “If this trend continues for another five or ten years, Sweden will no longer be a showcase for equality in the OECD area.”

A brief recent history of the Swedish model
The Swedish Model is still very much associated with Social Democracy and the labour movement, which set its stamp on Swedish society for much of the 20th century.

In recent years, the non-socialist coalition (“alliansen”) headed by the ‘New Moderate’ Party – and its figureheads Prime Minister Fredrik Reinfeldt and Finance minister Anders Borg -, has also started to lay claim to the Swedish Model concept. In other words there is a conflict about the meaning of this concept, about specific policies and about the way in which the public welfare institutions should be constructed.

A brief step back helps set this debate in context. In the 1970s, the Swedish Model produced excellent results at the social level. But, at the same time, it was subject to increased criticism from the right, which wanted to see cuts in the public sector.

Neoliberal opposition to the public sector also gained ground in Sweden.

Overall, criticism of taxation gained ground. A mild tax revolt against the Social Democratic high-tax society was now a reality. But back then the Nordic countries, including Sweden were still dominated by strong Social Democratic parties and, through an alliance with LO, the blue collar trade union central organisation, they constituted the focal point in politics to a considerable extent.

This was the sun around which the other planets revolved. But gradually this has changed.

In the 1980s, the Swedish Model was characterised by considerable tensions and, in particular, by conflicts within the labour movement in a Swedish “war of the roses”. The expansion of the public sector slowed down. Then, in the 1990s, Sweden’s serious economic crisis put the Model to the test.

The Social Democrats instituted severe economic policy, reduced the public sector’s share of GDP and introduced cutbacks in the social insurance system. After 2006, the non-socialist ‘New Moderate’ government implemented major changes in the welfare system.

In the early years of the present century, the Swedish Model (and similar variants in the other Nordic countries) recovered and achieved a relatively satisfactory performance in terms of productivity, increased real wages and employment. International listings gave the Nordic models a top ranking, and their inhabitants were considered to be more satisfied with life and “happier than their counterparts in other countries”.

In other words, the foundations of the Nordic welfare models have survived. And high birth rates give them a less alarming demographic structure than in the EU 27 countries. Furthermore, the Nordic countries managed the economic crisis of 2008 relatively well, and recovered more rapidly than many other European countries. In many respects, the Swedish labour-market model is in good health, though it no doubt has deficiencies.

Nonetheless, this relatively optimistic picture has its dark edges which, if allowed to grow, will rupture the solidaristic Swedish model.

The pressures on the Swedish model:
The Swedish Model is exposed to considerable pressures and there are several areas for both major challenges and conflicts today:

1. Deregulation, venture capitalists, profit-making in the public sector
How is the welfare sector to be organised and what should be the role of private contractors in publicly-financed services? Welfare services in Sweden have moved from a form of planned public economy to become an increasingly market-oriented welfare operation. This has resulted in an identity crisis for the labour movement. Social Democracy is intrinsically pragmatic, but still identifies itself to a considerable extent with the public sector. And there is also tension within the labour movement as regards private alternatives in the welfare field.

Most people are critical of the current arrangements, but they disagree as to the alternatives, and how quickly and comprehensively changes in the current system can be implemented.

This provides an important lesson for other welfare models, particularly as the Swedish model is used in this area as an example to be followed by other countries, as exemplified by Conservative supporters in the debate on the future of the British National Health Service.

There is reason in this connection to issue a warning to other European countries. The Swedish experience has shown that deregulation has not resulted in a considerable number of non-profit alternatives, as many people believed and which they used as an argument for change. Instead, it has meant the emergence of private companies, large corporate groups and venture capitalists in the Swedish welfare system. This was hardly envisaged when these “reforms” were discussed and implemented. There is every reason for other countries to study developments in Sweden in this respect. Today a much more stringent regulation of schools and medical and care services is on the agenda. This is, at any rate, what the labour movement is currently discussing and proposing.

2. High levels of unemployment and stringent fiscal conservatism
The form that economic policy will take in the future is also a matter for discussion. After the Swedish economic crisis of the 1990s, Swedish economic policy was revised, with a greater emphasis on fiscal conservatism and a more rigorous regulatory framework. This has subsequently served Sweden well and government finances and the Swedish economy are strong by European standards. But, at the same time, there is a high level of unemployment, which is considerably higher than it should be in view of the strength of the Swedish economy.

Discussion of a more expansive economic policy suggests a renaissance for economic policy in a Keynesian perspective. In parallel with this, there is an ongoing discussion of the Riksbank’s interest-rate policy. So far, the labour movement has been somewhat divided on this question. But there are signs that a growing number of people are questioning Sweden’s previous conservatism in fiscal matters.

3. The consequences of the State’s retreat from active industrial policy
This involves the role played by the state and politics in industrial and commercial policy. During the economic crisis of the 1970s, the state was highly involved in managing the crisis in Swedish industry. But during the crisis after the financial debacle in 2008, the government was conspicuously passive. There is much to suggest today that industrial policy and the state’s task of promoting long-term entrepreneurship in both the industrial and service sectors may become a political issue in the future.

After 1989, Social Democracy adopted a positive approach to globalization, with a focus on building bridges between old and new jobs, rather than becoming involved in the way the economy functions.

This strategy now appears to be insufficient, and a more active approach is probably required.

4.  The conflict between EU freedom of movement and labour unions
This involves the way the labour market works and, in particular, whether the trade union organisations can uphold their positions, which are strong by European standards. Despite difficult challenges, the unions have maintained a high level of membership and succeeded in countering the development of a low-wage market. But they are facing major underlying threats.

The level of membership is low in several sectors and for example the EU posting directive and the European Court of Justice’s ruling in the ”Laval” case has hindered countermeasures by the unions. It is strategically important that the Swedish Model prevents the emergence of a low-pay, ”working poor” sector in the labour market, particularly in view of the need to present alternatives to deregulated labour markets that put employees at a disadvantage. But it is also important at EU-level to discuss the primacy of freedom of movement over social concerns, and the unions’ opportunities to uphold the interests of employees.

5. The fragmentation of social insurance and pressures on universalism
Attention should be drawn to the construction of the Swedish social insurance system. Insurance provisions in the universal welfare model were previously extensive and provided compensation for loss of income. But, as previously mentioned, the public collective insurance systems have been weakened since the 1990s and become a form of basic safety net. Supplementary policies in a collective or individual format have instead come to fill the vacuum left by the former collective insurance system. This has meant that groups and individuals with sufficient economic resources have been able to take out their own insurance policies, while groups with a weaker economic status cannot do this. This has led to a greater gap between different groups which, in the long run, risks undermining the universal welfare model and replacing it by more individual, unjust and irrational insurance models.

6. Financing the Swedish model after the Moderate party programme of middle-class tax reductions
The rate of taxation represents another challenge for the Swedish Model. There is a long-standing discussion on the future financing of the welfare state in Sweden. The Swedish rate of taxation is still very high, but has been pushed down so that the public sector’s share of GDP in the form of revenue from taxes and social charges has now fallen to about 44.5 %.

No major political party is currently advocating a higher rate of taxation, although many people consider that this will be necessary in the future.

The Swedish welfare model covers a broad spectrum of society, and there is much to indicate that tax reductions by the Moderates have undermined the overall quality of public care services and the scope of the social insurance systems.

In his book A Critical View – the victory and crisis of Social Democracy, Kjell-Olof Feldt, a former Minister of Finance, considers that Social Democrats must discuss increased public revenues in the form of higher taxes in the future.

In this context, it is important to look for innovative creative approaches in the public debate and in policy proposals to ensure long-term financing for our common aims.

Raising taxes is not an obvious election winner, either in Sweden or in most other countries, despite considerable support for the public sector and even for higher rates of taxation in the future. But there are, of course, several sources of tax revenue. Social insurance charges are not necessarily regarded as a tax, and Swedes pay special licence fees for public-service TV and radio rather loyally.

Sweden: At the crossroads of collectivism
Basically all these factors involve the role of politics in society and the balance between the public sector and the market.

The future of the welfare state touches on, by implication, how much of our consumption should be handled by individual citizens in their private capacity, and how much should be paid for jointly in the public sector and in collective forms. The question of the rate of taxation will have to be discussed.

The Swedish welfare model covers many areas and relies on financing via taxation to a considerable extent.

As early as the late 1950s, John Kenneth Galbraith was arguing that a greater proportion of our consumption should be channelled through the public sector rather than disbursed in the private sphere – otherwise the private sector would become rich and the public sector poor. This risk is just as obvious today.

Håkan A Bengtsson, VD Arenagruppen och ledarskribent på Dagens Arena.

Detta är ett utdrag från rapporten “The Swedish Model – conflict or consensus?” Detta är en återpublicering från Policy Network.