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Small Countries, Smart Successes

Sweden: A Model for the Middle Path


The Swedish model shows that social welfare and competitiveness need not be mutually exclusive, and may prove the solution to globalized society’s continually widening wealth gap.



Sweden: A Model for the Middle Path

By Fuyuan Hsiao
From CommonWealth Magazine (vol. 386 )

During the past decade, Sweden, with its three percent average annual growth rate, top-five global competitiveness ranking and the world's narrowest wealth gap, has become the new paradigm for national competitive advantage. Boasting the welfare guarantees of socialism and the market competitiveness of capitalism, Sweden appears to have become the leader of a utopian alliance.

The Most Successful Society in Human History

Two years ago, the English newspaper The Guardian pronounced Sweden the most successful society in human history and called on European nations to emulate their northern neighbor. Last year, U.S. magazine Newsweek praised Sweden as possessing the world's most competitive economic system, comparing Sweden to a Volvo sedan: stable and safe - a generous welfare state envied throughout the world.

And the attention is not limited to Europe and America. Along China's high-flying road toward modernization, the Swedish model has supplanted the Anglo-American model as the prevailing school of thought in China, with fervent discussion within the political and academic establishment lauding it as a classic example of socialism.

So how did this tiny country with a population less than half that of Taiwan but a GDP nine percent greater actually blaze its own distinct trail between American capitalism and European socialism?

Although relatively small, Sweden, the princess of the Baltic Sea, has always played a central role in northern Europe, and much of northern European thought and its institutions are rooted in Sweden. The chief architect of the comprehensive cradle-to-grave welfare-state systems throughout northern Europe was Sweden's Social Democratic Party (SAP), which ruled Sweden for 65 years.

Swedish Model No. 1: The State as Home

In the 1930s, after the SAP gained a majority in the Riksdag, Sweden's parliament, party leader Per Albin Hansson began advocating the social-welfare policy he called folkhemmet ("The People's Home"), writing: "The basis of the home is community and togetherness. The good home does not recognize any privileged or neglected members, nor any favorite or stepchildren." The Swedish model, in a nutshell, is "no one should starve," using the power of the state to overcome the capitalist quagmire of the rich getting richer while the poor get poorer.

Under the SAP roadmap, the government instituted a wide-ranging social-welfare system to overcome the pitfalls of capitalism - where the rich get richer while the poor get poorer - and to use the power of the state to achieve income parity.

From the start, Sweden employed massive government structure to achieve equality among the people through government policy initiatives. A Sweden heavily infused with leftist Marxist ideology had made its global debut. To this day, a large portrait of Karl Mark adorns the walls of the offices of SAP headquarters.

Despite the SAP's electoral loss last year to the centrist-to-right-leaning Alliance for Sweden, comprising four parties, the full flavor and aroma of a Swedish model that has been stewing for the past 70-odd years still permeates the globe.

Dressed in a yellow jacket, toting a backpack and pushing a nondescript bicycle, Member of Parliament Morgan Johansson, the close-cropped 37-year-old minister of health and social services in the SAP shadow government, walks out of the SAP party offices in the southern university town of Lund and stands on the street corner awaiting a visitor from CommonWealth Magazine.

True to a Financial Times description of Sweden as being almost entirely populated by SAP members, Johansson joined the party during his days as a student. A four-year veteran minister, Johansson says the Swedish model is fundamentally built on democracy, incorporating the private property and market economics elements of capitalism with the social welfare guarantees of socialism. In Sweden, the children of workers attend the same schools as the children of executives and live side-by-side in the same communities. The country has the most even wealth distribution of any society in the world.

"In a word, the concept is 'no one should starve,'" says Johansson, turning to enter the kitchen and pour coffee. This "no one should starve" ideal continues a Swedish tradition dating back 160 years to the country's passage of the Poverty Relief Act, which defined the responsibilities of each city, town and school district in ensuring each of their poorer residents had enough to eat.

Swedish Model No. 2: High Taxation, Equitable Distribution

Johansson becomes passionately animated when discussing Sweden's unique social-welfare system. In his analysis, at the heart of the Swedish model are government policies of "high taxation with equitable distribution" to create an ultra-stable structure of equality throughout society where there is no distinction between rich and poor, and the children of workers and executives attend the same schools and grow up in the same communities.

With the income of the top 10 percent of earners just 2.3 times that of the bottom 10 percent, Swedish society has the world's lowest wealth gap.

In June of this year, China's President Hu Jintao became the first Chinese leader to visit Sweden since the establishment of diplomatic relations. One of the academics traveling with the Chinese delegation was shocked to discover: "The real communism was not in the Soviet Union or in China but in Sweden."

Renowned Swedish Sinologist Goran Malmqvist remembers how Swedes admired Mao Zedong during the Cultural Revolution and how his university students demanded Red Flag magazine and People's Daily as study materials when he suggested Zhuangzi and the Zuo Commentary.

At 83, Malmqvist is a fellow of the Swedish Academy, serving on the review panel for the Nobel Prize for Literature, and is a highly esteemed member of society. With old age pensions also subject to 57 percent taxation, not much is left after paying the rent.

"My pension is about the same as a young nurse's salary," a chuckling Malmqvist says in fluent Chinese. Swedes value the group and collective bargaining, most tellingly in the culture of consensus negotiation between labor and management. Labor representatives may attend board meetings, and unions must first be notified before a worker may be fired.

Swedes are not amused when they hear themselves described as more communist than the Communist Party. They assert that Swedes' faith in equality and their more than two-centuries-old tradition of parliamentary democracy has resulted in an ideology of socialist democracy and not one of communist authoritarianism.

On the subject of the Swedish model, Henrik Bystrom, the Esportradet Taipei Swedish Trade Council representative, could go on for hours. Bystrom says because of the esteem Swedes hold for equality, they value the group and collective bargaining more than in other countries, so that although the burden of social welfare is heavy, the nation is still able to focus its energies and continue to progress.

Nothing is more indicative of Sweden's team-spirit mentality than the culture of consensus negotiating between Swedish business and labor.

Swedish Model No. 3: A Culture of Consensus Bargaining

Around 70 years ago, the Swedish Trade Union Confederation and the Swedish Employers Association met in the resort town of Saltsjobaden outside Stockholm to forge an agreement that resulted in the resolution of existing conflicts, equality between labor and management, and a mechanism for mutual decision-making.

Every one to three years, representatives of labor and management meet to negotiate working conditions including wages and vocational training. Enterprises with 25 or more employees may have a labor representative participate in board meetings to better understand company operations and speak on behalf of the workforce.

"It [consensus] is very important for Sweden to keep its social-security system and be competitive at the same time," says Fredrik Sjoholm, a professor at the Research Institute of Industrial Economics in Stockholm. More than 80 percent of Swedish workers belong to any one of more than a dozen different unions, which work together with management in a spirit of cooperation to achieve mutual objectives. So despite labor holding the relatively stronger hand in negotiations, it hasn't had the slightest impact on the competitiveness of Swedish businesses, which can still compete internationally with businesses from countries with freer labor markets. According to Sweden's Bureau of Statistics, outlays by government agencies amount to 57 percent of GDP, with the equivalent of NT$770,000 spent on each citizen annually, making Sweden the world's most generous government.

A Robin Hood Society

But the symbiosis between labor and management has been unable to change what has long been criticized by outsiders as an overly rigid labor market. In a World Economic Forum report on global competitiveness, Sweden was ranked second to last in "hiring and firing practices."

The 28 percent corporate income tax Swedish companies pay is not overly high, but their expenses per employee are very high. In addition to wages, Swedish employers are also required to fork out an additional 33 percent of employee salaries in social-welfare fees. Employers are not permitted to ask to which union an employee has chosen to belong and must first engage in talks with the union before firing an employee. Consequently, Swedish companies are often reluctant to hire new employees because it is "very difficult to fire someone."

Swedes often poke fun at themselves as a true Robin Hood society, robbing the rich to give to the poor through the use of heavy taxation in pursuit of social equality. The highest bracket in the progressive income tax system is 84 percent, and Sweden's value-added tax is 25 percent - both are the world's highest. On top of that, there's the carbon tax, television tax, rubbish tax and traffic tax. Tax revenue exceeds 50 percent of GDP, the heaviest tax burden of any nation in the world.

As one Taiwanese who immigrated to Sweden five years ago put it, if you can live as a poor person in Sweden "you must have done lots of good things in a previous life."

The Most Generous State

In Sweden, being homeless is a choice of one's own free will, not a circumstance of life. The unemployed can receive a stipend of 80 percent of their previous salary for as long as three years. Sweden also offers the world's most generous maternity leave of 480 days, the first 390 days of which 80 percent of salary may be collected (the unemployed receive a monthly government stipend equal to about NT$23,000). Those taking sick leave receive 75 percent of salary, with the government picking up the tab.

According to Sweden's Bureau of Statistics, outlays by government agencies amount to 57 percent of GDP, with the equivalent of NT$770,000 spent on each citizen annually, making Sweden the world's most generous government.

Social welfare bestows a feeling of security on the people, cutting back on the stresses of life, but it is also costly.

Dirty Little Secret No. 1: Taking the System for a Ride

Sick leave compensation, for example, gobbles up 20 percent of public expenditure annually. Swedes take an average of 25 sick days per year, the highest rate in the world. Finance Minister Anders Borg has said of the "Swedish ailment" that Sweden has the world's healthiest people, but they love to play hooky. Joakim Palme, a noted economist and director of Sweden's Institute for Future Studies, worries about the enormous burdens the country faces in seven years' time, when one in five Swedes will be a retired person over 65.

More than a few Swedes refuse to work, take advantage of the system and remain pleased with themselves, yet in the eyes of ordinary Swedes, that is their "personal choice."

According to a survey by McKenzie Consulting, Sweden's actual unemployment rate has broken the alarming level of 16 percent (the official figure is seven percent). Joakim Palme, a noted Swedish economist and director of the Institute for Future Studies, says there are 1.5 million employable people in Sweden who are not employed, leaving the entire country reliant on a workforce of 3.15 million, of whom 30 percent are government employees. This issue not only caused the SAP's fall from power, but has also shaken the foundations of the Swedish model.

Dirty Little Secret No. 2: The Burdensome Aging Population

Joakim Palme is the son of Olaf Palme, the first premier in Swedish history to be assassinated, Yet his deep faith in the traditional Swedish model remains unshaken. Palme is worried, however. In seven years, one in five Swedes will be a retired person over the age of 65. This will be the source of Sweden's biggest headache over the next 50 years. To maintain the current social-welfare system, Sweden will have to bolster its investment in young people and new immigrants to provide them with greater incentive to enter the labor market.

A Swedish newspaper once published a cartoon depicting an athlete approaching the starting line encumbered by a huge load on his back labeled "high taxation, fat welfare benefits." Although Sweden has managed to stay ahead of the pack for the past several decades, its lead continues to narrow.

Dirty Little Secret No. 3: Equal Outcome, not Equal Opportunity

Timbro, a business-supported Stockholm-based think-tank founded to research free-market economics, has for 29 years been dedicated to reforming a system it sees as generous to the point of losing touch with reality. According to Timbro Fellow Dick Kling, in the 1970s, Sweden ranked as the world's fourth wealthiest nation, compared with its current ranking of 16th. Swedish society has now morphed from one of equal opportunity to one of equal outcome, Kling says.

Kling contends with consternation that his countrymen's money is in the hands of the government, and the people are far from cash-rich. A two-time visitor to Taiwan, he asserts that the Taiwanese have more money than the Swedes. Swedish tycoons are fleeing their homeland, including the founder of Swedish furniture giant IKEA, who renounced his Swedish citizenship and immigrated to Switzerland. Last year, more than 45,000 Swedes left the country permanently, records show.

Last year, when the center-right Alliance for Sweden swept to power on a platform vowing to lower the tax on wages and slash unemployment benefits, party leaders said it was not the end of the Swedish model, just a "partial modification." This year, the new government finally cut the tax one percent.

Such an event could never have happened in the past, observes economist Nilsbohlin Bohlin, chairman of the Association of Tax Collectors. The great Swedish ship of socialism is slightly altering course in order to maintain power and ply the sea of international commerce under the flag of high equality and high social welfare, Bohlin rhapsodizes.

Some 60 years ago, the economist and political philosopher Friedrich August von Hayek, an adherent of classical liberalism and free-market capitalism, lambasted social welfare as the greatest impediment to democracy and characterized it as "The Road to Serfdom." The Swedish miracle has turned Hayek's thesis on its head.

Despite the emergence of several hidden causes for concern and the government's "hijacking" of two-thirds of all income, as soon as a few "experts" begin picking on the Swedish model, it is as if the whole population contracts "Stockholm Syndrome," as the heavily group-oriented Swedes circle the wagons to protect the system that has promised to care for them from cradle to grave.

Translated from the Chinese by Brian Kennedy