Country Case Studies and Links
by Nicole Faher
Sweden has a rich and successful history. Its economy and welfare state were the envy of many nations. In fact, the Swedish welfare system was one of the most comprehensive, complex and prosperous. Sweden tended to be very dependent on international trade to maintain its high productivity and also its high living standards. A very important part of Sweden's prospering economy is its large public sector. The expansion of the public sector after World War II led to the creation of new jobs and also laid the groundwork for a large labor force of women.
Sweden's welfare state, known as the ‘Peoples Home,' was not only the most exclusive, but also the strongest and most service oriented welfare system in the world. Its name was derived from the fact that the benefits were based on need and evenly distributed among the people based on need. The ‘Peoples Home' was a model for many countries, because Sweden achieved equality and prosperity for all.
Much of Sweden's success was attributed to the policies of Sweden's major political party, the Social Democrats, which won elections consistently from 1932 to 1976. The Social Democrats' political domination for forty-four years shaped the welfare system, in the sense that they were pushing for the highest possible quality of benefits. This, however, resulted in the highest average tax rates in the world. Yet, no matter how high taxes seemed to get, Swedish taxpayers tended to support the system because of the high levels of benefits and public services. Moreover, for a long time, Sweden's welfare system seemed immune to any of the political and economical problems other nations were facing.
By the late 1970's, the world, thus, viewed Sweden as a model for the contemporary world. While other European countries were struggling to maintain economic growth and fight unemployment, Sweden not only kept its economy strong, but also could claim the highest living standard among the middle classes anywhere in the world. Yet, in the early 1970's, Sweden realized that they were not immune to the problems that other countries were facing or had faced in the past. Sweden was unable to avoid economic problems in the aftermath of the 1973 oil crisis. When the Social Democratic government wanted to change the direction of the welfare state in response to the oil crisis, the voters rejected the proposed policies and voted a center-right coalition into office.
The center-right coalition, also known as the Bourgeois coalition, remained in office from 1976 to 1979. To the people of Sweden, the Bourgeois parties were a fresh face judged capable of bringing new ideas and concepts to the Swedish government and economy. Yet, when the center-right coalition failed to deliver and proved unable to change Sweden's economic problems, the Social Democrats returned to power in 1982. With the Social Democrats' return, the economy recuperated and relatively full employment was once again achieved.
Throughout the 1980's Sweden maintained a high standard of living as well as a high level of targeted benefits commensurate to the people's needs and income. The equalization of living standards was made possible by the Codetermination Law of 1976, which enabled unions to be an acting part in the decision making process in board decisions, and by the Wage Earner Fund of 1983. The latter was organized through the labor unions and helped redistribute income so as to have an equalizing effect among wage earners.
Other groups that benefited from the return of the Social Democrats were the elderly and those on a pension. The elderly received their normal pensions in addition to a supplement to make up for any income inequality. Others had their pensions subsidized, enabling people to maintain their previous income levels.
Along with the above benefits, the rest of the public services and benefits were also kept at higher levels. This way the Social Democrats were able to hold on to the control of the government throughout the 1980's. The success of the Social Democrats in managing the economic problems in the early 1970's and 1980's fostered people's confidence in the government's ability to cope with the challenge of globalization and European economic integration in the 1990's.
Throughout the 1980's, Sweden's economic growth seemed to parallel that of other countries in Western Europe. Yet, in some respects, Sweden developed differently from other countries. In fact, Sweden was able to keep unemployment low, while many other countries already had fairly high levels of joblessness. In the long run, the combination of low productivity, low unemployment and high wages could not be sustained. The crisis was overshadowed by rising inflation rates (10% in 1989). Once the crisis struck, reducing the inflation rate became the number-one priority for the newly re-elected Social Democrats. This was accomplished by linking the Swedish krona with the German mark. In addition, the government of Sweden announced its intention to apply for membership in the European Union. Along with these measures, the Social Democratic government also began cutting public spending and reducing welfare benefits and public assistance.
The Swedes were not ready to give up their benefits so easily and elected again a Bourgeois coalition government in 1991. Their term of office started out rocky, they were initially overwhelmed by the economic problems and seemed unclear about which actions to take. A big part of the problem was that the public sector unions had pushed up wages, which hurt Sweden's competitiveness. In order for Swedish exports to remain competitive, the government was persistently forced to devalue the krona and maintain high interest rates. Finally in September 1992 an agreement was reached with the labor unions. Sweden was forced to face the economic crisis, when the interest rate jumped within a few days from 16% to 500%, forcing the Bourgeois government to get the huge public sector deficit under control.
The 1992 agreement saw major cuts in sickness benefits and laid the groundwork for sweeping reforms of the old age pension system. While raising the contributions of employees to their social insurance, the agreement put into effect a drastic reduction of the employer's contribution. This change was seen as a major step in reducing the deficit that existed in the pension funds. The reform was also important in the sense that it reflected a consensus across the political spectrum including the Social Democrats. Yet, Swedish voters resented the cuts and punished the Bourgeois coalition in the elections of 1994, which brought the Social Democrats back to power. Since then the Swedish economy has recovered and the government has steadily reduced its deficit. Sweden, however, continues to have unemployment rates of 8% and more, which, while lower than in the mid-1990's, are still high by Swedish standards. Despite the reforms after 1992, Sweden still boasts to have one of the most bountiful and generous welfare states in the world. However, measured in terms of per capita GNP, Swedish income levels today are somewhat lower in comparison both to earlier times and to other European economies.
In closing, Sweden is an example both for the need to adapt to economic integration and also for the perseverance of national welfare models.
Vic George and Peter Taylor-Gooby (1996). European Welfare Policy; Squaring the Welfare Circle St.Martin's: New York.
MISSOC Country Tables