Sweden’s turn from socialism

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STOCKHOLM — Imagine a life where work is optional and the state guarantees a minimal standard of living regardless of employment or effort. Such a cradle-to-grave entitlement system has been the centerpiece of Swedish politics since 1932.

Last September, a political earthquake shook the Riksdag (parliament) here in Stockholm when Swedish voters decided to cast off former Prime Minister Goran Persson’s venerable Social Democratic government in favor of a more market-oriented political alliance led by Moderate Party leader, Fredrik Reinfeldt. “They [the Social Democrats] were stunned,” says Riksdag official Yngve Borgstrom, of the 2006 election. “They really didn’t expect to lose their powerful positions.”

Scandinavian political revolutions are quiet on the surface, but a sea of change lies below. The tide that brought victory to Mr. Reinfeldt’s coalition (Christian Democrats, Folk Party and Center Party) represents a flood of Swedish desire, particularly from those younger than 40, to embark on a new economic course. Privatization, tax reduction and deregulation are all part of the program to bring Sweden into the global economy of the 21st century.

Young Swedes face a very different economy than their economically protected grandparents. Swedish neutrality in both World Wars caused them to miss the devastation that consumed much of Continental Europe.

In 1950, with its industry intact and crucial iron and timber resources at hand, Sweden became the third-wealthiest economy, only behind the United States and the Soviet Union. Unlike the U.S., where animosity between management and workers existed and the U.S.S.R., where workers confiscated the means of production from management, the Swedish “third way” demonstrated intricate cooperation between industrialists and organized labor like nowhere else.

Under this umbrella of semi-isolation, between 1952 and 1972 Social Democratic leaders Tage Erlander and Olof Palme built a welfare state of social programs that promised economic and political equality for all. New types of taxes such as the VAT (value-added tax) along with substantial increases with existing taxes such as for income and property funded the highest proportion of government spending in the industrialized world.

The Swedish government still spends more money than any other government in the world, relative to gross domestic product (GDP). But changes are afoot. Finance Minister Anders Borg recently produced a comprehensive plan, “Reconstructing the Swedish Model: Challenges and Priorities” that illustrates the new administration’s sincerity for reform.

To Sweden’s credit, some of its economic reforms have already surpassed the United States. Its social security is partially privatized, the inheritance tax is eliminated, and most people no longer pay any primary residential property tax.

“Social security, and the combined three levels of income taxes can still reach as high as 85 percent,” says Swedish attorney and entrepreneur, Ulf Sandstrom.

The Heritage Foundation’s Freedom Index gives Sweden surprisingly high marks because of its overall political and societal stability. Outside investors have largely agreed with the perception that Sweden is a safe, long-term bet.

Foreign capital is digging in. Many Swedish industries have merged and/or been bought with foreign capital. Volvo, Ericsson, Saab, ABB and Telia (the former State telecom) are no longer entirely Swedish-owned. On May 25, the Nasdaq Stock Market Inc. agreed to buy the Swedish stock exchange OMX for $3.7 billion to form NASDAQ OMX Group.

Despite direct investments, more than 80 percent of new jobs come from small businesses, not the traditional corporations.

Some in Washington jokingly refer to IKEA as the Swedish Embassy. And there is no doubt it is the most successful Swedish retail outlet throughout the world. IKEA is well-known for its lack of staff both on the floor and in the back office. Shoppers experience IKEA as a do-it-yourself store. The shopping style stems from the high cost of Swedish employees. Ingvar Kemprad, founder of IKEA, constructed an employment model that minimized state-imposed labor costs.

A primary influence for Mr. Kemprad and other employers’ reluctance to create Swedish jobs is a very flexible and widely abused sick leave policy.

Though Swedish women receive very generous social benefits as a reward for having children, such as monthly allowances and up to 18 months of paid maternity leave, many feel entitled to take sick days for personal or family reasons that are costly for companies. Swedish fathers may take a six-month paid leave but frequently donate the time to the mothers. Low-income women with young children are most likely to abuse the system.

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