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The Swedish Promise

The Swedes, all of whom seem to love their country dearly, often complain that it is dull—“just a suburb of New York,” a Swedish sociologist told me last spring. Yet it is here that a social experiment of truly historical significance is taking place: a test of the limits, or the capacity for further evolution, of Sweden’s famous “middle way”—to use the phrase applied to the Swedish system by the journalist Marquis Childs in the mid-1930s. Whether this experiment will be a success, as the Social Democrats hope, or a sham, as the Marxists believe, or a shambles, as the Conservatives predict, the prospects for Western capitalism will have been deeply, perhaps unalterably, affected by the effort itself.

Contrary to popular belief, the middle way was never a marriage of capitalist and socialist economies. Sweden has been and still is unmistakably capitalist in its economic structure. About 94 percent of industry is privately owned, and a considerable portion of the nationalized fraction is the consequence of a recent public takeover of the failing shipbuilding industry by a coalition government of centrist and conservative parties. Industry itself is highly concentrated, with fifteen to twenty corporations, many of them family-owned, dominating the industrial scene. The interests of the Wallenberg family, in particular, occupy a strategic place comparable to that of the Rockefellers, but without the competition of Texas newcomers. Within these very large enterprises, ownership also appears to be more concentrated than in Britain or the United States, and within the economy as a whole, the distribution of property does not seem to have changed much since the 1930s.1 Finally, employment is still the prerogative of the class that owns the means of production: the great labor dispute that brought the Swedish economy to a standstill in early May of this year was primarily caused by a lockout of workers by the Swedish Employers Federation.

Thus by all the conventional criteria of entrepreneurship and ownership, Sweden is a capitalist economy. I should add that it has also reaped the benefits that have accrued to capitalist economies since World War II. Swedish economic expansion has been impressive. Per capita incomes, corrected for inflation, have risen by 250 percent during the postwar period. By 1974, according to OECD figures, Swedish per capita GNP was already slightly higher than that of the United States, and the margin has almost certainly increased since then.

The essence of the “middle way,” however, was to graft an element of socialism onto this capitalist productive mechanism—not the socialist propensity for planning, but its concern for social equality and well-being. Thus the dynamism of the Swedish capitalist base has been steadily opposed by, or constrained within, a structure of welfare that is socialist in character.

One often-cited index of the degree of socialist tendencies in a capitalist system is the percentage of GNP spent for various purposes by government. In Sweden that percentage was 64 percent in 1978, compared with less than 35 percent in the United States. But since government spending can be used for many purposes that have nothing to do with socialism, defense being the first example that comes to mind, I think the character of the Swedish welfare state is better conveyed when we consider a typical family. Let us therefore imagine a Swedish working-class couple about to have a baby. The parents are entitled to seven months of parental benefits, at 90 percent of the income they would otherwise earn. These benefits begin one month before delivery; after the baby has arrived, they may be claimed by either mother or father, depending on how they decide to divide the child’s care between them.

The child itself comes into the world with its health, education, and retirement generously provided for. Indeed, a standard part of the Swedish high school curriculum includes the instruction of teenagers in the benefits to which they are entitled as citizens. This includes, for example, full free dental care, from prophylaxis through orthodonture, up to age sixteen, and heavily subsidized dental care thereafter. Health benefits cover all conventional medical and hospital costs, and even include reimbursement for travel expenses that may be incurred in the course of, say, speech therapy or psychotherapy or other outpatient care.

Assume that this child, now a high school graduate, goes to work in a factory. He or she will almost certainly join a union, for 90 percent of all blue collar and 70 percent of all white collar workers are union members. As such, the worker’s pay will be negotiated each year in a bilateral union-employer negotiation that sets the wage scales for all member industries. As part of the omnipresent emphasis on welfare, these wage settlements have been planned on a “solidaristic” basis, setting the same wages for the same job in all firms, and deliberately raising pay rates at the lower end of the scale more than those at the upper end. The result has been to bring more pressure on employers who pay low wages and who presumably have low productivity than on high wage and high productivity employers. As a result, low productivity firms are constantly being pushed to the wall as part of a joint strategy by organized capital and labor to weed out the inefficient. If our young worker’s firm actually went bankrupt, however, our employee would qualify for grants for retraining and relocation. During the 1960s, for example, about 90,000 persons in northern Sweden were relocated at a cost of about $50,000 per person.2

Until recently, such severe experiences have been rare. Unemployment in Sweden has been held to about 2 percent of the labor force with another 4 to 5 percent in retraining programs. It should be added parenthetically that Sweden has not thrown out her foreign “guest workers,” when production has slumped, as have other European nations, but has treated them exactly as if they were Swedish nationals.

If disaster strikes, a worker can always go on public assistance. Welfare payments for a family of four are roughly equal to 95 percent of average annual manufacturing wages. This compares with 49 percent in the United States as of the mid 1970s, including food stamps.3 Finally there is old-age retirement. For a husband and wife this begins with $5,000 as a base amount, indexed to the cost of living, plus an indexed supplement of about $2,500 and, if needed, a municipal housing subsidy. There is also a government-run corps of 85,000 “home samaritans” who help 350,000 aged persons maintain their own households; there is a transport system reserved for the use of the elderly; and of course there are old-age homes. These programs suggest why the costs of Swedish social insurance and welfare amount to roughly a quarter of Swedish GNP, whereas the equivalents in the US come to only about 10 percent of GNP.

All this helps to explain why the Swedish welfare state is often described as “socialism.” What is actually the most socialist element about it, however, is not its emphasis on income distribution. It lies, rather, in an invasion of the inner sanctum of the capitalist system, the factory floor. The most recent revision of the Work Safety Law gives the union shop stewards the right to halt any work process deemed dangerous, without summoning a safety inspector. Union representatives must be informed, by law, of all proposed changes in plant layout and equipment, and may hold up these changes on grounds of health or safety. More important, in all firms with over twenty-five employees, including government agencies, there must be two worker representatives on the board of directors or governing body, and the union is legally entitled to negotiate on all matters concerning hiring and firing, work organization, and the management of enterprise. These legal powers are still only tentatively used, but they could radically alter the traditional prerogatives of management.

This does not nearly cover, although I hope it suggests, the mixture of capitalist underpinnings and socialist orientations that has come to be known as the Swedish model. This is the combination about which Childs wrote so enthusiastically and optimistically in 1936, and that he appraises again in his recently published Sweden: The Middle Way on Trial. The new title suggests that not all has gone well, and the great strike-cum-lockout of last May was certainly evidence that the model has reached a moment of crisis. Indeed some critics suggested that it was The End.

For reasons I shall explain, I doubt very much that such is the case. But there is no doubt that the Swedish model is “on trial,” and it is clear, furthermore, that the trial has been long in the making. The strains began about ten years ago, with the gradual ending of the wave of growth on which Sweden had overtaken the United States. Much of that extraordinary boom came about because Sweden after the war was virtually the only European nation with its productive facilities intact. Using its abundant mineral and timber resources, its skilled labor force, and its shrewd managerial talents, Sweden rose to prosperity on a vast wave of exports. Swedish iron ores and newsprint, Swedish ball bearings and automobiles, Swedish furniture and freighters provided the impetus for the country’s emergence as a rich industrial nation. On the surplus generated by its export industries, the welfare state was built.

The boom lasted well into the 1960s. Then two major changes in the structure of the world economy began to undermine it.4 The first of these was the development of cheaper raw materials elsewhere. In the mid 1960s, Sweden was the world’s leading exporter of iron ore. Then vast new deposits were opened up in western Australia and central Brazil. By the mid 1970s both these nations were exporting four times as much ore as Sweden. Simultaneously, Sweden began to lose its edge in forest products. It takes eighty-five years to grow a tree in northern Sweden; sixty-five years in British Columbia; twenty-five to thirty years in the southern United States. As these new sources became the target for systematic exploitation, Sweden’s importance as a supplier began to slip.

The second major change was that Sweden was gradually displaced from those export markets in which wage costs were crucial, not the costs of materials. Shipbuilding was one of these. Aware of its high labor costs, Swedish industry had concentrated on large simple ships, capable of being built by automated techniques. But similar methods were soon being used in shipyards in Spain, Korea, and Brazil, where wage rates were only 25 percent of Sweden’s, or less. To a lesser degree, the same international diffusion of technology, combined with similar international differentials in pay, began to undercut other traditional export markets such as high-quality steel.

For these and still other reasons, the international scales began to tilt against the Swedes. From 7.5 percent of the world’s export market in 1961, its share slipped to 3.0 percent in 1976. Meanwhile, inflationary wage settlements were pushing up wage costs and squeezing profits. By 1975 the total direct and indirect costs per adult male worker in Sweden had reached $8.50 an hour, compared with $7 in the US, and hardly more than $4 in Japan. Wage costs had risen by almost 50 percent in two years. Not surprisingly, inflation rose above 10 percent. Added to that was the terrific impact of OPEC price boosts in a country that depended on imported oil for 70 percent of its energy requirements.

  1. 1

    Walter Korpi, The Working Class in Welfare Capitalism (Routledge and Kegan Paul, 1978) pp. 103-104; Rudolf Meidner, Employee Investment Funds (Allen and Unwin, 1978), p. 36.

  2. 2

    John Fry, ed., Limits of the Welfare State (Saxon House: Westmead, England, 1980), p. 213

  3. 3

    Martin Carnoy and Derek Shearer, Economic Democracy (M. E. Sharpe, 1980), p. 343.

  4. 4

    This analysis follows the report of the Boston Consulting Group, commissioned by Swedish business and financial interests in 1978. It is published in mimeo as “A Framework for Swedish Industrial Policy,” Boston Consulting Group, Inc., One Boston Place, Boston, Massachusetts.

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