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.

Thus the stage was set for a major economic crisis. Meanwhile after four decades there were signs that the consensus on an expanding welfare state was finally losing its momentum. In 1976 the Socialists were voted out of office for the first time in forty-four years. Curiously, the major source of disaffection was probably not the high level of taxes. Although they pay higher taxes per capita than any nation in the world, most Swedes believe that the services they receive in return are worth what they pay. The change in attitude, rather, affected extensions of the welfare state.⁵ As an observer put it, once the principle of sick pay was won, how important was it that benefits began on the first day rather than the fourth?

The lessened sense of urgency also magnified the public awareness of tax abuses. Astrid Lindgren, a famous writer of children’s books, became a political celebrity when she showed that it was possible for a professional to owe more than 100 percent of his or her income in taxes. Ingmar Bergman became the most visible victim of bureaucracy when he was summarily hauled into tax court in the middle of a rehearsal. Meanwhile, high marginal tax rates were driving many middle- and upper-class Swedes into the “underground economy” where services escaped the eye of the tax collector.⁶ All this instilled a new sense of distrust and unfairness, a feeling that things had gone far enough, even too far. Thus alongside the loss of economic momentum was a loss of social and political momentum. The real trial of the Swedish model was not so much the crisis it experienced, as the doldrums that preceded it.

The crisis itself came last May when the unions asked for wage increases of 11.3 percent. Willing, perhaps eager, for a showdown in this favorable climate, the employers countered with 2.3 percent. After fruitless negotiations, 120,000 private and 20,000 public employees struck. Immediately 770,000 workers were locked out. The country came to a virtual halt, with no industrial production and very little distribution. One plane per day was permitted in and out of Stockholm’s airport. Ferry service to Denmark stopped. Most service stations were shut; you could drive to Norway if you could find cans of extra gas and took them with you. Hospitals took only emergency patients. Food stores and small shops stayed open, but deliveries ceased. Within two weeks shelves were bare. There was no panic, but a lot of anxiety. “Another week,” a Swedish political scientist told me, “and there could have been riots.”

Aware of this possibility, the Swedish government—a fragile coalition of center and right groups—called in the employers and pressed for a temporary settlement of 6.8 percent, pending a final wage determination at the end of the year. Undoubtedly this will push prices higher and deepen Sweden’s already alarming international deficit. Hence a great effort will be made to gain union assent to a final settlement that reduces real wages—wages after inflation—by 2 to 3 percent in each of the next two or three years. This will mean a deliberate cutting back of living standards to enable Sweden to regain its competitive place in the world’s markets. No such wage settlement has been concluded anywhere in modern capitalism, much less in a society where labor commands so much power and prestige as in Sweden. On the ability to bring off an extraordinary bargain, where capital will be given its needed competitive edge and where labor will still be able to press for its socialist objectives, depends the prospect for the Swedish model, at least for the next few years.

Ominous predictions to the contrary, I suspect the model will survive. Indeed, I believe that despite the present crisis, which seems to indicate an end to the progressive “socialization” of Sweden, events may in fact work just the other way, moving Sweden toward a new configuration that for lack of a better name I shall call bourgeois socialism, or socialist capitalism, rather than the “middle way.”

At the center of this possible new movement is the Meidner plan, put forward by Rudolf Meidner, chief economist for the LO, Sweden’s powerful “blue collar” labor organization. The Meidner plan, which has been circulating in various drafts for many years, is built around the idea that all firms above a designated size—perhaps twenty-five or fifty employees—would each year set aside up to 20 percent of their profits for an employees’ fund. This fund would have two purposes. It would serve as a means of augmenting the national flow of savings, badly needed to finance the modernization of Swedish industry. Needless to say, that is an aspect of the plan that has the wholehearted support of employers who would have an increased supply of capital to draw on. The second purpose of the fund is to buy out effective control from existing stockholders, through new shares created to absorb the new pool of capital. For a company, such as Volvo, that sets aside 20 percent of its profits, the employees’ fund would control 17 percent of the voting stock after five years, probably enough for working control. In twenty years it would have over 50 percent of the company and would be in fact the owning as well as controlling interest.

This is the aspect of the Meidner plan that worries Swedish capitalists deeply. Whatever capitalism means—the accumulation of wealth in the form of commodities, or the system of wage labor itself—it clearly depends on “property rights”—that is on the vesting of legal ownership of the means of production in individuals. Although this right could be widely diffused, in fact it has always been enormously concentrated. The top 2 percent of US families owns about three-quarters of all corporate stock, and presumably concentration is more pronounced in Sweden than in the United States. Whatever other effects the Meidner plan might have, it would dilute or dissolve this crucial relationship of control. Socialization in Sweden would no longer be confined to control over distribution of welfare, where the impetus toward further benefits seems to have reached its limits. The Meidner plan would vastly increase the degree of workers’ control over their enterprises. From the small beginnings we have already noted, the future unfolding of socialism in Sweden would then turn more and more toward the question of workers’ involvement in, and responsibility for, production itself.

In typical Swedish fashion, the Meidner plan has been referred to a parliamentary commission of inquiry from which it will not emerge until 1982. Some version of the Meidner plan seems certain to be recommended, but it is still uncertain what structure the commission will favor, or what further changes will be imposed when Parliament considers the issue. For example, will the employees’ fund vest ownership of the new shares directly in individual employees? That would make the Meidner plan a kind of national profitsharing scheme, an idea that would appeal to the conservative parties but not to the Social Democrats. Or will the funds be administered by the trade unions themselves, or by some quasi-governmental agency? The LO is itself uncertain about what form of ownership it seeks.

And then, what are the funds to be used for? In the original LO report, the improvement of “education in business economics and political economy” received more support from its members than any other single proposed use. But if the funds are to become an instrument for enhancing Swedish productivity, they will have to be invested in something more substantial than textbooks. Who will make those investment decisions? What degree of risk will the guardians of the employees’ funds feel justified in undertaking?

And at the root of the whole matter, what will collective ownership of enterprise mean for the men and women who work in Sweden’s factories and offices? Will participation mean the democratization of work, the end of the strongly rooted concept of “workers,” as contrasted with “managers”? In that case, what happens to efficiency, the vaunted achievement of the worker-manager relation of capitalism?

It is this last question that is perhaps the most intractable. Questions of efficiency aside, it is possible to imagine a bourgeois socialism emerging in Sweden because, despite its capitalist underpinnings, Sweden is not a capitalist polity. Its ideology is strongly communitarian, albeit mixed with deeply ingrained bourgeois values. Sweden is above all a society in which familial rather that contractual relations pervade the national consciousness. In no other nation have all classes worried so much about social failures—alcoholism, feckless youth, penurious old age, or just unhappiness. This familial solidarity is why the model is likely to last, even if the unions must take a wage cut. It is why one hears protests but not fulminations against the Meidner plan from right-wing politicians. It is why neither right nor left speaks of a government of the other side as a foreign power that has seized the capital.

Of course Swedish conservatives have their ideological convictions and their political passions. But the insistent question at the heart of their resistance to a far-reaching application of the Meidner plan is a pragmatic one: how is Sweden to maintain a reasonable standard of living if it abandons capitalism in a world of capitalist rivalry? Half of all Swedish manufactures are exported, and these sales buy the energy and consumer goods on which the Swedish standard of living is built. Three quarters of Volvo’s sales, 90 percent of the sales of SKF are made abroad. Measured by industrial investment, São Paulo is Sweden’s second largest city. Without a capitalist drive for profits, based on a capitalist organization of work, how can these activities survive, the industrialists ask. And without them, will not Sweden’s living standards decline, not by 2 or 3 percent a year, but by 20 to 30 percent?

This is indeed a powerful argument, one which will in all circumstances exert a powerful restraint against a rapid restructuring of industry. Indeed, the arguments are so weighty that I suspect for the next few years they place an impassable barrier in the way of any socialization that would lessen industrial productivity. The Meidner plan will no doubt be used to increase Swedish savings, and perhaps to add to the influence of Swedish labor in the general guidance of capitalist growth. What seems impossible, for the moment, is that it can be used to alter the discipline or design of the work process in any way that endangers Sweden’s ability to compete in world markets. For all the arguments in favor of workers’ participation stress the need to increase the human qualities of the work experience, to lessen the alienation of mass employment, to allow workers the same rights of self-expression that are now the prerogative of managers. There are no claims that these changes will increase efficiency. Indeed, as I see it, they cannot. Capitalist efficiency derives from the mechanization of work, the laborer himself becoming machine-like. If workers’ participation is to have any meaning, it must be to re-humanize work, to lessen the mechanical deformation that accompanies the application of human energy and intelligence. That means that most things will cost more.

So for the time being I suspect that there will not be a great change, and that the middle way, not a new bourgeois socialism, will continue to describe the Swedish model. Further ahead, however, there may be another, more audacious possibility. It is that Sweden may link its economy with that of Norway and Denmark to create a true Nordic Union. Like Sweden, Norway and Denmark also have a base of capitalist productive facilities on which a superstructure of socialist-minded arrangements has been built. Like Sweden, they are also inhibited in their political evolution by the imperatives of an international capitalist system. By linking their economies the three countries would considerably reduce, although they would not eliminate, their vulnerability to international competition. A Nordic Union would combine the energy resources of Norway and the food-producing capacities of Denmark with the industrial power of Sweden. Behind the shelter provided by a complementary geography and a common cultural and political heritage, something approaching bourgeois socialism might then become a realistic possibility. I cannot think of any other development that would hold more promise for Western civilization.

A SELECTED LIST OF BOOKS ON SWEDEN

Marquis Childs, Sweden: The Middle Way on Trial (Yale University Press, 1980, 179 pp., $12.95). A sequel to the author’s famous Sweden: The Middle Way, this is an agreeable but not very penetrating introduction to the Swedish scene. Since books on Sweden are few, this is probably the place to begin, although not the place to stop, if you want analysis rather than description.

Francis Castle, The Social Democratic Image of Society (Routledge and Kegan Paul, 1978, 162 pp., $15.50). A scholarly and useful study of the Swedish model, Castle’s balanced appraisal of the achievements of social democracy and its prospects pays special heed to the unique political setting of the Scandinavian nations. It makes very clear that the Swedish model is not “for export,” at least not to the United States.

Walter Korpi, The Working Class in Welfare Capitalism (Routledge and Kegan Paul, 1978, 148 pp., $17.50). An intensive, detailed study of working-class attitudes and problems, from a generally Marxist view of class dynamics. The author arrives at a “basically optimistic” appraisal of the changes that have been wrought in, and the chances for further reform of, capitalism in Sweden. An important, rather specialized book.

Rudolf Meidner, Employee Investment Funds (Allen and Unwin, 1978, 132 pp., $18.95). The original version of the Meidner report, necessary for anyone who wishes to examine the rationale for, and the techniques of, the “socialization” of Swedish enterprise.

Eric Einhorn and John Logue, Welfare states in Hard Times (Kent, Ohio: Popular Press, 60 pp., $2.95). A brisk and perceptive account of the present crisis, written before the strike and lockout of 1980, this is a valuable supplement to Child’s book.

Martin Carnoy and Derek Shearer, Economic Democracy (M.E. Sharpe, 1980, 436 pp., $7.95). This is not really a book about Scandinavia, but about the possibilities for liberal economic change in the United States. However, Carnoy and Shearer lean so heavily on the Swedish model and are so informative about it that their book gives a particularly useful comparative view.

John Fry, ed., Limits of the Welfare State (Gower Publishing, Hampshire, England, 1980, 234pp., $31.00. Available in US from Renouf Inc., Brookfield, Vermont 05036). A collection of essays from the left, mainly critical or skeptical book contains useful, if not very recent, statistical data. There is, in particular, a very interesting essay on class structure in Sweden by Goran Therborn.

“The Crisis of the Swedish Welfare State,” a series of interviews plus an introduction by Bertram Silverman, Challenge Magazine, July/August 1980. Silverman provides a succinct introduction to the events leading up to the great crisis of May, 1980, and skillfully interviews three knowledgeable architects of Swedish policy. They are Gunnar Myrdal, Nobel laureate and a founding father of the Swedish model; Gösta Rehn, long-time adviser to the LO and a staunch, shrewd optimist with regard to Swedish evolutionary prospects; and Anna Hedborg and P-O Edin, senior economist with the LO and strong advocates of a movement toward workers’ participation. The combined introduction and essays are an enormously useful short review of Sweden’s recent problems and near-term prospects.