INTERNATIONAL POLICY ANALYSIS The Swedish Model Conflict or Consensus? HÅKAN A BENGTSSON November 2013 The riots in the Stockholm suburb of Husby and a number of other suburban areas in Sweden in the spring of 2013 have sparked a critical public debate in Sweden regarding the increasing rifts between poor and rich in Swedish society but also about the increasing pressure the Swedish Model of the welfare state is facing from several sides. Arbetslinjen, the new work-incentive policy passed by the conservative government after the 2006 election lead to reduced levels of compensation in the social insurance system while exacerbating the existing rifts and increasing the polarisation between those who have a strong position in the labour market and those who do not. After the introduction of free competition and customer choice models between 1991 and 1994, the privatisation process has been strengthened under the non- socialist government since 2006. This has been changing the Swedish welfare model to a market structure exposed to growing criticism regarding the quality of welfare services and the possibility of private profits in this publicly funded sector. The relatively high level of unemployment is questioning the previous fiscal conserva- tism followed after the crisis of the 1990s and could lead to a change regarding the economic policy to a more expansive one suggesting a renaissance for the Keynesian perspective. The Swedish Model is still very much associated with social democracy and the labour movement which shaped Swedish society for much of the 20th century. In recent years, the conservative coalition (or Alliansen) also started to lay claim to the concept of the Swedish Model causing a conflict about its meaning as well as spe- cific policies and the way in which public welfare institutions should be constructed. HÅKAN A BENGTSSON | THE SWEDISH MODEL – CONFLICT OR CONSENSUS? Content 1. The Swedish Model in a state of change . 3 1.1 From an exemplary model to rioting in the suburbs . 3 1.2 The Swedish Model’s background . 3 1.3 The Swedish Model redefined . 4 1.4 A non-socialist work-incentive policy . 5 2. From welfare planning to a welfare market . 5 3. A new policy for industry and commerce? . 7 4. A revised economic policy? . 8 5. The future of the social insurance system – basic security or loss of income? . 10 6. The labour market – polarisation or upskilling? . 11 7. The future of the Swedish Model . 12 References . 16 1 HÅKAN A BENGTSSON | THE SWEDISH MODEL – CONFLICT OR CONSENSUS? 1. The Swedish Model in a state of change is a conflict about the meaning of this concept, about specific policies, and about the way in which the public 1.1 From an exemplary model to rioting in the suburbs welfare institutions should be constructed. Riots in the Stockholm suburb of Husby and a number of other suburban areas in Sweden in the spring of 2013 1.2 The Swedish Model’s background were reported in several international media outlets. One article in the Deutsche Welle, for example, stated that The historic Saltsjöbaden Agreement of 1938 between riots in »one of Europe’s richest capital cities have scup- the Swedish Trade Union Confederation (LO) and the pered Sweden’s reputation for social justice.« Swedish Employers’ Confederation (SAF) has come to symbolise the compromise between labour and capi- These riots have sparked a critical public debate in tal – a spirit of co-operation between two well-organised Sweden. Most people are aware that rifts in Swedish so- parties and peaceful relations in the labour market. But ciety have increased in recent years (as they have in most one of the reasons for the Saltsjöbaden Agreement was other countries). Nevertheless, such riots may be seen as that the Social Democrats had been in office since 1932. a sort of awakening, particularly in view of developments in Sweden’s major cities and the growing marginalisation The Swedish collective bargaining model gave the trade and poverty in many suburbs and residential areas. union organisations a strong position in the labour mar- ket, which in turn benefited union members, strength- These rifts have been exacerbated by the new work-in- ened and legitimised union organisations, and promoted centive policy (arbetslinjen), which was pushed through economic development. by the non-socialist government after the 2006 election and has reduced levels of compensation in the social in- Trade union organisations could thus pursue an active surance system. At the same time, many have benefited income distribution policy by implementing a ›solidaric from the policy in purely economic terms, especially as a wage policy‹ of equal pay for equal work, irrespective of result of lower taxation for people who are employed. the profitability of the company or employer in question. One might call it an increased polarisation between in- This favoured a narrower range of wages, gradual struc- siders and outsiders, between those who have a strong tural transformation, and the elimination of inefficient position in the labour market and those who do not. Peo- firms. The state and the political system, for their part, ple who have jobs have more money in their pockets, for developed a welfare policy which, step by step, built up the most part, while people outside of the system face a social security systems and simultaneously encouraged worsening situation. greater mobility in the labour market by means of an ac- tive labour market policy that made it possible for people Prior to about 1980, income differences had been de- to move to the major cities in growth regions where new clining in Sweden. However, according to a recent OECD jobs awaited them. report, Sweden is the country in which income gaps have widened the most since 1995, even though it initially This economic policy promoted both rationalisation and had a very narrow range of income distribution. But the greater social justice; central government fiscal policy trend is clearly pointing in one direction. As senior OECD was designed to keep inflation low. Overall, this meant analyst Michael Forster put it, »If this trend continues that the Swedish trade union movement accepted profits for another five or ten years, Sweden will no longer be a in the private sector to a greater extent than in many showcase for equality in the OECD area.« other countries. This model delivered higher standards of living and higher pay. As a result, the Swedish trade The Swedish Model is still very much associated with so- union movement accepted technological development cial democracy and the labour movement, which shaped and the continuing restructuring of industry. However, Swedish society for much of the 20th century. In recent it should be parenthetically noted that ›excess‹ profits years, the non-socialist coalition (or Alliansen), headed posed a dilemma for the labour movement, which is one by the New Moderate Party, has also started to lay claim reason why the LO launched its proposals for employee to the Swedish Model concept. In other words, there funds in the mid-1970s. 3 HÅKAN A BENGTSSON | THE SWEDISH MODEL – CONFLICT OR CONSENSUS? Anna Hedborg’s and Rudolf Meidner’s book Folkhems- an attempt to achieve a balance between the Keynesian modellen (which literally translates as ›the People’s Home tradition, which had a solid backing in the labour move- Model‹, but could also be translated as ›a national home ment, and the monetarian ideas that had become in- fit for the people‹ or ›the welfare state model‹), published creasingly fashionable. This policy caused, among other in 1984, focused mainly on the role of labour market things, the rate of expansion in the public sector to de- relationships in the Swedish Model. Together with Gösta cline. The public sector’s proportion of GDP, measured Rehn, Meidner personally participated in creating the in terms of the number of public sector employees, had Swedish Model in the form of the Rehn-Meidner model. increased very rapidly from the late 1960s until the early Both authors also prepared and presented proposals 1970s. for employee funds in 1975. They linked the Swedish Model to the folkhemmet concept, as formulated in Per Around 1990, the Social Democrats lost their grip on Albin Hansson’s classic speech in Parliament in 1928, in economic developments, had historically poor election which he proclaimed, »There is equality, consideration, results and were out of office by 1991. In 1992, the co-operation and helpfulness in the good home. Applied Swedish economy experienced a serious crisis – the to the greater home of people and citizens, this would greatest economic shock since the 1930s. Sweden went mean breaking down all the social and economic barriers on to see three years of negative growth and unem- that now separate citizens into privileged and neglected ployment rose to 12 per cent by 1994. The public sector [categories], ruling and dependent, rich and poor, prop- was growing and appeared to be out of control. The ertied and impoverished, plunderers and exploited.« Ac- acute financial crisis was the result of the deregulation cording to Hedborg and Meidner, however, the Swedish of financial markets and the Swedish credit legislation. Model had several components. This had led to a classic financial bubble, with its roots in the real-estate sector. In 1994, Sweden had the largest First, it was a golden mean in which a reformist labour deficit in public finances of all the OECD countries. The movement achieved far-reaching compromises with Social Democratic government that took office in 1994 other groups to realise welfare-policy objectives. implemented steep cutbacks in public expenditures. Second, it was a mixed economy. The production sphere The economy recovered and unemployment was down has continued to be largely privately owned, but the to 4 per cent in the early 2000s.