The Rise and Fall of the ‘Swedish Model’

Per Olsson, Rättvisepartiet Socialisterna (CWI in Sweden)

Is Sweden Socialist?

“Sweden has always been a solid market economy”, states the present right-wing government on its website. And that is certainly true. Sweden has never been a socialist society – based on public ownership of production, workers’ control and management, social equality and a democratic plan of production. Neither has Sweden been a ‘mixed economy’ or provided a ‘third way’ – an alternative to both capitalism and socialism, if such a thing were possible.

However, in the 1960s and in the early 1970s, thanks to the worldwide capitalist boom and a working class movement at home, a welfare system was created that became a model for the rest of the world. Universal welfare financed by public means (through taxation) provided a highly developed education system, world class healthcare, pensions, a childcare system second to none, and numerous other social benefits and insurance cover. The ‘welfare state’ and the social harmony that existed in those days became known as the “Swedish model”, although that term already entered circulation in the 1930s.

But this Swedish model ceased to exist long time ago. “It is a long way from the halcyon days of the 1970s, when the ‘Swedish model’ of cradle-to-grave welfare for all was held up to the world as an example of modernity and progress”, reported CNN almost triumphally in 2003.

Nowadays, most capitalist commentators point to a ‘new Swedish model’ of privatisation, deregulation and other market orientated “reforms”. They also point to the way Sweden supposedly managed its banking crisis in the beginning of the 1990s. In short, the present Swedish model reads as a capitalist success story to show that neo-liberalism ‘works’.

“To speak of Sweden as socialist today is pretty far off the mark. Neo-liberal reforms have gone much further here in some sectors than in the US. Sweden has become a sort of laboratory for privatization”, commented Brian Palmer, a professor of anthropology at Sweden’s Uppsala University. Olle Wästberg, a liberal and the former Consul-General to New York, boasted that: “In many fields, we [Sweden] have more private ownership compared to other European countries, and to America. About 80 percent of all new schools are privately run, as are the railroads and the subway system.”

The end of the post-war boom in the mid 1970s marked the end of the old Swedish model, but even some years before that the economy entered a phase of stagnation. However, Swedish capitalism benefited enormously from the fact that the country’s productive forces were intact at the end of the World War II – Sweden was not occupied during the war and claimed to be neutral. The capitalists made huge wartime profits, fraternising from the start with Nazi Germany. For many years Germany was the country’s main export market – iron ore and roller bearings made in Sweden were essential for Hitler’s war machine. But when it became obvious the Nazis were going to be defeated, Swedish capitalism turned towards the Allied countries to sell goods, and for protection against the rapidly advancing Stalinist Russia.

When the war ended there was an enormous worldwide demand for goods – such as steel, iron ore, timber and so on – that Swedish companies could sell at a good profit. At the beginning of the 1950s, Sweden was by far the richest country in Europe.

During this ‘golden age’ of capitalism 1950-75, when world production and markets were growing at an unparalleled rate, the Swedish economy developed at a rate of 4 percent annually. However, long before the world upswing exhausted itself, Swedish capitalism began to stagnate, while other capitalist countries were catching up or outstripping it. Sweden’s share of the world market began to decrease after 1965.

The 1970s were a decade of relatively slow growth compared to Sweden’s main capitalist competitors, and a chain of industrial crises. The Swedish shipyard industry, the second largest in the world in 1975, collapsed in the following years, as did the textile industry. Throughout the 1970s, Sweden experienced for the first time in decades a lower annual growth rate than the rest of Western Europe.

Despite this, the ‘welfare state’ continued to expand in the 1970s. There were many reasons for this: the re-awakening of workers’ struggle, the weight of the labour movement within society, and the process of political radicalisation that set in after France 1968. A big influx of women workers into the workforce vitalised and strengthened the labour movement. In fact the ‘welfare state’ reached its peak in those years. The capitalists were forced to accept reforms in the workplace that gave more rights to the trade unions, for example the Law on Cooperative Decision Making (MBL in Swedish) and Working Environment Law, a new Employment Protection Law, etc. Furthermore, a public childcare system was built up and a progressive Parental Leave Act was implemented.

Even at this time, however, there were many signs that the capitalist class thought they had given too many concessions and that the clock had to be turned back. The era of social peace was over; there was no longer a material – economic – basis for classical reformism and class collaboration, although the labour leaders still clung to this illusion and the dream of ‘capitalism with a human face’. In 1980, the ruling class tried to draw the line, organising a massive lockout which was followed by strikes by the workers, but this capitalist offensive failed. After being defeated on the industrial arena, the ruling class turned to the political arena. The capitalists and the organisations of the petit bourgeoisie, with the support of the traditional right-wing parties, launched a vicious campaign against the so-called Wage Earners’ Fund. This, in reality harmless idea, had been proposed by the trade union federation, LO, already in 1976 as an attempt to get influence in the running of companies through buying shares. The original proposal of the LO was watered down several times, but the Swedish capitalists campaigned not against the Wage Earners’ Fund as such, but against the general idea of socialism. The counter-offensive by ruling class paid off – the social democrats and the LO leadership gave in, again showing that their intention has never been to really challenge capitalism and its private ownership over the means of production and distribution.

Likewise, what is sometimes called the ‘mixed economy’ in Sweden was never a mix of public and privately owned companies. In fact, Sweden’s state sector was smaller than in many other countries and the role this state sector played was to provide cheap energy, infrastructure, and research and development (R&D) to the big monopolies that dominate the economy, while the welfare system and social democratic governments would guarantee the necessary political and social stability for capitalist expansion.

The concentration and centralisation of capital probably went further in Sweden than in most other advanced capitalist countries. “It’s a family business that dominates its country’s business sector with some of Europe’s biggest in its stable…”, wrote the Financial Times (July 12, 2004) in an article about the Wallenberg family and its empire. According to he same article: “No other family dominates the business sector of a developed country in the way that the Wallenberg hold sway in Sweden.” And “Wallenberg dominance of corporate Sweden has been helped by successive social democratic governments.” At one stage, the Wallenberg family controlled almost 40 percent of the shares traded on the Stockholm (Sweden) stock exchange.

Even Peter Stein, an extreme neo-liberal Swedish economist, admits that “Although nationalisation was a point of principle in the social democrat’s programme it was never implemented. Until 1970 government controlled manufacturing accounted for 5 percent of the total. State ownership and management where they existed were guided by professional ethics and not hampered by political considerations”. (Peter Stein: Sweden: From capitalist Success to Welfare – State Sclerosis, September 10, 1991).

Nationalisation was never “a principle”. Social democracy ruled the country for almost 40 years concurrently – from the 1930s to 1976 – and during this time hardly nationalised any industry. And the few state-owned companies that do exist are mirror images of privately owned companies, and that is how social democracy and the trade union leaders want things to stay.

The trade union representatives on the boards of companies act as the defenders of shareholders, not the workers. Being in the boardroom has been a doorway to an extra income for the trade union leaders, and without any democratic control from below, or alternative to capitalism, the trade union representatives have almost always sided with the bosses. Recent examples illustrates this. Olle Ludvigsson, from the Metalworkers’ union, who has been the employees’ representative on the board of Volvo since 1998, even voted for a big increase in dividends in 2009 at the same time as the company sacked thousands of workers. The LO chairperson Wanja Lundby-Wedin voted yes to a generous retirement package for the head of the “pensions company” AMF. The very same AMF lowered its pension payouts to existing pensioners as a result of huge losses in its equity holdings. When this became public knowledge in Spring of 2009, a poll showed that 90 percent wanted Lundby-Wedin to step down as LO chief. Sitting on several company boards gave her an extra half million krona each year.

In terms of membership, influence and weight in society, the Swedish labour movement was one of the world’s strongest, if not the strongest. At one stage more than 85 percent of the total labour force was organised. The peak year was 1986, with 86 percent. Since then the rate of unionization has fallen, particularly after 2006. It now stands at 71 percent and is heading towards 61 percent by 2025, if the present trend is not reversed.

During the ‘golden age’ of capitalism the trade unions could deliver steadily increasing wages and there were jobs for all. In that period, class collaboration became the norm; the employers, the LO leadership and the social democratic government worked almost in tandem to advance growth. Collective bargaining was the cornerstone that, “developed into a system of centrally co-ordinated wage bargaining procedures. From the 1950s to the 1980s wage bargaining in Sweden was a question for LO and its counterpart at the time, SAF (the Swedish Employers’ Confederation). It was up to the national unions to adapt the generally set wage framework to their respective sectors of the labour market”, as the LO wrote in a short pamphlet.

Since then, wage formation as it called in Sweden, has changed. Today, each national union negotiates directly with their counterparts on the employers’ side, and the agreement they sign only guarantees, at best, a minimum wage increase for the workers concerned – the final increase being decided at workplace level or in individual ‘negotiations’. By dissipating collective power, this de-centralisation and individualisation of wages has naturally not benefited workers.

However, the wage agreement thus accepted is binding upon all workers. Since 1928 it is a criminal act to strike once an agreement – often for a period of two or three years duration – is signed. This in turn, means that the trade unions must pay huge fines (the sum has increased over the years), including their local organisations, if they go on strike or even give verbal support to a strike within the time frame of an existing agreement. Workers involved in a so called ‘wild cat’ strike not only run the risk of fines but also of being sacked. In short, while an agreement is in force there is a ban on strikes.

Sweden’s labour laws have become more and more repressive over the last 20 years: higher fines, longer warnings in advance of strike action, compulsory meditation by a state body (the National Mediation Office) that has the legal power to postpone industrial action, and so on. All these measures were supported or introduced by the social democrats.

Against the back drop of the Cold War, with its witch hunt against Communists and other left-wingers, almost all elements of workers’ democracy within the unions were erased in the period following the end of the World War II. The left was marginalised and silenced. The unions became extremely bureaucratised and centralised, ruled by well-paid full time officials (all card-carrying member of the social democratic party), without any channels for members to influence decisions and policies. Already in the 1950s the members lost the right to vote over national wage agreements, to elect trade union officials, while the period between congresses became longer and longer.

For a long time, the Swedish social democrats, next to their Austrian sister party, was the European party with the highest ratio of members to votes in general elections. The party boasted 1.2 million members in the mid 1980s. This, in a country of just 8.3 million inhabitants (in 1985). Most of the members came from the local trade unions through the process of collective affiliation. However, once collective affiliation was abandoned in 1990, when the social democratic leadership began to refer to the trade unions as “one of several pressure groups”, the membership figure dropped dramatically. It was down to 260,000 already in 1991, and since then the party has lost nearly 10,000 members each year. If present trends continue there will be no members left in 15 years time!

It was the social democratic government of the late 1980s that started what is known in Sweden as the “the system change” – the rolling back of public welfare combined with deregulation and privatisation. This right-wing turn was made possible due to several international och internal factors: 1) There was no left-wing or oppositional trend within the party that could challenge the new course after the expulsion of the Marxists (CWI members) in the early 1980s. After the expulsions, as we warned at the time, the rest of the left inside social democracy just caved in or moved to the right in search of “new ideas”, at the same time as the number of left-wing activists within the trade unions declined. 2) The stagnation of Swedish capitalism left no room for an expansion of welfare, instead capitalism demanded cuts in public spending and workers’ share of the economic cake. 3) The acceleration of globalisation and increased competition from abroad resulting in a new neo-liberal regime globally, after the failure of Keynesianism in the 1970s. 4) The collapse of the Stalinist states in 1989-1991 gave a further impetus to these trends, including the right-wing turn of social democracy, not only in Sweden. Welfare in Western Europe had also been implemented as a means of gaining social support for capitalism in its race against Stalinism in Russia and Eastern Europe. When Stalinism collapsed the capitalists became even more convinced that welfare was an unnecessary and costly “luxury” and that turning public services into private ones would open new profitable markets.

In Sweden, the social democrats began the “system change” with deregulation of capital markets and the financial sector. The deregulation of the 1980s created an internal money market as well as an excessively rapid credit boom that fuelled speculation and bubbles (most of the money borrowed was used to buy property). The property bubble created was then followed by large capital outflows, loan losses and insolvent banks. Many banks collapsed and the state had to step in.

Also in the 1980s less and less was spent for example on the health sector and its share of the GDP fell. “Another sequel is that during the 1980s the percentage of GNP spent on medical care in Sweden actually declined. Sweden was the only nation in the world where that had happened as of 1996”, wrote Andrew C Twaddle in his book “Health care reforms in Sweden 1980-1994”. The old meaning of the term reform was no more – from now on ‘reforms’ became counter-reforms. This was exemplified by the major tax reform, officially named the “tax reform of the century”, implemented in 1991. This so-called reform, jointly worked out by the social democrats in government and the bourgeois liberal People’s Party (Folkpartiet), ended what was left of progressive taxation. The “tax reform” lowered income taxes, particularly for the better off, while increasing sales tax to 23 percent and also rents. “The tax change was controversial because it was seen as a retreat from the ideal many Swedes cherish of creating an egalitarian society”, commented the New York Times (20 February 1990). This was a modest way to describe the scale of opposition and how ordinary people regarded this “reform”.

This right-wing policy of the social democracy paved the way for a crushing election defeat in September 1991. This coincided with the most severe crisis for Swedish capitalism since the 1920-30s. All the main crisis measures adopted by the conservative government of 1991-1994 were supported by the social democratic party, including the beginning of selling out state-owned companies. However, the crisis got worse, and in November 1992 not even a hike in the central bank’s benchmark interest rates to 500 percent could stop the flight of speculative capital from the country. The government was forced to abandon the fixed exchange rate and carry out a devalutation. This was the dictatorship of the market. “The bank crisis was upon us. To prevent the system from collapsing, the central government was forced to rapidly intervene with a general, overall blanket guarantee that promised that all of the Swedish banks would meet all of their obligations, existing and future, towards all lenders.” (A speech delivered by the central bank deputy governor, Lars Nyberg , March 2006). Several banks were nationalised or compelled to ask for public money to stay afloat.

The government spent four percent of gross domestic product, or at least 65-70 billion krona – 20 billion in today’s U.S. dollars according to the New York Times – to save the banks. A budget surplus in 1990-91 was turned into a budget deficit of 10 percent of GDP in 1993-94 and gross public debt jumped from 43 percent of GDP in 1990 to 78 percent in 1994. However, when the social democrats returned to power in 1994, the debts and fiscal deficits became an excuse for a savage programme of spending cuts, tax increases and market orientated reforms. This programme was in main supported by the Left Party (the former Communist Party).

For working class people the crisis certainly was not over. Economic growth after 1994 was not followed by improving living conditions or job security, and did not even offer a pause in the neo-liberal attacks. Quite the opposite.

“The 1990s can be described as a decade of mass unemployment in Sweden. A considerable part of the population was affected by unemployment at some point in the course of the decade. As many as 1.8 million people – almost 40 percent of everyone aged between 18 and 60 in 1990 – was registered as a jobseeker at some time”, stated the Welfare Commission.

The number of workers on permanent contracts decreased during the 1990s from 3.6 million to just over 3 million, while the number of temporary workers went up from 400,000 to 520,000 (15 percent of the employed). Despite years of economic growth unemployment stood at 5.6 percent in 1999, compared to 1.7 percent in 1990. Sweden found itself miles away from the social democrats’ old aim of “Jobs for all”. In fact that slogan was dropped at that time. The social democratic government elected in 1994 went even further than its predecessor made up of the traditional bourgeois parties.

It made cuts in child allowances – for the first time ever the real value of this benefit was cut. Unemployment benefits was cut to 75 percent of income in 1996, down from 90 percent before 1993. However, because of the ceiling that exists in unemployment insurance – the maximum sum payable – fewer and fewer workers got 75 percent. Due to these changes, in 1992-97 the average unemployment benefit level fell from 81.3 to 70.5 percent of wages. (After the present governments’ cuts in unemployment benefit in 2006, average benefit level is down to 51 percent).

Moreover, sick pay was cut, it became more difficult to receive housing allowances, and so on. Every aspect of the social security system was affected. These attacks provoked the biggest movement of protest for decades. The movement started with strikes and demonstrations by the school students. The struggle of the school students was initiated by the Elevkampanjen, a socialist youth movement set up by young CWI members in 1989-90. 45,000 school students in total, took part in the demonstrations and day of protest organized by Elevkampanjen in Spring 1995. The school students’ struggles were then followed by workers, unemployed, the sick, disabled and other groups hit by the government.

“Sweden in revolt”, read a headline in one of the biggest newspapers (Expressen) in 1996. At the end of that year, Sweden came close witnessing to a political strike against the government. Before, many workers thought that maybe the social democrats had just lost their way; now they realised that the party had entered upon a completely new capitalist road of dismantling welfare and previous social gains.

The social democratic Prime Minister even boasted that Sweden was setting a world record in spending cuts. The social democrats and their policy were praised by the IMF for example, which in 1999 wrote: “Fiscal adjustment has been dramatic since the implementation of the consolidation program in 1994. A combination of spending cuts and tax increases, augmented by reduced interest costs, produced a structural improvement amounting to 10 percent of GDP and led to a fiscal surplus of 2.2 percent in 1998…. Looking ahead, expenditure control is being reinforced by a comprehensive reform of the old-age pension system and supplemented by a nascent program of restructuring and privatizing public-sector enterprises..” (IMF on Sweden, September 2, 1999).

The proportion of private sector employees involved in – privatised or subcontracted – municipal services more than doubled during the 1990s and has kept rising since. The state sector too experienced the same development. The number of state employees halved – from 400,000 in 1997 to 200,000 20 years later. State assets worth 116 billion krona (16.4 billion U.S. dollars) were sold by the social democratic governments that ruled from 1994 to 2006. In many aspects social democrat-ruled Sweden took the lead in implementing the “market reforms” and neo-liberal agenda of the European Union (EU).

“Public services ‘produced’ by a non-public actor became increasingly common in childcare, education, child and youth social services, and care of the elderly. In 1996, Sweden deregulated its electricity sector, allowing private competition in distribution. Telecommunications, postal services and public transport were also deregulated. And state companies, including banks nationalised during the 1992-93 crisis were sold off, after their losses had been passed over to the public sector.

“Another area in which Sweden has led the way is in pension reforms… With the implementation of the premium-reserve pension reform of 1998, a system was created that indeed is not guaranteed to result in high pensions for pension savers.” (Sweden in Europe, speech deliver by the deputy central bank governor Lars Nyberg in 2003). This so called pension reform – privatisation of pension savings and lower pensions – caused revolt in the rest of Europe when those governments were trying to copy it.

Nor did the social democrats reverse the so-called the school choice system introduced by their rivals in 1992, which has paved the way for an upsurge in private schools. In 1991, the share of secondary pupils in privately run schools was 1.5 percent – today’s figure is 17 percent. In the 1990s, the health sector too was opened to private alternatives. The taxes paid in Sweden should entitle citizens to social security, healthcare and so on. But that is only on Paper. In addition to taxes you must also pay fees when visiting a doctor, for being hospitalised, and so on – fees that have increased over the years. It now costs 140 krona (20 U.S. dollars) to visit a doctor in Stockholm, and 300 krona (more than 40 U.S. dollars) to see a specialist. A visit to the dentist costs a fortune, usually more than 600 krona (85 U.S. dollars) for a check up, while a simple filling costs more. 850,000 Swedes can no longer afford to see a dentist, according to a recent study.

Thanks to the ‘lesser evil’ factor, the social democrats were able to stay in power after the elections of 1998 and 2002. Workers voted against the traditional right-wing parties, rather than in favour of social democracy. The party does not enjoy the same firm support as before, and its share of votes has been in sharp decline since 1994. In the last election, in 2006, the party scored its worse result since 1921, the year the right to vote was introduced for both men and women. It was an electoral disaster forcing the leader, Persson, to resign.

The party changed leadership, but the policy stayed the same. In some respects the social democrats have moved further to the right since their defeat in 2006, with the new leaders emphasising the need to win middle-class votes in the big cities.

The present right-wing government, elected in 2006, began its term of office with drastic cuts in unemployment benefit and social insurance with the aim of creating a low-paid labour market. This in turn made the situation even worse when the global capitalist crisis set in. Never in modern history has Sweden entered a crisis with such gaping holes in its social safety net.

This government also wants to sell out almost all the remaining state-owned companies and open all public sector activity to “competition” and potential takeovers by private companies. Because Swedish workers are less protected than before – more people than ever lack for example unemployment insurance – the present economic crisis is rapidly turning into a social crisis. Over the last twelve months unemployment has soared from 5.9 percent to 8.3 percent and is set to reach 12 percent in 2011.

It is easy in Sweden to dismiss permanent workers. The bosses just have to claim lack of work to revoke job contracts. This explains why unemployment is rising faster in Sweden than in many other countries while youth unemployment, close to 30 percent, is amongst the highest in Europe.

The social democrats, Left Party, and the Greens recently formed an alliance called the Red-Greens, but this alliance is neither red nor green. The social democrats and the trade union movement in Sweden are facing a historic crisis. They have lost roots, influence and support, with no prospect of regaining their old ground as their policy and methods mean further attacks on what is left of the general welfare system. The social democratic party has become an empty shell. The new party leader, Mona Sahlin, once said that “Sometimes I fell I’m the youngest member, and I’m 53”.

The task facing genuine socialists in Sweden and other countries as well, is to rebuild the workers’ movement on socialist lines – to build a new mass socialist workers’ party and transform the trade unions into democratic and fighting organisations. The key lesson that has to be drawn from experiences in Sweden is that no social gain will last unless capitalism is overthrown. This is even more so in a period of crisis, when a revolutionary struggle is needed to win even the smallest concessions from the capitalist class and to save jobs. Therefore, with the basis for social reforms within capitalism having been eroded, the only way forward is a struggle for socialism and a democratically planned economy.