Sweden: Whither the Welfare State?
I. The Environment
A. Geography Relatively isolated;
allowed Swedes to
avoid major war
since 1813. Rich
endowment of
timber, and iron ore
and other natural
resources.
B. Sociological Isolation
contributes to
cultural
homogeneity.
Supports
equalitarianism.
Welfare programs
are not seen
distributing income
from one group to
another.
C. Political Dominant since
1932, the Social
Democratic Party
lost control during
1936, 1976-1982,
and 1991-1995.
Since 1995, led by
centrist social
democrat Göran
Persson, a renewer.
SDP lost 20% of its
parliamentary seats
in 1998 elections,
mainly to the Left
party, which
opposed austerity
programs and
Swedish entry into
Euro.
II. Industrial
Organization
A. Nationalization -
SDP philosophy did
not call for the
nationalization of
industry. Some
were nationalized
to prevent them
from facing
bankruptcy, but
some of those have
been returned to
private hands.
B. Monopolies and
Industrial
Concentration Small domestic
market contributes
to high industrial
concentration
ratios. Dominance
of small number of
large multinational
companies. Still, a
high level of
foreign competition
and extensive
system of consumer
cooperatives.
III. The Labor Market
and Labor Relations
A. Collective
Bargaining 1. Basic
Agreement Swedish
Confederation
of Trade Unions
(LO) formed in
1898, and
Swedish
Employers
Association
(SAF) formed
in 1902. In
1938,
employers and
labor accepted
the Basic
Agreement of
Saltsjobaden,
under which
management
recognized the
labor unions
and established
general rules
about layoffs
and dismissals.
Both sides
agreed to hold
direct
negotiations
before resorting
to strikes or
lockouts.
2. Centralized
bargaining Developed after
World War II.
Employers
wanted more
orderly
bargaining.
Unions wanted
wage solidarity
(largest wage
increases to the
lowest-paid
workers).
Wage
negotiations
take place at the
national level
and result in a
binding
framework.
Local
negotiations are
held between
employers'
groups and
union affiliates.
3. Evaluation -
1945-1970,
central
bargaining
worked well. In
1970 departures
from the central
agreement
became
common and
inflation rose
above the
average of other
industrial
countries.
Disagreements
over wage
solidarity have
weakened the
system.
B. Active Labor
Market Policy Includes programs
to increase the
demand for labor,
programs to tailor
labor supply to new
job openings, and
to match supply and
demand through job
information and
placement services.
National and 24
regional Labor
Market Boards.
UPDATE: The
Economist, July 7,
2001. According to
the OECD annual
Employment
Outlook,
governments should
target policy
towards more
"active"
programmes that
focus on getting
people into jobs
(such as job-search
assistance and
training) and away
from "passive"
programmes that
take care of them
and give them
income while they
are out of work
(unemployment
insurance, for
instance). . .
Between 1986 and
1998, two years
with similar
unemployment
rates, average
OECD spending on
active labourmarket policies rose
only slightly, from
35% to 37% of total
spending. . .
Spending on active
policies varies
widely by country.
In 1998 such
spending accounted
for 0.2% of GDP in
the United States,
1.3% in Germany,
and 2% in Sweden.
Do active labour-
market programmes
actually reduce
unemployment? . .
Simple
programmes, such
as intensive help
with searching for
jobs, are very
successful--and also
cheap.
C. Codetermination
and Employee
Ownership Workers participate
in management
through advisory
works councils, and
through
representation on
boards of directors.
Controversial wage
earner funds were
designed to
increase employee
ownership. Failed
to gain public
support, and were
discontinued in
1991.
IV. The Governmental
Sector
A. Fiscal and
Monetary Policy Even before the
Depression,
policies designed to
reduce
unemployment
were proposed in
Sweden.
1. Investment
reserve funds allowed the
government to
control rough
one eighth of
private
investment by
awarding tax
credits to
companies that
save during
boom periods
and invest
during
downturns.
According to
Taylor,
successfully
stabilized
investment.
Abolished in
1991.
2. Monetary policy
- the Riksbank
once exercised
direct control
over bank
lending. In
recent years,
focus on
inflation
reduction.
B. Social Welfare and
Income
Redistribution - An
extensive welfare
state with services
including free
public education
through graduate
school, family
allowances for
children, a national
health program, and
generous retirement
and disability
pensions. The most
even distribution of
after-tax income in
the West. Has a
high cost; social
spending represents
39% of national
income (in 1995,
compared to 24%
OECD average),
and total taxation is
about 60 percent.
Critics maintain
that the high tax
rates have damaged
incentives. The
average Swedish
work week is one
of the shortest in
the world. High
taxes have driven a
significant part of
income and
production
underground in the
form of do-ityourself home
improvements and
barter activities.
Outflow of Swedish
wealth due to
emigration.
70.0
65.0
Sweden
60.0
55.0
50.0
Euro Area
45.0
40.0
United Kingdom
35.0
United States
30.0
25.0
General Government Revenues as % of GDP
20.0
1986
1988
1990
1992
1994
1996
1998
2000
2002