The swedish model(s)


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  • Sweden was a late developer. One of the poorest countries in Europe by the mid 1800s. Standard of living comparable to a poor African country today.
  • Between 1870 and 1970, Sweden and Japan saw the highest sustained growth in the world. Productivity (measured as GDP per worked hour) increased 17 times during the same period. Only Finland and Japan were close to this. By the end of the 1970s only the U.S. had a higher GDP per capita. In the beginning, more raw materials like iron ore and timber. Eventually, finished products like cars dominated.
  • In Sweden, like elsewhere, industrialization was associated with large scale societal changes, including the movement of large numbers of people within the country from rural areas to the cities. (This process was slowed down by the relatively flat income distribution and the government attempted to speed it up by large-scale housing construction projects in urban areas.)
  • The point I wish to emphasize in concluding the first part of my talk is that the record-breaking sustained economic growth in Sweden between 1870 and 1970 resulted in – as rapid growth typically does – significant transformations of Swedish society, landscape, and economy (I haven’t talked about politics but there were obvious implications in this area too, not the least of which was the emergence of strong workers’ organizations). A large transformation of the economy, which resulted in the near the loss of practically all jobs in the agricultural/fisheries sector. In relative numbers, massive movements within the country – from rural to urban areas – as well as across the borders. This did result in civil unrest. There were peasant revolts (???) and in 1931, the m ilitary opens fire on civilian demonstrators in Ådalen. 5 dead, 5 wounded. Marginal by Chinese standards perhaps but unrest nevertheless. There were several competing radical communist parties, and the Social Democrats during the early part of the century discussed the best strategy to achieve socialism – through democratic means or revolution. One way of understanding the Swedish welfare state is as a response to these challenges, which industrialization, capitalism, and urbanization generated.
  • Other transformations included changes in class-structure, ownership of the relevant means of production, and new dimensions of conflict: especially that between capitalists and workers. Industrialization created an increasingly wealthy class of merchants and ”burghers” along with a new underclass of workers, with entirely new occupations, new sets of skills etc. Such transformations seldom come without social strife, as people’s concrete circumstances break free from the social and normative structures with which they had coexisted. New groupings jockey for position and relative influence.
  • A transformative political moment was the Social Democrats’ loss in the 1928 elections. In response, Per-Albin Hanson coined the term “the people’s home”. It is possible to view the development of the “Swedish model” as the successful response to the social, political, and economic challenges that industrialization gave rise to. What, then, are its components?
  • The Strong Society: Tage Erlander (PM 1946-69) coined this expression. As the country grew more prosperous, he realized that people’s expectations on the state would grow. They would demand improved services (health care, education, infrastructure), employment, and increased influence. This required the Government to take the lead in developing the economy and coordinate reforms.
  • The ”Strong society” thus entailed a strong central government. The twentieth century saw the continuous growth of the public sector. In 2006, the ratio of public consumption+investment to GDP is 26+3=29% Public sector share of employed persons: 1960 12% 1970 20% 1980 30% 2006 31%
  • There was unquestionably a strong central government in Sweden, which led the development of the Swedish welfare state. At the same time, much of the growth of the public sector was a growth in the size and responsibilities of local governments.
  • The Strong State was strong also in the economy. But it remained an open – export oriented economy – where governmental involvement tended toward regulation with a large dose of indirect influences, not state ownership of the means of production. Sweden followed a policy of full employment, and welfare reforms such as free daycare for children freed up women to enter into the labor force. Of corse all this had to be paid for, and the result was one of the highest tax-pressures in the world.
  • Data is from WTO and shows 2005-2007.
  • The important thing to note here is that while the income replacement principles may seem unfair from the point of view of absolute equality of outcomes, it Provides universal and equal coverage in terms of insurance against loss of income Generates strong support for the welfare system among a large majority of the population and thus readiness to pay taxes. A ”residual” system where coverage is afforded at a very low level and only to the poorest segment of the population is likely to exacerbate societal tensions as the rich and the middle class see their money going only to the poor while they receive little in return for their tax contribution. Thus the paradox of the American taxpayer, who pays less but complains much more about it!
  • 82% of the average person’s paid taxes go back to him/herself over the course of hir/her life. This is the idea of the ”deferred wage”
  • This chart – produced by the National Transfer Accounts project (co-operated by UC Berkeley) – shows average consumption minus labor income for all ages.
  • Together, the two welfare systems account for ca 35% of GDP. Almost 50 different benefits and allowances•Support to families with children•Sickness and rehabilitation•Support to disabled persons•Health care benefits abroad•Dental care•PensionsSecurity Support to families • Child allowance•Parental allowance•Temporary parental allowance•Housing allowance•Maintenance Support•Care allowance Sickness and Rehabilitation • Sickness Cash benefit•Rehabilitation benefit•Allowance for care of close relative•Sickness and activity compensation•Work injury cash benefit Support for disabled • Disability allowance •Car allowance•Assistance allowance Pensions • Income pension•Premium pension•Guarantee pension•Survivors pension•Housing allowance for pensioners
  • The notion of Equal Pay for Equal Work aimed to create income equality, and did so successfully. It also created pressures toward structural transformation of industries (poorly performing companies would fold because they couldn’t lower costs by lowering wages). From 1983 to 2000, Sweden experienced among the most dramatic change in levels of income equality among OECD countries – a more than 20%-point increase – but still had the second lowest levels of income inequality. When the GINI coefficient is used as a measure of income inequality, the most unequal society will be one in which a single person receives 100% of the total income and the remaining people receive none (G=1); and the most equal society will be one in which every person receives the same percentage of the total income (G=0). 0=complete equality 1=complete inequality 2007/08 gini coeff: Score 0.25 Rank 4 (3) (China’s Gini rank is 81, gini score is 0.469)
  • Threat of government intervention after a number of wild strikes and increasing conflicts eventually got the parties to agree to cooperate. The state agreed to leave the parties on the labor market to set wages between themeselves. This was possible due tot the historic bargain between the parties: the employers agreed to manage the companies in a responsible way and contribute toward full employment, while the unions agreed to moderate wage demands. The latter was possible because extensive government welfare systems were being put in place that supported all workers and because the solidarious wage policy prevented excessive inequalities. The state stayed out between 1938 and 1970, at which point a more interventionist policy began (MBL etc). After 1990, the state again retreated.
  • Source Henrik Lindberg.
  • The norm of looking out for the country as a whole as opposed to partisan bickering was important.
  • Part of the explanation for the spirit of cooperation might be found in the reality of Swedish parliamentary politics, where minority governments are the norm. The explanation for the frequency of minority governments can be found in the proportional parliamentary electoral system, which contrasts with a first-past-the-post type of system that generates strong majorities.
  • ” Deferred wage” refers to the life-cycle concept that you pay part of your income in tax only for it to be deferred and handed back to you at a later time, such as if you get sick or when you grow old. The low unemployment figures and rising exports contributed to inflationary pressures. The crisis in the 1990s led to reforms and retrenchments, privatization.
  • What explains probability of escaping poverty? ” The lower the level of secondary education attainment, the higher the risk of poverty. By contrast, the extent of redistributive policy plays only a secondary role.” (Sapir 2006, p. 380) “ protecting jobs with employment legislation is definitely detrimental to employment, whereas protecting workers with unemployment insurance is potentially useful for employment.” (Sapir, 2006, p. 379)
  • Can be read in terms of TRADE-OFF between efficiency and equity. But Mediterraneans and Nordics seem to face no such trade-off. You can have (or lack) both. Can also be read in terms of SUSTAINABILITY. Only an efficient welfare model is sustainable in the long run. There are signs that the Continental and Mediterranean models are not sustainable, including rate of government debt. ” public debts as a share of GDP which tends to be far higher in continental (73 per cent) and Mediterranean (81 per cent) countries than in Anglo-Saxon (36 per cent) and Nordic (49 per cent) countries.” Sapir (2006), p. 380.
  • Eg. a restricted voucher system introduces market dynamics while guaranteeing public funding
  • The swedish model(s)

    1. 1. The Swedish Model(s) Part 1 – Welfare and Labor Peace Prepared for presentation at Oxford University Leadership Programmes for China Dr. Paul T. Levin, Stockholm University 2009-10-21 Paul T. Levin, Ph.D.
    2. 2. Sweden <ul><li>Population ca 9 million </li></ul><ul><li>GDP ca 3000 000 million SEK </li></ul><ul><li>GDP per capita ca 300 000 SEK </li></ul><ul><li>Europe’s 4th largest country geographically </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    3. 3. My talk <ul><li>Part 1: Industrialization and Consequences </li></ul><ul><li>Part 2: The Swedish Model(s) </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    4. 4. INDUSTRIALIZATION AND ITS CONSEQUENCES <ul><li>Part 1 </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    5. 5. Sweden in the 1800s <ul><li>One of the poorest countries in Europe. </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    6. 6. 20th-c GDP/Cap, 2000 prices 2009-10-21 Paul T. Levin, Ph.D.
    7. 7. Urbanization 1800-2000 <ul><li>Population in urban and rural areas, % </li></ul><ul><li>Source: SCB 07. </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    8. 8. Challenges of Rapid Industrialization <ul><li>19th Sentury lumberjacks </li></ul><ul><li>SCA Östrand Paper Factory </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    9. 9. Social strife – labor v. capital <ul><li>Ådalen 1931 </li></ul><ul><ul><li>Military opens fire on civilian demonstrators </li></ul></ul><ul><ul><li>5 dead, 5 wounded </li></ul></ul><ul><li>Internal struggles within the left </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    10. 10. Per Albin Hansson’s Folkhem – people’s home <ul><li>(S) lost 1928 election after revising party program in Marxist direction and cooperating with the Communist party </li></ul><ul><li>Per Albin’s ”Folkhem” a success in 1932 elections </li></ul><ul><li>” A good home for all Swedes” without class-conflict, where ”equality, care, cooperation, & helpfullness reigns”. </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    11. 11. THE SWEDISH MODEL(S) <ul><li>Part 2 </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    12. 12. The Old Model <ul><ul><li>” The Strong Society” </li></ul></ul><ul><ul><li>Mixed Economy </li></ul></ul><ul><ul><li>Welfare State </li></ul></ul><ul><ul><li>Centralized labor relations </li></ul></ul><ul><ul><li>Corporatism </li></ul></ul><ul><ul><li>Women’s right to work </li></ul></ul><ul><ul><li>(Neutrality) </li></ul></ul>2009-10-21 Paul T. Levin, Ph.D.
    13. 13. The Growth of the public sector <ul><li>Final use of total GDP </li></ul><ul><li>Private consumption </li></ul><ul><li>Public consumption </li></ul><ul><li>Investments </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    14. 14. Strong Local Governments Growth in central and local government and GDP in 1950–98: volume trends of public-service consumption and GDP 2009-10-21 Paul T. Levin, Ph.D.
    15. 15. Mixed Economy <ul><li>An open economy </li></ul><ul><li>Regulation, not planning or ownership </li></ul><ul><li>Full Employment </li></ul><ul><li>Equal pay for equal work </li></ul><ul><li>High taxes </li></ul><ul><li>Women’s Right to Work </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    16. 16. A trading nation 2009-10-21 Paul T. Levin, Ph.D.
    17. 17. The Welfare State: Principles <ul><li>Proportional taxes </li></ul><ul><ul><li>+ </li></ul></ul><ul><li>Universalism & means tested benefits </li></ul><ul><ul><li>= </li></ul></ul><ul><ul><li>Redistribution </li></ul></ul><ul><li>Income replacement </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    18. 18. Life cycle perspective – ”deferred wage” Net contribution + - Youth Middle age Old age 2009-10-21 Paul T. Levin, Ph.D.
    19. 19. Life-cycle defecit 2009-10-21 Paul T. Levin, Ph.D.
    20. 20. The Welfare State: Components <ul><li>Social Services (local & regional government) </li></ul><ul><li>19% of GDP </li></ul><ul><li>Child care </li></ul><ul><li>Education </li></ul><ul><li>Health care </li></ul><ul><li>Old age care </li></ul><ul><li>Social Insurance (central government) </li></ul><ul><li>16% of GDP </li></ul><ul><li>Illness </li></ul><ul><li>Parental leave </li></ul><ul><li>Retirement </li></ul><ul><li>Unemployment </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    21. 21. Income Equality (gini coefficient) 2009-10-21 Paul T. Levin, Ph.D.
    22. 22. Swedish labor market model <ul><li>History of conflict </li></ul><ul><li>1938 Saltsjöbads Agreement </li></ul><ul><li>Trade Union Confed-eration (LO) 1898 </li></ul><ul><li>Employer’s Assoc (SAF) 1902 </li></ul><ul><li>Promote common interest in competitive exports and industrialization </li></ul><ul><li>Independent labor unions  employer’s organizations </li></ul><ul><li>Central negotiations </li></ul><ul><li>No government interference </li></ul><ul><ul><li>Eg. no minimum wage </li></ul></ul>2009-10-21 Paul T. Levin, Ph.D.
    23. 23. Labor conflict Source: Dr. Henrik Lindberg, Ratio Institute 2009-10-21 Paul T. Levin, Ph.D.
    24. 24. Consensus-oriented politics <ul><li>Emphasis on consultation and anchoring policy </li></ul><ul><li>Even the Right supported the ”strong society” </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    25. 25. Governments since 1971 2009-10-21 Paul T. Levin, Ph.D. Majority Minority One party - 6 Coalition 3 2 Sum 3 8
    26. 26. Cracks in the Model <ul><li>” Deferred wage” costly </li></ul><ul><li>1970-80s: low productivity growth, inflation, high wage increases but real-wage losses </li></ul><ul><li>Growing deficits, debt </li></ul><ul><li>Growing marginal taxes </li></ul><ul><li>Workers’ ownership question led to S-loss in 1976 election </li></ul><ul><li>Repeated devaluations, late 70s and 1982 </li></ul><ul><li>1990s financial crisis </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    27. 27. 2009-10-21 Paul T. Levin, Ph.D. The Old Model The Revised Model? The Strong Society Decentralization Universal welfare Limited retrenchment Choice Mixed economy Less regulation Labor peace Labor peace but contentious Somewhat weakened unions Central negotiations Local and individual negotiations Corporatism Pluralism? Neutrality Globalization EU membership
    28. 28. How is it working? <ul><li>Source: Andre Sapir, JCMS (2006)44,2. </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    29. 29. Eating the Cake and Having it <ul><li>Source: Sapir (2006) </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    30. 30. How is it working? Global comparisons 2009-10-21 Paul T. Levin, Ph.D. Global index World ranking Globla gender gap rankings 1 Global IT rankings 2 Environmental sustainability index 2 Corruption perceptions 2 Democracy rankings 3 Operational risk ratings 3 Global competitiveness rankings 4 Human poverty index 6 Human development index 6
    31. 31. Some reflections <ul><li>Income-related insurance may reduce societal conflict whereas means-tested welfare may sharpen societal divisions </li></ul><ul><li>Universal and income-related systems build in support (key to success of (s)) </li></ul><ul><li>Generous welfare systems are vulnerable during crises – lack of revenues + high expenses for eg. unemployed </li></ul>2009-10-21 Paul T. Levin, Ph.D.
    32. 32. THE END 2009-10-21 Paul T. Levin, Ph.D.