Share this story
Close X
Switch to Desktop Site

Scandinavia's formula for prosperity fizzles

''Should Sleeping Beauty wake up in Sweden in 1982 after 60 years, she would have no trouble in taking part in the country's political scene.''

This allegory, drawn up by the Swedish SIFO polling institute, seems to have been dictated more by poetic nostalgia than by an unclouded perception of today's reality.

About these ads

The first Swedish economic crisis in 50 years has abruptly shattered the complacency of the country's long political and psychological stability. Indeed, today all Scandinavia is being forced to reconsider its traditional and comfortable formula for prosperity.

Inflation, unemployment, and foreign debts are new and frightening words for Swedish society. They conjure up the specter of the unknown: austerity and sacrifices.

''Swedes must learn to cope with dramatic changes,'' says sociologist Hans Zetterberg.

The economic figures are merciless. Growth has come to a halt. The budget deficit is about 12 percent of gross national product, the cost of servicing foreign debts (about $10 billion) is the second item of the state budget. Inflation is running at 8.5 percent, unemployment has hit 3.5 percent.

But trade unions place the jobless rate at 16 percent (including those in training programs and workers forced into early retirement). Investments have dropped 35 percent in five years. And the cost of subsidizing ailing industries has grown fivefold in two years ($1 billion in 1982).

Many economists pin the blame on the international recession - half of Sweden's output is exported. But the slump has also revealed that its population of 8 million consumes more than it produces (4 percent more than GNP), and drastic belt-tightening is required.

The crisis in Sweden reflects the breakdown of a formula that had assured also other Scandinavian countries decades of political and social stability. For the first time in more than 80 years Denmark has a conservative government. It has to resuscitate an economy while the cost of servicing the state's debts is equal to its tax revenues, and foreign debts stand at 28 percent of GNP.

About these ads

Even in small, but oil-blessed Norway (population 4 million), the Social Democrats are in opposition and the recently formed minority government has to cope with $10 billion in foreign debts and 14 percent inflation.

Swedish voters have reversed the trend and brought back the Social Democrat government after six years on the sidelines.

The richest and most generous welfare states in the world ''have to take another look at their figures, lower their aims, and renegotiate a social pact unquestioned for 50 years,'' according to political commentator Lars Olivecrona.

The terms of this pact were apparently simple and ''were based on a division of roles between the Social Democrat governments and industrialists,'' economist Assar Lindbek explains. The Social Democrats, who first came to power in the late 1920s, had full autonomy in shaping social policies, and industrialists had a free hand to make profits and provide the revenues to pay for the countries' reforms.

In Sweden this agreement had a silent and powerful third partner: a half-century of uninterrupted economic growth, which made it one of the richest countries in the world (a per capita income close to the United States' - and 40 percent higher than the West European average). Today this partner's exit from the scene has broken continuity, leaving the other two actors on the stage without a script.

Who is going to pay the bill?

A welfare system that had provided its citizens with cradle-to-grave security by appropriating more than 60 percent of the state's budget? Or a state that soaks up more than 51 percent of GNP in taxes? Or industry and business, in a country where half of all individual company shares are held by only 0.3 percent of its families, and guaranteed autonomy has led to the biggest private sector ( 90 percent) in Western Europe?

A formula that had been accepted as normal for half a century has suddenly revealed its disproportions, and the budget dilemma has unleashed ideological tensions the country had never before witnessed.

In May 1980, trade unions organized the first general strike since 1909 and industrialists replied with lockouts.

This year, the unions imposed controversial ''wage earners' funds'' on the Social Democrat election platform, and industrialists countered with the most strident campaign in Swedish electoral history.

The plan calls for funds financed by a tax on company payrolls and by a percentage of ''excess profits'' to be set up in each of the country's 24 counties. Shares of various companies are to be bought with the sums, expected to grow by $1 billion a year.

The funds are not popular even among unionized workers and are supported by only 15 percent of the population. In his campaign speeches Olof Palme mentioned them only to water them down. After his victory, he promised to implement them only with a ''broad-based consensus.''

The ''wage-earners' funds'' have triggered old fears and diffidence toward an intrusive and bureaucratic state machine that has cornered 37 percent of the job market. Observers agree that this ''welfare weariness'' pushed out the Social Democrats in 1976 after 44 years in power.

In this last election the non-socialist parties campaigned with slogans urging ''defense of Western society'' and ''socialism or freedom.'' Author Sven Fagerber warned against ''the coming of the barbarians,'' and economist Lindbek, a member of the Nobel Prize committee, ripped up his Social Democrat Party card in protest against ''mounting collectivism.''

''Palme won in spite of the wage-earners' funds. Fear of unemployment and welfare cutbacks prevailed,'' according to the SIFO Institute.

At party headquarters the topic is avoided. But at the old trade union building, covered with murals of muscular workers, there is little desire for compromise.

''The funds must be created as soon as possible, the first stage before the end of next year,'' says economist Anna Hedeborg. ''We represent 90 percent of Swedish workers, and the Swedish model is based on respect of the trade unions. We offer moderation on wages, they have to give us something in return.''

But at the Glass and Steel Industrialists' Center in downtown Stockholm the time for trade-offs seems to have passed. Economist Per-Martin Meyerson says, ''We have reached a crossroads. Either we move toward a Soviet-style economy, or we restore the rules of market economy. We have nothing to trade. The unions have grabbed too much. We will fight to the end against the wage-earners' funds, which are aimed at taking over our industries. We have to diminish the unions' power.''

Organized labor's strong stand against welfare cutbacks is countered by industrialists' demands for an overhaul of the public sector, a three-year wage freeze, further devaluation of the Swedish kroner, and tax reforms to improve profits.

The sudden echoes of Reaganomics reflect a rift in a long tradition of compromise and consensus. Sweden seems to be on a collision course. Palme has promised to get Sweden moving again by increasing public and facilitating private investments and raising the value-added tax to 23.5 percent.

But even some economists in his own party are skeptical whether this policy, which will increase foreign debts, can assure full employment, and leave the welfare system untrimmed in a country where one worker out of every four works for a debt-burdened company.

The economic challenge facing the Social Democrats is compounded by the great expectations of a society shaken in its long economic and psychological security.

''The voters indentified Palme with economic prosperity but emotions are confused and conflicting,'' according to SIFO. ''They want full employment and a generous welfare system but also want to protect themselves against a stifling state bureaucracy. They voted for a charismatic leader, but polls show a worrisome decline in confidence in politicians and political parties.

''The Social Democrats made a comeback, but confidence in market economy and free enterprise has never been so high.''

Sociologist Zetterberg sums it up: ''

The task of restoring the harmony of the Swedish model, both in its economic and psychological components, is the most difficult challenge the Social Democrats have ever confronted.

Should Sleeping Beauty wake up and see Swedish society trying to find its bearings, she might prefer to go back to sleep.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.