firmly in place has been confirmed through an abundance of historical evidence.
Welfare Model in Sweden: Is it to be envied, or is it a lesson to be learned at all cost
|The result of the general election in Sweden stirred up a controversy in our society. While some conclude that Sweden's welfare policy was a failure, the administration party asserts that it was a jump of logic. Here, the author divides periods of the 20th century Swedish economic development into earlier and latter parts and discusses how significant economic achievements were realized in the earlier part, whereas it was not in the latter. The author also concludes that this was due to the different economic models (small government vs. large government) pursued in each part. In addition, the author suggests what we truly need to learn from the welfare model of Sweden. [By Editor]|
The result of the general election in Sweden, a small northern European country with a population of less than 10 million, does not seem to have any relevance to Korea. But it is stirring up heated controversy in Korea. Discussions so far have been focused on whether the results of the election in Sweden signifies a failure of its welfare model, whether the people of Sweden abandoned the welfare policy, or whether President Roh's administration is benchmarking the welfare policy of Sweden. The most important issue, however, would be whether the economic model of Sweden is a politic model we need to follow or whether it is a model from which we need to learn at all cost.
As asserted by Cheongwadae or the administration party, it would be a jump of logic to conclude that "the result of general election in Sweden was a failure of its welfare policy". It is because public opinion not only is capricious at times, but also does not reflect a judgment on economic policies. The major issue of the general election in Sweden was also well-illustrated not only due to economic issues of ‘hidden unemployment' or inefficiency of the public sector, but also in scandals of the authorities, incompetence of the ruling party, etc. In addition, the fact that the election pledge of the right-wing union was reforming the system to create employment while maintaining a welfare model also supports this argument. Although they are insisting on market-friendly ways to increase efficiency, such as lowering corporate tax, tax reductions to abolish the real estate tax, privatization of government enterprises, and a slight degree of reduction in welfare benefits, this was, by all means, based on the premise of guaranteeing continuance of the welfare model. In other words, it might be an impetuous conclusion to analyze that Swedish people abandoned the country's welfare model by only looking at the results of the general election without studying the detailed circumstances of the Swedish economy.
Swedish economy in the 20th century
Now, let's discuss whether the economic model of Sweden is a welfare model that failed or whether it is a successful politic model which we need to benchmark. It is obvious that the macroeconomic indices of Sweden at the moment are something to be envious of, such as in terms of the high income level, wholesome international balance of payments and government financing, slow price increases, global standard enterprises with outstanding competitiveness, and a social welfare system that is the envy of the entire world. However, the status of success or failure of its welfare model must be evaluated with dynamism to predict the future and long-term trend of welfare standards for the people, rather than by using the current wholesomeness of the economy. Examples include relative changes in the level of GDP per capita, long-term capacity to create employment, a trend of changes in the dynamism of enterprises, etc. In order for this, we need to firstly look back at the economy of Sweden in the 20th century and realize when and under which policy Sweden became an affluent country. We also need to investigate from which point in time Sweden experienced, if any, loss of economic dynamism and relative recession.
Looking closely at the data of long-term economic trends in Sweden, there are qualitative differences in various aspects of the Swedish economy before and after the World War II. For easily analyzing data, a comparison is made between the time before and after 1950. From 1870 to 1950, the Swedish economy was dynamic and displayed the highest growth rate in the world along with Japan. On the other hand, after 1950, the economy in Sweden has been displaying a loss of dynamism in various areas, although it has maintained a high GDP per capita all along. The high level of growth up to 1950 enabled Sweden's GDP to be as high as 0.9%, while only 0.6% in 1870. However, since then, the percentage continuously decreased, and in the latter years of the 20th century, it declined to as low as 0.5%.
This contrasts with Japan, which increased its percentage from 2.3% to 3% and continuously to 7.7% in the same period. Also, due to its high GDP per capita ranking in the world, many people did not realize the relative lowering of Sweden's income level. The income per capita of Sweden, which was 1.2 times higher than that of the OECD average in 1950, decreased to as low as 0.9 times in the earlier periods of the 1990s. Although it has been recovering recently, it still falls short of the average. The high rate of ‘hidden unemployment', which was raised as an issue in the general election, also is one of the symptoms that wholly reflect the long-term economic trend of Sweden that lost dynamism in the latter part of the 20th century. The private sector of Sweden absolutely failed to create any new jobs in the latter part of the 20th century. The greater than 800,000 new jobs created by the Swedish economy in the course of 50 or so years were entirely done by the government, which is evaluated to be of the lowest efficiency in terms of public sectors among all OECD nations. The reason that private sectors were unable to create new employment was because corporate spirits, discouraged by government restrictions, failed to create new businesses. Consequently, Sweden now has to worry about not only the aging population, but also aging enterprises. Among 50 stock market-listed companies in Sweden (as of 2000), 31 were founded prior to the World War I. Only 8 of them were founded after the World War II, and none after the 1970s. This clearly illustrates how Swedish enterprises are suffering from the issue of an aging society and how the Swedish economy is losing its dynamism.
A single economic model?
Were the significantly different economic achievements in the earlier and latter parts of the 20th century caused by the social welfare policy of Sweden, according to changes in circumstances and economic growth stages? Or, were the differences caused because Swedish economic policies of the two time periods employed different politic models? The Social Democratic Party which came into power in 1932 chose socialization of production and general welfare systems responsible by ‘large government' as its ideals, and practiced polices to increase tax and government expenditure for welfare. However, the government portion in the economy as we know it today is as it has been since the World War II. There had never been any ‘large government' in existence on the face of the earth prior to the war. Sweden was no exception, and we need to remember that the government portion in the GDP of the western empire at the time was, as supported by Adam Smith, at the level of ‘night watchman state'.
In fact, up to 1960, the government portion of Sweden was not largely different
from that of the US. On the other hand, the Social Democratic Party administration,
while pushing aside socialization of production as their ultimate goal, maintained
competitive market order centered particularly on large enterprises that ensured
ownership and management rights of enterprises,
Another important point is the axis of welfare model of the time. Therefore, the economic model of Sweden prior to 1950 must necessarily be categorized as competitive market model of ‘small government' not only before, but also after coming into power by Social Democratic Party. Also, the so-called ‘Swedish economic model' in fact is the politic model after the 1950s, in which Rehn-Meidner plan began to be pursued in full scale. According to testimony by Meidner, one of the people to design the welfare model and economic theorist of LO, this model was introduced as a countermeasure against heated economy and price instability viewed during the phase of recovery after war. Also, its characteristic is to mobilize the welfare policy by large government, joint wage policy and active labor market (unemployment) policy to achieve the goal of full employment and equality. In other words, Sweden experimented with two different economic models and also consequently experienced different economic results.
Is Sweden still devoted to welfare model?
LO, which realized the welfare model of large government, established Meidner plan to achieve their ultimate goal of socializing production in the 1970s and Social Democratic Party founded Codetermination Act in 1976 to expand participation in management by labor. However, Swedish people, who had already been apprehensive of the ill effects of welfare model, chose right-wing union in general elections of 1976 and 1979. Therefore, socialization of enterprises in accordance with Meidner plan could not be put into practice. The change of regime between Social Democratic Party and right-wing union in the interval of 15 years from there on can be interpreted as reflection of two-sided mental status of Swedish people. While acknowledging apprehension for welfare trap and necessity for reform, they did not want to give up the peace of mind provided by the prevailing welfare system.
In the latter phase of the 20th century, the Swedish economy is considered to be a subject of apprehension, rather than envy, and one which has lost its dynamism. I would like to close this writing by introducing Meidner's evaluation on welfare model of Sweden to readers who do not agree with the point of argument here that associates such results with welfare model. Of course, he does not acknowledge failure of the model. However, he evaluates that Sweden was negligent in applying welfare model in the latter part of the 1980s and that welfare model did not take any part in achieving the goal or making applications in the 1990s. The evidence for this was suggested as the ‘hidden unemployment', which became an issue in the general election of Sweden. He estimated the actual unemployment rate in Sweden at the time of interview in 1997 to be 15%.
Now, the social welfare model of Sweden is at a very important crossroad. It is up to the people of Sweden and its political leaders to decide whether to expand the lifespan of the current welfare model through Thatcher-type reforms to resolve the welfare trap in the UK in the 1980s, or to continuously follow a downward slope by settling for with the current welfare system. Also, the people and political leaders of Korea are required to make a wise decision as to which Swedish model we must follow and from which model we must learn lessons at all cost.
Kim Wu-taek (Professor, Dept. of Economics, Hallym Univ.)