The Swedish Welfare State: A Model for Canadian Labor?

When I ask Canadian trade unionists and activists fighting against lower labor and social standards about their political vision, they often refer to European welfare states, notably Sweden.  The Swedish social system, their reference implies, proves that there is an alternative to the neo-liberal politics of boosting profits at the expense of working people.  It is true that Sweden and a few other Scandinavian countries show high levels of average incomes and relatively low levels of inequality, but this does not necessarily make the Swedish welfare state a role model for labor movements in other countries.  After outlining some of the characteristics and transformations of the Swedish welfare state, this article addresses the question of whether it would be possible or even desirable to adopt the Swedish social model in Canada.

The Swedish Model

Average incomes in Sweden rank among the world’s highest, although they are lower than in Canada.  What makes Sweden so much more attractive than Canada is its more even distribution of income.  This assures that a larger share of total income goes to the people at the bottom of the income hierarchy.  This equality was achieved through an extraordinarily high level of union organization; almost 80% of Swedish workers are union members.  Because of this, highly centralized collective bargaining procedures led to rather egalitarian — “solidaristic” as it is called in Sweden — wage policies.  High levels of social spending and low unemployment, accomplished by the government’s active labor market policies and expansion of public-sector employment, are other factors that narrowed the gap between rich and poor people more than in most countries.  Sweden is also attractive because Swedes spend much less time on the job than Canadians.  Because of a higher level of labor productivity, that is output per working hour, Swedish workers produce almost the same total level of average output as their Canadian counterparts and can enjoy more leisure time.

Given the tendency of capitalism to produce ever deeper divisions between the haves and have-nots in terms of wealth, income, and power, the Swedish welfare state certainly sets rather high labor and social standards.  The Swedish state’s ability to use comparatively high levels of income taxes and public spending to redistribute income from richer to poorer people is even more remarkable when Sweden’s extreme concentration of private ownership of the means of production is taken into account.  Arguably, the Swedish economy rests on the balance between a strong public sector that provides domestic services, infrastructure, and education and a highly concentrated and internationally operating private sector.  For a population of just 9 million people, the number and value of profitable multinational corporations that are based in Sweden is extraordinarily high.  ABB, a Swedish-Swiss company, Electrolux, Ericsson, Husqvarna, Saab, and Volvo are truly global players in heavy industries as well as in the high-tech-sector.  This puts the Swedish economy in a privileged position in the international division of labor.

The concentration of capital is a general law of capitalist accumulation.  However, in Sweden, it was, and still is, intensified by the abovementioned solidaristic wage policies.  Smaller and less productive companies had to pay the same wage increases as big and technologically more advanced corporations.  Therefore, profits, and thus the ability to accumulate capital, of the former were limited, while the latter obtained some cost relief and thus even higher rates of profit and accumulation.

Since the 1980s, however, the power of concentrated capital has been successfully used in Sweden to lower the corporate tax rate to 28%, much lower than in Canada or the US.  This development is an example of how delicate it is to maintain the balance between private capital and the welfare state.  In this regard, the 1970s was a watershed decade.  Against the background of post-war prosperity, full employment, and a surge in worker militancy, Rudolf Meidner, then chief economist of the largest Swedish union federation Landsorganisationen (LO), suggested so-called “wage-earner funds.”  According to this idea, private companies would have to finance investments partly through the issuing of shares that would be jointly owned and administered by companies and unions.  Over time, Meidner suggested, governance power over these funds should be shifted more and more towards the unions.  The bourgeoisie were furious about this plan of a gradual socialization of large parts of the Swedish economy and mobilized a huge, largely middle-class-based movement against the unions and the wage-earner funds idea.  The Social Democrats, in contrast, backed the plan only half-heartedly.  Had the Meidner plan been realized, the balance of power, which had shifted towards labor during the post-war boom anyways, would have shifted even further towards it.  However, the Swedish bourgeoisie, alarmed by falling profit rates, inflation, and stagnation that hit world capitalism in the 1970s, were able to mobilize a social bloc to contain the further expansion of the welfare state in Sweden.

Deftly, big capital stirred the already existing anti-tax sentiments within the middle class.  In fact, the latter would not have contributed to the wage-earner funds but was still willing to join a united front with the corporate sector against labor.  In the 1930s, the mutual acceptance of increasing wages for industrial workers and subsidies for the peasantry had led to a so-called “red-green alliance” (not to be confused with electoral alliances between centre-left and green parties in the 1990s) that could mobilize sufficient power to impose an expanding welfare state onto Swedish capital.  During its expansion from the 1950s to the 1970s, however, the social basis of the welfare state changed considerably from the original red-green alliance to a partnership between the working class and the middle class.  The latter was produced not only by the expansion of managerial positions within private companies but also as the result of public sector expansion.  Their dependence on the welfare state increasingly led members of the middle class to wish to reserve welfare provisions for themselves, thus challenging the logic of redistribution from richer to poorer households.  Thus, the middle-class ground on which the bourgeoisie threw their anti-tax seeds had been prepared.  This really was a turning point in the development of Swedish welfare capitalism.

This new alliance between the bourgeoisie and the middle class stopped the expansion of the welfare state, and even watered-down plans for wage earner funds were abandoned in the early 1980s.  The Social Democrats adopted neo-liberal principles of balanced budgets (though Keynesian deficit spending had never figured prominently in Swedish welfare capitalism), and financial market liberalization.  The latter led to a speculative boom at the end of the 1980s and eventually a financial crisis in 1990.  Although the government injected significant public money into the economy, in 1993 the budget deficit (as a share of GDP) reached 13%, and open unemployment skyrocket from pre-crisis levels of 2% to 8%.  Without the extensive use of active labor market policies, the unemployment rate would have reached 15%.  Counter-cyclical fiscal policies and public employment programs could be adopted only because Sweden had, compared with other, mainly Asian, countries that were hit by financial crisis in the 1990s, a privileged position in the international division of labor.  Moreover, there was, and still is, a consensus across classes to maintain the welfare state.  The bourgeois-middle class alliance that successfully contained the further expansion of the welfare state in the 1980s, and stopped a possible gradual transformation of Swedish capitalism into a socialist economy, did not, as it did in Britain and the US, signal a full-fledged attack on the welfare state and unions (the Canadian bourgeoisie’s reaction to the end of the post-war boom, increased labor militancy since the late 1960s, and the subsequent profit squeeze lies somewhere in the middle between the containment of the Swedish welfare model and British-American-style union and welfare-state busting).

Economically, there was no reason to restore profits at the expense of labor and social standards in Sweden because rising wages and taxes could still be paid out of productivity growth.  Thus there was no profit squeeze like the one that the decline of British industries had caused in conjunction with rising labor militancy.  The Swedish bourgeoisie just thought to prevent the further expansion of the welfare state that might lead to a profit squeeze in the future.  Swedish industries were, partly as a result of solidaristic wage policies and generous public funding of the education system, much more productive than British and US industries at that time.  Moreover, the Swedish labor movement was much more integrated into the welfare state than British or US labor.  This integration certainly left no room for autonomous working-class politics, but it also made it much harder for the bourgeoisie to roll back the standards that labor had won in previous times (an argument Social Democrats happily marshalled against the radical left in Sweden).

Bringing the Swedish Model to Canada?

Even after the neo-liberal turn, labor and social standards are still significantly higher in Sweden than in Canada, so it surely would be nice if we could import the Swedish welfare model.  Welfare states are no commodities that can be packaged and shipped overseas, however.  Each welfare state is the institutional expression of the balance of class powers in a particular country at a particular time.  The Swedish welfare state as we know it originally came into being because workers and peasants mobilized their joint powers during the great depression of the 1930s and the bourgeoisie decided to integrate these popular classes into an accumulation strategy aiming at high productivity and world markets.  Class struggle during the great depression in Canada took different forms, and the results of those struggles still impact welfare state development today.  Although the Canadian Co-operative Commonwealth Federation, the NDP‘s predecessor, organized an alliance of workers and farmers, and also shaped the Canadian welfare state significantly, labor in Canada was never as firmly integrated into the state apparatus as in Sweden and the Canadian bourgeoisie never adopted a world-market, high-tech industrialization strategy to the degree the Swedish ruling class did.

What we can learn from the Swedish experience is this: During the heyday of welfare expansion in the 1970s, Swedish workers achieved a much higher level of social and labor standards than Canadian workers, and, economically relying on Sweden’s privileged position within the international division of labor, they have been able to defend most of these standards during the neo-liberal era.

To attain higher social and labor standards in the first place, therefore, it is necessary to build a labor movement that does not rely on welfare institutions (which are the result of past struggles) but reinvents workers’ struggles in the present.  Moreover, such a labor movement can address the enormous inequality between rich and poor countries.  Welfare capitalism, no matter whether we look at the advanced Swedish model or its rudimentary variants in the Anglo-Saxon countries, was built on a mode of industrialization and innovation from which world capitalism’s periphery was largely excluded.  For this reason, workers in rich countries could achieve higher wages, shorter hours, and social security through domestic class struggle, whereas workers in poor countries found hardly any economic leeway for such progress.  Thus, the hierarchy within world capitalism was reproduced within the world’s working classes.  Under the reign of neo-liberalism, inequalities between workers of the North and the South have successfully been used to put labor movements on the defensive everywhere.  Without a new labor internationalism, today it is impossible to achieve even domestic goals.

Ingo Schmidt teaches economics at the University of Northern British Colombia in Prince George.  He also works as a labor educator.

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