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Rumbling In Paradise – Swedish National Elections on Sunday

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(Stockholm) If paradise could be visited, it might resemble Sweden, the envy of Europe: an under-populated northern country enjoying phenomenal economic growth mixed with generous welfare benefits.

Now, somebody is usually responsible for a happy state of affairs. In the case of Sweden, that person is Göran Persson, the Social Democratic prime minister for more than 10 years and finance minister before that. A brilliant autodidact, he never quite finished college, moving instead into politics as a working class teenager. He’s never looked back.

A legend in his time, Persson nonetheless runs the risk of being booted out of office in general elections on Sunday as voters contemplate a lurch to the right.

Are they ungrateful? Or merely bored?

There’s a puzzle here.

Phenomenal growth

Even Persson’s opponents privately concede his formative role in hauling Sweden from the depths of depression, bank crashes and soaring indebtedness in the '90s into a happier world of trade surpluses and booming business. Annual growth in 2006 is currently running at 5.5% in the second quarter – highest in the developed world, according to economic indicators in The Economist.

The joy is boundless. A global "attitude" poll by the Pew Institute says the 9 million Swedes are among the happiest people on the planet. Observers ranging from the Organization for Economic Development (OECD) to the Financial Times view Sweden as one of the world's most successful societies because of its potent mixture of welfare and economic growth.

So it's understandable that Persson, with these kinds of rave reviews, should be a shoe-in for another four year term. But polls in recent months almost consistently show the center-right opposition in the lead, though the gap has now narrowed to razor-thin margins.

A poll released on Wednesday showed the opposition with a lead of 1.3 percent, while another poll yesterday found the Social Democrats and their allies leading by 48.7% against 47.2% for the opposition – a four-party coalition calling itself the Alliance for Sweden. Uniquely for a European coalition, they have adopted a common electoral platform or "manifesto."

Commentators say it’s too close to call. The Alliance is led by the relatively youthful Fredrik Reinfeldt of the right-wing New Moderates Party commanding about 25% of voter sympathy. It has spun itself into the center of Swedish politics by pointing to persistent unemployment while endorsing the welfare model. It pledges continued high taxation to pay the tab. Reinfeldt has even rebaptized his party, now called the New Moderates instead of merely Moderates – shamelessly aping Tony Blair’s New Labour Party in Britain.
Reinfeldt may well be prime minister by next week.

To win any Swedish election, you have to at least sound Social Democratic. They have governed modern Sweden, with few exceptions, since 1932.

Privately, Reinfeldt and his supporters don’t much like welfare states and high public taxation. "People should stand on their own two feet" is their rightist refrain. Still, he has stated for public consumption: "The Swedish model, with its tax-financed welfare sector and comprehensive social security system, has contributed to increased security for many people."

He goes on to state that "it has led to greater equality between men and women."

But there’s a backside. Reinfeldt says the official unemployment rate of 6% has been massaged to exclude citizens in job retraining or make-work government programs, students, housewives, those on long-term sick leave, and early retirees who had no other choice.

Spun to appeal

His actual solution for creating jobs sounds dubious, to say the least, but has been spun to appeal.

Reinfeldt proposes modest tax cuts for wage earners, probable abolition of conventional property taxes, possible privatization of a state industry or two, and tax breaks for companies to encourage employment. All this, he reckons, is supposed to keep the economy moving along nicely, increase demand, and, presumably, create more jobs while also appeasing his middle and upper class supporters and corporates. And without saying so, Reinfeldt (like Persson) is counting on continued brisk economic growth that could even result in labor shortages. Increased immigration is probably in the cards.

But in the same breath, Reinfeldt proposes a sharp cut in unemployment benefits to pay for the tax breaks, along with probable higher fees for National Health and prescriptions. In heavily unionized Sweden, union membership would no longer be tax deductible – a potentially lethal blow to the labor movement.

He is well aware that Swedes, along with their neighbors in Denmark and Norway, groan under a tax burden that shocks outsiders. Until recently VAT of 25% was exacted on groceries. Twenty-five per cent is exacted on energy costs that are spiraling. Personal income tax rates are almost regressive, starting at around 30% of each earned krona – hitting lower income groups severely. Middle and upper income categories have it relatively better, paying around 35-50%.

You never had it so good (Swedish style)


Opposition Leader Reinfeldt’s natural constituency of middle and upper middle class citizens is doing just fine, thanks.

A middle class married woman in Stockholm of our acquaintance, whom we’ll call Ann-Britt, grosses 40,000 kronor monthly (US$5,400) as a civil servant, and has about 24,000 (US$3,300) at her disposal after taxation. About 40% tax, in other words. Her husband Bengt in the private sector earns about the same, plus bonuses and fringes like a Volvo station wagon.

Ann-Britt and Bengt get tax-free child allowances for their three kids, who also are entitled to state subsidized daycare and free medical and dental. Maternity and/or paternity leave totals 480 days, with the State guaranteeing 80% of their salaries – with exceptions ­ until they return to their jobs. If their children fall sick, they’re entitled to home leave with pay until the kids recover. Ann-Britt and Bengt are also entitled by law to a minimum five week vacation, but like many Swedes they get more than that.

Should these benighted citizens lose their jobs they’ll get 80% of their salaries up to a certain point, thanks to state unemployment insurance. Job retraining is free.

Upon their demise, burial plots are guaranteed under the provisions of the mandatory Burial Tax (begravningsskatt) they paid during their halcyon years.

Not much to complain about

Reinfeldt has solid support from the business community, even though they have little to complain about. Corporate taxation and average wages are so attractively low, relatively speaking, that big-time Chinese entrepreneurs plan to set up shop in the Swedish city of Kalmar rather than higher-cost Germany. Giant Swedish multinationals like SKF and Ericsson, meantime, remain entrenched in the home country because overall wage levels, among other things, are relatively lower than continental Europe.

Small companies have a good deal, too, despite their carefully orchestrated complaints. Setting up in Sweden is uncomplicated and unbureaucratic, with legal mechanisms in place to ensure that entrepreneurs can retain profits for long periods (so-called “expansion funds”) within their companies. Company taxation is low or non-existent, depending on the professionalism of accountants.

Having said this, Swedes are a cautious folk who generally don’t like starting from scratch. Company startups are historically low, though rising rapidly.

But back to the main question: with all these incentives favoring the Social Democrats – plus the rocketing economy – how has Reinfeldt managed to wean ungrateful Swedes to his Alliance?

One explanation is offered by Jan Eliasson, the Foreign Minister. Noting that the Social Democrats have mainly run the show since 1932 — with few exceptions — he suggests that there is simply “a desire for change.”

Cool guy

Perhaps. Reinfeldt, at 41, comes across as cool and highly articulate while the 57-year-old Persson, despite oratorical gifts, almost lost his grip during the campaign by letting a key issue like unemployment slip through his fingers. Meantime, the nation’s overwhelmingly right-wing media shrilly focuses on Persson’s real or alleged shortcomings. A formidable politician, he is frequently denounced as “presidential” – meant to be a criticism.

The government’s relative slowness in responding to the tsunami in which 543 Swedes died has not been forgotten either. The fact that most governments responded slowly is not mentioned. A short string of small scandals — trifling by European standards — provides further grist for the media maulers.

But the key issue is undoubtedly unemployment, which Reinfeldt cleverly put at the top of his agenda. – thus grabbing a domain long occupied by the working class Social Democrats. In the waning days of the campaign, the prime minister has finally positioned unemployment at the top of his agenda. It may be too late.

Like people everywhere, Swedes fear unemployment. In view of increased mechanization and globalization, virtually no private sector job is permanently secure. Reinfeldt’s proposed reduction in unemployment insurance may be a strategic error that could cost him the election.

Or perhaps not.

Seldom mentioned by Reinfeldt or Persson are the implications of EU membership for Sweden as a relatively small national state. Another hugely neglected issue is globalization – the real name of the game in a trading nation like Sweden. But in an article written last year for the OECD Observer, Persson acknowledged the power of globalizing forces. "We must learn to live with increased competition and the rapid changes it involves.

"But competitive pressure can also give rise to periods of unemployment and insecurity that affect people's everyday lives," wrote the prime minister. "We must ensure that globalisation is not perceived as a threat. We must facilitate change by providing bridges from the old to the new. People must feel secure in order to seek the full benefits of change."

He said "this is about education and life-long learning. It is about broad social security and active labour market policies. It is about equal opportunities for men and women on the labour market…"

For this reason, he said, "I strongly believe in the close link between successful competitiveness and a strong welfare state."

That link goes to the voters on Sunday.

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  • http://www.roblogpolitics.blogspot.com RJ Elliott

    Great article! Very well-written and informative.

    I generally oppose socialism on principle…but it seems to work in Sweden (though in few other places).

    If there is to soon be a change of government in Sweden, it is likely due more to a “we want change for change’s sake” attitude than anything the Prime Minister has (or hasn’t) done…

    That being said…you didn’t mention it in your article, but aren’t there violent, unruly, and unassimilated majority-Muslim ghettos in some Swedish cities where the residents are demanding the implementation of sharia law? Could that be a potential factor in this presumed shift to the right in Swedish politics?

  • Roger Choate

    Thanks so much for your kind words and comments, Mr. Elliott.

    I don’t know if the Swedish welfare state can necessarily be equated with “socialism.” Definitional question, I guess. Industry in Sweden is more than 90% privately owned and always has been. There’s even a king and queen and rather subdued aristocracy of barons and baronesses and more counts than anybody would reckon on.

    Thee are indeed about 300,000 people of the Muslim faith living in Sweden, and more often than not they are living in the immigrant suburbs. I wouldn’t call them ghettoes though, at least not in the same sense as the French banlieus. These areas are not violent or unruly by anybody’s standards. I don’t think that the immigrant factor is playing a major role in the Swedish elections.