|
Sweden:
Fall from Grace*
A COALITION REPRINT:
December,
1996
by Helen Lachs Ginsburg, Economics,
Emerita, Brooklyn College of the
City
University of New York; author, Full Employment
and Public Policy: The United States and Sweden. The author
wishes to thank Al Burke for his help.
Until recently, full employment was the highest priority of
Swedish society and of the Social Democrats, who have governed
the country alone or in coalition for all but nine years since
1932. On a continent plagued with high unemployment, only 2 percent
of Swedes were jobless in 1990. With support that cut across party
lines, the government crafted an immensely popular welfare state,
dramatically reduced income differences, maintained full employment,
and nearly eliminated poverty.
Today, Europe's quintessential welfare state is on the ropes.
Nearly 13 percent of Swedish workers are officially unemployed
or in government programs for the jobless; about as many are too
discouraged to look for work, or are employed part-time for lack
of full-time jobs. Unemployment benefits, sick pay, parental insurance
and child and housing allowances have all come under the knife.
So have payments to municipalities, which are responsible for
child- and elder-care as well as for public assistance. Schools
have suffered. And the medical system has undergone draconian
cuts, even as patients face higher fees. These cuts started under
the previous conservative-led coalition in 1992 and have been
continued by the returning Social Democrats.
What happened? According to a well-worn myth perpetuated by
the mainstream media, Sweden's welfare state was unsustainable.
In a familiar reprise, the Wall Street Journal claimed that the
conservative-led coalition, elected in 1991, started to slash
government expenditures "because the exorbitant cost of the
welfare system sent budget deficits soaring." Yet shortly
before that, Sweden still had full employment, a strong welfare
state and a hefty budget surplus. To understand why Sweden began
to hack away at its social safety net, one needs to examine the
power of business interests, the pressures of globalization, the
implementation of neoliberal policies and the abandonment of the
historic commitment to full employment.
Since the '60s, the well-heeled Swedish Employers Association
(SAF) has been spending a mint promoting the interests and ideology
of business, targeting journalists among others. SAF even manages
to get its propaganda into schools by providing them with educational
materials. As the composition of Swedish business changed, the
line pushed by SAF shifted accordingly. By the '70s, Sweden's
export sector had become dominant. Reflecting this internationalization,
power within SAF in 1976 shifted to arch-conservative leadership
from global-oriented firms. They rejected the Swedish economic
model and the capital-labor compromise on which it was based.
Neoliberal ideas, which were spreading worldwide, finally began
to penetrate the Social Democratic Party in the '80s. A powerful
clique in the Finance Ministry, schooled in neoclassical economics,
pushed the ruling party onto a deregulatory path. The government
freed financial institutions from domestic credit controls, and
eliminated restrictions on the movement of foreign exchange. A
sweeping tax "reform," among other things, lowered the
top marginal income tax bracket for the well-to-do from 73 to
51 percent. This tax "reform," which had been billed
as self-financed, left a big hole in government coffers. Meanwhile,
financial deregulation set off a wildly speculative real estate
boom fueled by huge bank loans. When the bubble burst, it sparked
a near-catastrophic bank crisis. The government rescue squad had
to bail out some of Sweden's largest banks, draining the treasury
of a sum equal to 4 percent of Sweden's GDP in both 1992 and 1993.
The drive toward European integration propelled the country further
in the same direction. In 1990, Prime Minister Ingvar Carlsson's
Social Democratic government reversed longstanding party policy--and
shocked most rank-and-file Social Democrats--by announcing that
Sweden would apply for European Union (then European Community)
membership. Carlsson gave no explanation at the time. But the
Swedish budget for 1991-92, released shortly thereafter, explained
that "Swedish companies have thrived on intensive foreign
competition and are in a good position to use the advantages inherent
in greater international integration." In a closely related
move, the government then said price stability had replaced full
employment as its main economic priority.
A strong desire for acceptance by the inflation-fighting EU heightened
the government's determination to bring down inflation in Sweden's
booming economy. In the past, Sweden had several ways of curbing
inflation without increasing unemployment. Centralized negotiations
between business and labor were used to curb wage hikes. Or, by
restricting credit to an overheated sector of the economy like
housing, the government could use domestic credit controls to
slow down economic expansion selectively. This time, however,
the Social Democrats jacked up interest rates across the board,
throwing the economy into a recession. Unemployment doubled to
3.5 percent, and the Carlsson government got its pink slip in
the 1991 elections.
A new conservative-led government performed the coup de grace.
It was as gung-ho as its predecessor about joining the EU and
obsessed with fighting inflation that was by then nonexistent.
It was even more dogmatic about defending the fixed exchange rate
of Sweden's overvalued krona, which was then under speculative
attack in global financial markets. Because the government no
longer had currency controls, it had to let interest rates skyrocket
to stem the outflow of funds. The head of Sweden's Central Bank
bragged that the sky would be the limit. The authorities briefly
raised the short-term interest rates to 500 percent. In late 1992,
the battle was declared lost. The government let the value of
the krona be determined by the market and thereby depreciate.
That fiasco and its aftermath converted a recession into a deep
depression marked by three years of declining output, the loss
of one-tenth of Sweden's jobs and record unemployment. Between
1990 and 1993, a budget surplus of 4 percent of GDP became a 13
percent deficit. This jump was due to the banking bailout, tax
reform and mass unemployment, which sharply depressed tax revenues
and increased expenditures on the newly jobless.
Exports have boomed since currency depreciation lowered the cost
of Swedish goods abroad, but slack demand at home has kept the
domestic economy depressed. Yet the Social Democratic government
has persisted in deflationary policies, bringing the deficit down
to about 4 percent of GDP. Sweden could shrink the deficit without
harsh measures if it pursued an expansionary policy of job creation
and government stimulus, which would increase tax revenues and
curb the need for expenditures on the jobless. Such a program
is feasible, especially given that Sweden now has the lowest inflation
in Europe. But the government spurns suggestions to change course.
In the name of meeting convergence criteria set by the EU, it
justifies its assault on the welfare state and its abandonment
of an historical commitment to full employment, while insisting
that current policies are essential for fighting unemployment.
But continued deflationary policies ensure that a new plan to
halve unemployment by the year 2000 will fail.
In November 1994, a slim majority of voters approved entrance
into the EU. Corporate Sweden--more concentrated, powerful and
international than ever--couldn't have been happier. Swedish firms
have big investments in the EU, lured by its huge market. Most
of Sweden's largest firms are export-oriented transnationals,
with the bulk of their sales, assets and work forces abroad. Abetted
by currency decontrol, manufacturing jobs declined in Sweden at
the same time that Swedish corporations shipped profits abroad,
often to gobble up foreign companies.
Big business lavishly financed the pro-EU campaign. SAF even
took thousands of teachers on junkets to Brussels to sell them
on the virtues of the EU. The pro-EU campaign outspent opponents
by a ratio of at least 10-1. All the non-socialist parties endorsed
the EU, as did the deeply divided Social Democrats, whose leaders
refused to debate the issue in the l994 elections in which they
emerged victorious, held only two months before the EU referendum.
The press and even some union leaders supported integration. The
main opposition was waged by the dissident "Social Democrats
Against the EU," and the small Left (ex-Communist) and Green
parties, both of which made gains in the parliamentary election.
Anti-EU Swedes worried about the impact of European integration
on the welfare state, the public sector, employment, women's equality,
labor rights, the environment, democracy, neutrality and national
autonomy. Pleas from Social Democratic leaders to "trust
us" helped tip the scale. So did raw threats from companies
that they would abandon Sweden, fears that the country could not
go it alone, promises that membership would usher in a golden
age of growth and jobs, and hopes that integration would bring
peace to Europe. The pro-EU campaign told Swedes that only EU
membership could save the welfare state. Finance Minister Goran
Persson (prime minister since Carlsson's retirement in March l996)
more bluntly warned that a "no" vote would mean deeper
social benefit cuts.
Although financial markets already exerted the same sorts of
pressure, entrance into the EU was a watershed that cemented the
government's fixation on deficit reduction and continuing cuts.
The EU, which has long accepted mass unemployment, requires all
member countries to have low deficits, debt and inflation, and
stable exchange rates--but not low unemployment. Dashing more
than a few hopes, the Social Democrats continued to chisel away
at social programs when they resumed power.
Many Swedes now feel they were duped into joining the EU, which
has grown enormously unpopular. They point to Norway, which voted
against joining the EU despite hearing many of the same arguments.
Today Norway has Europe's lowest unemployment rate, and the economy
is booming. Some jobless Swedes are even moving to Norway to find
work.
The big issue in Sweden now is whether to take the next step
and apply for membership in the Economic and Monetary Union (EMU),
which has been driving Swedish economic policy for years even
though no decision has yet been formally made. The government
is resisting mounting calls for a referendum. Admission by the
first target date requires meeting stiff criteria, including a
deficit no higher than 3 percent of GDP by the end of l997, which
Sweden expects to have. While transnationals applaud the EMU,
it is a good recipe for permanent depression. Membership would
bring continuous pressure to cut social programs, and would preclude
any independent monetary or exchange rate policy geared toward
low unemployment.
Anti-EMU sentiment is riding high. A poll released in November
shows only 26 percent of Swedes favor joining. As the Social Democrats
veer to the right, their support has fallen from 45 percent in
the 1994 election to 30 percent today. The winners are the Greens
and, especially, the Left Party. Their combined support has doubled
from 11 to 23 percent. Women, in particular, have been switching
to the Left Party, which is ideologically close to where the Social
Democrats once were.
Within the Social Democratic Party, the chasm is wider than ever.
The "traditionalists" are wedded to egalitarian values,
but power is in the hands of those calling themselves the "renewers,"
led by Prime Minister Persson, who are tearing down the welfare
state and accept the agenda of business.
Historically, the Social Democratic Party and the Swedish Confederation
of Trade Unions (LO), the blue-collar workers confederation, have
been considered branches of one tree--the labor movement. Tensions
between them have been mounting for some time, as have rifts within
the LO. At its September Congress, a major attempt by one wing
of the LO to cut ties with the Social Democrats failed. LO leaders
urged members to regain influence by becoming more active in local
branches of the party. Meanwhile, LO continues to provide the
Social Democrats with substantial funds, though some union locals,
including the Transport and Retail Workers, recently took the
unprecedented step of cutting their contributions to the Social
Democrats by as much as half. While a symbolic gesture at this
point, if the practice spreads, it could have real repercussions
for the party.
In contrast with France and Germany, where workers have taken
to the streets when the government threatened to reduce their
benefits, Sweden has remained surprisingly subdued. Much dissatisfaction,
however, has been expressed in tensions within unions and within
the Social Democratic Party, and by attrition from the Social
Democrats. Weak leadership, LO's ties to the Social Democrats,
a belief among some that nothing can be done, and a tradition
of working things out through cooperation and consensus have kept
Swedes from taking more overt action. Protest, however, is not
contrary to Swedish tradition. The general strike was used in
the struggle for the right to vote in 1902; more recently, a strong
popular movement in the late '70s forced a shift in nuclear policy.
Since October, rank-and-file and other grass-roots protests seem
to be spreading. There have been large demonstrations in Stockholm,
Gothenberg, Boras and Gavle. A worried Persson already has postponed
implementation of new rules restricting unemployment benefits.
If the government continues along the same path, high unemployment
will become permanent in Sweden, as it is elsewhere in the EU,
and social and economic cleavages will widen further. Only a strong
mass movement can force a real change in course. Even in a globalized
economy, there are alternatives.
Sweden ranks number one on the United Nations index of gender
equality. Women, unfortunately, are also high on the list of losers
in the downsizing of Sweden's welfare state, as their major gains
have been tied to its growth.
For Swedish women, paid employment is the bottom line in the
quest for equality. Close to 75 percent of women work--even mothers
of young children--though 40 percent do so part-time. Swedish
women have used their political clout to create a welfare state
that aims to make work and family compatible, to involve fathers
in child care and to insure an adequate income for families. This
has been accomplished through policies such as subsidized child
care, child and housing allowances, paid parental leave to care
for a newborn child (which fathers are encouraged to use) and
paid days off to care for a sick child.
With the public sector taking a beating, so are women, who make
up 80 percent of the municipal and county council work forces.
Under mounting pressure from within the Social Democratic Party,
the unions and demonstrations, Stockholm has just agreed to provide
enough funds to local governments to avert additional layoffs
but not to restore jobs. Though the women's unemployment rate
is still slightly lower than the men's, there is also a vast pool
of female part-timers who want full-time work. Partial jobless
benefits to supplement their earnings have become harder to get.
Unions have emphasized raising the income of low-wage workers,
so the gender pay gap is smaller in Sweden than in the United
States. But it is widening. Among full-time workers, women earn
80 percent as much as men--down from 87 percent in 1980.
High unemployment and shrinking social benefits are eroding the
security that women formerly enjoyed. Services that enable mothers--especially
single moms--to work are under siege. With local governments hard-pressed
for funds, Sweden's renowned child care centers "solve"
the problem with higher fees, larger groups of children, reduced
staff training and declining quality. One way women are responding
is by having fewer children; Sweden's formerly high fertility
rate has plummeted in recent years.
Paradoxically, though women are losing out economically, their
political representation is higher than ever. Forty-one percent
of parliament members today are women, up from a 70-year low of
33 percent in the preceding conservative regime. The increase
occurred mainly because the Social Democrats, alarmed by the threat
of a women's group to form a political party, ran a 50-percent-female
slate.
Women will undoubtedly play a leading role in the struggle to
rebuild Sweden's welfare state. An unemployed mother of four from
a small town launched a protest movement in October that is picking
up steam. She has planned and spoken at demonstrations, and inspires
others to do the same. Already described by Sweden's leading newspaper,
Dagens Nyheter, as a symbol of popular revolt, Therese Rajaniemi,
and others like her, might yet save Sweden's welfare state.
*In
These Times, Dec. 23, 1996; Copyright
1996: Institute for Public Affairs
|
