What pushed Sweden away from socialism?
- September 7, 2022
- Rikard Westerberg
Sweden's radical economic policies during the Cold War decades inspired socialists worldwide. However, its wage earner funds found little support and instead generated a new vision of Sweden, a society centred on free market principles rather than collectives.
On 11 September, Sweden is holding its next election and, according to the polls, it looks to be a tight race between the ruling left-wing coalition and the right-wing opposition. One of the main issues, in addition to energy prices and criminal gangs shooting each other (46 people have been murdered so far this year), is private, profit-making firms providing welfare services.
Of particular interest are the so-called free schools. Privately run but funded through the tax system, ownership ranges from small, private foundations with only one school, to huge business groups, in some cases listed on the stock exchange or managed by venture capital firms. Around one-third of all high-school students attend a free school and the Swedish left has become increasingly sceptical about their profits, claiming that tax money meant for education instead fills the pockets of capitalists. Should they win the election, the Social Democrats have promised to ban profit-making companies from owning schools. The right, however, defends families’ right to choose and sees no problem with these schools so long as they provide education of a high standard.
The free school system is a good example of how, since the 1990s, Sweden has deregulated earlier public monopolies. It also complicates the image that liberals — especially the American left-wing — have of this socialist utopia. In addition to deregulation, policymakers from both sides of the political aisle have lowered taxes. In fact, Sweden, ironically, has become one of the most economically liberal countries in the world (well ahead of the UK and the US), with no taxes on estate or wealth, while capital gains taxes can be avoided through a certain type of savings account.
The policy shift away from Keynesian demand management towards market-based reforms and lower taxers was a global phenomenon in the 1980s and 1990s. But in Sweden, the ‘market turn’ went further than in other countries. A major reason was the reaction to the wage-earner funds (löntagarfonder), implemented by a Social Democratic government in 1984 and dismantled by a centre-right government in 1991. The idea originated from the Swedish Trade Union Confederation, whose members were upset over large corporate profits and a skewed distribution of wealth. Chief economist Rudolf Meidner came up with a radical proposal: to give the unions ownership control over the big firms by having them pay a profit-tax, not in cash but in their own stock, to union controlled funds. Over a number of years, depending on the size of profits, the unions would run big business. Although this was considered a radical proposal, even by Swedish standards, the issue of private versus public ownership was not new. In the years after the Second World War, labour and business interests had clashed over the state’s involvement in the economy and the ownership of Swedish industry.
Many Western countries debated economic democracy in the 1970s but no one else went this far. The business community feared that it would turn Sweden into a Yugoslavian styled economy, where workers supposedly ran the firms (in reality, the Communist Party controlled business by appointing managers). The response was to launch an unprecedented public relations campaign that culminated in a public rally on October 4, 1983, outside the parliament in Stockholm, the largest in the history of the capital, with at least 75,000 participants. The Social Democratic prime minister, Olof Palme, called it the ‘most comprehensive political scaremongering campaign our country has ever seen’.
He and other top figures in the party realised that Meidner’s original plan had been too radical and saw the public discontent. The five regional wage-earner funds implemented in 1984 were therefore scaled down. They were still controlled by the unions but an eight per cent cap on ownership ensured only minority positions. In contrast to the original idea, they did not receive stock directly from the firms but instead bought shares at the Stockholm stock exchange, like any other institutional investor. To a lesser extent, they also supplied firms in their respective region with venture capital. This did not stop business from continuing with campaigns and public rallies throughout the 1980s. Inspired by business-backed think tanks in the US and the UK, Swedish employers also ramped up their efforts to promote privatised welfare services, lower taxes, and deregulations. The critique against the wage-earner funds became a fortunate issue to rally around during the years when the planned economies of eastern Europe crumbled under their own inefficiencies.
In 1991, a centre-right government came to power. Its first bill was to dismantle the wage-earner funds. The new prime minister, Carl Bildt, wrote to Gunnar Randholm, the spokesperson for the campaigns against the funds, and thanked him for his efforts as ‘an erroneous idea, founded on a failed ideology, is now put aside’. A wave of deregulations followed in the energy, postal, telephone, railway, and airline markets. Reforms in education and health opened for tax financed private alternatives in the schools and health care system. The quite large assets controlled by the wage-earner funds were transferred to research foundations, to turn two state universities into private foundations and to two new venture capital funds listed on the stock exchange. One of these (the still existing Bure) became, not without historical irony, an important financier of new welfare entrepreneurs.
Getting rid of the funds was the first, ideologically important step towards a society centred around market economic principles rather than a planned economy with Swedish characteristics. Protesting against the funds in the 1980s gave confidence to those in the centre-right who wanted different kind of Sweden than the society the Social Democrats had built during the Cold War. In this election, on September 11, the debate about ownership is back and just as in the 1980s, its winner will dictate the future of economic liberty in Sweden.