Sweden's Welfare State; E. Brodin

Whether it is correct to call Swe den a socialist country depends on the definition we use. If socialism means government ownership of the means of production, then Sweden is not socialist. Perhaps not more than a fourth of the means of pro duction is in government hands, al though that now includes all wharfs, most communications, transport, Eric Brodin, a native of Sweden, Is a naturalized u. s. citizen, now Professor of the Lundy Chair of Philos ophy of Business at Campbell University In North Carolina. This article Is from a lecture at the 4th An nuallnstltute on Free Enterprise and Public Polley at Grove City College In Pennsylvania, June 17, 1980. 736 forests and mines. I prefer to call Sweden a Social Welfare State. The creators of the Swedish Welfare State in the 1930s were J.\tlarxistsof sorts, but they allowed a pragmatic atti tude of gradualism to modify the radical ideological demands of state ownership. But if socialism means control over the results of produc tion, there is no doubt that Sweden is a socialist nation; and the prime means of government control over the results of production is through taxes-now the highest in the world for the 8.3 million Swedish people.

Noted among the founders of the Swedish Welfare State are Gunnar and Alva Myrdal. In a book on Swedish Population Policy written in 1932 they stated: ((The Scandinavian countries, and particularly Sweden, by historical accident, are given the most advantageous set of prerequisites for a bold experiment in Social Democracy [social welfare SWEDEN'S WELFARE STATE: A PARADISE LOST 737 state]. If it cannot successfully be developed in Scandinavia, given by historical chance quite exception ally advantageous conditions, it would probably not work out any where else." These conditions in clude an unbroken peace for 150 years, a nation completely un scarred by two world wars, and with an industry intact which could be transformed from arms manufac turing to manufacturing the goods desperately needed by Sweden's war torn neighbors. It is a tightly knit, highly industrialized, remarkably homogeneous country rich in raw materials, including hydroelectric power, huge forests and rich sources of iron ore in the north.

From the 1930s through the 1960s Sweden developed a new social wel fare state, sometimes called the Mixed Economy, containing both elements of private ownership and government control. That involved retention of the basic manufactur ing in private hands, but accom panied by a taxation policy which was to bring about a redistribution and equalization of income. This was to be accomplished through a vast social welfare machine to insure every Swede against practically every exigency. The private and mu nicipal. insurance programs were the first to be integrated into a central compulsory system even before the Second WorldWar. In the 1950s came the integration of nearly all pension plans into a compulsory government administered system. Taxes To finance the elaborate womb to tomb or cradle to grave welfare sys tem requires a lot of money. And the Swedish government has only the revenue collected through taxes and ((social fees." Today no less than 64 per cent of the Gross National Product goes to the public sector to finance the system. From 50 to 60 per cent of the salary of a typical industrial worker is taken in taxes.

But in addition to this basic income tax, there is an additional 22.5 per cent in value-added tax (VAT)-a form of sales or excise tax on all goods and services, including food stuffs. The Swedish Confederation of Employers has given us a concrete example of how the subsidy-taxa tion distribution system works. Let us say that a man with four children and a wife not working, earns $4,600; add to this the social subsi dies to which he is entitled, and he has an after tax actual income of $14,000. But let us say that another man with the same sized family earned initially $23,000; after taxes, and with little likelihood of subsi dies, his income also would be $14,000. Presumably the higher earner is also the harder worker, but what is the incentive in keeping that up? Of course· this has a tre738 THE FREEMAN December mendous effect on productivity. It is no longer worthwhile to work. The difference, for example, in working full time and working half time is a mere $2,000 for the year, and a lot of people are choosing more leisure in stead. Professional people such as doctors, dentists and lawyers sel dom work more than five months a year.

The situation for the private en trepreneur is especially difficult. What is not generally recognized is that the employers' compulsory con tribution toward employee benefits is nothing but another form of pay roll tax. This averages 40 per cent on top of the salary which, of course, means that the ctgovernment bite" of the total wage is even higher than the 50 to 60 per cent indicated. Many small entrepreneurs, operating on a tight profit margin, cannot afford this additional burden, and face the options of going out of business, dis missing· employees, or cutting back to a one-man operation. Underground Economy It is said that the only expanding sector of the Swedish economy today is that of the underground econ omy-the secret sector. The burden of reporting and paying a 22.5 per cent sales tax has made it almost common practice in Sweden to ask if a transaction is to be Uwith or with out receipt." It has been estimated that as much as a third of the work by painters, carpenters, mechanics and the like is performed in the se cret sector-untaxed. There does not appear to be any way in which gov ernment representatives can deter mine and prosecute this growing practice. Despite tremendous man power resources (at least one third of all in Sweden are working for some form of government) they do not have enough people to prevent the secret sector from expanding.

Sweden is becoming a barter trade society. And this barter trade takes many forms. As a genealogist I searched the ancestry of my dentist, while he fixed my teeth. A plumber friend of mine could decorate his home with oil paintings in a deal with an artist acquaintance. And so on. The malaise in the Swedish econ omy is in no small part due to the taxation policy which rewards indo lence and.encourages illegality. Even Gunnar Myrdal calls for new tax legislation: ~~Swedish honesty has been a source of pride for me and my generation. Today, however, 1 have an uneasy feeling that, due to bad tax laws, we are more and more be coming a nation of cheats." The Absent Worker There are many other ways in which the employed demonstrate their unwillingness to continue sharing the tax burdens of financ ing the elaborate welfare state sys1980 SWEDEN'S WELFARE STATE: A PARADISE LOST 739 tern. With an illness insurance sys tem paying 90 per cent of wage compensation, absenteeism is spreading like some contagious dis ease through the Swedish employ ment sector. On any given day 10 per cent of Sweden's labor force is absent. On Mondays and Fridays absenteeism may reach 20 per cent.

At times the Volvo car manufactur ing plant or the Kockum Wharf in Malmo have recorded the absence of 25 per cent of the working force, and this has also occurred in some hos pitals. How can an economy stand such loss of productivity? How can an export-dependent economy com pete in international markets against new industrial nations such as those of Asia whose workers per form efficiently? With each liberalization of the ill ness insurance system in Sweden, the increased ((absence due to ill ness" has jumped-by as much as four million working days in a year. The employers' association desper ately urges legislation which would restore the three-day waiting period before the insurance program takes effect. This would remove the temp tation for leaves of short duration which often require no doctor's statement. Absences are not due to illness alone. There are at least 12 different reasons for ((excused absences" with pay from the Swedish places of em ployment. In a recent experiment, I tried to phone ten persons at their places of work and found only two of them available and in their offices.

When I asked why they were absent, I was given an indication of the range of ((excused absences." One man was taking advantage of the law which encourages the man to leave his place of employment to take care of a child (freeing the mother, presumably to enable her to go to her employment). Another one was said to be home caring for a sick child. Another one was taking a course in the Swedish language. Still another one was taking a union-ad ministered course in how to be u a worker's representative" on a com pany board. Still another was· ab sent in order to take care of a docu ment at a government agency. And so on. These are not cases of absence without pay. Either the employer has to pay in full or the employee gets compensated from one agency or the other of government. The Public Sector To provide the funds for such an elaborate system requires an im mense bureaucracy, and the one third of Sweden's work force which some call the nonproductive sector must be paid. Today 64 per cent of the total GNP goes to support the public sector's increasing demands.

And they will keep on growing be cause there is a cumulative effect to these demands. The share of the 740 THE FREEMAN December GNP going into the public sector in creased by 20 per cent between 1950 and 1980. When the first nonsocial ist government since 1932 came into power in 1976, some of the ground swell support from the right thought that some alterations would be made in the social welfare system. No such thing has happened. And the cost indexing of various forms of subsi dies will cause the problem to grow as the inflation continues. The idea of the welfare state gains support from many quarters. The state-owned radio and television monopoly, for example, is required by law to devote 40 per cent of its programming to ((informative" pro grams and these often take the form of propaganda for and about various social welfare measures. Advertise ments in newspapers and on vehi cles proclaim: ((Did you know that you don't have to be married to get a housing allowance?" ((If you're 18 years old you may still qualify." The result is an increased degree of uti lization' and a peculiar interpreta tion which defines Sweden's high living standard by the· increase in the number of persons living ((on the dole."

The Budget Deficits Sweden's national budget reveals the increasing burdens of the public sector on the national exchequer. And the budget also reveals, through its deficits, the inability of Sweden to finance these increases. The defi cits grew from 649 million crowns in 1960 to 50.2 billion crowns in 1980. Much of the budget today consists of transfer payments, currently about 40 per cent. These consist of reve nue-sharing to local governments, transfer payments to families, and subsidies to ailing industries, the last of which amounted to 7 per cent of the budget in 1978. In view of the failure by Swedish industry to com pete for the reasons mentioned above, many enterprises are failing, especially in shipping and in the textile and shoe industries. Inasmuch as the labor unions are still very strong (and Sweden has more of its labor force unionized than any other country) there are always pressures for the government to bail out ailing industries in order to maintain employment. This is done by various forms of subsidies, all of which are also subject to some mis use. The government has thus be come increasingly involved in pro ducing items which cannot be sold, and for which there is no market ei ther at home or abroad.

The Real Face of Unemployment It is necessary to turn to the un employment situation to under stand the current Swedish economic problems. Full employment has al ways been high among the goals of Swedish planners. But the govern ment has been forced 'to take exten1980 SWEDEN'S WELFARE STATE: A PARADISE LOST 741 sive measures of intervention in the labor market. For years government spokesmen have maintained the fic tion that Swedish unemployment is among the world's lowest. Such sta tistics can only be maintained if the real extent of unemployment or underemployment is hidden. Dr. Sven Rydenfelt has exposed the myth of full employment in a number of articles in Sweden and abroad. He points out that there is an official figure of 2 per cent un employment, or 94,000 of a work force of 4.1 million (half Sweden's population). However, WPA types of ~~make work" employed 3 per cent in education or public work schemes.

Investigations reveal that 25 per cent of the college students in Swe-den are there simply because they cannot get work, or a further 2 per cent. Then there is an additional 90,000 who have asked for ~~early re tirement" because they want to pro vide work to someone else, another 2 per cent. Finally, there is the 2 per cent employed in industries which are not economically viable, but which continue to hire workers only because of government subsidies. Dr. Rydenfelt concludes: ~~If these items are added we find a total of 11 per cent unemployed, a share which bet ter reflects the realities of the Swed ish labor market than the official re ports." While the work force in private manufacturing was reduced by 100,000 in the five-year period 1975-1980, it is significant that em ployment in the public sector rose by 250,000 during that same period. Conclusions: A Welfare Society in Trouble The Swedish Welfare State faces deep problems· today. Many Swedes were jolted into some awareness of the depth of the crises during the General Strike in May 1980. Curt Nicolin, chairman of the board of the Swedish Employers' Associa tion, said in 1979: ~~It is high time we comprehend that we are under severe threat ... we, like sleep walkers, have moved straight into an economic crisis so serious that we must count upon ·social unrest and the loss of freedom for most of us."

Certainly the strike and lockout, and the further extension of the con flict by the Longshoremen's Union, are part of this social unrest. But there are many other indications, which are apparent for those who study the moral effects of the present crises in Sweden's welfare state. In the economic sense, it is impor tant to realize the limitations in the nature of the welfare state itself. Feeding upon itself, it is slated for extinction. The German Marxist Jiirgen Habermas defined the di lemma in these words: ~~The division of labor between the state and the private sector that forms the basis for the Swedish model, requires that a continually increasing share of the 742 THE FREEMAN national product be transferred to the public sector. Technical and eco nomic changes must be accom panied by enormous public invest ments in order to insure the stability of the society. There is a point where a dislocation in the social structure caused by the free play of the mar ket forces, becomes so great that the people are no longer willi.ng to pay the price of the necessary remedies.

The demand for security remains, but the desire of each person to con tribute to the cost of this security diminishes. The welfare society then faces a crisis of confidence." Those who seek to find the causes of the Swedish welfare-state malaise too often treat the symptoms not the cause. In some cases they prescribe medicines, like ineffectual nos trums, that long ago proved wrong. While they seek in international economic developments the beterwire behind the failure of the ((Swedish Model" they are unable to question the Swedish welfare state itself, or any other welfare state. It is, of course, no longer just an ((economic Clarence Manion problem." The interdependence of economic and moral crises are well documented, not the least in the case of Sweden. At a time like this, it is worthwhile to recall the wisdom of a man who still speaks with a voice of authority to a living generation, Wilhelm Roepke: ((The desire for security, while in itself natural and legitimate, can become an obsession which ulti mately must be paid for by the loss of freedom and human dignity whether people realize it or not. In the end, it is clear that whoever is prepared to pay this price is left nei ther with freedom and dignity nor with security, for there can be no se curity without freedom and protec tion from arbitrary power. To this exorbitant price must be added an other . . . namely, the steady dimi nution of the value of money.·Surely, every single one of us must then re alize that security is one of those things which recede further and further away the more unres trainedly and violently we desire it." (A Humane Economy, p. 172) i IDEAS ON LIBERTY WITHOUT the wide diversification of talents, taste, abilities, and ambi tions that now and always exist among men, Society could neither feed nor clothe itself. It is consequently a wise provision of Providence that causes the perpetuation ofendless variety in the desires and capabilities ofhuman beings. Sparked with personal liberty and the natural personal incentive to own property and advance economically, this conglomera tion of inequality synchronizes into a great engine for the sustenance and progress of mankind.