Sweden has long seemed like a social-welfare capitalist dream come true, where companies and labor unions collaborate in harmony with government support. Swedish citizens are among the wealthiest in the world, and they enjoy publicly provided health insurance and other generous benefits.
But lately, Sweden doesn’t seem as traditionally Swedish. The far-right Sweden Democrat party finished second in September’s election, touting an anti-immigrant campaign. The party’s parliamentary votes will influence the nation’s policies in the new center-right coalition, calling into question whether the country is shifting away from the liberal Social Democratic Party that has been the benchmark of its system. Fewer young Swedes are joining unions, and American-style private schools and medical care have taken root.
“Americans, myself included, don’t have a fully fleshed-out understanding of what Swedish capitalism is like.”
Could this lead to the end of the high-tax “Swedish model” that like-minded nations have come to admire? Harvard Business School Professor Debora Spar, who has analyzed Sweden extensively, says no, the Swedish model is strong and is likely to continue. But the truth is: Even Sweden isn’t quite the Sweden that many picture.
“Americans, myself included, don’t have a fully fleshed-out understanding of what Swedish capitalism is like,” Spar says. “We think it’s more like socialism, and it’s not. It’s deeply capitalist. It just works differently.”
Sweden grapples with immigration
Spar, the Jaime and Josefina Chua Tiampo Professor of Business Administration and senior associate dean for Business and Global Society at HBS, explores the development of Sweden’s model and its current challenges in the case study, “The Almost Nearly Perfect People: Sweden’s Utopia at a Crossroads.” HBS research associate Julia M. Comeau contributed to the study, along with the School’s Europe Research Center.
While the country’s well-paid, high-tech economy is humming, and the country continues to generate an outsized number of entrepreneurial start-ups, it is also grappling with the longer-term implications of a particularly inclusive immigration policy.
“Sweden is an indicator of the need to wrestle with the immigration issue, and a sign of how difficult it’s going to be.”
With a population of only 10.6 million, Sweden has taken in a larger percentage of recent migrants than any other country in Europe. The Organization for Economic Cooperation and Development says the country is now home to 1.3 million foreign-born residents, 14 percent of the country’s total. Sweden has also opened its doors to more than 45,000 Ukrainian refugees. These numbers allowed the far right to expand its political platform, linking the migrants to a rising crime rate and other ills.
“It’s a problem that’s playing out not just in Europe, but in the US as well,” Spar says of rising immigration numbers. “Sweden is an indicator of the need to wrestle with the immigration issue, and a sign of how difficult it’s going to be.”
Spar says the Social Democrats “tried to do the right thing,” by welcoming migrants. “But there is a tacit consensus that they went faster and farther than the country could sustain, so they’ve started to wheel that back.”
There’s nothing quite like Sweden
At the same time, she says the current problems aren’t likely to dim the high regard other nations place on the Swedish model, in part because none of them have managed to replicate it.
While she sees strong echoes of the model in Taiwan, and lesser influences in Singapore, Costa Rica, and Germany, she says all those countries have their own style. “There’s nothing quite like Sweden anywhere else,” she says. “One reason models work is that they line up with the underlying social context [of each country]. That’s why Sweden’s model works so well for Sweden. The US couldn’t adopt the Swedish model. It wouldn’t work here.”
Sweden’s distinctive business-welfare model is rooted in the country’s long, stable history. First settled by Vikings and other migrants, a small southern kingdom emerged in the 11th century. The Riksdag, Sweden’s parliament, first assembled in the 15th century. The country began selling iron ore and coal to Germany and Great Britain in the early 1800s. When Sweden industrialized in the mid-1800s, Spar says, “it did so quickly and methodically,” adopting the most successful practices from established manufacturing nations.
One practice is distinctively Swedish: When the trade unions formed a federation in 1898, so did manufacturers and other employers—not in opposition, but in cooperation. It was the first pillar of what became its post-World War II model.
The cost of social services
The model blossomed after World War II, with the Social Democrats’ three-pronged policy: An active national government with a desire to achieve an equitable distribution of income and wealth; a generous social welfare system financed by taxes; and a shared structure of corporate control by business, labor, and the state. Except for a harsh 1991 recession, the model has been successful for liberal and moderate governments—not in spite of one of the highest tax levels in western Europe and Scandinavia, but because of it, Spar says. (As a former prime minister said, “Entrepreneurs have the courage to jump” because the safety net is there.)
Sweden has had a hefty wealth tax since 1948, and national health insurance since 1956. Workers currently pay 7 percent of social security taxes, while companies pay 31 percent. Local sales taxes top out at 25 percent, with lower rates for food and other items.
Americans may not abide such tax loads, Spar says, but Swedes don’t object “because they feel they get a lot” for it. As of 2022, for example, Swedish health insurance and other benefits account for 30 percent of government spending, compared to 10 percent for Social Security and Medicare in the US.
The future of the Swedish model
Sweden is also contending with the same high inflation that’s plaguing other nations, resulting partly from the COVID recovery and Russia’s Ukraine invasion.
“In a tightly knit society, education plays a crucial role in creating a sense of national, collective identity, and that’s been fragmented.”
Amid the immediate challenges, Spar says its citizens disagree about whether to move to more privatized education and health care, shaking up a decades-long foundation in which people largely rallied around the government providing these services. “In a tightly knit society, education plays a crucial role in creating a sense of national, collective identity, and that’s been fragmented,” she says. “The country feels that it has lost something intangible.” (As historian Lars Trägårdh told Spar, “There is no longer one Sweden.”)
For all the doubts and stresses, Spar says the Sweden model remains strong because the government, business, and labor continue to manage the economy together.
“It’s not the government regulating the market,” she notes. “It’s the strong union of employers and strong unions of labor who manage it, and they have driven growth in the country.”
So, she says, “I remain a Sweden optimist.”
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