What is the Social Democratic Welfare State Doing?

Feb 7, 1997

For many years, Sweden has been viewed as a livable society, one with substantial equality and without slums. Bourgeois liberals presented it as a proof that reforms could overcome the problems of capitalist society, that there was an alternative to revolution. Maybe it was a vindication of reformism and of the Social Democracy which led the governments which instituted these reforms.

A Land of Equality?

Many aspects of life in Sweden seem attractive compared to the situation of workers in other countries. It has one of the lowest rates of poverty in the world. There is less of a gap in the working class between the least and best paid. In 1987, workers in the lowest paid manufacturing industry were paid around 10% less than that in the top-paid industry, while the lowest paid in the U.S. were paid 60% less than the top.

The gap between the Swedish working class and the social layers above it is also less than in other countries. Those workers who weren't able to go past high school received pay only 16% lower than those with college degrees, compared to 33% lower in the U.S. The image given of Sweden is that there is more contact between workers and other layers who use the public hospitals, clinics, and recreation centers. Probably, as images often do, this reflects some aspect of the reality.

The gap between men and women is also less in Sweden than in many other countries. Women's wages, which are lower, are nonetheless closer to those of men than in any other country. Women, who elsewhere are often segregated into occupations that pay markedly less than what men are paid, are prepared to enter higher paying occupations. This starts in the schools where instruction is given to each sex in trades traditionally associated with that of the other.

There are efforts to integrate immigrant workers, who make up about 12% of the population. Their children are provided education in their mother tongue for all their years of school, and immigrant workers get 240 hours of Swedish lessons during the work day with full pay. For many years, they have had the right to vote in local and regional elections.

These tendencies toward greater equality have been furthered by various governmental policies. There is comprehensive coverage for those left out of normal work life. Handicapped workers get pay equal to that of other workers through subsidies paid to the companies. The mentally ill and the elderly receive a liveable income and those who need it are cared for by government employees visiting their homes.

Sweden spends the highest share of its national income on education of any country. It may have a lower percentage of students continuing on to college than does the U.S., for example, but there seems to be a commitment to providing ongoing study for those no longer in school. One third of the adult population is today engaged in formally organized classes. One result is that the working class is more highly cultured than in many other countries. Adults borrow almost 10 books per person from libraries each year. Among members of the blue collar LO (Landsorganisationen i Sverige – Confederation of Swedish Trade Unions), 30% read a book weekly, and many workers have a considerable library in their homes.

Good housing is available for most people in Sweden. From 1965 to 1975, over half the housing stock in the country, much of which was substandard, was replaced, and this had a noticeable impact on the population.

Finally, it was in Sweden where the first attempts to address the boring and alienated nature of work were made. Two plants of Volvo and one of Saab eliminated assembly lines and organized teams of workers to build entire cars using specially designed parts carriers. In Swedish ships on long voyages, husbands and wives can live together, both working on board, in quite pleasant conditions compared to those found on the ships owned by capitalists of other countries.

The Working Class in Action

What became known as the welfare state was established under Social Democratic governments. The Social Democrats first took power in 1932, brought to power as a consequence of the struggles and with the support of the Swedish working class, in which it had established deep roots at the end of the last century.

From the beginning of this century, the Swedish working class was one of the most combative in the world. It carried out general strikes in 1902 for suffrage, in 1909 over economic issues, in 1919 for the 8-hour day, and in 1928 to oppose the government's proposal to make union contracts legally binding. Following the ¬Źdalen massacre in 1931 (shown in a memorable movie), where five workers were killed, the revulsion of the population to the capitalist violence and the push of the working class brought the Social Democratic Party into the government in 1932.

The Social Democrats took power in the middle of the Depression when unemployment was high. The class struggle remained bitter during the following years. There were important construction workers strikes in 1933-4 and a sailors' strike in 1933. During the Depression, Swedish workers struck at one of the highest rates in the world, and their strikes tended to be long.

Finally in 1938, the Swedish Employers Federation proposed a new labor relations system to the LO union federation. They proposed what was called the Main Agreement, which regulated wages for the entire blue collar sector of the economy. Wages would rise, but only with the growth of productivity. The unions, for their part, agreed not to contest the capitalists' right to hire and fire and control work. Between national agreements, the unions would enforce the tightest discipline to stop strikes from breaking out.

The Social Democrats' ability to stay in power and to carry out a series of reforms depended on a strong union movement, as able to ensure social peace as it was to mobilize the workers. The unions spread beyond the blue collar LO to clerical workers in the TCO (Central Organization of Salaried Workers) and professionals and managers in the SACO (Swedish Union of Professional Associations) which at times acted in concert with the LO. Today, union membership is some 85% of all wage and salary earners, who belong on a voluntary basis. This high level of organization certainly strengthened the bargaining power of the Social Democrats. And struggles that broke out reinforced their hand. In 1945, there was an important metal workers strike. Workers struck in wildcat strikes in violation of union contracts from 1969 to the mid 1970s.

The ability of the unions to control the workers comes from an apparatus as bureaucratic as any in the world. The national unions dominate the local unions' right to strike, and they have shown themselves ready to enforce the law of 1928 that prohibits strikes during the duration of contracts. The bureaucracy has taken many measures to strengthen its independence from the rank and file. The executive board of the metal workers union has the right to appoint all full-time officials. Since 1947 metal workers have not been able to vote on their contracts.

The Benefits of Neutrality

Sweden was not the only country to take this road. A number of European countries began also to develop what has come to be called a welfare state, just not as extensively. There were a number of special circumstances which made the Swedish welfare state possible. Sweden is a small country, with only 8.8 million people today. It is rich in natural resources, especially iron ore and forests. On this basis, there developed important steel, auto, shipbuilding, aerospace, paper, and furniture industries which found big export markets in Europe and the United States. Sweden, which had no colonies despite the fact it was part of the imperialist world, could proclaim itself neutral during the two imperialist world wars. This, combined with its geographical position, allowed it to stay outside the fighting. Thus, it could export to both sides. After World War II, it was one of the few industrialized countries in Europe completely intact and in a position to sell to the war-ravaged countries of Europe anxious to rebuild. The arms build up of NATO during the Cold War years meant more orders for Swedish industry. Thus, during the decades the Social Democrats were in power, the capitalists were able to employ the workforce and afford an extensive welfare system. They were ready to do so since the Social Democrats, for the most part, were able to keep a highly organized and combative working class in check.

This class collaboration served the capitalists well. When the unions introduced a "solidaristic" wage policy, designed to bring up the wages of workers in low paid industries, they also prevented the best paid workers from pushing for higher pay. The capitalists maintained their profit margins. And if higher wages pushed some weaker companies under, the big companies either swallowed them up or took their place. The workers in the surviving companies faced more intensive work, shift work and new methods of control.

The Social Democratic measures were carefully thought out and implemented either to meet the problems the capitalists faced or at least not to interfere with their interests. While the Social Democrats took measures favoring women, for example, the sense of those measures varied widely depending on the immediate needs of the bourgeoisie. During the 1930s, with the high rates of unemployment, the Social Democrats enacted a series of reforms that promoted marriage and childbirth, at the same time that propaganda about "building up the Swedish nation" brought pressure on women to stay home. But by the late 1960s and '70s, when Swedish capitalism experienced a labor shortage and needed more people in the labor force, the Social Democrats championed the cause of women's equality, developing child care, job training for women and attacks on discrimination on the job. The Social Democrats' new policy on women, while it reflected the struggles of the women's movement that arose, was relatively easy to change because it met the changed needs of capitalism.

Benefits were extended to immigrants at the point employers faced a labor shortage and needed immigrant workers. Capitalism needed to move workers and farmers from the northern rural areas to the cities in the South. All this required a considerable dislocation of people. Not only did construction of housing help meet this need, it also offered large government contracts to construction companies and manufacturers of construction materials.

The capitalists could accept such a well developed welfare system because they had the workers pay much of the cost for it. For example, housing construction was financed by using workers' pension fund money, rather than the funds of the capitalists. Sweden became well known for its high income tax. While the tax on workers was substantial, company profits were taxed at the lowest rate of all the industrialized countries.

Welfare for the Working Class – Prosperity for the Bourgeoisie

The welfare state in Sweden saw improvements in the life of the working class and those at the bottom of Swedish society – at least for a while – but it never touched the main features of capitalist society.

Since the 1930s, inequality in the basic forms of capitalist property hasn't decreased. The Social Democrats never made the "revolutionary" move to get rid of their king, so it's not surprising that they see nothing wrong with the entire economy being dominated by 15 to 20 ownership groups, most of whom are families. Today, almost half the stock of the top 100 companies, on average, is owned by a single family. The Wallenberg family alone controls businesses valued at more than one third of the Swedish stock exchange.

Swedish industry is highly monopolized. The 10 largest companies have 59% of manufacturing employment, and the top 30 employ 85%. These are extremely large businesses: Volvo, ABB, Electrolux, and Ericcson are among the largest companies in the world in their respective industries. They have operations throughout the world, including in various underdeveloped countries.

Sweden continues to have the same social classes as are found in all the advanced industrial countries. There are a tiny number of capitalists who dominate the Swedish economy. Their wealth is quite comparable to that of their counterparts in other countries. The top 2% of the households own 23% of the nation's wealth. There is a petty bourgeoisie of shop owners, professionals and managers. Families in the top tenth of the population, which includes many better paid managers and professionals as well as capitalists, receive 8.1 times the income of those in the bottom 20%. For workers at the point of production, life is like that of their fellow workers in the other industrialized countries. As late as 1976, 47% of all manufacturing workers were getting piece rates. In the mid-1980s, two-thirds of all workers said they suffered from physically exhausting jobs (monotonous, heavy or with a damaging work posture). They experienced the same restriction on their freedom of movement, lack of autonomy, hectic jobs, lack of job satisfaction and bosses' domination as workers elsewhere. Workers in the mines of the North of Sweden and in the shipyards, steel mills and auto factories of the South know full well that the rich are living off their labor and that they are exploited.

Sweden and the Capitalist Crisis

During the post-World War II years of growth, the Swedish Social Democrats found it possible to slowly expand the welfare state, and the capitalists came to accept their management of affairs. But all this began to change with the emergence of the economic crisis. From 1950 to 1973, Sweden's Gross Domestic Product per capita had grown by 3.1%, but from 1973 to 1992, it showed only a 1.2% increase. Sweden had the slowest growth in Gross Domestic Product of any of the industrialized countries. Over the same years, the average annual increase in manufacturing labor productivity dropped from 4.1% to 1.3%.

The Swedish capitalists did what the capitalists did everywhere: they made the working class pay for the crisis. The right-wing parties called for cutbacks in the welfare system. By 1976 the Social Democrats had antagonized a fraction of their traditional voters, who picked up on the blandishments made by a reinvigorated right. The right- wing parties in power began to nibble away at the welfare state. The first big confrontation between the capitalists and the workers came in 1980, when the Swedish Employers Federation locked out 750,000 workers. The struggle lasted 10 days, with the employers forced to offer a 6.8% raise to private sector workers, more than the unions had first asked. In terms of days lost per thousand workers, Sweden had the highest strike level of all the industrial countries during the 1970s and '80s. By 1982 the right-wing parties disenchanted enough voters that the Social Democrats once more came back into power.

This changed nothing for the working class.

Big Swedish firms, intent on moving their capital from new investment in the productive forces into speculation, demanded and received from the Social Democrats the relaxation of credit controls in 1985 and of foreign exchange in 1989. The Social Democrats also deregulated the banks, just as the Thatcher and Reagan Administrations had done. But it did it later, just before the speculative collapse in London and New York, so Swedish capital suffered very large losses. This in turn caused a severe crisis for the banks in Sweden, which the state bailed out.

As unemployment rose in the other industrialized countries, the capitalists used this to put pressure on the Swedish working class to keep wages down, and thus maintain profits. At the same time, the big Swedish manufacturers began to invest overseas in a serious fashion. By 1986, the top 17 manufacturers had shifted 55% of their total employment outside the country, mainly to other industrialized countries, but also to underdeveloped countries. Sweden lost 198,000 of its manufacturing jobs from 1985 to 1995, one fifth of the total. Volvo closed its two plants which had ended the assembly line, while keeping open the more profitable traditional ones.

During these years of growing crisis and the first political alternation of parties that Sweden had known in forty years, the Swedish economy followed the same curve as that in the other industrialized countries. Its growth rates declined like theirs; its capitalists moved to speculation in the same way. The capitalists tried to make the working class pay for the crisis, just as the bourgeoisie did in every country. The Social Democrats, who for years had opposed a Value Added Tax, a national sales tax, saying that it was regressive, now enacted one, just as was the case in the other European countries. The important difference between Sweden and the other European countries for years had been its much lower unemployment rate. As late as 1990 it was only 1.8%. But when inflation became a major problem, the Social Democrats announced that lowering it was more important than full employment. The Social Democrats froze wages and outlawed strikes for one year. The Social Democrats wound up losing power.

The right-wing parties took over just as the economy turned sharply downward in 1991. The rise in interest rates drew the well-off to turn to speculation, not to investment. Capital investment fell by 40%, consumer demand collapsed. The government deficit rose to a sky high 17% of the Gross Domestic Product. Between 1990 and 1993, the GDP fell by 5.1%. Unemployment rose to 5.6% in 1992, then 9.3% in 1993, and 9.6% in 1994. It was still at the high rate of 9.4% in 1996 (all measured by U.S. concepts).

In 1991, the capitalists decided that the system of national bargaining and class collaboration that had served it for decades had to go. The Employers Federation abolished its negotiating secretariat, letting each employer or industry bargain by themselves. Various companies moved to break apart solidaristic wage agreements. At the same time the Employers Association withdrew from the many boards and authorities it sat on along with the unions. The right-wing government ended up kicking the unions off these boards in 1992. The capitalists were no longer willing to continue the collaborative arrangements of the past.

Goodbye Welfare Policy

With the economic collapse, the Social Democrats shifted gears. Their half-century long program of full employment with capitalism proved impossible, so they adapted themselves to unemployment which met the needs of the capitalists. Acting as the responsible opposition, they recognized the problems the right-wing parties faced during the crisis, and gave them a lot of slack. When the right-wing parties bailed out the banks at taxpayers' expense, the Social Democrats raised no opposition. The Social Democrats did loudly criticize the move of the right-wing parties to lower the replacement rate that social benefits paid those out of work from 90% of their previous pay to 80%. In fact, they made this a major theme of their 1994 election campaign which brought them back into the government. But when they got back into office, they lowered the rate still further to 75%.

In the decades before 1991, the unions appeared especially strong. But the apparatus had strengthened itself through years of class collaboration, not by relying on the workers' combativity. When the capitalists abandoned class collaboration, junked national bargaining and solidaristic wages, and threw hundreds of thousands of union members out of work, the union bureaucrats had nothing to propose to oppose the attacks.

The welfare state too has come under attack in the current crisis. Vacations have been reduced, the retirement age for pensions raised, and housing support reduced. The Social Democrats in government today have announced an austerity budget for 1998, including a 6% cut in the base pension, lowered family and housing allocations and reduced expenditures for public transport, education and agriculture. For some years now they have accepted the growth of private schools, which increases the class privileges of the rich and undermines support for public programs.

All the industrialized countries adopted welfare programs to a greater or lesser extent following World War II. This was a response to the demands of the working class, but it also corresponded to the needs of the capitalists for a healthy, well-educated and more productive workforce and, above all, for social peace. Sweden's welfare system was simply more extensive. For a period the injustices of capitalist society may have seemed less blatant. But the Social Democrats had not created a new society, only a variant where the basic contradictions of capitalism remained, less apparent, but still festering. The monopolization of Swedish industry and the wealth and power of the capitalists grew along with the welfare state. As soon as the crisis of capitalism reversed the favorable and somewhat unusual position of Sweden, the capitalists did what capitalists always try to do: they decided to make the working class pay to maintain their profits. The Social Democrats dropped their defense of full employment, and aided in cutting back on the welfare state they had worked so long to build up.

Yes, Sweden is a model, but it is a model of the real nature of the welfare state and of the Social Democracy which built it up.