Sweden has to roll up its sleeves to pay its way in the world

By , Staff correspondent of The Christian Science Monitor

"We have it so good in Sweden," tosses out a Stockholm taxi driver, "that no one wants to dirty their hands. No one has to work if they don't want to." Put baldly, this is what many Swedes think is the crux of their country's economic problem -- a problem of a prosperous workforce with a well-distributed income: too few dirty hands.

It's Sweden's famous high income taxes that have most dominated headlines and pricked middle-class resentment in the last five years.

It's a labor union proposal for gradual union ownership of corporate stock that has spurred some of the hottest political controversy.

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But in lean economic times the most pressing issue becomes how the welfare state can be supported. Can every Swedish worker in private enterprise, as one analyst puts it, carry two public workers on his back?

Sweden is the cutting edge of social democracy. It is both one of the most affluent countries per person in the world, and one of the most egalitarian. But for five years the economy has been falling out of synch.

The key gauge of misalignment is Sweden's growing balance of payments deficit: equivalent to 4.8 percent of the nation's total output in 1980.

Now Sweden has begun groping for the dynamism of the marketplace -- slowing the juggernaut of government growth and spurring productivity in the private sector. Optimism is limited outside the government, but to the business community the signs are welcome ones.

"Sitting in this house," says Lars Dahlberg, a top economist with the Ministry for Economic Affairs, "I see that government wasn't aware of the seriousness of the problem until late fall."

Until then, he adds, "You didn't have much hope for the Swedish economy."

Now Sweden has begun paddling on the supply side -- that is, concerning itself more with the output of goods and services rather than their consumption. Since the beginning of the year, a flurry of bills and action plans have come from Sweden's government Cabinet. More are on the way in coming weeks.

The strategy is similar to that of the new American administration. These are the goals:

* Cut the growth of government spending, especially at the local level, where public service spending has mushroomed.

* Make Sweden competitive, chiefly by keeping wage increases below those in competitor countries.

* Expand export industries through fresh investment, export financing, and the provision of skilled labor, rather than continuing the Swedish practice of propping up waning industries with subsidies.

"The changes are too small, too slow, in relation to what we have to do." says Trade Minister Staffan Burenstam Linder. "But the changes are dramatic in relation to the dogma that has been predominating in Swedish politics."

He sees reassuring changes in attitude among politicians, including "elements in the Social Democratic Party."

Sweden's moderate wage agreement early this year was another good sign, in Burenstam Linder's view, marking a change in how Swedish workers view their self-interest. Large increases in kronor per hour won't help if they stoke inflation and thereby hurt purchasing power.

"The average worker, I think, sees this very clearly," he says. "The union leadership now sees it too, I think."

The government's hope is to pull the Swedish balance of payments into line by 1990. What are the chances for success? Questionable, replies Mr. Dahlberg, but better "if the government can show the same action next year as in the first three months of this year."

How deeply the shape of the welfare state may be changed in Sweden is not clear, but most economists scoff at the question.

"It's not a question of tumbling down part of the welfare system," Mr. Dahlberg explains; rather it's dragging the real growth of the public sector down from 3 or 4 percent to about 1.5 percent a year.

"A cut in public spending is beyond the limits of discussion," says Karl-Olov Faxen, research director at the Swedish Employers Confederation. Even a leveling of public spending to 1 percent a year, he figures, is utterly unrealistic.

Instead, Mr. Faxen foresees a plateau by the end of this decade where the government spends about 5 percent more of the gross national product than the current 65 percent.

By most accounts, Mr. Faxen is a pessimist. But from his position in an organization across the bargaining table from the unions, he simply doesn't see the political forces at work for braking the growth of government.

Leaning back, taking off his glasses, and rubbing his eyes, Mr. Faxen points at taxis outside his downtown Stockholm window.

"You've seen the advertisements on the taxis: 'Buy diamonds'? That's something of the atmosphere around here," he lamented. "We're still living in an artificial environment."

While the recent wage agreement -- a 7 percent minimum increase over two years plus more if inflation exceeds a certain percentage -- may help make expectations more realistic, Mr. Faxen describes the prevailing attitude as this: "Spend the buck, then earn it."

A labor union economist, Aake Burstedt of Landsorganisationen (LO), points up the same attitude.

On a personal level, the problem isn't a Swedish character flaw, but a financial situation resulting from the nation's extraordinarily high tax rates. And it has repercussions for Swedish industrial health.

Interest on consumer loans is often between 25 and 30 percent. Swedes can pay it because -- as in the United States --high interest rates is minimal.

But high rates mean Swedish industries earn better returns with lower risk putting their money into financial markets than by making productive investments in plants or equipment.

A 1978 study by the Boston Consulting Group, still considered valid, isolated higher investment by Swedish industry as the nation's most crucial economic need.

Swedish officials expect unemployment to grow by the end of the year. And this is political dynamite in a country where full employment (usually meaning under 2 percent unemployment) is the bottom line constraint on all economic maneuvers.

"No one talks of bridging this recession," a banker obse rves. Sweden can't afford to spend the money any more.

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