Sweden Trims Vaunted Safety Net

Swedes agree state needs to scale back welfare, but it's hard to walk away from those legendary benefits

AT a recent rally outside Sweden's parliament building, protesters opposing billions of dollars worth of planned cuts in Sweden's public spending held up signs with the word "welfare" under a cross.

Debate in Sweden is raging over whether the 81 billion krona ($11 billion) in budget cuts proposed April 22 by the conservative government of Prime Minister Carl Bildt will consign the country's cradle-to-grave welfare state to the graveyard.

Much of the cutting, which is part of an effort to reduce a budget deficit that in recent years has ballooned to more than 13 percent of gross national product (GNP), will reduce benefits that Swedes have come to consider a right. Unemployment and sick leave benefits, parental leave and pensions, among the most generous in the world, are all set to fall. Individuals will find medical and dental care and other services becoming more expensive.

Along with its previous welfare reductions, the Bildt government's cuts will amount to more than 10 percent of GNP. The changes may seem drastic to a population that since World War II has learned to rely on a very high safety net. Yet most officials and observers here believe the reductions will simply bring the system in line with more common Western European standards.

The real revolution for Sweden, the observers say, is the change in the public's view of the role of government that stands behind not just the welfare-state reform, but wide-ranging deregulation and privatization initiatives affecting everything from banking and food distribution to health care, postal delivery, and telecommunications.

"Many of the problems we are facing are actually the same ones the Eastern European governments are having to tackle," says Olof Ehrenkrona, director of policy planning in the prime minister's office. "The great difference is that we have a well-functioning private sector, but we have the same need to cut expenditures by reducing the role and size of the state."

Despite the protests of trade unions and public service agencies, the shift in government philosophy, if not the cuts themselves, meets with approval, especially among the young.

"It was the young people who brought the Bildt government to power," says Ingemar Dorfer, an adviser at the Foreign Ministry. "They travel freely to Europe and know very well the US, and they want a country where more value is placed on the individual's initiative."

Even ardent supporters of the high social benefits accept that they were costing too much. "We had to accept that some of the social services were too high, particularly when they became disincentives to labor supply, productivity, and savings in the economy," says Gunnar Wetterberg, assistant under-secretary with the Finance Ministry and a Social Democratic economist. "If we act now, we should be able to get out of our predicament with a little less social protection, but more responsibility for the peo ple themselves."

That "predicament" is a staggering economy where, besides the skyrocketing public deficit, once-full employment has reversed to become 7.5 percent unemployment. More worrisome, industrial employment has fallen by nearly one-third since 1989. The krona was floated against other European currencies in November, losing much of its value. And many of the country's banks teeter on the brink of failure.

Against this backdrop, an independent commission headed by economist Assar Lindbeck in March announced a 113-point reform plan that covers not just economic measures but the political system and education.

"We are in a very deep crisis, and the worst lies ahead of us," Professor Lindbeck said in unveiling the commission's report. For a country that thought it was a model for the world, his words came as a shock. Now all anyone talks about, it seems, is "the crisis."

But observers here say this "crisis" mentality has forced Swedes to take a hard look at their future. "One of the very basic questions we are having to answer is whether Sweden will remain an advanced country or slide back the way the United Kingdom has," says Lennart Olsson, an economist with the Federation of Swedish Industries.

Sweden was ahead of Europe in research and development in the 1960s, but later slid back "as more emphasis was placed on the public sector," he says.

Mr. Olsson focuses on how Sweden's reform period can be used to encourage invention, technology transfer, company creation, and higher productivity. He says reforms that have cut taxes and shifted some of the tax burden from production to consumption are on the right track, as are initiatives to encourage more applied research.

But concern abounds that social reforms may go too far. Mr. Wetterberg notes, for example, that Sweden has extremely low poverty among single mothers and pensioners compared to elsewhere in Europe. And Swedish women on average earn 90 percent of what men earn. But how, he wonders, will cuts in spending and public jobs affect this?

Others say there is still too little respect for individual enterprise. Sven Karlsson, a Stockholm homebuilder, says he cannot get the permits to build the houses people want because local authorities have hundreds of empty apartments to fill - apartments Mr. Karlsson says the Swedes no longer want.

"There is still this tendency for government to take care of everything and everybody," he says, "even when we should have learned that it doesn't work."

But no one ever thought that the depth of Sweden's "crisis" would lead the state to give up its role in regulating society. Even the conservative government is considering a law to require fathers to take at least one month of parental leave.

But the point is not some dewy eyed attempt to foster father-child bonding. Rather, with more than 80 percent of women in the workforce, studies found that the year-long leave cut into female workers' productivity. And higher productivity is something even the conservative government would like to legislate.

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