The Swedish Model in America

Why It Can’t Work, and What the Alternative Is

When it comes to the discourse around socialism, there are two pretty common responses from the left and the right, providing excellent examples of whataboutism. “What about Venezuela?” for the right, and “What about Sweden?” for the left. The first is a subject for another time, but the latter is something that merits a deeper dive.

First of all, Sweden is not a socialist country, nor has it ever been a socialist country. I am not the first to point this out, but it does bear repeating. While it does have strong government intervention in certain aspects of the economy complimenting some of the strongest unions in world, the primary way that Sweden’s economy is organized is with private businesses. In the vast majority of companies, it is the bosses, not the workers or the government, that manage day-to-day operations alongside the larger decisions that shape the economy.

But if the Swedish Model doesn’t refer to socialism, then what does it refer to? That provides a more interesting question than the distinction between capitalism and socialism.

To answer that question, we can turn to the man who played a large part in its conception: Rudolf Meidner. Meidner was a Jewish economist who escaped from Germany during the rise of the Nazis and ended up settling in Sweden. He got a job working for the Swedish Trade Union Confederation, more commonly known as LO. Working for the most powerful labor group in Sweden, Meidner’s ideas held immense sway. Together with Gösta Rehn, another LO economist, he developed the Rehn-Meidner model, which became known as the Swedish Model over time.

The model itself rests on a set of principles that guided the policy of both the government and the unions. The first was full employment, meaning that the government’s main priority was to make sure that unemployment remained at an acceptably low level through fiscal policy and active intervention in the job market. However, unmanaged growth can bring about major economic consequences, so complimenting that goal was inflation reduction. This required a level of demand that didn’t outpace the supply, so a certain degree of slack was required in the economy to keep it from overheating.

This was accomplished by the following two principles: an active labor policy and a strong welfare state. An active labor policy allowed the government to retrain workers in jobs that were no longer useful, rehabilitate workers that had been injured, and provide paid leave to workers that were sick or raising children. This took a certain number of people out of the labor market, keeping demand at a level suitable for low inflation. The strong welfare state made it so that no matter where an individual was in this process, whether they were working, getting retrained, or temporarily unemployed, they would have access to healthcare, education, and elderly care. As a result, people could be kept in or out of the labor market as long as necessary without undue harm.

Wage solidarity under the Rehn-Meidner Model

Finally, the process of wage solidarity attempted to achieve equal pay for equal work, regardless of the profitability of individual firms. This was predominately achieved through the LO, which represented the vast majority of workers in the country. Ideally, all janitors would be paid the same, all engineers would be paid the same, and all cashiers would be paid the same, though the individual professions would be paid different amounts. Since this was done regardless of a firm’s ability to pay those wages, less profitable firms would be squeezed out of the market and those workers would go to work for more profitable firms.

The result of all of this was low inflation, high growth, and strong economic equality throughout the postwar era. Of course, there were other things that helped Sweden achieve these goals. Much like the United States, Sweden was one of the few countries that had not been decimated by World War II, giving its industries a strong advantage. These reforms were also backed by the Bretton Woods system, a luxury not afforded to many countries trying to make economic reforms in other parts of the world.

Essentially, the Swedish Model is a lot more than having free health care. It is a way of organizing an economy that uses careful government intervention and union negotiations to keep as many people working as possible without causing massive inflation.

There are a variety of reasons why the Swedish Model will most likely remain a largely Swedish phenomenon. The clearest is the immense power that unions held in Swedish politics when this model was created. Union density has always been high in Sweden, holding around 70% in the middle of the century. Arguably more importantly, the LO served as a centralized body for these unions, providing a united political force for implementing policies like wage solidarity. In the United States, not only is our union density much lower (currently around 10%), it is much more decentralized. While some organizations, most notably the AFL-CIO, provide some unified will, nothing comes close to the raw political power that LO possessed in Sweden while the Swedish Model was being created and implemented.

The Saltsjöbaden Agreement being signed

The other big piece missing from America is buy-in from the employers. Much of the infrastructure for wage negotiations in Sweden were laid out by the Saltsjöbaden Agreement in 1938, where the Swedish Employers Association (SAF) came together with the LO to agree on a certain set of rules for labor-capital relations, mostly without interference from the government. The closest we have to that in America is the National Labor Relations Board, created in 1935, which is a centralized government-run organization that deals with decentralized unions and employers. Without strong centralized institutions to implement policies like wage solidarity, those policies are never going to get off the ground.

Finally, the reason that America will be unlikely to form a similar model is the same reason that the model actually began to fail in Sweden. The rise of the international market meant that when businesses no longer wanted to pay the high wages driving the whole model, they simply had to move to another country without wage solidarity in place. Several large corporations started to take this option in the 1970s, leading to the eventual rollback some of the aspects of the model (the welfare state and labor policies still remain). America has been experiencing this problem itself since the 1970s, causing a huge decline in manufacturing and other union-friendly jobs.

While the model overall is unlikely to work in America, there are certain parts that could reasonably be implemented. It is perfectly possible for the Federal Reserve to seek a policy of full employment and low inflation by adjusting interest rates accordingly. Models for job retraining and skills education are a part of almost every Democratic platform now. Worker’s compensation and unemployment insurance already exist, though they could be streamlined and better funded. In terms of a welfare state, we already have Medicare, Medicaid, Social Security, and the Earned Income Tax Credit, and proposals like Medicare for All and free college tuition could expand many existing public programs to be universal.

However, just as the centralized economy of Sweden had a centralized solution to bring about economic equality, the United States must have a decentralized solution to match its more decentralized economy. Individual large employers like Walmart and Amazon are already starting to get increased pressure, both from politicians and various labor movements, to increase wages, improve working conditions, and ultimately form unions. While the movement to do this should be united, it will most likely have to go company by company.

The Preston Model, higher resolution in link below

In individual towns and cities, an approach for economic equality could look something like the Preston Model in Great Britain. In this model, local anchor institutions, governments, cooperatives, businesses, and unions join together to reach an agreement that enriches the local economy. Existing institutions shift their investments closer to home, allowing newer, more democratic, more accountable institutions to form. As each of these individual arrangements form, the infrastructure to create a more broad-based national model is built. While the American version of the Swedish Model is still out of reach today, these smaller models can begin to construct a blueprint for what our version of a more fair and equitable economy looks like.

Somehow idealistic and cynical at the same time