If Sweden Can Do It . . .
. . . the United States can reform entitlements, too.
Sep 3, 2012, Vol. 17, No. 47 • By ROLAND POIRIER MARTINSSON
Expect less: Erlander
During his long reign, Tage Erlander, Swedish prime minister between 1946 and 1969, spoke grudgingly of the impending “discontent of growing expectations.” He was referring to how the Swedish labor movement, after decades of expansive welfare reforms, rather than being gratified, seemed incessantly focused on what it had not yet received from the perennial Social Democratic government.
Erlander’s misgivings turned out to be accurate. The entitlement society is indeed a beast that feeds on itself. From 1959 to 1977 the total tax burden in Sweden grew from a moderate 25.2 percent to a staggering 47.5 percent, topping out in 1990 at 52.3 percent. During the same time, the public sector share of GDP doubled, while private payrolls fell, predictably causing a decline in economic growth. In 1970 Sweden’s growth was second in the world only to Japan’s; in 1990 it was second-lowest in the OECD, even as entitlements and the public sector kept growing. Hence, a familiar choice: Either stop spending, or keep borrowing on the backs of future generations.
But making such a choice is no simple thing. A universal welfare state has consequences that run deeper than the economy, and are more difficult to reverse even than a two-decade-long economic disaster. Fundamental structures of civil society wilt when human responsibilities—including those towards future generations—are subsumed under government entitlements (in Sweden, giving to charity, absurdly, came to be considered a lack of solidarity, since it undermined the need for the welfare state); a sense of passivity spreads when people feel that personal happiness or despondency is independent of their own actions. The bureaucratic framework of the welfare state also locks in electoral support as a growing share of the voters move from private to public payrolls—why vote yourself out of a job? All of these factors made the prospects for Sweden to break the vicious spiral bleak indeed.
Turn, now, to the elated reaction from the Obama campaign when Mitt Romney announced Paul Ryan as his running mate. Essentially, it followed from the combination of two settled convictions. First, that Medicare is the untouchable third rail of American politics, charged with voters’ fear and anxiety. Second, that campaigning is always about making slogans, never about making your case. Sloganizing about “ending Medicare as we know it” seemed a safe bet compared to Romney and Ryan’s task of educating voters on a complex issue.
In other words, the Obama camp’s reaction was a wager that Erlander’s prophecy would come true also in the United States; that the discontent of growing expectations is an emotion too strong to overcome, even in the face of economic emergency, and that the paralysis of dependency would make it impossible to address the nation’s long-term, structural challenges.
So how did it turn out for Sweden? Against all odds, voters defied political expectations. In 1991 they removed the Social Democratic government, and put in place a center-right government that promised to attack the fundamental problems of the welfare state. When the Social Democratic party was voted back in three years later—as a consequence not of the reforms, but because the economic recovery was not coming soon enough—it continued on the road to reform, keeping in place the essential transformations.
The hallmark of this period was a sweeping reform of the social security system, allowing individuals to invest part of their social security tax in private funds. The reform was an across-the-aisle agreement, including the Social Democrats, and secured the solvency of the system for future generations. Today, more than half of the population has, at some point, actively chosen to participate in the private market (the money for those who choose not to participate goes automatically into a state-run investment fund).
In addition to the system’s -market-based aspects, it also contains a circuit-breaker that kicks in when the economy is in recession, which in effect means that retirees receive a lower pension in hard times. Lately, in the midst of a popular uprising around Europe against raising the retirement age to 60 or 62 years, the Swedish prime minister, Fredrik Reinfeldt (of a center-right government), has even suggested that some people may need to work until the age of 75. While this has caused concern on the left, there is a widespread understanding that the welfare state can survive only if it is managed responsibly by each and every generation.
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