The Welfare System in the United States - Part 5

The Swedish Model:  Welfare For Everyone

Sweden has developed a social welfare system that has eliminated poverty by providing extensive government benefits to everyone. But taxes are high, and some doubt that this so-called “Swedish Model” can continue without major changes.

The Swedish welfare state (also called the “Swedish Model”) is based on the idea that everyone has a right to health care, family services, old-age pensions and other social benefits regardless of income. Since everyone is entitled to these benefits, everyone must pay for them through their taxes.

Sweden began to build its welfare state early in the 20th century and greatly expanded it between 1945 and 1975. Up to the 1970s, the “Swedish Model” succeeded for several reasons. First, the Swedish economy grew steadily during this period. Second, Sweden did not participate in World War II and so, unlike other European nations, it did not have to make a painful recovery from the war. Third, its defense budget was small. Fourth, the country did not have to deal with any immigration problems. Sweden had a small population with a common cultural background. Swedes were proud that their little democratic society had seemingly found a “middle way” between socialism and capitalism.

Building the Welfare State

The welfare state has been the vision of the Swedish Social Democratic Party (SDP), which was founded in 1889. Formed by industrial workers, this political party rejected violent revolution (as in Russia) in favor of democratic social reform. The SDP aimed at building a system that would provide workers (and later all Swedes) with health insurance, old-age pensions, protection from unemployment, and other social benefits financed by taxes on workers and employers. The SDP called its vision for a welfare state the “people’s home.”

The SDP gained control of the government in the 1930s and remained in power for most of the following 60 years. In 1937, the Swedish parliament, called the Riksdag, created a national old-age pension program that remains as the backbone of the welfare state to this day.

The SDP did not want government to take over the ownership of businesses. Instead, SDP leaders realized that government could work with private enterprise, which would produce the economic growth necessary to make the “people’s home” possible. Even today, after six decades of welfare-state development, 90 percent of the businesses in Sweden remain in the hands of private owners. Starting in 1938, the Swedish government began to engage in negotiating national wage agreements between employers and labor unions, which currently represent over 80 percent of the workers.

Following World War II, the SDP government greatly expanded the welfare state. It provided a long list of benefits for all citizens and even immigrant workers. It introduced a national compulsory health insurance system, which was later expanded to include dental care and prescription drugs. It passed into law low-cost housing, child-support payments to parents, child-care subsidies, a mandatory four-week vacation for all workers, unemployment insurance, and additional old-age pension benefits. Most of these things were financed by sharp increases in employer social security taxes. But a booming economy with unemployment usually less than 1 percent made the new social welfare programs possible.

By the mid-1970s, the SDP’s had largely realized its vision of a “people’s home” welfare state. All Swedes, regardless of need, could call upon the government to provide them with the benefits listed below. Most are available at no charge to the individual or family. Some “subsidized” benefits require persons to pay a partial fee, usually according to one’s income.

Health and Sickness

1. subsidized doctor care mainly in county clinics

2. free public hospital treatment

3. subsidized dental care; free for children

4. subsidized prescription drugs; life-saving drugs free

5. free abortions and sterilizations

6. free maternity clinics for prenatal care

7. cash benefits to compensate for loss of most wages due to sickness; a separate benefit is available for workers injured on the job

Family Support

8. tax-free monthly payment to parents for each child; single parents receive an additional payment for each child

9. parents have a right to take a total of 12 months paid leave from work at near full wages to care for each child up to first year in school

10. subsidized child care at home or in a government day-care center

11. one year at a subsidized nursery school

12. unemployment insurance pays about 80 percent of previous income

Pensions

13. most retired persons receive three different kinds of old-age pensions paid for by taxes and employer contributions

14. full or partial disability pensions; disabled child pension goes to parents until age 16 and then directly to child

15. special payment to handicapped persons who are working or in school

16. surviving spouse and orphan pensions

A few additional kinds of aid are provided only to those who have low incomes. The most important of these are housing subsidies for poor families and elderly pensioners.

Because of the extensive number of benefits available to all age and income groups, poverty was virtually abolished in Sweden by the 1970s. But there are those who still need extra help during hard economic times or a family crisis. An example of the latter is the increasing number of single mothers who depend on temporary government cash aid. This “social assistance” (what we call “welfare”) usually involves small amounts of aid provided for less than a year.

Benefits and Burdens

The Swedish welfare state has all but eliminated poverty, especially among the elderly and families with children. The typical married retired couple receives pension and supplemental payments that almost equal their pre-retirement income. This is much more than what a Social Security pension provides in the United States. The infant mortality rate in Sweden is five deaths for every 1,000 live births contrasted to seven deaths in the United States. Also, both male and female Swedes live longer than Americans.

While there is little doubt that the Swedish people have benefited from the “Swedish Model,” they also have one of the heaviest tax burdens in the world. Today, an average Swedish working family pays about half its earned income in national and local taxes. Swedes also pay taxes on investment income. In addition, Sweden has a national 25 percent sales tax that is built into the price of consumer goods. Beyond this, employers must pay corporate taxes and make payments into government pension, unemployment, and other social welfare funds. The resulting tax burden is so heavy that Swedes have a special word for it, skattetrat, which means “tax tiredness.”

Government spending currently equals about 60 percent of Sweden’s gross domestic product (the value of all goods and services purchased in a year). U.S. government spending by contrast accounts for about 20 percent of the U.S. gross domestic product. The Swedish government’s fastest growing spending areas are health services and old-age pensions. Furthermore, public employment has rocketed to account for about one-third of all jobs in Sweden. (In the United States, the government supplies less than 5 percent of all jobs.)

Starting in the mid-1970s, the Swedish economy began to slow down. Among other things, Swedish exports had become too expensive due to the high wages and payments made by employers into the different government welfare-state programs. As economic growth slowed, Sweden found it increasingly difficult to pay for its system of social-welfare benefits.

Can the Welfare State Continue?

As inflation, unemployment, and the government budget deficit grew, many working people started to complain about the burden of paying for the expensive pension system. Others objected to the lack of choice in a society where the government runs almost all social services.

In 1991, a conservative government took control of the government and tried to rein in the welfare state. It cut some benefits as well as taxes. But these actions came during a world-wide recession, and unemployment in Sweden soared to an unprecedented 13 percent.

Fearing that the conservative government was going too far in cutting back the welfare state, Swedish voters returned the Social Democratic Party to power in 1994. Surprisingly, the SDP, the party that created the welfare state, announced a program of spending cuts and tax increases to reduce the government deficit. Late in 1997, however, with both the deficit and unemployment down, the SDP government reversed course and declared it was time to restore and even expand some social welfare benefits. But many doubt whether the “Swedish Model” of a welfare state that benefits everyone can continue at the level that most Swedes have come to expect.

Some Americans look to Sweden as a model for U.S. welfare programs. Others say that the “Swedish Model” would not work in the United States because the two countries are so different.

Part 5 of 5.

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