By Bruce Stokes, National Journal
© National Journal Group Inc.
Monday, Nov. 12, 2007

STOCKHOLM -- Welcome to Sweden, the new poster child for globalization. The Swedish economy is among the most open of the industrial economies. Swedes are now more likely than almost any other people in the world to embrace trade, to welcome foreign investment, and to use the Internet, the business tool that has flattened the global economy. And, relative to other nationalities, Swedes fear immigration less and are the people least concerned about globalization's threat to their traditional way of life.

	Swedes, those reputedly cool socialists, are giving a warm embrace to globalization and unfettered free trade. And prosperity is the result.

In an interview with National Journal, Ewa Bjorling, the minister of trade, summed up her fellow-Swedes this way: "The Swedish people are generally open-minded about globalization."

As citizens of a small country that is highly dependent on exports, Swedes have become globalization's guinea pigs. More so than most people, Swedes are exposed to the economic uncertainties, business pressures, personal dislocations, and rapid pace of change that are the downsides of globalization. These challenges have evoked a strong backlash in the rest of Europe and in the United States, but not here.

Instead, Swedes have prospered from their deepening interaction with the world economy. Productivity is high. Incomes are growing rapidly. A higher portion of the working-age population is employed in Sweden than in many other industrialized countries. And both the government budget and the country's trade balance are in surplus. Sweden has succeeded, economically and politically, in today's dog-eat-dog world market by crafting an economy that has facilitated constant business course corrections while providing its citizens with a strong social safety net, including ample unemployment benefits and a well-funded worker retraining effort.

"How you decide your social-welfare system has a direct effect on people's willingness to adjust," said Par Nuder, the former Social Democratic finance minister, "and that has a direct effect on people's willingness to accept globalization."

And yet, because globalization is unrelenting, Sweden faces major challenges ahead. Business complains that hiring and firing people is still too hard. Too few entry-level service jobs are being created for unemployed young people and immigrants, and the cultural dissonance generated by the burgeoning number of foreign-born Swedes is a growing political concern.

"It remains an open issue whether Sweden as a small, open economy can continue to reap the full benefits of accelerating globalization," the Organization for Economic Cooperation and Development, the Paris think tank that studies economic trends in the industrial world, concluded in its generally positive 2007 survey of the Swedish economy.

To ensure that it does, the business-oriented governing coalition is pushing reform. It has cut benefits and is creating more low-wage service jobs in an effort to better prepare Sweden for the fiscal challenges of sustaining an extensive welfare state. Whether this tinkering with the country's delicate balance between capitalism and social welfare will strengthen the economy's performance or undermine public support for globalization is hotly debated in Sweden.

Whatever the outcome, Americans could learn from Sweden's experience. In both America and Sweden, trade as a portion of the economy has more than doubled since 1970. Although Sweden is far more exposed to the world market than is the United States, the pace of change and the attendant social and economic dislocations in the two countries are not dissimilar. And both nations are struggling to find ways to create more jobs, upgrade the skills of the country's workers, and integrate immigrants into the economy, even while seeking to pay for it all.

Contrary to the U.S. image of Swedes as socialists who share few values with capitalistic Americans, polls show that Swedes are no less committed to free markets, no less individualistic, and no less suspicious of government than are average Americans. So Sweden's recent success in creating a flexible economy coupled with a strong social safety net cannot be easily dismissed as an artifact of Scandinavian social democracy that has nothing to teach Americans. Swedes are capitalists, but they are also communitarians. Their success in adapting to globalization lies in their social cohesion and sense of reciprocal obligation. Challenged by the global economy, Americans seem to lack this spirit.

Every society is fated to cope with globalization in its own manner. Faced with a major economic downturn in the early 1990s, Sweden drew on the experiences of Britain and the United States in creating a more nimble economy. The U.S., confronted with stagnating incomes and growing opposition to trade, may be able to glean insights from the Swedish experience about the value of social safety nets in helping Americans adapt to the increasing uncertainties of modern life.

Economic Revival
The Swedes have not always been adept at dealing with globalization. From the 1960s to the 1990s, the country's economy grew steadily if slowly, but Swedes were falling behind. Per capita income was declining relative to other industrial nations. The wake-up call came in the early 1990s when the economy shrank for three years running and average Swedes found themselves nearly 6 percent poorer.

Facing a crisis, the society embraced change. In 1995, Sweden joined the European Union, giving domestic exporters better access to foreign markets but also exposing the country's industry to greater competition from abroad. To help Swedish companies meet that challenge, the government deregulated retail banking to improve efficiency in the financial sector. New zoning laws allowed large supermarkets to replace mom-and-pop stores, resulting in substantial consumer savings.

The gamble paid off. Annual average foreign investment in Sweden has increased ninefold since the country joined the European Union, compared with the 11 years before that. Imports and exports combined have grown from a little more than half of the economy in 1995 to more than three-quarters in 2006. And unlike in the United States, where globalization has resulted in trade deficits, Sweden ran a trade surplus of 7.2 percent of gross domestic product last year.

Increased competition from abroad also forced Swedish businesses to become leaner. In the past decade, private-sector productivity grew 1.5 times faster than in other industrial economies.

As a result of all of those changes, the Swedish economy, which averaged 1.7 percent growth from 1984 to 1994, has averaged 2.9 percent since then. The International Monetary Fund estimates that it will rise 3.6 percent this year. By comparison, the U.S. economy is likely to grow 2.5 percent in 2007.

Employment is also up. Nearly three-quarters of working-age Swedes now have a job, a proportion slightly higher than in the United States. And the person on the street has prospered. In the first half of this decade, Swedes' real wages grew 1.4 percent annually. Take-home pay in the United States grew by 0.2 percent a year in that period.

Free-Trader DNA
By nearly every measure, Swedes embrace their deepening globalization and do so more enthusiastically than almost anyone else.

More than four in five Swedes say that trade is a good thing for their country, the highest percentage found in Europe by the recent Pew Global Attitudes survey. Only three in five Americans agree. And more than twice as many Swedes as Americans say that these trade ties are a very good thing. "We are free-traders in our genes," Nuder said.

Swedes also have the highest individual Internet usage rate and reliance on e-mail in the world; 86 percent of Swedish companies, meanwhile, have their own website.

Graphic: Open To Globalization? Swedes score at or near the top among industrialized countries in their acceptance of the effects of globalization. They have a higher tolerance for immigrants and foreign influence than do most Europeans.

As to the anxiety created by globalization, fewer than half of Swedes think that their traditional way of life is being lost. Three-quarters of Americans hold such fears. In interviewing 45,000 people in 47 countries, Pew found Swedes to be the most secure about their way of life.

Moreover, young Swedes have striking confidence in their ability to cope with the world around them. Only 20 percent of those under age 39 want to protect Swedish traditions from globalization. By comparison, about half of young Americans want such protection. On the volatile issue of immigration, only 11 percent of Swedes think that it's a big problem, while 39 percent of Americans classify it that way.

Such differences in Swedish attitudes toward globalization -- especially compared with views held by Americans -- are not easily explained. Swedes are no less individualistic than Americans: More than 60 percent of people in both countries believe that success in life is determined by what individuals do for themselves. Possibly because the Swedish government accounts for such a large portion of the economy, 61 percent of Swedes think that the government has too much control in their lives. This percentage is not much different from the 65 percent of Americans who hold such anti-government views. And 70 percent of Swedes believe that people are better off in a free-market system, the same percentage of Americans who hold such views. In fact, the intensity of commitment to open markets is actually slightly greater in Sweden than in the United States. "Sweden is a very market-oriented society," observed Thomas Ostros, Sweden's former industry minister.

Strong Social Safety Net
Where Swedes differ from Americans is in their commitment to providing a social safety net for globalization's losers. Fifty-six percent of Swedes strongly believe that the state should take care of the very poor who can't take care of themselves, the most intense support for the welfare state among all of the peoples in Western Europe. Only 28 percent of Americans strongly share that sentiment.

Swedes believe that "it is the individual that needs to be protected from sudden shifts in the world economy, not the firm," said Pontus Braunerhjelm, head of the government's advisory globalization council.

As in most other industrial countries, the Swedish government pays for health care. No Swede has to worry, as many Americans do, that losing his or her job means being bankrupted by a serious illness. In addition, Sweden spends 1.32 percent of its GDP on safety-net programs -- everything from income maintenance when people are unemployed to retraining for dislocated workers. The United States spends 0.13 percent on such activities.

In Sweden, this means that the government initially replaces 80 percent of lost income for about half of those thrown out of work. "Such unemployment insurance is key to Swedish attitudes toward globalization," said Lena Westerlund, senior international economist with the Swedish Trade Union confederation. In the United States, unemployment insurance, which is paid through the states and thus varies widely, replaces, on average, 36 percent of the former income of the newly jobless.

Many Americans find it hard to understand why anyone in Sweden would work when not having a job pays so well. "We are social beings, and we need a work context," Braunerhjelm explained. "Work is your identity," a recently unemployed Stockholm woman, who was interviewed while being retrained as an accounting assistant, replied when asked why she was making the effort. In fact, Swedes tend to laugh when asked this question; it makes no sense to them.

Of course, many Americans undoubtedly share such sentiments about work. But the belief in the United States that a strong social safety net drains people of their desire to work suggests that Americans don't trust their countrymen to have responsible work attitudes. Swedes still have that mutual trust. Americans' skepticism may say more about their alienation from their jobs and each other than it does about the Swedes' devotion to the welfare state.

One reason that generous Swedish unemployment benefits generally don't become a permanent dole is the effort here to quickly return people to the workforce. If a Swede has not found a new job within 28 months of the start of unemployment benefits, he or she must be retrained in a new occupation. "If you have been away from work for a long time," said Mikael Hasselborg, whose firm ITERUM conducted the accounting retraining course in Stockholm, "you need a new start." About one in seven unemployed Swedes qualify to be retrained. And Sweden spends seven times more than the United States, as a percentage of its GDP, on such efforts.

The 32 jobless people -- including immigrants from Eritrea, Iraq, and Lebanon -- being reschooled in the accounting class here in early October were typical. Half had been unemployed for six months and nearly half for more than six months. Two had gone through a similar course before. Competition for the retraining slots had been fierce: More than two people were rejected for every one who got in.

Those who were admitted took a six-hour-a-day, 28-week course, including personal coaching on interviewing techniques and how to work cooperatively in office settings. "They learn a lot of interpersonal skills," Hasselborg said. The last 12 weeks of the course are an internship with a private company paid for by the government.

The effort is not cheap. Retraining costs about $7,700 a person. (The average amount spent on retraining in the United States is $1,800 per worker.) But the investment seems to pay off. The last time ITERUM ran this particular course some years ago, 86 percent of those involved found work.

Encouraging More Job Growth
As international as Swedish industry is today, it is focused on the near-abroad. Most Swedish exports still go to other E.U. countries. In the past decade, the average distance over which a ton of Swedish exports moves has actually decreased, as Eastern Europe has become a bigger customer for Swedish industry. "We are still in the very early phase of true globalization," said Braunerhjelm of the globalization council.

Swedish foreign investors also generally don't venture far from home. More people work for Swedish-owned firms in Poland than in China. "We have to get small- and medium-size Swedish firms to China," Braunerhjelm said. As that happens, McKinsey, a management consulting company, estimates that Swedish companies will move as many as 200,000 jobs abroad over the next decade. As they do, re-employment problems at home will grow because Sweden has done a relatively poor job of finding new work for those whose jobs move overseas. Swedish economic gains are no guarantee of future performance; that will require ever-greater economic flexibility.

For all the recent success in creating jobs, Sweden's employment rate has yet to recover to the level achieved a decade and a half ago. Moreover, long-term unemployment remains a bigger problem in Sweden than in the United States. Joblessness is widespread among immigrants and young people. Absences from work because of disability or sickness are comparatively high. Moreover, an aging population means that Sweden will need more tax revenues to support the elderly in the future, adding to the pressure to expand the workforce now.

As in any modern society, creating jobs in Sweden for those who have long been excluded from the workforce poses particular challenges. Business leaders complain that although it is relatively easy to hire a worker, firing one is more difficult here than elsewhere. Thus employers are reluctant to take on workers they may not be able to shed. One idea is to break the "last hired, first fired" rule and give workers a form of portable seniority to protect some of their benefits so they would be more willing to change jobs.

Taxes paid by companies to fund Sweden's generous unemployment insurance and retraining programs add 36 percent to each worker's annual wage cost, prompting many managers to think twice before hiring. American employers, in contrast, pay a 10 percent labor tax. Businesses in Sweden would like to cut the tax on job creation, but there is no agreement on how to make up the lost revenue.

To encourage working, the government offers a small tax credit to the newly employed, making work more rewarding than unemployment insurance. To help those outside the labor market find jobs, the government waives employers' contributions to the social safety net when they hire people who have been unemployed, who have been on sick or disability leave for more than year, or who are refugees.

Perhaps the greatest potential for new jobs lies in Sweden's relatively underdeveloped service sector. Only one in 20 Swedes work in retail shops, groceries, and the like, compared with one in 10 Americans. The U.S. experience suggests that such jobs can give minorities, young people, and migrants their first leg up on the employment ladder. To encourage more hiring of service workers, the Swedish government intends to rebate such employers' contributions to the social safety net.

Finally, to hold down costs and to encourage the unemployed to seek work, the government is scaling down benefits. The 80 percent replacement rate for lost wages has been cut to 70 percent after 40 weeks of unemployment and 65 percent after 60 weeks.

Giving Unions New Worries
The reaction from the Left to these reforms has been swift. "We have created social bridges from old jobs to new jobs," said Nuder, the Social Democratic politician. "But the government is making these bridges less reliable. And, if they are, people will stay on the shore" and be less willing to adapt to change.

Not surprisingly, the business-oriented government's efforts have put it on a collision course with Sweden's strong labor movement. Some 80 percent of Swedes belong to a trade union, with white-collar workers as likely to be members as blue-collar workers. This degree of unionization in part reflects the fact that unions administer unemployment funds, so it is in a worker's interest to have a say in how that money is spent.

Arguing that it needs revenue so it can cut taxes on low-income wage earners, the government has raised the cost of union membership by reducing the public subsidy for dues (that's right, union membership in Sweden is subsidized). It also increased workers' contributions to unemployment insurance. The effect has been dramatic: This year alone, about 300,000 people have dropped out of the unemployment insurance scheme, and blue-collar union membership has fallen by 90,000. The drop-off in younger members is particularly problematic for the unions. "The long-term plan of this government is to break the power of the unions," said Westerlund, the union economist. Private talks with some business leaders confirm that they would like nothing better.

"This threatens to destroy the whole Swedish social-economic model," said Ostros, the former Social Democratic industry minister. "If you do that, you will end up with smaller, more-aggressive unions and lower productivity."

Swedes fear immigrants less than anyone else in the Western world and have done a better job than most in integrating them into the economy. But immigration comes up in almost every private conversation, suggesting that Swedes are more anxious about foreign-born people than polls show.

Much of Sweden's population growth is now attributable to immigration: Of its 9 million people, 1.1 million are foreign-born. Immigrants who arrived in Sweden over the past decade account for a larger share of the working-age population than in almost any other European country, and they have trouble finding work. In 2003-2004, the unemployment rate for native-born Swedes averaged 5 percent. It was 24 percent for immigrants from Africa and 23 percent for people from North Africa and the Middle East. The jobless rate among young immigrants was more than 30 percent.

Mainstream politicians are worried about the emergence of the right-wing Sweden Democrats, which has done increasingly well in local elections and could garner enough votes to enter parliament after the 2010 elections. The party advocates restrictions on immigration and the repatriation of large immigrant groups.

Social Cohesion
America will never be Sweden. No major U.S. politician would ever say, as Nuder told National Journal, "If you want a functioning capitalist system, you need strong trade unions and high taxes." But in their individualism, their faith in the free market, and their suspicion of government, Swedes are more like Americans than most Americans realize. Thanks to their small population and, until recently, their relative homogeneity, Swedes have maintained social cohesion, a sense that they must face the future's challenges together. It's a value that frontier Americans had but that modern Americans seem to have lost.

Swedes have a sense of reciprocal obligation: They believe that individuals owe society work, should be accepting of change, and should be willing to learn and grow. In return, society owes the individual a cushion against the increasing uncertainties of the global economy.

So far, this balance has given Sweden a strong economy and a people who are remarkably accepting of globalization.

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