Balancing A Robust Social Welfare System and Stable Economic Growth: Drawing Lessons from Sweden’s Economic Model

The debate over whether there is a necessary trade-off between social welfare and insurance systems and economic growth is long standing. But Sweden is an example of a country that has managed to maintain a high level of social spending and a robust social welfare system as well as economic growth. At a time when many countries are debating social spending cuts to offset fiscal deficits, a discussion about what lessons might be drawn from the Swedish economic model makes for a “fascinating and very timely discussion,” said Winnie Stachelberg, Senior Vice President of External Affairs at the Center for American Progress, at a June 17 event hosted by CAP.

Social welfare and insurance schemes play a critical role protecting workers and ensuring a well-functioning labor market. “Creating good jobs domestically depends, in part, on creating them abroad, and good jobs underpin economic growth,” said Stachelberg in her opening message. Good or "just jobs" complete with appropriate remuneration and worker protections are important for supporting and strengthening the American middle class. Stachelberg’s remarks paved the way for Ulf Kristersson, Sweden’s Minister of Social Security, to offer a presentation on the historical origins and modern consequences of Sweden’s social welfare model.

Sweden has slowly developed into one of the world’s most prominent thriving economies. Sweden ranked second overall in the World Economic Forum’s Global Competitiveness Index in 2010. Bolstered by a combination of high taxation rates and progressive family and labor policies, the Scandinavian nation has transformed into a modern socioeconomic phenomenon. The success of Sweden’s economic model raises compelling questions as to whether the American system can benefit from adopting a similar approach that strikes a better balance between social welfare and economic growth.

How did Sweden—one of Europe’s poorest countries at the turn of the 20th century—manage to attain the success of its social welfare system? According to Kristersson, the process began with the National Pension Act of 1913, which guaranteed universal welfare coverage for all citizens 67 and above. “[The system] has sometimes been described as pure socialism,” acknowledged Kristersson, though he was quick to place the phenomenon within an intricately defined cultural context. “Our tradition of social welfare promotes people to constantly seek new opportunities, which is also a very Swedish attitude.” Kristerssen acknowledged that the expectation that the Swedish state assist all individuals in need of support has raised some concerns about the sustainability of the social welfare system in its current form.

Recently collected data indicates that Sweden is one of the healthiest European states, yet the country has also consistently featured significantly higher levels of sick leave than the majority of other European nations. Kristersson describes this trend as "totally unsustainable."

But a robust social welfare system characteristic of Sweden’s socioeconomic model has come to define the daily lives of Swedish citizens. It is a tradition that consists of bipartisan cooperation, a balance of individualism and egalitarianism, a fundamental openness to change, and a strong sense of responsibility on the part of the state to enforce these principles and engender these attitudes.

Following Kristersson’s lecture, Sabina Dewan, Director of Globalization and International Employment at the Center for American Progress, reiterated that Sweden is evidence that a strong social welfare system can be balanced with economic growth. When designed and executed appropriately, social welfare and insurance systems can serve as a productive factor contributing to economic growth. Presenting the audience with a multitude of cross-national data charts, Dewan extrapolated lessons from the Swedish model that could potentially be applied to other advanced economies.

“The Scandinavian model is not replicable in all countries, and certainly not in developing countries,” cautioned Dewan. “But we can take from it important lessons. Social welfare and insurance schemes are critical for raising living standards toward the creation of a global middle class that will help generate aggregate demand at a time when the global economy is still fragile.”

Following their talks, Dewan and Kristersson participated in a panel discussion moderated by Donna Cooper, a Senior Fellow with CAP’s Economic Policy team. Kristersson suggested that the United States may be in a good place to consider adopting Swedish ideas based on the current state of the economy. “It sounds brutal, but crisis is a good foundation for change…especially when people see the same things in such a crisis [and it] opens the window for compromise.”

This event represented a crucial step toward reiterating the important role of social spending on welfare and insurance systems in the United States based on the proven success of some of its foreign counterparts.

For more on this event see its event page.