Louis Proyect: The Unrepentant Marxist

November 10, 2015

How Swedish Social Democracy became neoliberal

Filed under: Sweden — louisproyect @ 9:48 pm

“Socialist” Volvos now built in “Communist” China
Screen Shot 2015-11-10 at 4.42.10 PM

(This is the ninth in a series of articles on “the Swedish model”. Part one is here. It is an introduction that relates Swedish socialism to Bismarck’s reforms. Part two is here. It is about the persecution of the Samis. Part three is here. It deals with Sweden and the “scramble for Africa”. Part four took up the Myrdal enthusiasm for eugenics. Part five deals with Sweden’s economic partnership with Hitler. Part six covers the social pact that labor and capital agreed upon in 1938. Part seven addressed the question of “Who Rules Sweden” Part eight looked into the Stockholm School of economics that served as as the foundation for Social Democratic policies..)

In 1938 the Swedish trade unions (Landsorganisationen) and the SAF, the Swedish equivalent of the Chamber of Commerce (Svenska arbetsgivareföreningen), signed an accord at Saltsjöbaden that would define the parameters of class peace for the next forty years. Under successive Social Democratic (SAP) governments, the system became known as “socialism” even though it was really a welfare state and nothing more. One of the more unfortunate aspects of the Bernie Sanders campaign is that it keeps this myth alive even though measured by the standards of the 1938 agreement Sweden has not been “socialist” for more than 25 years.

In the historic split between the reformists of the Second International and the Comintern, there was never any difference over the goal. Both Lenin and Eduard Bernstein claimed that they were in favor of a classless society. They only differed on the means. Until the 1930s, the Swedish social democrats could at least be described as orthodox Bernsteinites. But in the years leading up to 1938, they transformed themselves into something entirely different. They became socialists in name only. Independently of John Maynard Keynes, they developed policies that are largely associated with the term “Keynesianism” such as:

  1. Deficit spending as an anti-recessionary measure
  2. A highly progressive income tax
  3. State subsidized housing, medical care and education.
  4. Generous unemployment and welfare payments
  5. Partnership between labor and capital over industry-wide and plant-specific policies (in Michael Moore’s latest documentary, tribute is paid to the inclusion of trade union representatives on the board of directors of Mercedes-Benz.)
  6. A specifically Swedish enhancement to the welfare state and one viewed as in line with classically “evolutionary” socialism was called “wage-earner funds”. (They were also called Meidner funds after the economist who first conceived of them.) Supposedly a percentage of pre-tax profits plus a part of wages would be allocated to an pool that would buy shares in the companies, gradually taking them over.

When Bernie Sanders talks about socialism, he is talking about such policies. I too would like to see them adopted in the USA. Unfortunately, they have disappeared for the most part from Sweden as it speeds rapidly toward adopting the Anglo-American Reagan/Thatcher/Clinton/Obama neoliberal model.

The economists who formulated a Keynesian model were graduates of the Stockholm School of Economics, an institution I wrote about in an earlier installment in this series. This business school was launched in 1909 with Knut Wallenberg’s funding. As you probably know, if you have been reading these series of articles, the Wallenbergs were the Rockefellers of Sweden but with a decidedly more liberal outlook—at least until economic growth in the advanced industrial countries slowed down to a crawl in the early 70s.

While it is beyond the scope of this article to explain why the post-WWII boom came to an end (I would refer you to Harry Shutt’s The Trouble with Capitalism for information), suffice it to say that the Wallenbergs switched gears in the early 1970s just as most major donors to the Democratic Party would.)

In 1978 a Wallenberg favorite named Curt Nicolin became head of the SAF and embarked on a path to tame the Swedish trade unions and to force the social democrats to adopt neoliberal economics. If you’ll recall what was happening in the USA at the time, a climate of “lean and mean” had begun to set in. Even before Reagan had taken office, President Carter had lectured the American people on the need to tighten their belts. Think tanks on both the liberal left and the right had come to the conclusion that in order to have an expanding economy, it was necessary to become more competitive. This meant working longer hours and accepting the need to cut “wasteful spending” on welfare.

In Sweden the SAF funded a massive propaganda attack on the “wage-earner funds” meant partly to put the kibosh on the program and also to put the entire Swedish model on the defensive.

On a national popular level in advertisements ‘Meidner Funds’ were connotatively linked with central planning and totalitarianism, presented in black and white images, and were juxtaposed with free enterprise, connotatively linked with freedom of choice, decentralised ownership, initiative and democracy, which were presented in colour. The material was also often targeted so as to interpellate certain groups or towns (‘free enterprise good for Vaxjii’; ‘wage-earner funds concern us barbers too, whether we like it or not’; ‘us gas-station owners too, whether we like it or not’). On an intellectual level, the publishing house Timbro published 22 books between 1978 and 1982, half of which were on free markets and wage-earner funds. The publishing house Ratio was oriented towards theoretical and philosophical debate, and also arranged seminars in philosophy and the social sciences on topics pertaining to freedom, democracy and the market. (In the process, some prominent figures of the Swedish New Left, such as Lennart Berntsson, were converted.) In addition to this, SAF and SI continued their support of the more technical think-tanks, SNS and IUI. This elaborate apparatus provided support for the bourgeois parties in the elections of 1979 and 1982, and thus the prerogatives of capital could be defended.

In many respects the partnership between labor and capital in Sweden was like the one that existed in the USA under FDR, Truman and LBJ until the realities of market competition forced a breach. The big difference between other countries and Sweden was the role of the left. Unlike France, Italy or even the USA to some extent, heavy industry was the arena over which the bosses and the Communist Party fought for control. There was never anything like the Flint sit-down strikes in Sweden, at least in the 1930s. (The Adalen General Strike took place in the early 20s when the CP was a much bigger factor.) For Swedish social democracy, the idea was to foster the development of big manufacturers like Volvo that could provide the tax revenues to fund a welfare state. In exchange for class peace, the bosses got a stable workplace and government subsidies.

As the crown jewel of Swedish “socialism”, the trajectory of the Volvo Corporation deserves some close scrutiny. Volvo (and Saab) had a reputation among many liberals and even many on the left as being superior to other car manufacturers for its attention to safety, its refusal to adopt new styles every year or two, and finally for its supposed humane treatment of its workforce. On June 23, 1987 the NY Times reported on how Volvo was abandoning Fordist assembly lines and converting to a work team approach that were being pioneered in its Kalmar plant. The Times reported:

The cars being assembled here are ferried around the plant by separate computer-controlled carriers. Work teams of about 20 people are responsible for putting together entire units of the car, such as the electrical system and the engine. In this batch-work system, each worker typically does a series of tasks.

Equally unusual is where Volvo found Kalmar’s managers. Virtually all of the plant’s 104 white-collar employees came off the shop floor. Moreover, all major decisions at the plant, whose work force totals 920, must be approved by a joint committee representing both labor and management.

Volvo has discovered that workers are much happier under the Kalmar approach. And that has resulted in sharply improved productivity and improvement in quality, as well as profits that are the envy of the world auto industry.

By November 1992, the two work-team plants had been shut down. Furthermore, Volvo announced that all new assembly would take place outside of Sweden. (Saab, which had already been sold to General Motors, also was headed down the same road—finally going belly up in 2012.)

After being sold to Ford in 2000, Volvo finally ended being made in China with Swedish financing. You can understand why. Workers at Geely in China making Volvos on an assembly line (you can be sure) make $5000-7000 per year. That’s much better for the bottom line, after all. Apparently Volvos will soon be made in South Carolina, another bastion of free enterprise.

Winding down the manufacturing base in Sweden did not mean an end to capital accumulation. Like Great Britain that had liquidated its coalmines and steel mills, Swedish capital would find other profitable outlets. As Thomas Murphy, a former CEO of General Motors, once put it: “General Motors is not in the business of making cars. It is in the business of making money.” This could apply as well to the Swedish bourgeoisie.

In a March 1993 Monthly Review article titled “The End of the Middle Road: what happened to the Swedish model?”, Kenneth Hermele and David Vail describe where Swedish capital flowed:

There was no special need to invest those profits in domestic productive ventures, since business was going so well anyway. Instead, the growing profits bred speculation and inflated the prices of real estate, art, stamps, and the like. In order to find an outlet for all this speculative capital, the Social Democratic government thought it necessary to eliminate the little control over international capital flows that it had previously exerted. Within a year or two, Swedish capital had spilled over into Europe and helped push real estate prices in London and Brussels to record highs.

During the latter half of the 1980s, total direct investments virtually exploded, reaching 84 billion SEK (14 billion U.S. dollars) in 1990. The outflow of capital amounted to as much as 7 percent of Sweden’s GNP, or 60 percent of its domestic investment in 1989 and 1990. Approximately 35 percent of those investments were for speculative purposes (real estate and portfolio investments) and centered on London and Brussels. Swedish capital in fact became one of the most active investors in the EC at the end of the 1980s.

This outflow of capital constituted a drain on Sweden’s financial resources, and it also meant that productive investments at home were kept low by the giant and quick profits that could be made on speculation both at home and abroad. As we know now, the bubble burst sooner rather than later, and the losses turned out to be enormous. In Sweden, the banking system lost an estimated 90 billion SEK (18 billion U.S. dollars) on the collapse of the real estate market. Here, private and public commercial banks and the normally-conservative savings and loan institutions had all participated in the scramble. Their enormous losses are now covered by the Swedish state, i.e., by the taxpayers. Thus, wage earners have paid twice for the policy of the Third Road: first, when their wages were sacrificed in favor of profits, and then again when the banks’ losses are covered by the state.

Even as the economic basis for a “Swedish model” was unraveling, the social democrats in office appeared to have little interest in swimming against the stream. In fact, they seemed eager to embrace “new thinking” with relish.

In 1993 Finance Minister Goran Persson began dismantling the Swedish public education system and fostering the establishment of private schools in the same fashion as Obama’s Secretary of Education Arne Duncan.

At the same time the SAP joined hands with the right-wing Swedish Conservative Party (Moderatasamlingspartiet) to make workers responsible for making pension contributions, not the boss. This mean that the longer you are unemployed, the smaller the pension. Socialism? Really?

In a July-August 1994 Monthly Review article titled “Sweden: the model that never was”, Robert Cohen writes:

[Prime Minister] Ingvar Carlsson recently visited Malmo, the third largest city in Sweden and a disaster area in terms of unemployment, cutbacks in social benefits, and privatization of health care and other vital services. For example, the public bus service was recently sold to private owners. This led to immediate personnel reductions, wage cuts, and price increases. The cost of a monthly ticket for a pensioner rose from 100 to 390 kronor overnight, which effectively prevents many pensioned workers from using the bus service. Carlsson’s comment on privatization in Malmo was: “I’m not familiar with the details, but in principle we are not in disagreement with our political opponents,” which amounts to an endorsement of the attack on Malmo’s working class.

In September 2014, the Social Democrats were elected in Sweden in what many considered to be a rejection of 8 years of center-right austerity. In keeping with earlier partnerships with the right, they show signs that they remain committed to neoliberalism. Just three months after being elected, the new prime minister named Stefan Löfven caved in to rightist pressure and adopted an economic program that was more of the same. Even if it finds the votes necessary to reinstitute a “Swedish model”, it is unlikely that it will be able to sustain through unrelenting pressure from the right. It takes a lot more guts to push through a modest Keynesian economics in 2015 as the sad outcome in Greece demonstrates. In fact, it might even take Molotov cocktails to bring about the most tepid of reforms.

In the final analysis, it was inevitable that Sweden became virtually indistinguishable from Britain or the USA since blind economic forces trump policy. If we are interested in true socialism rather than something that rests very much on a partnership with capital, a marriage made in hell to say the least, it probably makes sense to revisit the question of how to get there. That will be the final installment in this series of articles.


  1. the economic basis for a “Swedish model” was unraveling

    Another problem with Keynesian economic theory is that it assumes that there is or will be a government actor inclined to and capable of providing constructive regulation of private economic actors.

    But ‘free market competition’ consists of big fish constantly eating little fish, resulting in a relative handful of whales and sharks whose economic power allows them to ‘capture’ the political and regulatory process.

    Comment by Watson — November 11, 2015 @ 10:25 pm

  2. Even seventy years ago, the Polish economist Michal Kalecki (who had independently of Keynes arrived at a similar macroeconomic analysis) was arguing that over the long-run capitalists would not support the application of Keynesian-style policies for maintaining full employment. Of course, nowadays, international competition is much stiffer, so that even if they were otherwise inclined, capitalists would be unlikely to support the application of Keynesian-style stimulus policies which might make them less competitive.


    Comment by Jim Farmelant — November 12, 2015 @ 2:35 pm

  3. […] o caso dos países escandinavos, onde o estado de bem-estar social foi revertido, o neoliberalismo tomou conta e a desigualdade aumentou nas últimas décadas. O capitalismo sempre dá aos ricos a capacidade de […]

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  4. […] for the Scandinavian countries, wherein the welfare state has been rolled back, neoliberalism has taken hold, and inequality has risen in recent decades. Capitalism always gives the rich the ability to undo […]

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  5. […] Amid the rise of neoliberalism throughout the last four decades, Sweden’s social democracy has effectively turned neoliberal, with inequality rising by consequence. This has also been the case for all the other Scandinavian […]

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  6. […] Amid the rise of neoliberalism throughout the last four decades, Sweden’s social democracy has effectively turned neoliberal, with inequality rising by consequence. This has also been the case for all the other Scandinavian […]

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  7. […] This is taken from one of a set of nine essays written by Louis Proyect on Swedish social democracy. All are well-worth reading, louisproyect.org […]

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  8. […] undone the moment the capitalist class decided that neoliberalism was necessary. Scandinavia’s descent into neoliberal austerity in recent decades is another example of how under capitalism the […]

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  9. […] How Swedish social democracy became neoliberal. (2015, November 11). Retrieved April 18, 2021, from https://louisproyect.org/2015/11/10/how-swedish-social-democracy-became-neoliberal/ […]

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