Göran Persson

After a rocky patch in the early 1990s, the Swedish model of high taxes and high spending is now stronger—and more popular—than ever. Sweden's prime minister explains why
October 21, 2005

When Swedish prime minister Göran Persson visited last year's Labour party conference and listened to Gordon Brown pledge to rid Britain of child poverty, he couldn't help but hear echoes of the speech made by the late Swedish prime minister Olof Palme at the Social Democrats' party congress in 1974.

The progressive parts of the emerging "Anglo-social model" seem to be based, in part, around Swedish policy ideas and the belief that the Swedes may have found the answer to the question of how a modern state can combine high growth and productivity with compassion and egalitarianism.

 

Sweden hasn't always been a success. When you became finance minister in 1994 you inherited an economic mess.
We couldn't finance what we had promised. So when a downturn came, the social system was overloaded. We had to cut back on all fronts. But now we have pruned the tree, we are combining high economic growth—above the EU average and as good as the US per capita—with the growth of the welfare state. A severe downturn in the national business cycle would hurt us, of course, but it would not destroy our model. We have created margins inside the public finances well above what the Maastricht criteria recommend (a budget deficit of no more than 3 per cent of GDP). I think we can meet a downturn that will create a deficit of roughly 5 per cent of GDP. I don't think there is any other country in Europe could say the same.

 

What is the secret of combining high taxes with high growth?

If you have a free economy, a highly educated workforce, a very healthy people, very high productivity (as high as the US) and a sound environment, you can create the conditions needed for good growth. This has to be coupled to adequate financing of universities, and of R & D. As long as we are efficient and constantly challenging ourselves we continue to be productive. Then if we produce successful growth, we get the public's support for high taxes. If public services are good and working, a prosperous people will continue to vote for the taxes needed to fund them.

 

Does Tony Blair pick your brain on this?

Yes, he asks me about it sometimes. Not so often—we have so many EU issues to discuss. But people from the British ministries are visiting here all the time to get ideas.

 

Is Britain likely to take further steps towards the Swedish model?

There is a fundamental difference between Britain and Sweden. Britain has been shaped by decades of Conservative policies; even the political framework of today's Labour government was constructed by previous Conservative governments. But for a long time we have operated only in a social democratic frame. Even when the opposition was in power, they operated in our framework.

 

So what should the Blair government do next?

The British public sector has huge unmet needs. You are constantly discussing how to improve both your infrastructure and the NHS. You may be able to raise some private money, but for the long term you need large amounts of public money as well. Your government is looking very carefully at our model for funding the public sector.

 

What are today's priorities for Sweden?

We have carried out many reforms in our health services. Only France and Japan exceed us in longevity, but we spend a smaller share of our GDP than them on health, so we have the most efficient system. On pensions we have tried to create a system that moves with the economic and social situation. We are rewarding people who choose to work a few extra years. If we can persuade people to move the de facto retirement age from 60 to 61, that would increase the output of the workforce by 2.5 per cent; if we raise it to 62 then the increase would be 5 per cent.

We are reforming entitlements. Despite the fact that we have had too many people claiming disability and sickness leave, we have the highest rate of participation in work across Europe. Employers can now claim a tax benefit if they succeed in persuading their personnel to return from sick leave. This means they should improve their environment and their conditions of work.

 

How can the modern state, however social democratic it is, meet the revolution of rising expectations in healthcare?

Look at our improvements over the last ten years. You could have posed the same question ten or 20 years ago. But we have been able to convince the electorate to finance the new expensive developments. The question is: do they find it worth it? The real question is: are these improvements for everybody? If the answer is "yes," the electorate will vote for higher taxes. It will always be a fight. But it is possible.