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Sweden: How the welfare state was stolen

[For more on Sweden, click HERE.]

By Adam Bott

April 2014 -- Red Pepper, posted at Links International Journal of Socialist Renewal with permission -- For a hundred years, ABF-Huset on Sveavägen has been the headquarters of the workers’ education movement, a pillar of Sweden’s "study-circle social democracy". Every day and all evening the classrooms and lecture halls are filled with adult education classes, theatre and music performances, as well as political discussions.

Tonight’s public meeting is standing room only. The mood is cheerful, earnest, disciplined and, dare I say it, rather churchly. Fittingly, we begin with songs: first a hymn tune with the refrain "Everything is for sale", then a jazzier number that goes "Got any money? (Then you can buy a place in the queue)". Next there’s a short dystopian pantomime set in a hospital waiting room: the man with the private plan goes straight upstairs while the lady on the public option has to wait in line. The sheepish uninsured fellow with the broken leg is shown a price list, then the door.

The wholesome militant jollity of this curtain-opener jibes strangely with the evening’s tag-line, "politicians against the wall". It’s a public debate called by an organisation called the Campaign for Common Welfare. The panel are bunched in on the stage, as all the parties in the red-green coalition have sent MPs to field questions, and a number of municipal politicians as well. The panel are on average maybe 10 years younger than their audience, and they look rather bashful: rightly, for they are about to spend three hours being scolded.

Sweden’s welfare system is famously extensive: long parental leave, free childcare, free tertiary education, generous social security. After the economic crisis of the early 1990s successive governments have reduced entitlements and cut public spending, but what has changed the most is the incorporation of the private sector at every level of the welfare state. All public contracts are subject to competitive tendering and most new clinics and hospitals are built with private funds. Communal clinics, nursing homes and schools compete with private firms for pupils and patients. Last year the state paid almost 100 billion kronor (£11 billion) to private welfare operators, overwhelmingly to 10 large corporations all owned by private equity funds.

The Swedish experiment has attracted worldwide interest from governments looking to promote "efficiency, choice and innovation" while slashing budgets. The "free schools" introduced by the British Conservative Party-led coalition government were expressly inspired by the putative success of the Swedish experiment. In 2008 Michael Gove wrote an article for the Independent under the headline "We need a Swedish education system", and two Swedish companies have already taken over the management of schools in the UK, albeit on a not-for-profit basis. The "New Nordic Model" promises to finally free the public sector from the dead hand of bureaucracy, although curiously no other Nordic country has actually implemented it.

When I tell Swedes this they laugh. Then they squint at me uncomfortably, trying to work out if this is one of those off-key English jokes.

In Sweden the system is felt to be in crisis. For the last few years it has been one scandal after another in the private welfare business. In 2011 a newspaper investigation exposed shocking abuses at nursing homes run by Carema, the country’s biggest private care provider: injuries and deaths due to neglect, unnecessary amputations, malnourishment, poor hygiene, insufficient medicines and poorly trained staff. A doctor at a care home in Vällingby reported that he "no longer felt able to guarantee the patients’ medical safety".

Last summer Danish private equity company Axcel decided to close down 25 free schools that were no longer profitable, leaving tens of thousands of students stranded. In the autumn Sweden received its worst ever results in the PISA international education rankings, placing 36th in reading and 38th in maths and science, behind all other comparably wealthy countries. Just last month it emerged that a leading chain of kindergartens had cut their food budget to 9 kronor (80 pence) per day and was serving the children meals of crispbread and water.

Dirty care homes and bad exam results are certainly not inventions of the private sector. But the objections with "new Swedish model" go deeper: it is steadily eroding the solidaristic basis of the welfare state. The "free choice" system has effectively enabled the upper middle class to escape the impacts of massive cuts in public expenditures. Health clinics and home-care firms and paid per appointment or per patient by the municipality expand in wealthy neighbourhoods where customers have the least complicated needs and are most likely to purchase additional services for a (tax-deductible) fee.

Meanwhile in rural areas and poor immigrant suburbs provision is sparse. Almost half of children from the richest 10% of families are now educated in independent schools, compared to fewer than one in twenty of the poorest 10%. A major research project at Stockholm University has concluded that the voucher system has substantially increased class and ethnic segregation in schools.

The result is growing public anger. It doesn’t help that the private welfare firms have sustained enormous profits (almost double the average for the corporate sector as a whole) while contriving to pay hardly any taxes. In one recent opinion poll 62% of Swedes thought excluding profit-making businesses from public health, education and care was either a "good idea" or a "very good idea". Another found that 90% felt profit in public sector should be either forbidden or more heavily regulated. Since 2014 is a "super-election year" in Sweden, with European elections in May and local and general elections in September, politicians want to show that they are listening.

At ABF-Huset, the MPs on the panel compete to sound the most indignant. There are lots of lines about "standing up to big business" and "putting people first". As a rule, the questions are much more interesting than the answers. Most come from workers in the welfare sector, both public and private.

Petter, a secondary school teacher, tells how schools in this suburb are drained of resources while one free school after another has opened up in the rich neighbourhoods on the other side of town. He worries that in politicians’ shallow squabble over PISA results something much nastier is being overlooked – the combination of profit motive and "free choice" system is creating a class apartheid.

Anna, a young nurse, says that she is almost ready to quit, and that many of her colleagues feel the same. "Every day we end work worried, angry and confused. We just don’t have the resources we need to do a good job, to make care humane, help patients feel secure." She describes how new management practices have left them with less and less time to attend to patients, how the pressure and stress lead to deadly mistakes. "Get to the question", says a voice from the back. "No", shouts another immediately, "tell it like it is!" Cheers, a round of applause.

And so it goes on. The prevailing tone is a mixture of bafflement and exasperation. No one can quite understand how we got to this pass. David, a child psychiatrist, explains how the pressure from his superiors to squeeze in as many patients as possible has left him feeling like he works in a car factory.

Jens, a civil engineer with the public transport department wants to know what will be done about the struggling railways. Twenty years ago Sweden had the most cost-effective railway network in Europe, he says. Now it is the worst – for every 100 kronor, 83 goes on transaction costs — and the European Union is proposing the Swedish rail privatisation as a model. The virtue of privatisation is supposed to be precisely the market’s Darwinian quality – winners can thrive because losers are allowed to fail. But when it comes to the privatisation program itself, be it trains or classrooms or nursing homes, failure is no obstacle to success.

The transformation

How did Europe’s most successful welfare state come to be rebuilt from the inside out according to the principles of the Chicago school? I spoke to Kent Werne, whose new book, The Great Transformation, sets out to answer this question. Werne never uses the word "conspiracy" – nor could that be appropriate, if the Swedish experience is to be properly understood as part of a global shift in economic power – but the story he tells often comes close.

By the late 1970s the Swedish right wing had become deeply anxious. While their counterparts abroad were rolling back the state and breaking the back of organised labour, they had been sitting still while the Social Democrats and the trade unions steered the country, as they saw it, towards ruin. The adoption of the Löntagarfonder (employee funds) program as trade union policy in 1976 marked the high point of Sweden’s leftward tide. The original idea was that a fixed portion of corporate profits would be converted into share-issues to union-controlled funds. It was supposed to be a way for labour to counterbalance the power of big capital, in a country with an extraordinarily high concentration of wealth.

SAF, the Swedish employers’ confederation, set about building a powerful public relations machine. Opposition to the employee funds was to be the rallying point for a new free-market coalition. The SAF published a leaflet titled "A free economy or fund-socialism". However improbable, the spectre of a "Swedish road to socialism", with the Löntagarfonder as the first step in the creation of a sort of Nordic version of East Germany, had a powerful impact, in particular among the self-employed and small business owners. In October 1983 tens of thousands took part in a protest march through Stockholm. The SAF chartered buses, trains and even flights to bring participants from across the country. They failed to change the prevent the introduction of the employee funds, but succeeded in building a new base for the right.

Taking their inspiration from the resurgent right in the USA and Britain, the SAF set up a series of think tanks and campaigning organisations. The Free-market Alternative for Sweden (MAS) was established in 1982 with funding from the SAF and the Heritage Foundation in the USA. An early report lamented that "free-market thinking is poorly developed" in all political parties, but nonetheless found scope for "promoting private sector solutions both as complement to and a replacement for the public sector", and predicted an "explosion of demand" if the door was opened to fee-paying services. The head of the outfit was Bengt Westerberg, soon to become leader of the liberal Folkpartiet, and among those closely involved was future prime minister Carl Bildt.

It was widely felt, including on the left, that after 40 years of one-party rule the welfare system had become rigid, stifling and paternalistic. Public sector professionals wanted greater freedom. The mood was amenable to the liberalisers’ message. But first there was a strong public suspicion to be overcome. Swedes were curiously hesitant to entrust the care of their children and parents to businesspeople. In December 1983 a group of right-wing activists within the SAF-owned Swedish Management Group established their own private pre-school company, Pysslingen. Almost all public nurseries at the time were under municipal control. A few were run by parent cooperatives, but profit-making outfits were unheard of. Pysslingen’s diminutive name belied the fact that company was owned by white goods giant Electrolux, whose CEO acted as godfather to the project.

When their plans were published in the press there was an immediate outcry. The atmosphere was deeply confrontational. The government promised to oppose the nursery corporation with "all means necessary", and two months later passed the "Lex Pysslingen", which forbade public funding of profit-making nurseries. They went on an offensive against private penetration of the welfare state, passing further laws curtailing subsidies to private education and healthcare providers. Prime minister Olof Palme told a heckling SAF congress that he could not tolerate day-care centres run like fast-food franchises churning out "Kentucky Fried Children". The Social Democratic Party won the 1985 election after an aggressive campaign accusing the right wing of planning to dismantle the welfare state.

The business lobby changed tactics. The focus was to be not on private alternatives but choice within the state system. The slogan was "freedom of choice". Breaking the "public monopoly" would mean greater choice for citizens and the chance of higher salaries and greater autonomy for public sector employees. They accused the government of arrogance and intolerance, of fear of the new and ably adapted the language of progressive politics, calling for democratisation and the disruption of hierarchies. Opinion polls were commissioned to show that, if the right questions were asked, a majority favoured opening up to private providers. The message received a particularly sympathetic audience from the white-collar unions and the liberal press. Expressen published a front page with the headline, "The Swedish people want Pysslingen!".

Among the political class, including many Social Democrats, the privatisation agenda gained ground in the guise of what came to be called "new public management". Put simply, the idea was to create an artificial market within the public sector. Local authorities began to experiment. Pysslingen reinvented itself as a "project management company" and opened a series of nurseries in prosperous Stockholm commuter villages. No rules were broken, since technically these were public nurseries and Pysslingen was merely providing management services.

At first the shift was piecemeal and slow. The promised "explosion" finally arrived with the election of the Moderate Party-led conservative government in 1991. On October 4, the 10th anniversary of the march against the employee funds, Prime Minister Carl Bildt declared "the age of collectivism is over". The new administration immediately launched a program of radical liberalisation, lowering income tax, cutting welfare and social security expenditure and privatising utilities and publicly owned industries. The employee funds were dissolved. Legal restrictions on private involvement in welfare were repealed and a voucher system introduced for primary and secondary schools.

Social Democratic 'modernisers'

When the Social Democrats returned to power they did little to change direction. To reassure the markets during the economic crisis they had entered into a pact to maintain the main planks of the Bildt government’s tax and spending policies. They placed a brake on further privatisations but did not reverse those that had taken place. Like New Labour in Britain, they were keen to prove themselves as responsible "modernisers".

There is also a powerful revolving door. When politicians of any party find themselves out of office there are always lucrative job offers with lobbying and PR firms representing the private care and education industries. From 2006 the next right-wing government set about expanding the opportunities for private firms, extending the voucher system to home and elderly care and introducing tax breaks for the purchase of additional personal services including cleaning and private tuition.

The cumulative effect of these policies has been to transform the Swedish welfare state beyond recognition. Moderate Party politicians and SAF think tanks had conjured up images of schools run by cooperatives of enterprising parents and teachers and doctors taking over their own clinics. In the beginning this did occasionally happen, but overwhelmingly the money was behind large chains, who could cut costs by centralising administration and raise funds on the financial markets.

The health and elderly care sector is dominated by eight large firms with turnovers in the tens of billions. All are controlled by private equity firms, many based in Luxembourg or the Channel Islands. Pysslingen is now a subsidiary of education giant AcadeMedia, which owns 330 schools, nurseries and adult education centres across Sweden and has an annual turnover just under 5 billion kronor (£475 million). AcadeMedia was recently bought by a venture capital firm controlled by Sweden’s most powerful family, the Wallenbergs, who already have a large interest in rival school chain Kunskapsskolan and also own Aleris, one of the largest providers of of health and elderly care.

This is not an exceptional case. "The combination of relatively secure and predictable income streams, and zero or low fixed costs means that the whole business can be run largely on borrowed money, which means high leverage and high profits for the private equity funds." In this way, even when apparently running at a loss, the welfare chains can extract enormous profits for their owners.

These days even some conservative politicians admit that things have gone too far, particularly with regards to the behaviour of the private equity firms. I ask Kent Werne if the reformers of the 1980s and 1990s really foresaw that Sweden would end up with an oligopoly of big chains backed by international finance.

"I’m sure, having read the documents from the 1980s, that the neoliberal intellectuals and politicians knew exactly what they were doing and what it would lead to", he said. "[Milton] Friedman’s Free to Choose predicted school chains that would operate like restaurant franchises, as we have today. But when they were selling it to the Swedish people they framed it as a way of allowing teachers and students to run their own schools. In reality big capital was involved from the very beginning – behind Pysslingen was Electrolux, remember."

Twenty-five years on, are we are able to assess the effects of privatisation? "We can say for certain that the main promises have not been fulfilled. They promised higher quality, cost effectiveness, better working conditions. All three were false. We can see certainly that marketisation increases inequality, especially in Stockholm. The people who need more get less. Resources are distributed according to profit not need. As for the idea that the Swedish welfare system needs big capital to survive, that’s simply a myth. Private equity does not invest money. It extracts money."

So why, I ask, has the public mood changed? "The entrance of private equity from 2005-6 was a big shift. They created a totally different logic, where short-term extraction of profit was the only goal. In 2011 the shit really hit the fan. They game changer was the Carema scandal. Before then most people hadn’t really realised what was happening. When people realised taxpayers' money was going to Jersey and Guernsey and that a few rich guys were getting richer by cutting personnel, people were furious. The liberals had framed the debate as a fight between David and the social-democratic Goliath. Now it was the other way round."

But Werne cautions that, despite public opinion, the political parties remain nervous of moving against the private firms. "The liberal lobbyists and think tanks say if you end profit you end choice. No political party wants an end to choice. Of course, the natural progressive strategy to do is to democratise social services but not within a market system, to empower the grassroots – teachers, care staff, nurses, doctors. No party is seriously pursuing this today."

I recognise the tone of puzzlement and exasperation, the same I heard at the debate at ABF-Huset. Many on the left still feel disorientated and defensive. It is sometimes hard to stop asking "How did we let this happen?". But this mood is beginning to change. The critique of privatisation now resonates far beyond the orthodox left. Almost everyone agrees that the system as it presently exists is broken. When SNS, an establishment think tank with close ties to industry, published its landmark report, The Consequences of Competition, it found that 20 years of marketisation had produced no clear gains in effectiveness or efficiency. Of course, SNS recommended tighter regulation to make the market work better. But others are taking advantage of the new political opening to push for more radical solutions.

Left challenge

The only major party to commit itself to the complete abolition of private profits in the welfare state is the Left Party (Vänsterpartiet), whose support has been steadily increasing since the last election. If the opinion polls are right, there is a strong chance that they will form part of the next governing coalition, along with the Social Democrats and the Greens. When I spoke to Left Party member of parliament Rossana Dinamarca, she said that recent success with the welfare agenda reflected years of principled campaigning.

"We have been trying to make this an issue since 2006, and it has been slowly growing in public awareness", she said. "Now the other parties are being forced to confront this question. The opinion of the electorate is very clear, so all the parties want to look like they are doing something. But so far we are still the only ones with a clear position."

She was particularly scathing about the impact of "free-choice" schools and the school choice system. "It’s very clear that results have gone down in the past 25 years and that is the direct effect of the school choice system. There has also been a great increase in social segregation in schools – not according to neighbourhood or ethnicity but social class. It is a very divisive system. Only Sweden and Chile have gone this far", she notes, shaking her head. Dinamarca is herself Chilean born, from a politically active family who fled after the Pinochet coup of 1973. Sweden’s then prime minister, Olof Palme, was a vocal supporter of Salvador Allende – and when Allende was overthrown the Swedish government offered asylum to thousands of Chilean socialists fleeing the new dictatorship. It was a mark of how far the country had moved that two decades later Carl Bildt’s government adopted a school voucher system first implemented by Pinochet under the guidance of Milton Friedman.

Isn’t it difficult, I ask Dinamarca, being portrayed as the enemy of customer choice? "Parents can see the problems with the system but they are naturally also afraid of change. The way I try to put the message across is to say: it shouldn’t all be down to your choice whether your child can get a decent education or not. You shouldn’t have that burden of responsibility. All schools should be good."

How much of a difference will it really make if the left-green alliance win the next election? "Of course it depends on what the Social Democratic Party is willing to do. We have to hope that its current position is simply strategic and they will be more reasonable after the elections. If they want to work with us they will have to be."

Some party activists I speak to are more cynical. One tells me, "With the Social Democrats the revolving door is a really big factor. In the past we had clear ideological differences, for example over employment policy, but this welfare debate is closer to a corruption issue. Some of their leading figures have sat on the boards of private welfare companies. Thomas Östros, the Social Democrat spokesperson we were negotiating with until the last change of leadership – immediately after he resigned he became the chairman of the Swedish banking confederation."

There is no doubt that the Social Democrats are divided. Current party leader Stefan Löfven’s preferred strategy is to deplore the situation without committing to fix it. During a recent TV appearance a member of the audience asked Löfven why he had not "put his foot down on profits in the welfare state". He furrowed his brow and lowered the pitch of his voice, and explained that private equity firms who extract mega-profits from failing schools then close them down six months later are "not acceptable", "not OK", "absolutely not OK". He called for tougher controls so that private firms demonstrate "professionalism, competence and long-run commitment". Profits should not be the "driving force" in the welfare state, he explained – but we must also remember that "not everything private is bad". If the Left Party had their way, he said, dentists would find themselves forced to close if they ran their clinics too efficiently.

Insofar as this platform entails a policy, it is not to reverse or even to halt privatisation, but to proceed more cautiously. However in the grassroots and the labour movement there is pressure to adopt a firmer line. Many think it is time to look for a more democratic model of welfare provision altogether. They point to the success of Norway’s highly successful "model municipality" system, under which local citizens and welfare employees take greater control of their own public services, and have the power to propose and collectively implement new ideas. They have established think tanks with trade union funding to develop and disseminate their ideas.

Meanwhile, local campaigns to defend public services have sprung up around Sweden. Next month groups in 12 cities are planning a coordinated day of protest. When I spoke to Arne Johansson, a veteran activist and spokesperson for the Campaign for Common Welfare, he was full of optimism."Last September we held a series of nationwide protests and we are planning to repeat this in May of this year. This time we expect numbers to be much greater. We have been raising the issue in the trade unions and helping local campaign groups from around the country to work together." He said membership is growing exponentially now that people really believe there might be a chance to turn back the tide. "The next election is going to be a referendum on the neoliberal polices of the last decade. I think there is a big change coming. The public has really had enough."

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