The Swedish way: expensive but effective.

By Gregory – Sweden, one of the Scandinavian countries in Northern Europe, famous for big labels such as H&M and Volvo. Visitors arriving at its international airport Stockholm Arlanda are welcomed by the world famous tunes of its legendary pop music band Abba. Reading the signs, billboards and train displays on your way to the city center seems like reading the latest Ikea catalogue.

But reality hit when my partner and I went for a coffee and sandwich in Stockholm’s Old Town. Sweden is expensive for outsiders but does it feel the same for the Swedes?

According to a study by Swedish bank Swedbank, a Swede earning £2,500 (€2,900) a month will see 69% of their income going into taxes. The sum includes taxes deducted from pay, value added taxes paid on consumption (25% on most goods and services in Sweden) as well as payroll taxes paid by employers (equivalent to employer’s national insurance in the UK). Such taxation is relatively high compared with the European average. But you don’t hear Swedes complain about it. This makes me wonder what the ‘magic’ ingredient is. A closer look at the “Nordic model” provides some answers.

It is fair to say that the Nordic countries succeed better than other countries in combining economic efficiency and growth with a peaceful labour market, a fair distribution of income and social cohesion.

The Nordic model refers to the kind of capitalism introduced in Sweden, Denmark, Norway, Finland and Iceland. Altough there are significant differences between those countries, they have a lot in common. The ingredients of the Nordic model can broadly be defined as follows: maximising labour participation, promoting gender equality, egalitarian and extensive benefit levels, free education and the focus on wealth distribution.

For most Swedes paying high taxes is a benefit not a burden, as they feel they are getting good value for their money. They are getting universal childcare coverage, free health and dental care for under 18’s and generous personal benefits.

Equality between both genders is of big importance to Scandinavians. Parental leave in Sweden is organised in such a way that both parents enjoy a joint parental leave lasting 480 days. For 390 days they receive 80 percent of their income capped at £45,500 (equivalent to €52,500) a year. Each parent needs to take at least 60 days, leaving the remaining 360 days to be shared as they wish. This means that the father can become the child’s primary carer during the first year while the mother resumes her career.

Another Swedish benefit is the rewarding and progressive state pension system: the more you earn, the higher the final pension will be. There is no fixed pension age: everyone above the age of 61 is entitled to state pension, with no upper age limit. Every Swede is thus entitled to postpone pension. The idea is that the longer you work and contribute, the higher your return will be.

Unemployment benefits are designed to form a safety net for those unfortunate to loose their job. Basic unemployment benefit is approximately £30 (€38) per day for the first 300 days of unemployment as long as the person was previously in full time employment. During that time the unemployed must show they are actively looking for work. If they are offered a job, and refuse to take it, their unemployment benefit drops by 25%. If they turn down employment on three occasions their benefits will be suspended. If Swedes have not found a job after 300 days, they will be forced to enroll into a job training scheme until they find one, during which time they receive 65% of their previous income.

The Swedish ambition is not only to provide a safety net if a citizen stumbles because of a job loss, but also to invest in human capital so that the citizen is less likely to fall. High taxes paid by the educated and established are also used by the state to provide free public and private, high quality, education for all to protect the weaker in society from under education.

It is important to note that state spending is highly efficient when it comes to redistribution effects. This can only be achieved because Swedes trust the state and are very attached to the idea of the state as the ‘People’s Home’ where everyone contributes and eventually will be protected. In comparison, the Greek people have taken to the streets because they feel that the burdens of the economic crisis are being shared unevenly. In stark contrast to wealthy Greeks, the majority of Greek society never saw the benefits from globalisation or from European integration. All in all, it doesn’t come as a surprise to find out that Sweden ranked 10th in the 2011 UN Human Development Index and was praised by the World Economic Forum for being the 2nd most competitive country in the world, after Switzerland.

Sweden`s example should serve as a clear message to the current UK government led by the Conservatives. Conservatives, not only in the UK, but also in other major European countries, are trying to get out of the debt crisis and become more competitive on the world stage. Their approach is to make significant cuts to the benefits that are an essential part of the so called “European Welfare state”. According to right wing policy makers, harsh cuts to reduce government expenditure combined with lower taxes to stimulate consumer spending are the best way to get the economy going and help out families. The Nordic model however shows us that empowerment of the population followed by a fair and wide distribution of economic benefits helps create social cohesion. It creates a sense that in difficult times ‘We are all in this together’. Swedes share the benefits but also the burdens by happily paying over 60% of their wages in taxes.

And so we return to Stockholm’s Arlanda airport on our journey home, a familiar Abba tune ringing out of the speakers…

“Money, Money, Money. Must be funny. In the rich man’s world.

Money, Money, Money. Always sunny. In the rich man’s world.

Aha-ahaaa

All the things I could do. If I had a little money. It’s a rich man’s world”

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