Sweden is usually recognised as the “happiest” country globally due to its advanced economy and well-established social welfare system. The Swedish welfare model has attracted global attention in recent years, primarily due to its irresponsive nature to today’s socio-political realities. According to Esping (2014), during the “golden age” of welfare capitalism (from 1950 to 1980), the Swedish welfare system was widely acclaimed for its unique combination of a “social market” and capitalist ownership structure. A “middle way” between a “planned economy” and “unregulated capitalism” with remarkable achievements concerning both social equality and economic growth (Esping, 2014). However, in recent years Sweden’s welfare model has been criticised and labelled a negative example; it has been deemed to practice extreme socialism, making it a “nanny state.” Critics of this model argue that it stifles economic growth due to the over-dependency of citizens on government. This paper examines the problems caused by Sweden’s over-generous social welfare and some policies that can be introduced to mitigate this problem.
History of the Swedish Welfare State
Provided that Sweden’s economy relied on agriculture, there was little need for any widespread welfare system. During the pre-industrial era, the family was the centre of economic and social activity, and most of the problems facing people could be dealt with in the household (Cedersund et al., 2019). Because the families typically control their production resources (primarily their land), they could share the production outcomes and vary the labour input between household members according to individual needs. Every household took care of its elderly and children.
In Sweden, the traditional social structure started to crumble as a result of industrialisation. The change from subsistence-based agriculture to manufacturing meant that families lost their ability to control their working capital. Very few families had adequate resources to invest in expensive industrial machinery. Instead, the former farmers started to work for industrialists, who financed their investments and managed the capital stock through borrowing from capital owners and banks. This shift in capital ownership made it increasingly problematic for families to fully use their labour resources (Cedersund et al., 2019).
In response to this situation, the Swedish public and government believed that a more robust and responsive social protection system was required. A strong social protection system was needed to uphold social stability and offer a means of earning a livelihood to families. The emergence of pervasive poverty every time the demand for labour reduced led to political demonstrations as workers started to organise and increase crime.
In 1843, economist Jakob Lundell wrote an article in which he proposed a new role for the Swedish government. He suggested that development could be more predictable and smoother if the government offered employment and education services for workers to be directed to sectors that needed labour quickly. “Lundell also suggested that this would lead to an equal sharing of prosperity and the reduction of social tensions” (Lyngstad, 2015, p. 240). Essentially, Lundell believed that welfare institutions were necessary for the development of the market economy. In the second half of the nineteenth century, economic inequality increased as industrialisation accelerated in Sweden.
Additionally, the increase of international trade created huge fortunes among capital owners and entrepreneurs. In 1905, the first agreements regulating working conditions, working times, and wages were signed. The following year, the right for workers to form labour unions was ratified. In 1909, universal suffrage was initiated (women got the right to vote ten years later). In 1913, the first step towards a welfare state was taken by introducing a universal pension insurance system (Garlington & Collins, 2020). Later in 1916, Sweden moved more in the direction of a welfare system when insurance for work-related injuries covering the whole workforce in the country was introduced.
During the late 1920s, the Great Depression complicated the situation: Unemployment soared, and industrial production contracted in most countries as governments introduced policies that increased capital flows and international trade barriers. In Sweden, the Great Depression led to a severe political crisis when the army opened fire on a demonstration by the labour movement (Garlington & Collins, 2020). This situation led to the rise of the Social Democrats and later on the formation of the Swedish welfare state.
A coalition led by the Social Democrats took power and introduced new policies to reduce unemployment and maintain aggregate demand. Significant reforms were also made in education, health care, education, and labour legislation. The new policies introduced by the Social Democrats led to a broad consensus in Sweden that the need for a welfare state was valid (Burström, 2015; Garlington & Collins, 2020). One of the main reasons that many people wanted a welfare state was that the new policies and changes initially brought about a relatively high degree of income equality. These dynamics resulted from the need to maintain wage agreements at a reasonably small gap between the maximum and minimum incomes.
After the Second World War, the final steps were taken towards a complete welfare state. Sweden did not participate in the war, and therefore its industrial sector remained intact after the war. The reconstruction of Europe after the war was immensely beneficial to the Swedish industrial sector (Garlington & Collins, 2020). The combination of a Social Democratic government, continued worries concerning labour and social market conflicts, and rapid economic growth provided a solid foundation for increased expansion of the welfare state in Sweden (Burström, 2015). There was widespread belief in the country that society could afford a generous social security system. Additionally, an increasingly significant political goal was to alleviate social inequality. Study grants were introduced, the unemployment insurance was increased, a general housing and child allowance was introduced, pensions were reformed, education investments grew, and a universal health insurance system was introduced to achieve such goals.
To finance the changes, the government significantly increased taxes. The most significant share of the tax burden was consumption and labour instead of production and capital (Cedersund et al., 2019). Income taxes were liberal, highlighting the democratic nature of the new approach. Besides the economy’s strong growth, the universal nature of the welfare benefits was of great importance to justify raising the tax burden. At its height, during the 1980s, welfare in Sweden was based on three core components: a public health care system that made it possible for all residents to access the best available health care with nominal user costs, a lavish insurance system that covered income losses because of old age, ill-health, and unemployment, and a free public education system.
The main Challenge to Sweden’s Welfare System
Though it is impossible to determine the “optimal” reach and size of the welfare state, views on the subject differ in judging its moral merit and factual evaluation of its effects. It is generally agreed that by the 1980s, the Swedish welfare state had become too large (Cedersund et al., 2019). The main problem with the system is that it was considered “over generous” by catering to the needs of a significant part of the population. One of the main reasons for the failing welfare system in the country is the aging population, which is continuously increasing the burden on the welfare system and consequently, the Swedish tax payers.
The share of the Swedish population above the age of 65 went up from seven percent to eighteen percent in the 20th century. This substantial rise marked a distinct shift from the stability in the earlier period dating back to about 1750, with only a minor increase noticeable during the late nineteenth century (Cedersund et al., 2019). Looking at a population pyramid for Sweden in 1900 one observes the classic pattern, with a wide base made up of younger individuals continuously tapering off with rising age to a pointed apex.
Since Sweden’s population started aging before many other countries, becoming one of the leading nations with elderly citizens. Over a 25-year period, there has been a rapid rise in the percentage of the population above 85 years of age (Cedersund et al., 2019). A significantly higher proportion of those above 85 are women compared to men. Additionally, over the years there has been a significant difference in the percentage of the population aged above 85 years of age by municipality, with some municipalities having extremely high proportions.
A majority of older people in Sweden get financial security, with many residing in fully paid single-family homes. To make housing affordable over 30% of older individuals get housing subsidies (depending on cost of housing and income), including home owners (Cedersund et al., 2019). This creates a heavy burden on the welfare system as no old person is exempt, irrespective of financial status. Reconstruction during the 1990s made pensions reliant on the country’s economic productivity, causing unexpected cuts of approximately 5% to finances is gradually becoming untenable, especially due to a slump in the global economy.
Lessons from Hong Kong’s Welfare System that can be applied to Sweden
Unlike Sweden’s welfare policies and system for the elderly that exclusive to them (targeted solely at that demographic in society), the welfare program in Hong Kong for the elderly has been integrated into the broader national welfare and healthcare system so that there is some form of synergy and cots sharing. Hong Kong has a welfare system for the elderly close to the “liberal welfare state regime.”
The characteristics of this kind of regime, for example, modest universal transfers, minimum social insurance, and means-tested assistance all hold true for the countries goal to ensure social programs do not over burden the country. To achieve this goal, livelihood assistance recipients are restricted to the low-income group, with a system intended to discourage individuals solely depending on welfare when they get old (Garlington & Collins, 2020). Screenings for qualifications for welfare assistance are strict and the level of allowance is maintained at a minimum to guarantee as little burden to the tax payer as possible. To ensure that welfare programs for the elderly are robust and effective, the government offers substantial amounts of grants to private welfare schemes, and makes use of both financial institutions and nongovernmental organizations to participate in welfare schemes (Garlington & Collins, 2020). This is different from Sweden where the entire welfare system is fully reliant on government.
The Social Security Allowance (SSA) Scheme comprises Old Age Allowance, Old Age Living Allowance, and Disability Allowance. The Hong Kong government offers a flat-rate allowance to citizens above 70 years to meet their unique needs arising from old age (Garlington & Collins, 2020). Old Age Living Allowance is geared towards providing a special allowance each month to supplement the living costs of citizens aged over 65 years who require financial assistance. It goes not apply to all the elderly across the board; it is targeted towards those than need it to avoid wastage.
The elderly in Hong Kong are categorized under a broader welfare system called the “Comprehensive Social Security Assistance” (CSSA), which is the most significant livelihood assistance program, representing more than sixty percent of expenditures by the country’s Social Welfare Department. Elderly who get CSSA continuously for twelve months also get long-term supplements in the thirteenth month for the purchase of durable and household goods. The yearly amounts of these supplements are H.K. $1,425 for singles, H.K. $2,855 for a household of two to four qualified family members, and H.K. $3,825 for a household of five or more qualified family members (Garlington & Collins, 2020). Additionally, an allowance of H.K. $255 every month is given to single-parent households. Collectively, these benefits make it financially possible for the elderly in Hong Kong to live without creating a ballooning burden on the country’s finances. It is a more case-by-case approach, based on the individual needs of each financial support recipient.
The ratio of the jobless amongst CSSA recipients dropped from 13.8 percent in May 1999 to 10.4 percent in October 2000 (Garlington & Collins, 2020). The number of recipients also declined from 32,435 to 23,600 during the same period. This shows that Hong Kong’s welfare model is more responsive to the realities of the day and is not a constant burden to the country’s economy. The wage bill associated with taking care of the elderly in the country varies from one year to another depending on specific parameters that have been well thought out and implemented. This approach helps to ensure that there is no wastage and over-reliance on the country’s welfare system.
Conclusion
The comparison between Hong Kong’s and Sweden’s welfare models suggests institutional differences whereby the more sustainable, cacase-basedand decentralized approach in Hong Kong delivers both social services and income support. If Sweden adopted a policy or approach such as The Social Security Allowance used in Hong Kong, it would most likely be able to provide quality welfare services to its aging population while ensuring that its economy is not overburdened the cost. The functions of different national welfare state regimes and institutions between the two countries affect the effectiveness of each system and how services are delivered. For Sweden’s welfare system to flourish, the establishment of well-funded, decentralised agencies should be encouraged to avoid the challenges of running a centralised system tasked with delivering services to all citizens.
References
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