Anders Borg was just 38 when he took over Sweden’s finances in 2006. There followed a helter-skelter ride through drastic tax cuts that would make Donald Trump blush, the global financial crash, deeply unpopular welfare reforms, an astonishing re-election to a second term on a wave of personal popularity, and finally defeat in 2014. He took credit for making Sweden ‘the rock star of recovery’. Borg’s trademark ponytail haircut became a familiar feature of meetings of the global elite wresting with the fallout from the 2008 crisis. But the rollercoaster had one more plunge in store: in the summer of 2017, Borg was at a party on Stockholm’s archipelago where, according to the Swedish papers, he was the worse for drink and behaved offensively. As a result, he was forced to step down from some top positions, including at Swedish investment firm Kinnevik and global banking giant Citi.
When we met in Stockholm’s Old Town six months later, Borg did not seem at all like yesterday’s man. He had just been hired by a company developing digital robots, and had lost none of his ebullience, or indeed his zest for economics. His starting point is already familiar to us: the mess in which Sweden found itself in the 1990s. Borg recalls how he suffered an even bigger shock than Persson when he went to Wall Street in 1995 as a banking analyst – he was thrown out of an office because its occupant had just lost a lot of money, and his job, for taking an optimistic view of Sweden’s prospects. Sweden had to change. For many right-wingers like Borg, everything associated with the Swedish model felt oppressive, restrictive: they called it ‘GDR Sweden’ – a reference to communist East Germany – and saw an over-regulated, stagnant society similar to the Eastern bloc.
But on taking power in 2006, Borg did not intend to throw the baby out with the bathwater. ‘It is clear that Sweden had deep economic problems in the 1970s and ’80s. But after the crisis in the 1990s we had already started to change the Swedish model quite substantially. Our thinking back in 2006 was to develop the strengths of the Swedish model.’ Indeed, Borg’s prime minister and closest collaborator, Fredrik Reinfeldt, talked of ‘mending, not ending’ welfare, and declared: ‘The Swedish people want the Swedish model.’ The Conservatives even rebranded themselves as a ‘workers party’. Had the right tried to reclaim the Swedish model from the left? ‘I think we did that, and I am very happy with that decision, I have no intention of leaving it.’ The system did not require radical change, he says, and was sufficiently flexible to adapt to changing circumstances: ‘We were strengthening features that were already present in the system – we reinforced the work ethic and the entrepreneurial spirit. But fundamentally the Swedish model is a very pragmatic, down-to-earth way of dealing with the tension between social cohesion and growth … a very modern way of solving the eternal conflict between equality and expansion, cohesion versus dynamism – the model is potentially one very efficient answer.’
Borg rattles off five fundamental features of Sweden’s recipe for capitalism: a free-market orientation with highly unregulated markets, especially in retail, services and welfare; one of the best entrepreneurial climates in Europe; a well-functioning labour market with a unique wage-setting process delivering both stability and competitiveness; public spending that aids growth – infrastructure, education and family policies that enable women to work; and strong public finances. To this, he says, you could add cultural features such as the Lutheran work ethic, high levels of trust and transparency, and the low level of corruption, all combining to deliver economic dynamism while keeping society together. Like Jacob Wallenberg, Borg is happy with the trade unions:
Strong unions are the partner of the worker. On the white-collar side they put resources into strategies for wage negotiations that are individual-based, providing statistics and arguments so you can go into negotiation with your boss in a good position. It is a kind of lobby for working people, which I would say is the future role for unions anyway: today real wage increases are pretty small anyway; it is much more about work-life balance.
There are some important caveats. For smaller companies, for example, employment protection legislation is still a major obstacle; Borg says he wants to see more flexibility to hire and fire. But he is careful to state that employers should not have more freedom to sack people without accepting some responsibility for helping them to be rehired. Here he points to the importance of Sweden’s ‘transition system’ that we looked at in Part 3, where employers pay into a central fund that helps retrain workers who lose their jobs and which gets them back into work. This system is preferable to traditional schemes to help the unemployed, Borg says. He uses Saab as an example – the Swedish car-maker was devastated by the 2008 financial crash, but most workers were back in jobs a year or two after the company closed down.
In pursuit of greater flexibility, Borg’s government tried to reach a deal in the private sector where unions would win more education for people during their working lives, with companies setting aside resources to retrain workers well before there was any threat of unemployment. The idea was to reskill people in their forties and fifties, because over the next ten or 15 years the technology would be transformed. Essentially, this was a scaling up of the existing transition system, with loans and financing for adult learning, heavy subsidies for retraining foundations, and more flexible unemployment insurance. Borg met with unions 250 times, he says, offering ‘a lot of money and a lot of benefits’ as part of a broad negotiation on the labour market. But it fell apart. Clearly there are limits to the flexibility of the Swedish model.
That failure to rejig the labour market still haunts Borg, who lists it as a missed opportunity. Moreover, the wage levels and undersized service sector had become a headache in light of the Borg–Reinfeldt government’s second main legacy – the call to ‘open your hearts’ to refugees. ‘We overdid it’, Borg says. ‘It is pretty clear we could not take 160,000 in 2015 without severe tensions.’ It was ‘absolutely necessary’ to close the borders and cut Sweden’s generosity to the absolute minimum. But he defends the original premise: ‘We should punch above our weight when it comes to social responsibility,’ he says. Sweden stayed out of the two World Wars, and did not have the Finnish experience of being attacked by Russia. Most Swedes felt the country did too little for the Jews, by not allowing them to come here from Germany and Poland. ‘The starting point should be you should do as much as you can, your spontaneous reaction should be to invite people in, and then pragmatically adapt to the new realities,’ Borg says.
However, if you have migration from countries like Afghanistan, Somalia and Iraq, where education levels are low and tacit knowledge about the modern workplace is minimal, it is extremely difficult for people to adjust to the current Swedish system, Borg believes. Getting migrant unemployment down to 10 per cent is close to impossible without lowering entry-level wages, he insists: ‘With the type of immigration we have had, it’s pretty obvious that the Swedish labour market needs to become much more flexible.’
Borg regrets that his government’s second term was not as radical as the first, and left some important business undone. The housing and the rental markets had become an urgent problem. They looked at stock options as an incentive for entrepreneurs but left it too late: ‘It is a marginal reform in terms of revenues, but super important in terms of dynamism.’ Meanwhile, the cost of migration would remain high because integration will continue to be slow. The political stalemate in the country, with minority governments and the far-right holding the balance of power in parliament, boded ill for attempts to make significant changes. But the problems facing Sweden today are manageable, and compared with other countries it is still in a sweet spot: ‘Yes we have problems, yes we should deal with them, but it is not comparable to the 1980s and ’90s.’ Borg lists the strengths of the country now: the entrepreneurial climate and the high number of start-ups; the education system that produces highly skilled workers; the overall culture with the high degree of trust.
Last but not least, politicians get on well with business, and vice versa. Borg defines himself as a typically pragmatic politician who is somewhere in the middle – both a left-wing Conservative and a right-wing Social Democrat:
A unique feature is that we have a very strong relationship between the business sector and politics. Many business people interact with the Social Democrats now they are in office today, and many business people interacted with the Conservatives when we were in power. This is a small country where most people know each other, and where you normally have very open, well-functioning contacts. It is a lot easier to be pragmatic when you actually know each other, and it is much less confrontational here because people can actually relate to each other.