They do things differently there

Observations on Sweden

Arriving in Stockholm just after the French and Dutch No votes and just before the Battle of the Rebate, I picked up a copy of Svenska Dagbladet, one of the more right-wing Swedish newspapers. Dominating the politics page was a grainy photograph of Margaret Thatcher in her pomp.

So Sweden had succumbed, I reflected sadly. As beneficent social models across the Continent buckle under the strain of globalisation, demography and the threats from China, it seemed that even the Swedes were finally accepting that the future lay in Grantham economics. Then I read the headline: "Bye-bye That-cher, hello collectivism".

The Swedish Conservative Party, it seems, having been trounced in the 2002 elections after standing on a tax-cutting, nakedly neoliberal agenda, has decided that the way to power in 2006 is to steal the ruling Social Democrats' clothes - the new Labour manoeuvre in reverse.

It is therapeutic for a British social democrat to go to Sweden. They still do things differently there. And it still works.

While Tony Blair and new Labour celebrate Britain's economic performance as a consequence of eight years of business-friendly reforms, EU social chapter opt-outs and private incursions into the public sector, Sweden, which maintains an attachment to tax-and-spend that is quintessentially old Labour, can boast figures just as good, and a great deal more besides.

Growth is on a par with the UK's, unemployment stands at roughly 4 per cent and the budget is in surplus. When it comes to quality of life, Sweden is streets ahead. Working conditions and protections for employees are the best in the world. Maternity (and paternity) leave is for one year, and employees often take longer leave without prejudice to their career prospects. Social mobility is far higher than in the UK and income distribution is far more equitable, thanks to progressive tax rates and a distaste for high executive salaries. Life expectancy is the highest in the world and pensions are noticeably higher than in Britain.

At a macro level, the predicted exodus of major companies such as Ericsson and Volvo to low-tax havens has failed to materialise. "High output and a highly educated workforce mean that Sweden has its own special attractions for world-class companies," says Niklas Ekdahl, political editor of Dagens Nyheter. Even the OECD admitted that the economy is in a "very good situation in comparison to other countries". Swedes tax, they spend, they regulate - and they flourish.

Thus, it is no surprise that European "reformers" who preach slimmer welfare states and flexible labour markets tend to ignore the Swedish experience. For the left, however, the Swedes offer a ready-made answer to the neoliberal orthodoxies.

At a seminar this month organised by Compass, the UK democratic-left pressure group, Douglas Alexander, the minister for Europe, said the challenge for the left in Britain was to create an economy that was "dynamic but fair" - presuming a tension between the two. In Sweden people assume that only fair societies can be properly dynamic.

"Swedes have stuck to the belief that growth is created not merely through competition but through the cultivation of trust and 'social capital'," said Lars-Ake Almqvist, vice-president of the big public sector union Kommunal. "Security allows people to embrace change. Insecurity places employees on the def-ensive and that's inefficient."

It is a philosophy that has yielded spectacular results in towns such as Malung, in the heart of the country. In the early 1990s, as Sweden endured its worst slowdown in decades, the local council in Malung announced a 10 per cent budget cut. The talk was of redundancies and contracting out services but instead, assisted by Kommunal, council employees administered the savings themselves, managing their own budgets on condition no redundancies were made.

"Trust was the basic ingredient that made this possible," Ingmar Nielman, the local union representative, told me. "Giving people security is the best way to get them to co-operate." The necessary savings came two years ahead of schedule and the model is now followed by 100,000 public sector workers across Sweden.

"The country has become a test case in Europe," says Ekdahl. "No other nation has managed to expand the welfare state as much as Sweden and then to consolidate it. There was the crisis of the 1990s, rather like the one Germany is going through now, but Sweden managed to come out intact and retain its distinctiveness. Tony Blair at his most modernising is probably well to the right of the most right-wing mainstream Swedish politician."

Peter Mandelson, Labour's man in Brussels, wrote this month that Europe faced a choice: "One way we sink into economic decline, losing the means to pay for our preferred way of life. The other, we press ahead with painful economic reforms that can make us competitive once again in world markets." Sweden seems to have skirted this stark choice rather neatly, at least when it comes to maintaining the essentials of a functioning social democracy. As Blair prepares to export the Third Way across Europe, the British left should look to Stockholm for inspiration.