The Swedish Model

I. The People's Home

On January 18, 1928, Per Albin Hansson, the leader of the Swedish Social Democrats, delivered a speech that would change a country. He spoke of the "People's Home" — the Folkhemmet. A good home, he said, knows no privileged or disadvantaged, no favorites or stepchildren. No one looks down on anyone else. No one tries to gain advantages at the expense of others. In a good home, there is equality, care, cooperation, helpfulness.

Four years later, the Social Democrats came to power. They stayed — with one brief interruption — for 44 years. During that time, they built what would later enter history as the "Swedish model": a welfare state that neither abolished capitalism nor left it unchecked. A "third way" between market and plan, as it was called at the time.

The idea was as simple as it was ambitious: leave companies in private hands. Let the market allocate resources. But tax the results so that everyone benefits — through free education, free healthcare, generous pensions, child benefits, parental leave. The king may keep his crown, as the economist Gunnar Adler-Karlsson put it in 1967 — but his power must be gradually transferred to democratic institutions.

II. The Machine

What distinguished the Swedish model from other welfare states was not just the scope of its provisions but its internal logic. In the 1950s, economists Gösta Rehn and Rudolf Meidner designed a system that pursued several goals simultaneously: full employment, price stability, and structural change.

The idea: strong unions negotiate centralized wage agreements that apply across all industries. Companies productive enough to pay these wages thrive. Those that aren't disappear. The state catches the displaced workers — through retraining, job placement, social assistance — and channels them into more productive sectors. Structural change is not prevented but accelerated, while being cushioned socially.

It was a machine that treated competition and solidarity not as opposites but as complementary forces. The market selects. The state catches. Together, they drive the economy upward.

And it worked. In the 1960s and 70s, Sweden was among the richest and most equal societies in the world. The Gini coefficient — the standard measure of inequality — was around 0.2, one of the lowest values worldwide. Unemployment was minimal. Life expectancy rose. Educational outcomes were excellent. The United Nations regularly listed Sweden as one of the best-governed countries in the world.

III. The Turn

Then came the crisis. Not a single one, but a chain. In the late 1970s, the model came under pressure — rising government spending, declining competitiveness, capital flight. The Meidner Plan of 1976, which proposed gradually transferring corporate shares into employee funds, divided society. Employers saw the beginning of creeping nationalization. The unions saw the logical completion of the model.

Neither side got what it wanted. Instead, something third emerged: the neoliberal turn of the 1990s. After a severe financial and banking crisis — largely homemade, caused by credit market deregulation in the 1980s — Sweden fundamentally reformed its model. Taxes were cut. Monopolies deregulated. Telecommunications, railways, electricity, taxi services, domestic air travel — all were opened to private competition. The wealth tax was abolished in 2007, the inheritance tax already in 2005.

The reforms were radical, but they were successful — at least by the usual indicators. Sweden began growing faster than most industrialized countries again. New companies emerged. And one particular type of company emerged with remarkable frequency.

IV. The Unicorns

Stockholm has — after Silicon Valley — the highest density of unicorns per capita in the world: 0.8 per 100,000 inhabitants. 41 startup companies valued at over one billion dollars have been created in Sweden. Their combined worth has doubled in the past five years and stands at €239 billion. Spotify, Klarna, Skype, Minecraft, King, Northvolt, Einride, Trustly — the list is long for a country of ten million people.

The explanations are varied and partly contradictory. The high level of digitization is often cited — in the 1990s, the government subsidized home computers for all citizens, the so-called "Hem-PC" program, which socialized an entire generation with technology. The flat hierarchies of Swedish corporate culture are invoked as innovation-friendly. The high level of education, the strong research infrastructure — more than three percent of GDP flows into research and development.

And then there is an argument that sounds counterintuitive but is made by entrepreneurs themselves: the social safety net. In Sweden, failure doesn't cost you your existence. If you start a company and it fails, you still have access to healthcare, education, and social security. This makes risk calculable. And calculable risk encourages founding.

It is a paradox that should give German observers pause: a country with high taxes, strong unions, and a generous welfare state produces more unicorns per capita than almost any other country in the world. Germany, which likes to describe itself as an innovation hub, produces vanishingly few by comparison.

V. The Price

However, the reformed Sweden has also paid a price that tends to be overlooked in the unicorn success story. The Gini coefficient has risen from just over 0.2 in the 1980s to almost 0.28, placing it only just below the EU average. The increase in inequality between 1985 and the early 2010s was the largest among all OECD countries. Sweden today has more dollar billionaires per capita than the United States. 42 billionaires in a country of ten million.

A third of upper secondary students attend private schools that are fully state-funded but permitted to distribute profits — with no cap on profit margins. Primary healthcare is largely privatized, also state-funded, also profitable. The owners of these tax-funded private enterprises are among the wealthiest people in the country.

"We pensioners can see the destruction of what we built," Kjerstin, 74, said in a recently published interview. "I was born after the war and built this society together with my fellow citizens. But with taxes being lowered and the taking away of our social security, we're not building anything together now."

The financialization of the Swedish economy has reached a remarkable dimension: between 2005 and 2014, financial corporations in Sweden generated greater profits than all non-financial corporations in the country combined. Stock market capitalization rose from less than three percent of GDP in the 1970s to 145 percent — the second highest in Western Europe. Quietly and almost unnoticed, Sweden has transformed from the People's Home into a paradise for the super-rich.

VI. Two Swedens

There is, then, not one Swedish model but at least two. The first, the classic one, emerged in the 1930s and reached its peak around 1970. It was an attempt to contain capitalism without abolishing it — to civilize it, as the phrase went. This model rested on three pillars: strong unions, universal welfare, and centralized wage bargaining. It worked as long as society was homogeneous, the economy grew, and the political class remained committed to the idea of the Folkhemmet.

The second model emerged after the crisis of the 1990s. It retained the facade of the welfare state — free education, free healthcare, social security — but changed the ownership structure behind it. Schools and hospitals remained free but were run by private companies distributing profits. The wealth tax was abolished, the inheritance tax scrapped, the corporate tax rate cut to 20.6 percent. The result is a hybrid system: welfare for all, wealth accumulation for the few.

Which of the two is the "real" Swedish model depends on whom you ask. The Social Democrats, who despite being in opposition have remained the strongest party ahead of the Sweden Democrats, would point to the first. The entrepreneurs who made Stockholm Europe's unicorn capital would point to the second. The truth is probably that they belong together — that the second would not have been possible without the first.

VII. The Question for Germany

What can Germany learn from Sweden? Both: the success and the failure.

The success teaches that a strong welfare state and an innovative economy need not be mutually exclusive. That venture capital and social security can be complementary. That flat hierarchies, trust, and a high level of education contribute more to innovation than low taxes and weak unions. Germany has four times as many inhabitants as Sweden but produces significantly fewer startups, significantly fewer unicorns, and significantly fewer technological breakthroughs per capita. This is not a matter of tax rates. It is a matter of culture, structures, and the willingness to accept failure as a learning process.

The failure teaches that even the best model cannot prevent its own dissolution. That the abolition of wealth taxes, the privatization of public goods, and the deregulation of financial markets produce inequality — even and especially in societies that were once the most equal in the world. That the unicorns and the billionaires are two sides of the same coin.

And it teaches something that is rarely stated: that socializing children with technology — Sweden's Hem-PC program of the 1990s — was one of the most effective economic policy measures of the twentieth century. No funding program, no incubator, no venture capital fund has generated nearly as much innovation as the decision to subsidize a computer for every Swedish household.

VIII. The Face

Does capitalism in Sweden have a human face? That depends on where you look. If you look at the unicorns, you see an innovation system without equal. If you look at the welfare state, you see a system that guarantees every citizen a minimum of security and dignity. If you look at the 42 billionaires, you see a concentration of wealth that is hard to reconcile with the spirit of the Folkhemmet.

Per Albin Hansson said in 1928 that in a good home, no one tries to gain advantages at the expense of others. Sweden has reinvented itself several times since then. It has not tamed capitalism — it has split it in two: one half for public services, one half for private wealth. Whether that constitutes a human face or merely a better mask is a question Sweden itself has not yet answered.

That it can ask the question at all, however, distinguishes it from most other countries. Including Germany.

"The good home knows no privileged or disadvantaged, no favorites or stepchildren."
— Per Albin Hansson, 1928