How Sweden reformed its state to lay foundations for future growth

Will Tanner
Will Tanner is a senior researcher at the independent thinktank Reform.

THE muted optimism of the coalition’s mid-term review has made way for the harsh reality of disappointing GDP figures. The economy’s most recent dip demonstrates the scale of the remaining challenge: public sector reform was David Cameron’s big idea, but too little has been achieved.

Even the coalition’s more radical reforms, in health and education, are not moving fast enough to deliver value and quality. What is going wrong? The coalition doesn’t begin to measure up to one of its main inspirations – the Swedish reformers of the 1990s.

Sweden’s financial crisis struck in 1991: the product of a now familiar cocktail of housing bubble, credit crunch and anti-competitive regulation. High taxes and productivity decline foretold years of low or negative growth: GDP fell by 4 per cent between 1990 and 1993.

Swedish reformers used this fiscal crisis to radically reform the state. A centre-right coalition opened up the universal welfare state to choice and competition, using private companies and people power to improve quality and efficiency. State funding for education was reformed to follow the pupil, rather than the service, meaning that schools had to compete for custom for the first time. In healthcare, the private sector was invited to set up hospitals, GP clinics and even ambulances.

In both sectors, postcode lotteries have been replaced with a diverse system of providers in which the citizen is king. The best providers flourish, the worst adapt or die. Over 400 free schools have since been set up, many profit-making, and nearly a tenth of parents now choose to send their children to a privately-run secondary school. Free schools may be Michael Gove’s headline education reform, but barriers to private sector involvement have limited their number to just 79. And two decades of competition policy in the NHS have resulted in just 3 per cent of healthcare services provided by outside companies; over the same period, Sweden has increased that number to 25 per cent.

Competition has delivered better services. At Kunskapsskolan, a private free school chain, children take greater responsibility for their own learning; setting their own goals, class schedules and recording progress online. The 10,000 pupils taught in its 33 schools consistently outperform the national average. Private healthcare companies have helped the Swedish healthcare system keep up with rapid change. St Göran hospital in Stockholm has been outsourced to a private company, Capio. Since 1999, St Göran has grown its market share, improved clinical care and patient satisfaction, and saved millions.

Choice has also been accompanied by a shifting of responsibility. While ministers baulk at the idea of introducing charging in the NHS, patients in Sweden do not just choose their health provider, they pay for services too. Small payments for GP and hospital stays incentivise would-be patients to think about their health and use more cost-effective care settings, with individual costs capped to ensure poorer citizens are not disadvantaged. In the decade to 2010, costly hospital admissions increased by just 1.6 per cent, compared to a 38 per cent increase in the UK, without any adverse effect on health outcomes.

One of the most important achievements in Sweden has been bringing workers on side. While outsourcing is still controversial, once-obstructionist unions have been persuaded that competition drives up wages and improves working conditions for members. They now largely support the reforms. In 2001, a major report by the powerful Municipal Workers’ Union went so far as to say that “competition between the various providers can promote and promulgate improvements in both productivity and quality”.

As a result, Sweden now enjoys budget surpluses of up to 3 per cent of GDP a year. Meanwhile, since public sector reform improves economic performance by raising productivity, the Swedish economy continues to grow. Sweden recorded growth of 3.7 per cent of GDP in 2011 and an estimated 0.9 per cent in 2012, compared to just 0.8 per cent and zero in the UK.

The Swedish experience not only reveals the limitations of the coalition’s achievements, it also shows the value of consistent policy, even in the face of opposition. Cameron has not learnt the lessons of another reforming Prime Minister, Tony Blair: “if you think a change is right, go with it. Opposition is inevitable, but rarely unbeatable.”

Will Tanner is a senior researcher at the independent think tank Reform.

City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.

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