Sweden is often perceived as high income taxes, but in reality, its tax levels are comparable to those of other developed European countries. In essence, high taxes mainly apply to value-added tax (VAT), which is around 25%. Sweden believes that high income taxes could negatively impact employment and economic growth, whereas VAT is born by consumers. Tax increases are implemented gradually in a phased manner to ensure nationwide welfare. Fundamentally, the Swedish welfare state operates under a capitalist model, functioning within a free market system but with state intervention and regulation.

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Maintaining a welfare state requires substantial resources. However, Sweden’s experience shows that welfare state development does not necessarily begin only when a country becomes wealthy. The Swedish government introduced a universal pension system in 1909 when the country was still poor. At that time, Sweden faced significant challenges—25% of its population had emigrated, primarily to the United States. Politically, farmers held considerable influence, and both the government and the monarchy relied on them. This led to the adoption of a universal pension policy. Later, as Sweden’s income levels rose, the country had even greater resources to expand its welfare state.

Esping-Andersen's Welfare State Models

Esping-Andersen’s book The Three Worlds of Welfare Capitalism is considered a seminal work on welfare state models in many Nordic and Western countries. He identifies three types of welfare state capitalism:

Liberal regime (e.g., the United States): The market’s ability to solve most issues is emphazised.

Social democratic regime (e.g., Sweden): Welfare is based on citizenship/residency rights, with low education and healthcare costs. Everyone has access to medical services.

Conservative-corporatist regime (e.g., Germany): The family is the central unit and must be protected from negative market forces. Welfare is linked to labor market participation, with support from the family and community. Men are typically the primary breadwinners, and the state intervenes only when families cannot resolve their issues.

The Practical Implementation of the Welfare State

Unemployment Benefits: Swedish workers can leave the labor market without losing income, allowing them to negotiate better working conditions. However, they must prove they were treated unfairly by employers and are actively seeking new jobs. If unemployed, they receive benefits equivalent to 80% of their previous salary. To qualify, workers must have been employed for at least six months in the past year, demonstrate their willingness to work, and apply for jobs; otherwise, they forfeit benefits.

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Pension Policy: Sweden introduced pensions in 1913 due to widespread hardships among the elderly. Initially, 45% of the parliament were farmers, which influenced the decision to create a universal pension system. By 1935, pensions were extended to all citizens based on residency rights, and by 1948, during Sweden’s economic boom, universal pensions were firmly established. By 1960, concerns arose that the welfare level, though equal for all, was relatively low, leading to proposals for pension levels linked to wages. Further reforms in 1969, 1998, and beyond adjusted pension levels, introduced housing allowances, and ensured long-term sustainability based on economic development and life expectancy.

Housing Policy: Housing is regulated at both the national and municipal levels, with Sweden’s 290 municipalities implementing varying policies. Housing is not only a right but also a social goal. Municipalities are responsible for providing housing support, with central government assistance. Policies include financial aid based on individual assessments and housing companies (both state-owned and private) that operate under market conditions while providing welfare-oriented housing services. Special housing arrangements exist for vulnerable groups, including disability-friendly apartments with state-supported caregivers.

Policy-Making Process in Sweden

Swedish policy-making begins with proposals from politicians, experts, and academics. The government refines these proposals before presenting them to Parliament for discussion and voting. Experts and advisory councils, appointed by the state, play a central role in policy formulation. These councils, often comprising officials, political representatives, and university professors, operate on a temporary basis, sometimes for just a month or, in complex cases, for up to a decade. They also draw on international experiences.

Despite differences in opinion, expert committees first agree on defining the problem before proposing solutions. The process involves public consultation, allowing organizations and citizens to provide input, minimizing policy errors.

Aging Population Challenges

Sweden’s demographic shifts resemble those of other European countries. However, Sweden has been more proactive in addressing aging-related crises. The 2008–2009 financial crisis required strong policy measures, but some European nations responded ineffectively. The COVID-19 pandemic further highlighted the vulnerability of older populations.

Sweden’s policy responses since the 1930s underscore the importance of demographic research in policy planning. Economic crises led to state intervention, while declining birth rates (also observed in France) prompted policies supporting housing for young families to encourage childbirth. The Golden Age of Capitalism was based on Keynesian economic policies, gender-inclusive policies, and increasing female labor market participation.

During the 1990s, the welfare state faced pressure to cut costs. However, Sweden and other European nations resisted reducing welfare while also avoiding tax increases. The solution was to expand the tax base by increasing workforce participation, particularly among women and children, and improving social services for children and the elderly. Promoting lifelong learning and dual-income households also helped address aging concerns.

The "Silver Economy" and Welfare Sustainability

Aging is not just an economic but also a political issue. In Western countries, public acceptance of taxation varies, influencing welfare policies. The key is to ensure welfare sustainability by promoting employment, as economic growth provides better support for the elderly.

A comparison between Northern and Southern Europe highlights this: while both have similar tax levels, Northern Europe has an 8% unemployment rate compared to 16% in the South. Without state intervention, the burden of elderly care falls on families, particularly women, reducing female labor force participation. Policies that promote employment generate tax revenue, increase household incomes, and ensure better care for the elderly.

One cost-saving approach is providing home healthcare instead of institutionalizing the elderly, except for those with severe health conditions.

Welfare States in Southeast Asia

Global poverty has declined over time, with Asia, particularly China, playing a significant role. Southeast Asia has shifted from the 1990s Washington Consensus, which prioritized market-driven development and economic growth over social equality, to a more inclusive development model in the 2000s. This shift aligns with recommendations from ADB, OECD, and the World Bank, incorporating social investment as a core policy tool.

While Southeast Asian countries have lower welfare levels than Nordic nations, there are variations within the region. Singapore, Malaysia, and Brunei lead in welfare provision, followed by Thailand and Vietnam. Notably, Vietnam is the only country in the region with a policy bank, which offers unique social welfare advantages.

Moral Hazards in Welfare Policy

People tend to choose risk-averse options to avoid losses. However, risk tolerance varies individually. Social Insurance helps mitigate risks such as accidents, unemployment, and theft by distributing costs across a broad population. This principle underpins welfare states worldwide, including Sweden.

In Nordic societies, compulsory welfare systems provide stability and broad coverage but face challenges such as moral hazard—where individuals may exploit benefits without genuine need. The U.S. system, though voluntary, handles moral hazard better due to competition among private insurers. The German model relies on family-based welfare, effectively managing moral hazard but offering limited risk distribution.

In Sweden, a key moral hazard issue was early retirement combined with increasing life expectancy, leading to pension fund strain. To address this, Sweden introduced a pension system where earlier retirement results in significantly lower payouts. Pension levels are determined based on individual contributions and life expectancy. The transition to the new system took 17 years, ensuring political feasibility. Sweden set a minimum retirement age of 61 without maximum, allowing individuals to work longer for higher pensions.

Sweden’s Family Policy

Since the 1970s, Sweden has promoted a dual-earner, dual-career family model, where both spouses work and share childcare responsibilities—contrasting with traditional conservative models where men are primary earners.

Sweden supports childcare services for children from one year old, enabling parents to work, study, or seek employment—similar to policies in South Korea and some other advanced economies.

Support for Small Businesses and Freelancers

This is a small group that does not fall into any predefined category within Sweden’s welfare policies, so it is treated separately, though it remains within the state unemployment benefit system. The role and mission of the Unemployment Benefit Fund for Small Businesses and Freelancers (SMAA) are to receive funding from the state (90%) and administer benefits. SMAA operates and is managed like a private enterprise (it is not allowed to retain profits but must reinvest them for its members and the organization’s activities). SMAA is one of the 24 unemployment insurance funds in Sweden.

Regarding the process of becoming a member of SMAA, applicants are thoroughly assessed based on both their application and business operations. SMAA also calculates the average income of applicants to determine the appropriate level of benefits. Beneficiaries must report their activities to SMAA on a weekly basis. To qualify for benefits, applicants must have worked in Sweden for at least six months within the past twelve months, with a minimum of 60 hours per month; or have worked for six consecutive months within the past year, accumulating no fewer than 40 hours per month or 420 hours over six months.

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Sweden’s Healthcare Policy

Sweden has a significant proportion of elderly people over 65, accounting for 14% of the population. The life expectancy is 83.1 years (compared to the European average of 81.5 years), and the infant mortality rate is 2.1 per 1,000 live births, lower than the European average of 4.1 per 1,000. Sweden also has a high quality of life, with 76% of the population reporting good health, compared to 69% across Europe. Despite these positive indicators, further improvements can still be made. Sweden allocates 11% of its GDP to healthcare, a relatively high proportion by international standards.

Sweden’s healthcare system is almost entirely managed and funded by the state, with clear divisions of responsibility between the central government, regional governments, and municipalities. Regional and local governments receive funding primarily from taxes and allocations from the central government. The core values of Sweden’s healthcare system include social equality, solidarity, and transparency in policymaking (in contrast to market-driven mechanisms), with public oversight of healthcare expenditures.

The central government and its agencies are responsible for enacting laws, setting regulations, engaging in discussions with regional and local governments, providing financial resources, and overseeing quality. However, healthcare policies are not heavily codified in law, as legal provisions are typically broad and general. Instead, Sweden’s healthcare policy is governed mainly by “soft laws” that are non-binding and serve as guidelines. Different regions may have varying regulations, and the central government can influence policies by providing targeted funding (for instance, by investing in specific treatments to encourage their adoption).

Regional governments are responsible for healthcare service delivery and financing, have the authority to levy taxes, and are governed by elected bodies. They can also contract private healthcare providers. Municipalities are responsible for long-term care, primarily for the elderly and individuals with mental health conditions. They, too, have the power to collect taxes and sign service contracts with private providers, though there are regional variations in how these responsibilities are managed.

Lessons Learned

Countries with medium levels of development can begin building welfare states based on Sweden’s experience. Sweden started implementing its welfare state policies in the 1930s when its average income was around USD 4,000 per capita per year.

A welfare state, if implemented alongside appropriate economic policies, can contribute to sustainable economic growth. Contrary to misconceptions, a welfare state is not an economic burden; instead, it supports long-term economic growth, enhances resilience during crises, minimizes inequality, and promotes social justice.

A welfare state does not stifle innovation. Sweden is among the world’s most innovative nations, producing leading technologies and companies such as Spotify, Electrolux, Ericsson, IKEA, and H&M. Welfare policies should be integrated with economic development, balancing the roles of the state, market, and families. Education, in particular, is a crucial tool for poverty reduction and sustainable development.

Universal welfare policies promote social equality and inclusivity, ensuring that no one is left behind. However, a drawback is that benefits may be spread thin, making it difficult to lift the poor out of hardship—a key goal of social policies. Additionally, there is a risk of dependency, where some individuals may rely on welfare rather than seeking employment.

Thus, a mixed approach is advisable: universal access to education and healthcare, while targeted policies should address issues such as unemployment (prioritizing vulnerable groups) and housing (assisting those unable to afford homes).

Vietnam is in a more favorable position today to advance welfare policies compared to Sweden in the past. Therefore, Vietnam can draw on Sweden’s experience to enhance its welfare policies by building on its recent successes, harmonizing social and economic policies.

However, adopting Sweden’s model—or that of any other country—should be done selectively and cautiously, considering Vietnam’s unique economic, social, and political conditions. Furthermore, advancing theoretical research on the welfare state model will require in-depth studies and further academic exploration.