The unintended consequences of financialisation: Social democracy hamstrung? The pensions dilemma

Introduction

At the end of the Third Way and without direction, social democrats, now as before, look to Sweden for inspiration. However, Swedish social democracy lacks the answer having been deprived of its renommée as a competent manager of the economy and identity as redistributive and fair by the Moderate Party (Moderaterna). Scholarship is starting to grasp the movement’s difficulties (e.g. Bailey et al., 2014; Keating and McCrone, 2013). We contribute by historicising its policy dilemma in relation to the public pension system, an institutional-ideological nexus of great strategic significance within the Swedish Model, old and new.

Amid the global financial crisis (GFC), Sweden again provides a model for policy-makers worldwide. However, this time it is not associated with social democracy. The ‘Swedish Model’ no longer refers to the postwar ‘middle way’ between capitalism and socialism, or the ‘third way’ between neoliberalism and redistributive social democracy in the 1980s (Ryner, 2002). Instead, it refers to one of two policy packages: Sweden’s ‘bank bailout model’ (Nordström, 2010); or, the ‘new Swedish model’ (Schnyder, 2012). Both these models are associated with the centre-right coalition (Högeralliansen) led by Moderaterna. Yet, the recent Swedish success story hides substantial costs, with European level unemployment rates, rapidly rising, albeit still comparatively low, inequality (OECD, 2011) and growing fears of a real estate bubble resulting from ‘financialisation’, a process of growing financial market influence in the economy (see Van der Zwan, 2014: 101), since the 1980s. It is primarily in relation to the first two problems that the Swedish Social Democratic Party (SAP) seeks to project an alternative future, still frequently lapsing into nostalgia with references to its role in constructing the original Swedish Model. However, SAP has been in government most of the time since the ‘old’ Swedish Model encountered problems in the stagflationary 1970s. Actually, it has overseen much of the restructuring during this period when in office, or has entered into policy coalitions with centre-right governments or de facto supported the latter’s decisions by not reversing them once back in office. This has been interpreted as neoliberalisation of social democracy (Ryner, 1999). Now, at the end of the Third Way, it endeavours to reassert economic ‘governing competence’ (Buller and James, 2012) while facing calls to live up to its desired identity as fair and redistributive. This presents SAP with a profound dilemma: how can it address issues of socio-economic fairness and redistribution without having first acquired governing competence? and, how can it acquire governing competence, if, to secure electoral support first, it has to take a left-turn, and thus expose itself to accusations of hypocrisy by claiming to represent values and institutions it has contributed to destroy? Despite having won the 2014 elections, this dilemma persists, leading a minority government dependent upon support from either the centre-right parties or, worse, the national/populist Sweden Democrats (Sverigedemokraterna) to secure any parliamentary vote.

In this article I explore the historical emergence of this ethico-political dilemma through the case of the public pension system, an institutional-ideological nexus which has been and remains, despite the 1994 reform, critical to Swedish social democracy’s ability to appeal both to its identity as redistributive and fair and as competent in governing the economy. It analyses the party’s current troubled self-understanding and strategic outlook in relation to pension policy, once ‘the jewel in the crown’ of the Rehn–Meidner model (cf. Lundberg, 2003) and the push for economic and industrial democracy, now, since reform, the constraining, albeit unintended, legacy of SAP’s own policies of financialisation. As the global financial crisis (GFC) has brought further volatility in asset markets and growing concerns amongst pension savers, SAP is facing pressure from the electorate to reconsider its pension policy, indeed to exit the underpinning policy coalition with the centre-right parties. Yet, it is hamstrung by its objective to regain governing competence, especially in terms of its commitment to the new Swedish Model, with financialisation being a key element.

The article takes a different approach from recent contributions that suggest that ‘the content’ of the Swedish Model has changed little (Murhem, 2013) or that celebrate the model’s adaptability (Steinmo, 2010). Analysing the strategically significant or, more precisely, ‘complementarity-making’ pension policy, it instead illuminates a substantial reconfiguration of the institutional framework, and especially the influence of financialisation, in the Swedish economy. While Sweden may still be on a unique path in the global economy, the previous path, in relation to which Social Democratic identity and governing competence were built, has been broken (cf. Magnusson, 2011).

First, I outline a political economy of institutions. Second, the role of ‘complementarity-making’ pensions in the construction of the Swedish Model and for the development of the labour movement is analysed. Third, the same analysis is made with regard to the unravelling of the Swedish Model. In the penultimate section, the efforts to assign a complementarity-making role to the new pension system in the construction of a new Swedish Model are explored. Finally, I illustrate the dilemma facing Swedish social democracy despite path-breaking opportunities arising with the GFC in pension policy.

A political economy of institutions

Most institutional analysis shies away from political economy. The effect is the reduction of the analysis of continuity and change in institutional frameworks to endogenous dynamics derived from the microfoundations of pre-existing institutions or simplified exogenous shocks (e.g. globalisation). Recent discourse-oriented institutionalisms, while representing theoretical progress, remain insensitive to the constraints on institutional dynamics arising from capitalism (Sum and Jessop, 2013: 33–71). Concrete analyses of capitalism, including ethico-political projects of its justification, require institutional analysis.

A useful approach concerned with institutions accommodates both synchronic and diachronic perspectives to make sense of relative continuity and change. It must recognise the specificity of historically and spatially specific capitalisms within the constraints of the self-organising dynamic of a tendentially global, or ‘variegated’, capitalism (Peck and Theodore, 2007). This must be complemented by a conceptualisation of institutions capable of accounting for institutional inertia and evolution by strategic design or unintended consequence, as well as the (potentially) subject-forming function of institutions. To accomplish this, I develop here an approach based on the Social Systems of Innovation and Production approach (e.g. Amable, 2000), amended by Jenson’s concept of ‘societal paradigms’ (1989).

In benchmarking convergence amongst national and regional capitalisms towards the most efficient institutional configuration under pressure from globalisation, a large literature has emerged since the 1990s. It links economies’ institutional architecture to their main economic characteristics to project the long-run evolution of ‘varieties of capitalism’ and their sustainability. To organise knowledge of the complex relationship between institutions within institutional frameworks, it has developed the ‘Institutional Complementarity Hypothesis’. The Social Systems of Innovation and Production (SSIP) approach represents the most sophisticated framework for testing the convergence thesis. It is developed from Regulation Theory, which, having been primarily concerned with broader shifts from Fordism to post-Fordism, predates concerns with convergence. SSIP, in contrast, is ontologically (no a priori hierarchy of institutions; institutional forms are historically specific), epistemologically (bounded rationality of actors) and methodologically (e.g. qualitative comparative analysis) constructed to appreciate persistent variation in capitalism (Boyer, 2005). Although it shares Regulation Theory’s analytical concern with whole production systems and their institutional organisation (‘modes of regulation’), it is more restrictive in the institutions considered.

Institutional forms are, like in Regulation Theory, ‘embedded’ or ‘routinised’ social compromises, inducing social behaviour of social actors, be they governments, firms or households. SSIP is however more refined with regard to these institutions’ interaction in specific social contexts, fields and between such fields. These interactions may give rise to frameworks of institutions that collectively define interrelated incentives capable of influencing individual agents’ behaviour (Amable, 2000: 655).

Three SSIP concepts about institutional interrelationships are relevant for our argument: co-evolution, complementarity and hierarchy. Institutional forms are not automatically compatible. Compatibility may arise as institutions co-adjust over time. ‘Co-evolution’ is the process of trial and error, through which institutional forms, that originally are disconnected and formally autonomous (being the outcomes of institutionalised compromises among assorted agents in diverse fields), adjust to one another so that a viable institutional and symmetrical configuration emerges. Appearing post factum, this may lead to the emergence of a mode of regulation, in which social relations are routinised and capital accumulation thus temporarily stabilised. A specific capitalism can then enter the rather unusual condition of being en régulation.

Boyer (2005: 67) defines ‘complementarity’ as an institutional configuration where the institutional form’s viability is ‘conditioned by the existence of several other institutional forms, in such a manner that their conjunction offers greater resilience and possibly better performance compared to alternative configurations’. He exemplifies this with the appearance of complementarity in the relationship between the Fordist wage–labour nexus and the credit-based monetary regime in the post-Second World War period. ‘Institutional hierarchy’ infers asymmetry in an institutional framework with two types of processes establishing such hierarchies. The first refers to intentionally designed hierarchical relationships between institutional forms. The second denotes a cumulative, often unintended, process where the transformation of one institutional form shapes the development of others. These static and dynamic notions are connected since changes in one institution can disrupt a whole mode of regulation by undoing institutional complementarity (Amable, 2000: 660).

There are two sources of change: hybridisation and endometabolism. ‘Hybridisation’ describes how institutional forms are imported and mixed with existing ones in the design of domestic reforms. Financialising reforms are good examples as they typically involve the introduction of the influence of the financial marketplace into other realms of social life. ‘Endometabolism’ refers to the development of tensions within institutional frameworks along the tendential temporal axis of emergence, maturation and crisis. The acknowledgement of such tensions clarifies that in SSIP ‘institutional fit’ is always partial and temporary (see Boyer, 2005: 70). While focusing on institutional change, these concepts enable the consideration of the variegated processes of capitalist development (Amable, 2000).

Conceptual gaps relating to how institutional frameworks cohere and are transformed remain. Plugging these requires a stronger political economy dimension of the approach (Boyer, 2005: 76). It is the contention here that some institutions are designed to ‘glue’ institutional frameworks together, without being hierarchically superior to any other institution or institutional form. I call these ‘complementarity-making’. They serve the purpose of entrenching institutional hierarchies, whether by design or cumulatively, and are as such crucial to the stabilisation of any specific capitalism. Their reform is likely to lead to significant disruption of institutional frameworks, of the collective identities and subjectivities attaching to institutions as well as resource redistribution. While the institutionalist literature tends to privilege path-dependence due to its particular evolutionary ontology and epistemology and thus downplaying strategic action (Steinmo, 2010), SSIP’s ‘neorealism’ makes it more open to ‘path-breaking’ action (Sum and Jessop, 2013: 84). Path-breaking, originating from either hybridisation or endometabolism, involves taking steps to deviate substantially from institutional evolutionary trajectories. Path-breaking action can have major consequences for institutional frameworks depending on the location, function and status of the targeted institution within macroeconomic models. For legitimation, it calls for the discursive construction of crisis, a powerful moment in social struggle. However, this discourse must still resonate with dominant collective identities, interests and politics of difference providing a material check on discursively engineered change. Differently put, path-breaking, even when pursuing paradigmatic change, requires the construction of continuity in relation to societal paradigms to secure legitimacy. Returning to the work of regulationists Jane Jenson and Alain Lipietz, I develop SSIP’s conceptualisation of these dynamics.

Collective identities are mobilised through the discursive construction of shared interests, typically in relation to an ‘other’, for the purpose of achieving representation. The politics of representation involves struggles and compromises over who is included and thus who gets what, when and how. Because actors are permeated by co-existing, and potentially conflicting, collective identities, their associated ‘practices and meaning systems jostle with each other for social attention and legitimacy’ (Jenson, 1989: 238–239). These competing practices and meanings have unequal degrees of legitimacy and attract different levels of social attention impacting upon the social power of actors. This depends upon these practices and meanings’ relation to the societal paradigm. They contain (Jenson, 1989: 239):

… a view of human nature, a definition of basic and proper forms of social relations among equals and among those in relationships of hierarchy, and specification of relations among institutions as well as a stipulation of the role of such institutions. Thus, a societal paradigm is a meaning system as well as a set of practices.

If actors successfully speak to the societal paradigm, it will afford them with power, but will, if they fail, blur the actor’s identity and be threatened by marginalisation. Unsuccessful representations may persist beyond, or on the margins of, the societal paradigm. Agents having achieved representation under the societal paradigm seek to divide and blur marginal representations to prevent challenging actors from forming a collective identity around their marginalisation. As such, the discursive struggles of the politics of difference revolve around ‘the representation and reproduction of power relations based on difference’ (Jenson, 1989: 238). Societal paradigms thus include and exclude contenders for representational power, depending on the outcome of struggles.

The critique of the representativeness of societal paradigms can throw societal paradigms into crisis, which in turn can push a mode of regulation into crisis. The representativeness of a societal paradigm can be disturbed by intensifying contradictions, as a consequence of endometabolism or hybridisation, in the mode of regulation’s ability to distribute resources and power in a legitimate manner. The emerging conditions may no longer be meaningfully accounted for by the societal paradigm and hence a period of discursive struggle erupts, in which competing actors seek, first, to form partly new collective identities around the changed conditions and, second, to institutionalise these identities (cf. Sum and Jessop, 2013). Critique of the societal paradigm can lead to a new set of institutionalised compromises and a (partly) new societal paradigm, including contributions from actors successful in extending their representational strength in discursive struggle (Jenson, 1989: 239).

Lipietz adds to Jenson’s conceptualisation by identifying two types of challenges. ‘Infra-paradigmatic’ challenges aim to improve the institutionalised compromises targeting ‘the equity or even the reality of the distribution of … benefits’ guaranteed by dominant actors (1994: 340). ‘Contra-paradigmatic’ challenges contest the societal paradigm to cause a crisis, and to replace the latter with an alternative paradigm. This can lead to a crisis in the mode of regulation as well as establishing a new evolutionary trajectory of institutional reform (Lipietz, 1994).

Summarising, this SSIP-based approach conceives of the significance of institutions and the nature of their relationships in the reproduction of specific capitalisms, or growth models, within variegated capitalism. It is particularly attentive to those crucial institutions that provide the ‘glue’ that makes institutional frameworks hang together in a range of ways and thus support specific capitalisms. However, it also points to the impact of their reform as both potentially leading to greater shifts in institutional frameworks and politics of representation. The next section analyses, uses the SSIP framework, the role of pensions for Swedish social democracy in the ‘old’ Swedish Model.

The Swedish Model, social democracy and pensions

The Swedish Model is a contested notion. It commonly refers to a particular growth model with complementarity between export-led capital accumulation and welfare provision with particular historical roots and based on a corporatist compromise between employers, trade unions and the state (Magnusson, 2011: 197). Most commentators position labour market relations at the top of an institutional hierarchy with its organisational routines of voluntary and binding collective agreements capable of facilitating sustainable productivity growth over time (e.g. Murhem, 2013). Disagreement arises on the leading actor. Most highlight the role of the labour movement in the formulation of the Rehn–Meidner model and the latter’s grassroots embedding (e.g. Therborn, 1989). Others emphasise the willing consent of big capital (Swenson, 2002). Either way, the Swedish Model sought to combine competitive rationalisation of firms with steered investment, flexible labour with full employment through active labour market policies, and income stratification with redistribution (Ryner, 2002).

Some claim that this model still thrives today (e.g. Steinmo, 2010), others that its existence was always mythical, albeit with some real institutional referents. Buendía and Palazuelos (2014) argue that the complementarity between export-led accumulation and the welfare state diminished following the 1991–1993 banking crisis. Schnyder (2012) argues that this has led to the rise of a new model. Clear is that the notion has been politically potent for Social Democracy in Sweden and beyond, representing a welfare capitalism of a progressive form during Sweden’s ‘(dis)articulated Fordism’ rendering economic governing competence compatible with an identity as fair and redistributive. It provided institutional foundations for the adaptation to post-Fordist production, and to some even momentarily for the transition to democratic socialism (see Ryner, 2002). While never fully implemented, it provided a roadmap for social democratic policy-making. While inconceivable without the cooperation of employers and centre-right parties, it relied on the containment of market liberalisation. While never fully approved by the middle classes, it was able to mobilise support from such social strata through specific policies. Next, I demonstrate how pension policy was central to addressing this paradoxical situation in rendering the Swedish Model complementary, and how it thus served the fundamental purpose for social democracy of rendering economic governing competence compatible with an identity as fair and redistributive.

In the turn to capitalism, the small size of the Swedish economy made the development of an encompassing productive system challenging (Katzenstein, 1985). Goods for mass consumption were primarily imported. In the early 20th century, Sweden started constructing an export-led growth model. Export industries were crucial for earning foreign exchange to balance external accounts. World markets came to mediate Swedish mass production and consumption (Mjøset, 1987: 410). Especially the tendency of overproduction and under-consumption had to be regulated through the stimulation of ‘domestic consumption in a manner which simultaneously counteracts the tendency of the organic composition of capital to increase’ (Ryner, 2002: 68–69). The growth in productivity and consumption had to be synchronised. Two economists, Gösta Rehn and Rudolf Meidner, at the Swedish peak trade union organisation Landsorganisationen (LO), came to outline the policy model to accomplish this.

Positioned between Keynesianism and monetarism, the model aimed to ‘combine full employment and growth with price stability and equity through the use of extensive selective employment programs, a tight fiscal policy and a wage policy of solidarity’ (Erixon, 2000: 1). It stipulated a strict disinflationary financial policy over business cycles in the medium-term combined with a selective labour market policy to enable inter-sectoral labour mobility and full employment also in times of recession. To contain wage drift and speed up the structural transformation of the economy in favour of internationally competitive firms, the model specified solidaristic wage policy determined through central wage-bargaining in combination with taxes on corporate profits (Martin, 1984: 205–208).

However, there was no guarantee that this could be achieved at the level of wage agreements alone. Macroeconomic policy was supposed to render these objectives complementary, but required favourable structural conditions and strict regulations.

Strict capital controls, enabled by the Bretton Woods system, and credit market regulation kept costs of credit for productive capital down and were prerequisites for the model to function. Corporations could avoid taxation on profits by depositing in the Investment Funds. Favourable depreciation allowances through deposits at the Central Bank (Riksbanken) provided further advantages. At the same time, excessive borrowing from Riksbanken incurred penalty rates. This way excess liquidity could be avoided. Moreover, funds deposited in the Investment Funds were released to corporations according to counter-cyclical principles (Pontusson, 1992: 70–83). Thus, while the wage–labour nexus was at the top of the institutional hierarchy of this model, the navigation between the Scylla of unemployment and the Charybdis of wage drift necessitated considerable capacities of counter-cyclical management and powers over exchange and interest rate setting. Yet, the growth model’s institutional coherence and embedding within the dominant societal paradigm could not be understood without defining the role played by pension policy in its construction and reproduction.

Path-breaking welfare reform topped the SAP agenda since their 1936 electoral victory. There was broad agreement on constructing a substantial welfare state, a significant element of a mode of regulation capable of complementing export-led accumulation. However, progress was hampered by infra-paradigmatic challenges over the basic principles of social insurance. While SAP Minister of Social Affairs Gustav Möller propagated flat-rate benefits, the other political parties, on this occasion supported by LO keen to uphold its principle of ‘equal work, equal wage’, advocated the principle of income security (Lundberg and Åmark, 2001: 165). Breakthrough came as former LO representative Gunnar Sträng replaced Möller in 1951. He saw through legislation of a coordinated system of social insurance based on the principle of income security, including sickness, work accident and unemployment insurance (Lundberg and Åmark, 2001: 165–168).

Still, the achievement of two further policy objectives was central: full employment over the business cycle and high income-replacing pensions. Full employment was facilitated by the 1948 creation of a manpower policy and a labour market board (Arbetsmarknadsstyrelsen). In 1957, labour market policies were expanded by the channelling of additional funding to this board to alleviate cyclical unemployment (Martin, 1984: 217). Prior to his departure, however, Möller had set this policy path by overseeing major pension reform in 1948. Reform turned the insurance-based People’s Pension (Folkpensionen) of 1913 into a universal, flat-rate system providing income replacement at 20% of the average industrial worker’s wage. This represented significant improvement in provision with inequalities addressed amongst both blue-collar and white-collar workers as well as between these two strata. It kept old people away from stigmatising poor relief (Palme, 1990). It also mitigated against the uneven commitment of employers to occupational pensions. Although disagreeing with its universalism, LO supported the reform as it tackled the unevenness of pension provision.

Still, Möller had greater ambitions. He established a commission that produced a report on pensions in 1950 proposing the legislation of obligatory supplementary pensions to be accumulated in public pension funds. This galvanised the labour movement. The 1951 LO congress supported the report and set up a committee to study possible designs for the supplementary system. Gösta Rehn was here involved to advocate the accumulation of employer pension contributions in large funds, the so-called AP funds (Allmänna Pensionsfonderna), intended to serve as buffers in the system. While there was near-agreement in the committee on the design, there were disagreements over whether to take the coercive legislative route or to bargain, as was now the policy routine, with the peak employers’ association, Svenska Arbetsgivareföreningen (SAF). SAF and the centre-right parties were critical of the initiative, especially the proposed funding mechanism (e.g. Swenson, 2002: 284–290). Opting for uncompromising legislation, SAP–LO deliberations led to the idea of retaining Folkpensionen and to complement it with a large and obligatory pay-as-you-go (PAYG) defined benefit (DB) system guaranteed by the state. Crucially, the SAP–LO proposal would not only be attractive to blue-collar workers but also (eventually) to white-collar workers, who were affected by the employers’ uneven commitment to company pensions (Stråth, 1998: 34, 45–46). Supplementary pensions became an issue of highest strategic importance.

Dramatically, the proposal – ATP (Allmänna Tjänstepensionen) – won by one vote in the Riksdagen. The ATP scheme would be financed through employers’ and self-employed contributions, and temporarily managed by tripartite AP funds (Allmänna Pensionsfonderna) (Pontusson, 1984). Given a required working life of 30 years, it was designed to reward employees with a pension roughly equivalent to 60% of their 15 highest salaried working years. The system was founded on considerations of redistribution, both within and between generations, professions (white- and blue-collar), sectors and gender, implying that the system was effectively counter-cyclical. The ‘ATP-pensioners’ of 1979 were the first to receive full benefits. On top of Folkpensionen, income replacement was to reach 65% (Swenson, 2002: 281). It became the symbol for labour’s increasingly unified struggle and power, and may be characterised as a breakthrough for Swedish social democracy (Pontusson, 1992: 79). It did not merely secure significant electoral commitment from blue-collar workers, it also captured a substantial new constituency of white-collar workers. As Heclo and Madsen (1987: 27) argue, the Social Democrats ‘captured the idea of the nation … they successfully interpreted the national identity as one of an ever-reforming welfare state’. The ATP struggle made the labour movement the guardians of the famous ‘People’s Home’; it crystallised an essentially social democratic societal paradigm based on a complementary nexus of principles, ideas and practices relating to productivity of (male) labour, ‘equal work equal pay’ and rising levels of welfare and solidarity.

Making things worse for the centre-right parties, SAF turned to support the system, on the condition that the AP funds would be temporary (Swenson, 2002: 282). As LO and SAP moved to assign the management of the AP funds to tripartite boards, and as SAF had already accepted the ATP system, the centre-right parties soon ceased to contest the system, even turning towards acceptance of the creation of the AP funds. The AP funds would not only remain in place, but would grow in significance within the model, in the subsequent two decades. As they co-evolved with other institutions, they became ‘a natural [and normal] component of the mixed economy’ (Pontusson, 1984: 10), indeed key building blocks of the emerging Swedish Model. Yet, and this was a key premise for widespread acceptance, the labour movement recognised the market as ‘the most efficient mechanism to allocate capital within the private sector’, reflected in the final design of the AP funds in channelling pension savings into productive investments (Pontusson, 1984: 94). As such, the AP funds eased tendential policy conflicts within the Rehn–Meidner model. Indeed, the design of the AP funds served a complementarity-making function for the Swedish Model.

Through the endometabolism of the ATP system, the complementarity-making functions of the AP funds grew in importance. Financed through employers’ contributions, they contributed to the profit squeeze that counteracted wage drift. They also made credit available for private and public investments. The AP funds were only allowed to invest in bonds and could not purchase shares in corporations. Corporations could re-borrow 50% of the fees that they paid into the system. This reflected converging interests between the welfare state complex in having ample access to cheap credit for public investments, including that provided for the mass housing programme Miljonprogrammet, and Swedish financial circles, who did not want to see a competing centre of corporate control emerging.

In sum, the Swedish Model was being forged. A decommodifying welfare system, protecting against the extremes of cyclical market performance, capable of sustaining consumption levels and reducing private saving needs throughout the lifecycle, was now in the making (Esping-Andersen, 1985) and co-evolving with mechanisms supporting export-led accumulation. The ATP system played a central role in rendering it complementary. Electorally secured on the back of its universalism and high levels of income replacement, pension policy solidified the social democratic societal paradigm. The system provided the glue that rendered the Swedish Model en régulation. It would not face serious challenge until the 1980s.

The Swedish Model in crisis and the Third Way

The 1970s and 1980s saw the demise of the favourable structural conditions enabling the formation of the Swedish Model, the acceleration of financialisation and the development of tensions within the model. We here adopt Van der Zwan’s (2014: 101) broad definition of financialisation as connoting: ‘the web of interrelated processes – economic, political, social, technological, cultural, etc. – through which finance has extended its influence beyond the marketplace and into other realms of social life’. This section shows how the ATP system’s centrality in the social democratic paradigm was exploited in ‘muddling through’ the crisis of the ‘old’ Swedish Model, how it ceased to be complementarity-making, and how its path-breaking reform was central to the construction of the new Swedish Model.

The Swedish labour movement faced significant challenges starting in the late 1960s. First, cracks within the movement emerged due to political radicalisation, partly triggered by the decline of US hegemony and the Vietnam War. SAP was losing its identity as fair and redistributive and became increasingly perceived as an elitist party concerned with reproducing governing competence. It was accused of settling for political democracy and of dropping its ambitions for economic and industrial democracy. ‘Second wave’ feminists accused it of ‘chauvinism’, a sign of crisis of the gendered Swedish Model, with welfare and labour market policies, including pensions, obstructing women’s liberation, proposing path-breaking ‘state feminist’ solutions to these problems (Jenson and Mahon, 1993). SAP tackled radicalisation as an infra-paradigmatic challenge, but this was to prove a divisive move within the party, the labour movement as a whole, and in relation to its white-collar supporters.

Second, as the US economy lost competitiveness to Germany and Japan, the temptation to export the costs of adjustment increased as confidence in the dollar waned. The full abandonment of the Bretton Woods system in 1973 rendered existing monetary policy ineffective, and challenged the effectiveness of capital controls and investment policies, as exchange rates started to fluctuate. Financialisation resulted, which magnified emerging tendencies of endometabolism within the Swedish Model.

The large commercial banks started to circumvent the regulations of Riksbanken by operating beyond the organised credit market through the creation of financial intermediaries. Manufacturing firms like ASEA, Alfa-Laval and Volvo created financial subsidiaries in order to reduce their dependency upon their ‘house banks’ and on manufacturing itself for profitability (Olsen, 1991: 128). The financial lobby organised around these developments (Svensson, 2001: 254–270). Price hikes in primary goods markets demonstrated the effects of the new monetary order as they led to ‘stagflation’ in the world economy. While central wage-bargaining kept a lid on inflation initially, declining demand for intermediate manufactured goods as well as more specialised investment goods combined with the boom in raw materials to put pressure on the model’s solidaristic wage policy. Moreover, structural problems in the export sector led to inertia when structural transformation was required. Exporting firms used the proceeds from currency devaluations to ease indebtedness rather than for transformative investments. Competitiveness and profit rates consequently declined.

SAP governments in the early 1970s ‘policy-fumbled’ in this new environment, failing to reproduce the Swedish Model. Furthermore, the 1970 electoral reform deprived SAP of coercive power to enforce support for its policies by abolishing the Upper House and weakening its seat-to-vote ratio in parliament through making the system more proportional (Immergut and Jochem, 2006). Policy failures and electoral reform combined to bring about the election of a series of centre-right governments (1976–1982). This set the stage for the rise of neoliberalism.

Seeking to stem the loss of power, SAP sought sweeping solutions. Responding to radicalisation as well as challenges from the political centre for white-collar voters, the labour movement followed moves towards industrial democracy with radical proposals for economic democracy, combining long-standing ambitions for more decision-making power with an acceleration of the business rationalisation process. Central to this strategy, devised by Rudolf Meidner, were the wage-earner funds, in relation to which the pension system, yet again, took centre stage. The Meidner Plan envisaged branch rationalisation funds and the augmentation of the investment strategy at the core of the Swedish Model by allowing the AP funds to acquire up to 49% of the stock of Swedish corporations. This was seen as an overdue continuation of the social democratic project by many, but without agreement from the centre-left of the labour movement, who saw this as a deviation from the social democratic societal paradigm, this merely widened the existing cracks. It also antagonised Swedish capital springing SAF into action with an ambitious neoliberal contra-paradigmatic challenge to counter contestation of its decision-making powers and share of future profits. Exploiting labour movement divisions and questioning white-collar adherence to the social democratic societal paradigm, this challenge successfully undermined the Meidner Plan. The final wage-earner fund policy was a diluted package providing neither meaningful augmentation of economic democracy nor a significant boost of investment capital (Stråth, 1998). These developments, both structural and endometabolist, contributed to SAP’s electoral losses in 1976 and 1979, and crisis in the societal paradigm as well as the Swedish Model.

While the 1976–1979 centre-right government found operating within the Swedish Model very difficult and policy-fumbled as a result, it hesitated to abolish it. Even big Swedish capital remained ambivalent about dismantling the model (Swenson, 2002). The 1979 elections produced a more reform-minded government. Led by the neoliberalised Moderaterna, and backed by SAF, it commenced an attack on the Swedish Model. Inspired by the monetarist economics of Milton Friedman, budgetary deficits and inflation were constructed as public enemies number one and two (Grassman, 1986: 59–67). Following currency devaluation, it sought to decentralise wage-bargaining and adopted austerity measures aimed at tackling the growing deficit. Claiming the absence of an alternative, it attempted to strengthen private property rights, specifically targeting sectors, policies and regulations that ‘distorted’ the price-setting mechanisms of the market. A key target was the pension system. The government removed inflation-indexation in the ATP system (Värdesäkringen).

Receiving the strongest electoral support since 1968, SAP returned to power in 1982, but faced a hostile policy environment. The policy routines of the Swedish Model had been partially dismantled. Financial markets had gained disciplinary power over monetary and fiscal policy. Traditional policies were subjected to neoliberal critique, to which SAP struggled to find persuasive responses. Indeed, the neoliberal critique started to shape SAP policy-making, resulting in tensions within the SAP leadership and in between different ministries. With cracks opening up in the labour movement, SAP’s connection with its historical grassroots and its power mobilisation resources were weakened. The Swedish Model along with the labour movement was entering into crisis.

Rather than downplaying this emerging situation, SAP invoked it to legitimate the path-breaking ‘Third Way’. Justified by a new ‘economic realism’, its first priority was satisfying global financial markets through fighting inflation and cutting public expenditure and, second, creating market mechanisms for generating productive investment for the ailing economy. Fighting inflation through rules-based monetary policy became a fundamental tenet of the intellectual framework in SAP economic policy (Lindvall, 2009: 719), despite the fact that inflation, on aggregate, far from exceeded the OECD average. The welfare state required ‘modernisation’. Contrasting with the profit-squeezing policies of the Swedish Model, profit-releasing was now the priority for boosting productivity and competitiveness to protect, not expand, welfare and equity.

To make the Third Way resonate with dominant collective identities, interests and politics of difference, SAP construed it as in continuity with the social democratic societal paradigms. In SAP’s 1982 electoral campaign, the significance of pensions to SAP identity as redistributive and fair, indeed to its attempt at reasserting its adherence to the societal paradigm, was exemplified. Commitment to the values underpinning the ATP system was non-negotiable. SAP vowed to restore inflation-indexation. The centre-right government’s removal of inflation-indexation was framed as epitomising their assault on the welfare state. At a special session on social insurance and pensions at the 1981 SAP party congress, top member Sven Aspling referred to the ATP system as the greatest institution of social security (Lundberg, 2003: 118). The cost of restoring the ATP system was considered separately from the threats and fears expressed in the precarious economic situation. Pension policy was made the yardstick for the Third Way’s compatibility with the social democratic societal paradigm (cf. Lundberg, 2003: 120). SAP exploited their historical commitment to pensions to assert their identity as redistributive and fair and to secure support for the Third Way (cf. Feldt, 1991). This commitment would, however, be short-lived.

As the Swedish krona was devalued immediately after the 1982 elections, the restoration of inflation-indexation was almost nullified. There were also concerns about the ATP system’s complementarity within the changing macroeconomic model. With the defeat of the wage-earner funds and the ensuing financialising shift to market-determined investment flows, the system was no longer central to investment policy. As wages were failing to keep up with prices, the proportion of investment capital provided by the AP funds shrunk relative to other sources of investment capital (Pontusson, 1984: 64–65). The bond market, through which the AP funds issued credit, was being crowded out by expanding financial markets.

To boost investment, the SAP government, in a first embrace of financialisation, launched the tax-exempted Public Savings Scheme (PSS, Allemanssparandet). The ousted centre-right government had already sought to increase private equity savings with the 1981 Tax Fund (Skattefond) initiative. While these initiatives were part of the political struggle between SAP and the centre-right alliance, they represented the decline of collective investment forms. This also represented LO’s marginalisation from investment policy-making. Apart from contributing to the transfer of aggregate income to corporations, booming private saving forms presented serious competition for the defined benefit pensions of the ATP system (Belfrage, 2008).

Following SAF’s move to stop central bargaining on wages, SAP had put pressure on LO to restrain wages, although weakened control over wage-setting had rendered LO incapable of preventing wage drift effectively. Consequently, LO took ‘a less cooperative stance with the state’ (Blyth, 2002: 221–222). As the 1982 devaluation turned out unnecessarily large, import inflation added to the ‘distributional anxieties’ of an increasingly isolated LO. The SAP-led government’s new distribution policy was seen by the labour movement as abrogating its commitment to equality and universalism. As the burden of the solidarity wage and increased import costs fell heavily on labour, and business was seen as benefiting, the unions started to turn against the Third Way (Blyth, 2002: 221–222). Given the fear of workers’ disaffection before the 1985 elections, SAP again used pension policy to reassure voters by moving to compensate pensioners for the excessive 1982 devaluation (Svensson, 2001: 55). Again, SAP commitment to the ATP system was exploited to reassert its identity as fair and redistributive, and again it helped to re-elect the party. Further compensation was made in 1989. Yet, the next threat to the ATP system had already been identified – population ageing – and in 1984 a parliamentary commission was created to consider its implications.

With the functionality of the ATP system in allocating capital in decline, the Third Way envisaged no alternative to financial market liberalisation. Its prioritising of fighting inflation, cutting public expenditure and creating market mechanisms for generating productive investment was affirmed not only by the famous ‘U-turn’ in monetary policy by the French Socialist government in 1983, but also by SAP’s own difficulties in setting discretionary monetary policy upon its return to government (Feldt, 1991). This also led to fierce protests from the labour unions (‘Rosornas Krig’). In quick succession, Riksbanken was made effectively independent, capital controls were removed, credit markets were deregulated and monetary policy was made norms-based and centred on interest rate policy. Combined with the introduction of the government borrowing norm, preventing government from borrowing abroad to cover current account deficits, the institutional hierarchy of the Swedish Model was turned upside down: financial markets rather than wage-bargaining were now primary. The ATP system was increasingly seen as an obstacle to the ‘international process of deregulation and increased financial sophistication’ (SNS Konjunkturråd, 1986: 73). Policy-makers were now seeking a ‘new’ Swedish Model. Market dynamics, especially financial markets dynamics, were invited where possible and politically plausible. To this effect, the tax system was repeatedly reformed during the 1980s to reduce marginal tax rates and supposed disincentive effects for wage-earners and corporations alike. With substantial housing market subsidies being phased out and a further tax reform reducing tax breaks on real estate expected in 1990–1991, the late 1980s saw a construction boom in anticipation of these changes. Bull markets for labour, equity and consumption followed. This took place against the backdrop of the Reagan boom especially in Anglo-American real estate, in which Swedish interests and banking credit were vested (Lindberg and Ryner, 2010). Under financialisation, the ATP system had become an inefficient investment mechanism. It was no longer complementarity-making, but rather an obstacle for the Third Way.

Financialisation and pension reform

As boom turned into bubble and then crisis, the SAP-led government was replaced by a centre-right alliance (1991–1994). It drove an aggressive form of neoliberalism intended to drag the economy out of crisis. Subsequent SAP-led governments adopted ‘subversive neoliberalism’ (Belfrage, 2011). Financialising policies were at the heart of both policy paradigms in the path-breaking construction of the new Swedish Model. This broke remaining complementarity between export-led accumulation and the welfare state. The 1998 pension reform provided a lasting legacy, designed to play a crucial complementarity-making role in the new Swedish Model.

Backed by SAF, released by the old Swedish Model’s growing incomplementarity and justified by SAP’s ostensible lack of economic governing competence (Buller and James, 2012), the new centre-right government sought to dismantle what remained of the Swedish Model. Sustained union influence over policy-making, government interference with central banking and a welfare state interfering with the free market were blamed for the crisis. Upon election, the new government called upon businesses to exit tripartite cooperative forms indefinitely (Blyth, 2002: 228–230). SAF drew up ‘a detailed plan for the complete privatization of the welfare state by the turn of the century’ (Pestoff, 1991: 153). The ATP system was a key target. However, in an economy where the welfare state, and particularly the ATP system, is cherished and closely associated with social democracy (Svallfors, 1989), this could not be done head on by a centre-right government and without the support of social democracy.

This period also saw the emergence of subversive neoliberalism. Like its more aggressive mode, subversive neoliberalism seeks to popularise values of private property rights and market exchange. Growth is understood as driven by global financial markets which reward and discipline economic agency. However, subversive neoliberalism, in the mould of hybridisation, makes use of the welfare state to embed neoliberal values, and to provide detailed support for agents when investing. Financialising policies whose market-mediated and technical complexity typically obfuscates policy direction but also promises asset-based welfare rewards typify such strategies. The 1998 pension reform was one of several key initiatives in Sweden in the mould of subversive neoliberalism. Housing policy was another (cf. Lindbom, 2001). Upon election, the centre-right coalition government set out to replace the existing public pension system with a new system, partly inspired by the neoliberal reform in Chile in the 1980s. SAP elites were to play a key supporting role. With SAP’s voter credibility closely associated with the historical values embedded in the old system of substantial redistribution and income security, its support was essential for the legitimacy of the reform and the long-term sustainability of the new system. Despite the new system representing a significant dilution of social democratic principles, SAP insisted that it would be construed as commensurate with such values to be able to avoid criticism from labour and pensioners’ organisations. Indeed, SAP played an active role in excluding such organisations from the design process and minimised opportunities for public debate (Lundberg, 2003). The introduction of a funded pillar was sweetened by the promises of a continued tech-stock boom. Once again, social democracy became the defender of neoliberal ideas and practices.

The new pension system is a hybrid, three-pillar system. The first pillar is the means-tested and tax-financed Guarantee Pension (Garantipension), replacing Folkpensionen. Garantipension thus resonates with the old poor relief. Shifting from universalism to residualism is emblematic of neoliberal welfare reform. The Income Pension (Inkomstpensionen), the second pillar, is financed by relatively lower employers’ fees than the ATP system. Inkomstpensionen incentivises longer working lives with no, or limited, consideration of work demands on career longevity. The principle of intergenerational solidarity is removed as benefits are automatically adjusted to the size of age cohorts. Automatic mechanisms adjust benefits also to economic growth, replacing counter-cyclicality with pro-cyclicality (Bromsen). Inkomstpensionen no longer sustains standards of living, but adds insecurity to incentivise asset-based welfare management, whether in the third pillar of the system or private savings. The third pillar of the system has received the most criticism. A seventh of pension contributions, or 2.5% of gross individual wages, goes towards an actuarian defined contribution system: the Premium Reserve System (Premiereservsystemet, PRS). Pension savers choose five amongst around 800 mutual funds typically operating according to standard portfolio investment principles. An index-tracking fund (Sjunde AP-fonden), corporativistically steered, invests the funds on behalf of those pension savers who remain idle. The influence that this fund can exercise over corporate governance is restricted by modern portfolio investment principles and ownership limits. In the peculiar expectation that pension savers on average can ‘beat the index’, an expectation as ludicrous as it suggests, this ‘opportunity’ is intended to incentivise pension savers to cultivate the skills and ethos of asset-based welfare. Ostensibly supporting this process, the Premium Pension Authority (Premiepensionsmyndigheten) simplifies the choice by producing risk profiles and performance data of participating mutual funds.

Taken together, the direct form of financialisation that the PRS ensures, combined with the inadequacy of the other two pillars, spells a significant recommodifying shift in Sweden. First, redistribution is minimised. Second, pension provision individualises, rather than socialises, risk. Third, and consequently, pensions generate rather than reduce inequality. Fourth, poor relief, individualisation of risk, automaticity and actuarianism aim at depoliticising the pension system.

Designed to never be a drag on scarce resources, the new system was conceived as complementarity-making in the emerging ‘new Swedish Model’. The new system was to contribute to a neoliberal zeitgeist in the economy. It was intended to bring about the substitution of risk-sharing and collectively agreed norms of fairness for risk-individualisation, actuarial fairness and a new commitment to work. Also, the new pension system enhances the role of the financial sector in the economy.

As the reform was legislated in 1994, the Social Democrats returned to office (until 2006) still able to benefit from a supportive societal paradigm. In relation to the onslaught of aggressive neoliberalism, its return was interpreted as: ‘a fierce determination among the voters to protect the extensive welfare system’ (Blyth, 2002: 236). Yet, under Prime Minister Göran Persson, asserting economic governing competence in line with the ‘economic realism’ at the foundation of the Third Way was SAP’s priority. Social democratic policy-making was changing with welfare increasingly wedded to the capacity to face risks in the market, not protection from such risks. Subscribing to subversive neoliberalism, SAP dismantled institutions around which power could be mobilised by the labour movement in pursuing economic and industrial democracy and accelerated financialisation. This appeared to terminate these ambitions. While reluctant to label social democracy ‘neoliberalised’ (Andersson, 2014), as if driven by hybridisation, SAP’s determination to reassert economic governing competence within a policy paradigm focused on satisfying global financial markets relegated its historical concern with fairness and redistribution to a secondary priority.

The pensions dilemma

In the September 2014 elections, SAP returned to power after the longest period out of office since 1936, albeit only at the helm of a weak minority coalition government with the Green Party (Miljöpartiet). Rising inequality and stubbornly high unemployment rates started to counterevidence the Swedish success story (relatively high GDP growth) presented by the government of Högeralliansen led by Moderaterna (2006–2014). The victory was not the result of its historical identity as fair and redistributive or perceived economic ‘governing competence’ (Buller and James, 2012), but rather the disingenuousness of the subversive neoliberalism also pursued by Högeralliansen and the rise of nationalist-populist Sverigedemokraterna contesting the fairness and distribution of this paradigm. SAP’s period out of power relates to its failure to assert either, which in turn surfaced in a series of policy dilemmas, none of which is more evident than in relation to the new pension system.

The 2001 tech-stock crisis had given SAP’s economic governing competence another knock and the new pension system a rocky start. Swedish pension savers in the PRS system demonstrated reluctance to move their savings away from the index-tracking 7th AP fund. Despite its membership in the pension policy coalition (Pensionsgruppen), the SAP leadership soon raised concerns over fairness and redistribution in the new pension system, trying to connect such concerns with a self-portrayal as competent in economic governance. In 2004, SAP Finance Minister Pär Nuder warned that since mechanisms for intergenerational redistribution had been reduced to a minimum, the large ‘40s generation’ was going to cause considerable problems to subsequent generations given the large pension expenditures expected and the automatic adjustment this was going to trigger (Nuder, 2004). This was underlined by Göran Persson (2006) mid-way through the 2006 election campaign. These appeared as potential signs of endometabolism within the pension system.

Yet, these references to SAP’s identity as fair and redistributive failed to gain much traction. There was still only limited contestation of the pension system (Belfrage, 2008). Moreover, SAP’s adoption of subversive neoliberalism led to a dilution of this identity, but also loss of credibility as competent managers of the economy. Its ability to convincingly associate with the still social democratic societal paradigm had been weakened. Moderaterna, leading the newly formed Högeralliansen, sought, with remarkable success, to take advantage of these weaknesses by calling itself ‘the new labour party’ and to capture key policy positions from social democracy. It followed SAP’s lead in adopting subversive neoliberalism. It reframed the neoliberal discourse of tackling moral hazard by referring to the historical social democratic commitment to employment (Arbetslinjen) and welfare state modernisation. Thus, by continuing the deregulation of the labour market and welfare state retrenchment under the auspices of ‘putting people back to work’ and ‘defending the welfare state’, it further weakened SAP’s association with the societal paradigm (Svallfors, 2011). Hence, Högeralliansen could win two consecutive elections (in 2006 and 2010) taking votes from traditional SAP constituencies. In the continued construction of the new Swedish Model, Högeralliansen oversaw the co-evolution of further financialisation in housing and pensions with recommodifying reforms in other areas of the Swedish welfare state.

Yet, the contradictions arising in the relationship between the materiality of financialisation and the quality of neoliberal ideas in a context of volatile financial markets and rising unemployment were becoming undeniable. The objective that the new pension system would bring about a neoliberal zeitgeist was further undermined by the onset of the GFC in 2007–2008. PRS chief economist Daniel Barr (2008) acknowledged the system’s failure to engage more than 20% of the Swedish population in active participation. If the bulk of pension savers had refused to move their pension savings away from the index-tracking 7th AP fund beforehand, this tendency was reinforced by the GFC. These reluctant investors came largely from the constituencies from which SAP mobilises its voters: women, working and lower middle classes living in the semi-urban hinterland. ‘Active’ pension savers were those most confident in their financial literacy, the typical middle class suburban and urban centre-right voter, often male.

Apart from inviting the financial sector to compete for public pension capital, the PRS, due to its complexity, presented market opportunities for financial institutions to provide investment advice to pension savers and thus accumulating substantial revenue from fees. Moreover, with historically high unemployment rates, the second pillar of the pension system was becoming a powerful stick, although the carrot of employment was only unevenly available. The GFC also caused economic growth to dip and the automatic balancing mechanism to kick in. The system was pro-cyclical when counter-cyclicality was demanded. It was becoming tangible that the new pension system increased societal divisions rather than universalising commitment to neoliberalism in Sweden (Belfrage and Ryner, 2009). The GFC can thus be understood as accelerating the process of endometabolism within the new Swedish Model and the pension system played a significant role therein.

As such, the GFC presented opportunities to SAP to put its desired identity as fair and redistributive first without foregoing economic governing competence. Håkan Juholt, a more radical voice in the labour movement, was elected party leader and made the following assertion in 2011 (SAP, 2011: 18; my translation):

In some ways, the system has proven successful, in other ways it has proven to have disadvantages. It is too vulnerable during dips in economic growth, which the repeated kicking in of ‘the brake’ has shown during recent years. Pensions have become too small while administrative costs have increased at the same time. Class divisions grow among the elderly as demands on longevity of contribution are strengthened and impact on pension levels. Fundamentally, the system is underfinanced. The system must now be evaluated, its funding strengthened and be made more fair.

This call to arms did indeed contribute to the launch of no fewer than five policy reviews. Yet, such contra-paradigmatic challenges were seen as a threat to gaining economic governance competence and contributed to Juholt’s early descent from leadership (Suhonen, 2014). They were too easily labelled ‘nostalgic’ by Högeralliansen.

The same fear of being backward drove SAP to dissociate itself from the ‘Swedish Model’, which had become increasingly associated with Moderaterna now either referring to Sweden’s ‘bank bailout model’ (Nordström, 2010) or the ‘new Swedish Model’ of a knowledge-based economy powered by high-skilled labour, lubricated by a modernised, albeit significantly trimmed, welfare state and fuelled by ample venture capital and public funding (Schnyder, 2012). SAP’s response was to rebrand itself in preparation for the 2014 elections. Lacking renommée as a competent manager of the economy and identity as redistributive and fair, it relabelled itself as the ‘the party of the future’ (author’s translation, Framtidspartiet).

To strengthen its perceived economic governing competence in the area of pensions, the SAP representative on Pensionsgruppen, Tomas Eneroth, has since been ‘batting back’ growing labour movement resentment to further retrenchment (e.g. raising the retirement age) (Calderón, 2014). In response to the policy reviews, only minor changes are considered, for instance a softened automatic balancing mechanism and a simplification of the PRS. Outside the pension system, tax reductions on pensions, a move typical of neoliberalism, are contemplated.

In the September 2014 elections, SAP, under the tempered leadership of Stefan Löfvén, was primarily concerned with re-establishing economic governing competence. While some weaker references were made to its historical identity as fair and redistributive, it was clearly secondary. This strategy could be seen as paying dividends as SAP won the elections. However, SAP did not increase its vote, and heading only a weak minority coalition government with the Green Party its power is circumscribed. Voters turned, instead, en masse to the nationalist-populist party Sverigedemokraterna to protest against rising inequality and demise of the welfare state. Social Democracy, like in the 1970s, is seen as an elitist party unconcerned with building the institutional foundations for progressive politics. Now, however, reasserting its identity as fair and redistributive is hamstrung by its association with the old Swedish Model. Proving that it is able to govern the new Swedish Model, where risk continues to be individualised and inequality (re)produced, is its only perceived strategic option. As long as SAP insists on prioritising economic governing competence rather than finding ways to reconcile this objective with reasserting its historical identity as fair and redistributive, it promises to remain stuck in this strategic dilemma. Still without a roadmap out of this dilemma, Swedish social democracy is unable to provide the much-wanted inspiration for the broader movement.

Conclusion

This article provides historical analysis of the current dilemma of Swedish social democracy between asserting its identity as fair and redistributive and its wish to regain economic governance credibility. It has done so by exploring the strategically significant case of pensions. This can only be meaningfully done by employing a political economy of institutions able to make sense of the role of pension policy in social democratic policy-making, within the changing nature of the Swedish Model and in relation to the still social democratic societal paradigm in Sweden.

Once part of a social democratic strategy to bring about first a universal and decommodifying welfare state in a virtuous dynamic with an export-led regime of accumulation, and then a key element in creating economic and industrial democracy, pensions have become the vehicle of financialisation and growing inequality. However, the unintended consequence of this shift, indeed a shift to significant extent driven by SAP itself, is a social democracy hamstrung.

This is particularly visible in the aftermath of the GFC, presenting an opportunity to find a way to render a reassertion of SAP’s identity as fair and redistributive compatible with economic governing competence in an electoral environment, which can still be characterised with reference to the existence of a social democratic societal paradigm. Nevertheless, social democracy, at the end of the Third Way, remains unable to find another way. Its soul-searching in relation to pension policy is very telling of this inability. As such, this article ends with the question (cf. Magnusson, 2011: 212): for how much longer can Swedish Social Democrats support the coalition behind the new Swedish Model in order to rebuild ‘governing competence’, without entirely relinquishing its identity as fair and redistributive?