In Sweden, the winner takes all In Sweden, the winner takes all In Sweden, the winner takes all

In Sweden, the winner takes all

Steen Jakobsen

Chief Investment Officer

"The gods may throw a dice
Their minds as cold as ice
And someone way down here
Loses someone dear
The winner takes it all
The loser has to fall
It's simple and it's plain
Why should I complain?

The winner is once again populism and the loser is “samhället”, a Swedish word that is often translated as ‘society’, but whose root is "to come together". At the moment, Sweden is doing the exact opposite and splitting down the middle over immigration and its impact on the 'Swedish model' of social democracy with a generous welfare state.

 It’s simple and it’s plain and there's no reason to complain….

Samhället is everything in Sweden. The concept manifests in everything from the country's famed social welfare system to its cultural insistence on near-perfect egalitarianism, and it massively shapes the way Swedes see and define themselves. 

The Swedish ideal is of a unified society, or a team, and the pursuit of this ideal is part of Swedes' DNA. In order to unify, however, negative sentiments or notes of dissonance must be carefully policed and excluded, and this is why Sweden is so politically correct.

In Sweden, one cannot be politically correct enough... until recently, at least. Now the country's pursuit of fairness and openness is forcing Swedes to be so P.C., they have become un-P.C.!

Sweden's inability to address the elephant in its well-appointed room – immigration, of course – manifested as a kind of societal self-censorship that left vast, undiscussed areas around the national consensus. In that space, the right-wing, anti-immigration Sweden Democrats party grew larger and larger as it confronted the very beast that polite society was unwilling to even acknowledge.

The more that the Swedish establishment insisted on not talking about immigrants as a group, and the more that it doubled down on its "humanitarian superpower" model, the more room it left for SD to play to voters' fear of foreigners, cultural change, and the risk to their traditional entitlements.

Until this election campaign, Sweden's major political parties maintained an unspoken consensus to avoid the topic of immigration. This was broken by SD leader Jimmie Åkesson, who in a televised debate with Prime Minister Stefan Löfven stated that "four out of five non-Swedish rapists living in Sweden are not deported. Four out of five! Why do we need to keep foreign rapists in Sweden?"

To say the PM’s response was evasive would be an understatement. The event is marked by many as a key turning point, not only in SD's fortunes, but also for those of the ruling Social Democratic Party.

That was when immigration charged into the 2018 election with all the thunder of, well, an elephant.

Sweden was quickly pushed into the uncomfortable position of having to discuss a problem that had been ignored for years, a problem for which there are no good solutions, no perfect compromises, and most importantly for Sweden, a problem on which it is very difficult to be fair (unless, as Sweden did, you try and help everyone who needs it).

I think it’s important to note that on Sunday, four out of five Swedes will vote for a party that is not anti-immigration; “only” one in five will make immigration their key issue. 

In the newspapers, it can feel as if it's the other way around.

The latest polling data:

Polling data
The result of the election is a near-certainty. After Sunday, Sweden will have three major parties: the two old stalwarts (the Social Democrats and the Moderates) and a new, nationalistic entry in the form of SD.

There will be no sharing of power with the Sweden Democrats for now, but if history is any guide, the tone of Stockholm's political debates will become more and more immigration-focused in the years to come as the mainstream adapts to the new reality.

This is exactly what happened in Denmark, where today we have a sad alignment of lowest-common-denominator forces driving not only immigration policy but everything that comes under the umbrella of nationalism, an inward-facing focus, and the 'protection' of values and agendas.

It is ultimately reminiscent of the 1930s.
There is, however, a positive side to the Swedish story: the country's economy and social structure remains enviable. Sweden is not only one of the world's richest countries, but it is also one of the fairest and least corrupt.
Demand, output, and prices
Source: OECD StatLink
This a very strong economy, where relatively high unemployment is the weak point versus a strong current account, balanced budgets, and a level of competitiveness nearly unmatched anywhere in the world.

Sweden is a textbook example of how an economist would want a country to function. Its' present issues are not its economic challenges but rather the issue of retooling the Swedish model to a world dealing with immigration.

The Swedish statistics agency says that the Swedish population has increased by one million people over the past 13 years, and is set to grow by another million in the next 11 years.

Eighty per cent of this increase will come from immigration.

What really concerns me is the total lack of self-reflection by the established parties. I wrote about this prior to Brexit and prior to Donald Trump's 2016 victory, and the same thing is now happening in Sweden.

The Social Democrats have been in near-continuous power since the Second World War, and often with more than a 40% share of votes. Now their support stands at just over 20% and their agenda is entirely without vision. Their counter to immigration fears? One week of additional holiday and more tax on the rich! 

Come on, Sweden.

Structurally, the world is changing faster than ever before. The solution to Sweden's problems – and let’s admit that they are relatively minor problems – is not to turn the clock back to the 1960s and '70s, when Sweden (unlike many countries) was far worse off than it is today. Instead, Sweden needs to face the situation at hand in its traditional fashion: with consensus, with respect, and in a solution-oriented manner.

A look at the market impact

There is some nervousness about Swedish assets after the election. Sweden's Erik Penser Bank, for instance, maintains a very defensive position in which it has a particular aversion to small- and mid-cap stocks due to a history of this segment underperforming in the wake of elections.
Post- election asset performance
Source: Bloomberg
We believe the Swedish election is more of a political statement than a market one. It could lead to a long period without a government, but as we know from both Belgium and Spain, this often helps the economy perform rather than the opposite. 

There could also be pressure to increase fiscal spending, but overall the Swedish economy and stock market operates from a position of strength. 

We could be tempted by a weak post-election SEK as the Riksbank can’t continue its present, super-dovish stance in a world of rising external financing costs and an extremely overvalued housing market. For now, though, we will simply stay watching the messy election and hope Sweden avoids becoming another country fallen to populism.

Pretend, extend, and don't comprehend

We are on presently on a road to nowhere. The political system is self-destructing, and the new "winning strategy" is to be as populist as possible, often pointing to “foreigners" and "foreign influence" as the root of all domestics evils and wrongs. 

Meanwhile, the political and media establishment are stuck on a message of "hope and change" based on spending money they don't have, accepting higher levels of debt, reversing reforms, lowering retirement ages, restricting labour market mobility, and providing more subsidies to money-losing companies.

Worse yet, they continue to promise a nation-state devoted to protecting entitlements and rights.

Yes, the nation-state is back. It disappeared for a century following the 1917 Russian revolution, after which we shifted to a world of ideologies until the fall of the Berlin Wall in 1989, but it's back... and it's talking a book that it likely can't deliver.

The Gods may throw dice, as ABBA sang, but the future is not random: the winners will be people and countries that accept the core values of the Swedish model. This can't be done, however, by ignoring – or worse yet, censoring – voter concerns.

Sweden needs to learn this lesson, and it will.

Ultimately, the country's future will be stronger for it.

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