Mundus Brief: December 2020

The Mundus Brief is your chance to read a summary of what happened in Sweden last month and our chance to let you know what we’ve been looking into in our publications. We try to keep the Mundus Brief brief and entertaining; a counterbalance to our more serious news and analysis. We hope you find it an interesting read!  /The Mundus Team

Capitulation over corona?

In our November brief, published 5 weeks ago, we wrote that Sweden’s long-denied second wave was cresting. Although the wave had been building for several weeks, it was barely acknowledged by the Swedish authorities, at that point. Hence, while other badly hit European countries – such as the UK, France and Germany – were increasing their level of precautions, Sweden was only just beginning to react. And hence, while other the countries had been able to cap their outbreaks, Sweden’s curve (in green in the chart below) has continued to climb. And now, on a per capita basis, Sweden sits level with the US in its infection rates. Sadly, hospitalisations and the death rate have climbed too.

This dismal performance has finally caused a political reaction. On November 16, Stefan Löfven gave the nation a dressing down: “”Do not go to the gym, do not go to the library, do not have dinner guests, do not have parties”. Perhaps this worked … to an extent Sweden infection rate flattened off. But, with the nation’s healthcare system and politicians under extreme pressure, cracks are emerging. See “Corona becomes political” in our Monthly Policy Review.

Superpower relations

November continued to showcase the problems that Sweden faces in a world of competing superpowers. The month began with the US election. Officially Sweden had no position, of course. Before the result was known, Sweden’s ministers emphasised the strong ties with the US regardless. Unofficially, Sweden was thrilled by the eventual outcome, which means the hope of more Atlanticism and progress on core Swedish issues, like climate change. PM Stefan Löfven and Foreign Minister, Ann Linde, were quick (but not too quick) to congratulate Joe Biden and Kamala Harris.

Sweden is also facing issues with China, where it has a number of value-conflicts, over issues such as Gui Minhai, Xinjiang and Hong Kong. But its most pressing issue in November was security-related. In October, SÄPO (Sweden’s security police) said that that it believed that the Chinese state could exert pressure on Huawei to support China’s spies. As a result, the Swedish Post and Telecom Authority (PTS) prohibited Huawei and ZTE from participating in the build-out of the 5G grid. This was not a universally popular decision, with some Swedish carriers being frustrated by the way the decision was managed, and even Ericsson, which ends up in a near monopoly in the 5G supplier market complaining that a ban was unhelpful for market innovation. Amongst the immediate consequences were a delay to the development of the 5G network and comments from the Chinese Ambassador that Ericsson could be punished in China.

Corporate greening gathers pace

Although slightly less pressing, another policy crisis faces Sweden, as it begins the heavy work of the transition to a greener economy. Mundus has argued over the years that Sweden’s political rhetoric has been significantly ahead of the harder work of policy development to enable the transition. Nuclear plants have been closed at the same time as the demand for carbon-free power is meant to skyrocket. And new wind power generation, built in the north, cant reach its markets in the south, due to a lack of transmission capacity. Bottlenecks and price variations are now routine. In November, the Löfven administration announced an electrification strategy inquiry, which will take many months to complete, before eventual engineering solutions are implemented. Despite this, Sweden is retained top the position in an annual climate policy ranking.

Swedish industry isn’t waiting. In November, LKAB, the government-owned iron-ore miner, announced its ambition to produce fossil-free iron, making global headlines. And Scania joined the growing line of corporates committing to changing their products with the announcement of a battery lab and factory to be built at its Södertälje headquarters, where it customises battery solutions for its trucks. A reminder to register for Nordic Green to receive daily (free) news on the green transformation.The green transformation is just one part of the transitions in manufacturing. Other equally big technology shifts are underway, including 5G and the Internet of Things, Artificial Intelligence, robotics and 3D printing. The possibilities are huge, and despite much of the action being in the US and China, Sweden hopes to play a role. We looked closer at this in our second article in this month’s Monthly Policy Review entitled “Sweden an Industry 4.0 leader?”.

The domestic political landscape evolves

Although many foreigners may be blissfully unaware, the Government has only narrowly avoided a political crisis. One of the most difficult challenges forced on the Social Democrats by the January Agreement, which allowed them back into power in 2019 was LAS, Lag om anställningsskydd, the law which regulates employment terms and conditions. The current system means that, in a downsizing, the last person hired is the first person to be fired. The centre-right parties want a system that enables employers to choose who is offered a redundancy, a position that has been opposed by unions and the left. With the Swedish electorate endorsing right-of-centre parties at the last election it became clear that the Social Democrats needed to accept change if they wanted power. A negotiation has been ongoing between unions and employers ever since, with the Left Party threatening to bring Löfven’s government down if the LO union movement didn’t agree. While that hasn’t quite happened, enough unions have accepted change to (probably) avoid a no confidence vote.

Although an agreement is not guaranteed, the Left Party has a new, young leader, in Nooshi Dadgostar, who would probably rather avoid an election until she is more firmly established. In the Monthly Policy Review, we look at her likely prospects in our lead story, “Nooshi Dadgostar and the Future of the Left Party”. The Left Party has had rather a renaissance in the past few years, and would likely do well if an election were held, given its consistent support in opinion polls of just under 10%. The same can not be said of the Liberals, who are now at a severe risk of dropping out of the Riksdag at the next election, with their core support touching 3%, well below the 4% threshold. Although the Moderates are polling much better now than they have for some time (22.1%), their position is tricky, as they lack a stable coalition with sufficient support to enable government. Moderate support has generally come at the expense of the Sweden Democrats, who are well behind the Moderates at 17.6%. Given the souring of the bromance between previous centre-right allies, the Moderates and the Centre Party, the Social Democrats would likely sneak back into power again, were an election to be forced on them now.

Source: Statistics Sweden

Another challenge still sitting in Löfven’s inbox is domestic security. Gang violence continues to rage, especially in Malmö and Stockholm. So far this year there have been 43 fatal shootings, more than in 2019, which was itself a record year. The government is not interested in taking direct responsibility, with the Minister for Home Affairs, Mikael Damberg (S), saying it was “a result of too little effort ten, fifteen, twenty years ago, when these gangs were allowed to establish themselves.”

EU issues still critical

Even if domestic politics is challenging, European politics is giving the Löfven Government more grey hair. It is hard to know whether the Government loses more sleepless nights over Brexit or the Rule of Law issue. Both are showstoppers. The Brexit negotiations appear to be sliding to a sorry stalemate, and with neither side willing to concede, Britain may well take its No Deal “EU Exit”, a disruption that Swedish business and policy would much rather avoid. If that is inefficient and frustrating, with genuine economic losses for Sweden, it is not as emotional as the Rule of Law challenge that needs to be resolved with Poland and Hungary. As Mundus reported in May, there is unusual unanimity between all Swedish political parties when it comes to giving Swedish tax money to countries that “violate Swedish values”. Now with Poland and Hungary using the Pandemic Recovery Fund as leverage in negotiations, Sweden faces the unhappy prospect of trading off its values versus economic growth. This time around we take a Nordic view, in our article Rule of Law Conditionality in the EU Budget: A Nordic Perspective. (As we go to print, it appears that diplomacy has achieved a deal with the central EU states, avoiding a budget shutdown.)

The Minimum Wage Directive represents another challenge for Sweden. Although not against minimum wages in principal, Sweden’s practical issue with this regulation is that it violates the Swedish labour market model, where wages are determined by negotiation between unions and employers. This model is accepted by all Swedish stakeholders, and there is significant annoyance that Brussels has not proposed a solution that enables Sweden to keep its system.

Sean is responsible for Mundus’ strategy and commercial activities. He began his career in the oil industry Australia. After working internationally in commercial roles with BP in South Africa, the UK and Singapore he moved to Sweden with his family in 2009. He worked in business development and then as the Strategy and Growth Director for NASDAQ Commodities from 2009 to 2015. Sean holds an engineering degree from Adelaide University and an MBA from the Darden Business School at the University of Virginia.