Mundus Brief: October 2020

Lessons from Sweden’s approach to Covid-19

Sometimes the answer is hidden in plain sight.

Ever since the coronavirus swept through Europe (and the world) governments everywhere have been forced to react. As the crisis was on everyone within days there was no time for long inquiries to gather facts, argue positions and massage a response. Instantaneous, instinctive, shoot-from-the-hip responses were required. One can assume that generally governments acted consistent with their national culture. Sweden’s certainly did. Slowly, cautiously and with the path plotted by experts. Mundus argues that the outcomes are consistent with the national stereotype.

In the beginning, slow and cautious was not a winning formula. Quick decisions that could have saved lives were overlooked and the nation suffered. But, the reliance on experts was eventually a success factor. Many have complained about Stefan Löfven’s lead from behind tactics, which allowed Anders Tegnell and the Public Health Agency (FHM) to take the limelight, for good and for bad. Whatever the political result, it was a notable example of Servant Leadership.

Although the medical and economic facts were fairly clear, a battle has been fought in global media and around dinner tables about what should be concluded from “the Swedish experiment”. Mundus has covered this, with data where we had it, and with our opinion, where we just had to guess. Our line has been to ignore the heated rhetoric and to assume that FHM and the country’s political leaders were taking the most informed decisions that they could in the national interest. Also, our observation has been from personal and professional contacts that Swedes were listening to and following expert advice. Over summer, it became quite clear that this was working, as the case count, hospitalisations and deaths all dropped dramatically.

In the midst of the chaos Mundus was invited to participate in a global analysis of cultural responses to corona, a work initiated and led by Dr Fons Trompenaars, a guru of the HR world, who’s book in the 90s Riding the Waves of Culture helped thousands of expatriates improve their inter-cultural skills. In order to help the world deal with the pandemic, Dr Trompenaars wrote the Covid-19 Survival Guide. Mundus translated and wrote an introduction to the Swedish edition. In addition, we assisted with a survey of Swedes for his research, which some of you participated in. The results have now been published, and the data speaks clear. Swedes did listen to experts more than most other countries in the survey. Not only the health experts, but other experts also. They tried to follow what the authorities told them to do, but they didn’t do this blindly, they also gathered a variety of stakeholder inputs. And then they synthesised this into a personal action plan —keeping their distance and washing hands. That is the secret of the successes that Sweden has had in recent months in terms of managing down the number of new cases while at the same time keeping the economy going.

These are the conclusions drawn from the Trompenaars data set. But, as they were sitting in plain sight for those that wanted to look, others have reached similar conclusions. This week, The Economist writes

“The lesson from the new Swedish policy is not that it is libertarian, but that the government weighs up the trade-offs of each restriction. For instance, when someone tests positive, their entire household must go into quarantine, but schoolchildren are exempt—because, the government reckons, the gains from shutting them away are overwhelmed by the lasting harm to their education. Likewise, the quarantine lasts five to seven days, compared with two weeks elsewhere. The risk of spreading covid-19 in that second week is small and shrinking, but the harm to mental health of extended isolation is growing.”

The Economist

And if the outcomes start to deteriorate, The Economist argues that Sweden will adapt, increasing restrictions. “After all, its policy is based on evidence and pragmatism, not blind principle.”

Given the intense focus the world has had on Sweden, we think that there are clear lessons to be learned. For those who will react to think, “yes, maybe it works in Sweden, but not in my country”, there are also techniques for modifying the approach for other audiences.

The economic forecast is still about corona

As Sweden, and Europe’s corona prognosis appeared to improve over summer, confidence in the economy improved, as did a range of economic indicators. September saw a large number of independent forecasters upgrading their economic outlooks for Sweden, which according to the consensus is forecast to see GDP shrink in the range of 4% in 2020, followed by a strong rebound in 2021. But, there is considerable uncertainty about this, as the economy can only perform to the extent that the pandemic is kept under control. As this chart shows, Sweden is just managing to keep a lid on infections, which, if it can continue to do so, should enable it to keep the domestic economy relatively open.

However, Sweden is an open, export-oriented economy, and if exports to key markets slump, then Sweden will suffer as a result.

But if exports hold up sufficiently, and if domestic demand remains strong, then for those in the right sectors, it could be an exciting time ahead. The house (not flat) market is booming again, and Sweden’s investment in tech is creating some true global champions, with Spotify being joined by Klarna on the podium, and others, like Tink perhaps soon to follow.

A kick-start budget

Our lead story in the Monthly Policy Review is the 2021 budget, which contains one of the biggest fiscal expansions in Sweden’s history. In her presentation, the Finance Minister, Magdalena Andersson communicated several messages. Firstly, the economy is in a recovery mode, having bottomed in the second quarter. The outlook is much better than it was just 3 months ago. In that period the government has revised up the 2020 GDP forecast from -6.0% to -4.6%. And growth next year is forecast to rocket by 4.1%.

Secondly, the Government views the risks to the economy as “serious”. With many parts of the world still in various stages of lockdown, it could hardly say anything else.

Thirdly, Sweden has a healthy balance sheet to deploy, and the government now intends to do that, with SEK 105 billion of extra spending in 2021 and SEK 85 billion in 2022.

Fourthly, the government will increase its commitment to greening the economy. Details of the reform proposals have been covered in more detail in Mundus Nordic Green News. While the government is keen to present the entire budget as a Green Restart, with extra green spending only 10% of the total, we suggest not to be taken in by the rhetoric.

Finally, the government will now address other challenges that have become increasingly obvious in Swedish society. New spending is being put forward to meet the long-term problems of society: unemployment, climate change, the growing needs for welfare, the gap between city and country, the lack of integration, and failures in schools and crime.

Major biofuels reforms

A significant part of the extra green spending was dedicated to biofuels, which the government hopes will be produced from Swedish forests. And, in addition, the government is providing huge volumes of credit support for bio-refineries, in an attempt to reduce the risks to their prospective lenders. However, an even bigger symbolic blow was struck against fossil fuels by Preem, a large Swedish refiner, which withdrew its application to expand its refinery, and now says that it will invest in producing biofuels instead. In our Nordic Green blog, we argue for only cautious optimism about the future of the biofuels sector, as the government’s policy lacks the sort of real coherence which we believe that is required for major investments in bio-refineries to get underway. A review of the entire fuels sector is underway and scheduled to be published next February. Earlier this week, the EU Commission gave Sweden one last year to sort out its policy.

Mundus Nordic Green News