The Swedish Wage Earners Fund

With a population of 10 million, Sweden is about the same size as Azerbaijan. And yet, its economic model is touted the world over. For many progressives, Sweden is a talismanic reminder of the benefits of big government and powerful trade unions (~70% of workers belong to one). Bernie Sanders is fond of reminding audiences that what his opponents call communism is normal in Sweden. Conservatives point out that the Swedish owe their free healthcare to being a successful market economy; one with a lower rate of corporate taxation than France or the United States.

Given all this, I was pleased to stumble upon a little fact I had not come across before: an experiment called the Wage Earners Fund. I first heard them mentioned in passing in this wonderful talk by Mark Blyth on the economic and political drivers of today’s crises and then in more detail in this 1992 paper by Jonas Pontusson and Sarosh Kuruvilla – from which all quotes are drawn.

An overview

They were a mechanism to achieve that long-forgotten goal, industrial and economic democracy. The objective of the Wage Earners fund was to increase profit sharing and worker control by collectivizing the ownership of capital. The mechanism was simple. Each year, a share of pretax corporate profits was to be converted into new equity shares for the Wage Earners Funds (WEFs). Overtime this entailed:

a gradual transfer of ownership from private individuals and institutions to collective entities, governed by union-appointed directors and providing for direct employee representation at shareholder meetings via stock holding


Apart from the broader goal of furthering economic democracy, the policy was developed to support another interesting part of the Swedish industrial landscape, “solidaristic wage bargaining:”

The principle of the solidaristic wage policy espoused by the confederation of blue-collar unions, Land- sorganisationen (LO), is that the wages must be based on the work performed rather than on the profitability of different firms and industry sectors. In addition, inter-occupational differences should be narrowed to bring about a more egalitarian society

Solidaristic wage policy was relatively effective. In 1980 the top 90th percentile wage was only 40% higher than the bottom 10th. At the same time in the United States it was 400%. One side-effect of wage compression was that more profitable firms were paying their workers less than they might normally, earning super profits, and giving Sweden incredibly high wealth inequality. WEFs were designed to correct for this by distributing excess profits from top performing firms collectively.

Sweden (From the Pontusson paper)
US statistics from the BLS

What happened?

The plan was incredibly controversial and despite being proposed in the mid 1970s, was not instituted until 1983, and only then in a watered down form. The taxes which funded the WEFs were reduced, drawn from excess (not pretax) profits, and were not automatically converted to equity. The WEFs could only use the proceeds to purchase stock already available in the market, and if firms did not want to sell, there was no obligation. Limits were also put on collective ownership, which was capped at 50% of voting stock.

In 1991 a Conservative government privatised the WEF vehicles.

Why is it interesting?

On one level, the WEFs are a useful exercise of the imagination. In a world where the policy menu can seem staid and tired, little visits to past common-senses are bracing reminders of the possible.

More practically, they raise interesting questions for me given their apparent similarities to pension, sovereign wealth, and index funds. In their scope, these funds outstrip the wildest dreams of the WEFS; it was reported last year that index funds owned half the US stock market. Pension and sovereign wealth funds are similar behemoths. All three eschew direct control or influence, but demonstrate that large scale collectivized ownership is not as foreign a concept as we might think. Peter Drucker, the famous management guru, was talking about Pension Fund Socialism in the 1970s. The possible political implications of index fund type style institutions is interesting, and I intend to read more on it. This will not be the last you read of it here.

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