Profit limit on welfare services triggers strong emotions in Sweden

The more than 700 pages long tome was presented by government-appointed investigator Ilmar Reepalu at a well-attended press conference in the government’s press room at Rosenbad in Stockholm. The inquiry, launched in 2015, has been known as the welfare inquiry, but was now presented as ‘Order in the welfare sector’. The inquiry’s purpose was to make sure taxes are used for the business they are meant to be used for, and that any profits go back to the business. The inquiry has also looked at the rules covering private companies running health services, schools or care institutions. 

“We would have been in a somewhat easier situation if much of what we are proposing was introduced some 20 years ago,” said Ilmar Reepalu. During the presentation, he listed several reasons for why the inquiry came to its proposed cap of seven percent on profits from so-called operative capital, as well as a cap of 0.35 percent on the prime lending rate.  In total this would mean a total cap on profits of around 10 percent. 

The rest of the profit should go back to the businesses, which according to the inquiry would amount to four to five billion kronor which could help increase staffing, fund further training and contribute to other ways of improving quality. The inquiry also proposes to impose stricter conditions on companies that wish to run health, education and care institutions, including demands for relevant education for those running welfare sector institutions – as well as economic stability. 

“If the four to five billion kronor are used within the businesses, quality will improve. That is the important thing, that tax money is being used to improve quality in the businesses,” says Ilmar Reepalu.

Three companies dominating 

One of the ideas behind the privatisation which started accelerating in the late 1980s was to offer more people more choice. But since then many smaller businesses have been bought and now three major companies control around 40 percent of the entire private welfare services market. In Sweden the non-profit welfare sector is relatively small, and has not grown in recent decades.

Three major private players in the health sector

The three largest private health sector players have a turnover of more than 20 billion kronor (€2bn), which is around 50 percent of Sweden’s total health sector market. Source: Dagens Samhälle

It was also discussed whether the inquiry should propose regulations on staffing or other quality demands, but it mainly settles on introducing a profit cap. The argument is that by increasing quality demands, more time and energy would have to be used to administer the system. That time and energy could be better used to run core services. In his presentation, Ilmar Reepalu also pointed out that it is difficult to measure quality. Are grades the most efficient way of measuring the quality of a school, for instance, or would that risk turning out good grades which are not backed up with the necessary knowledge? The inquiry also notes that for schools in particular, privatisation increases the selection of pupils. 55 percent of pupils in privately run schools have parents with higher education, for instance.

Strong feelings

The debate on profits in the welfare sector is a long-running one in Sweden, characterised by strong feelings and deep divisions. On the one side you have the Left Party, which wants to ban all kinds of profits from running health, education or care institutions. On the other you find the centre-right parties and employers’ and trade organisations. The Swedish Democrats have made a U-turn and say they will now support the centre-right parties, which means there is no longer a parliamentary majority for the proposed seven percent cap.  

Meanwhile, a majority of Swedes are against profits from running welfare services, according to the so-called SOM survey from 2015. 

The post-inquiry debate was also quickly ignited, although it was soon overshadowed by the US presidential election. But judging from the early reactions, the debate is set to continue and will probably become an issue during the next parliamentary elections. 

“Too much focus on profits”

“Ilmar Reepalu misses the main problems, and is too focused on the issue of profits. This is a politicised product, which in spirit is deeply sceptical to everything that has to do with private companies and freedom of choice for welfare services, and it also does not see anything which is linked to quality,” said the Moderate Party’s economic spokesperson Ulf Kristersson during a debate on Swedish Radio as the inquiry was presented. 

He, like his colleagues from the other centre-right parties, and not least the trade organisations for private players in the welfare sector, believe the inquiry’s proposals to be disastrous for the welfare sector. Many businesses will leave a trade which needs the private players, the critics say. But no lack of quality in education, health and care sectors is ever acceptable, said Ulf Kristersson. 

Wasting taxpayers’ money?

“It is equally and profoundly provocative if any company makes money from providing services of poor quality or if municipalities are wasting taxpayers’ money,” said Ulf Kristersson. 

The Minister for Public Administration, Ardalan Shekarabi, who took part in the same debate on Swedish Radio, replied that no other European country had gone further to allow profit driven companies run publicly funded schools. 

“Even if we do accept Ilmar Reepalu’s proposal we are allowing seven percent profits, which is more market liberal than any other European country, said Shekarabi.