Palme's Sunday

A radical returns to power

It could have been the last hurrah for one of Western Europe's best-known socialist leaders. "Much is at stake for Olof Palme," wrote a top Swedish political columnist. "It is a question of winning or disappearing." During six years in political exile, former Prime Minister Palme, 55, crisscrossed the globe as a spokesman for disarmament groups and a mediator in the Iran-Iraq war. This summer, however, he reverted to his familiar role of politician, as he sought to avenge successive defeats that have deprived his Social Democratic Party from governing the cradle-to-grave welfare society that it built during 44 years in power.

When the votes were tallied in the Sunday election, Palme had won what some observers called his "first real victory" in 13 years as party leader. The Social Democrats swept back to power by winning 166 seats against a combined total of 163 seats for the three-party non-Socialist bloc.

Palme won the support of Swedish voters by exploiting growing fears of unemployment. Even though the official jobless rate stands at only 3.7%, Palme contended that it was "moving toward 4% or 5%, a tiny rate in many countries, but one that Swedes won't stand for." In Norrbotten, the region with the highest official unemployment rate in the country (8.5%), the Social Democrats won nearly two-thirds of the vote. Palme also castigated the center-liberal government's program of welfare cuts designed to slow down growing deficits, which contribute to giving Swedes the world's highest tax burden.

The Social Democrats' resurgence seemed less a reflection of voter sympathy for a move back to the left than an expression of public disenchantment with the austerity policies of outgoing Prime Minister Thorbjoern Faelldin. During his five years in power, the stubborn sheep farmer juggled three governments in an unsuccessful bid to forge a unified coalition among Sweden's fractious non-Socialist parties. Confronted with an inflation rate of 8.5% and a budget deficit of $12.8 billion (about 12% of the country's gross national product, in contrast to the U.S. deficit of about 4%), Faelldin tried to trim social-welfare spending. He cut back on such popular measures as pensions, sick pay and subsidies for rent and food. The subsequent outcry virtually ensured last week's election to the Social Democrats.

Once in office, Palme hopes to apply his party's free-spending credo as a panacea for Sweden's sluggish economy. He promised to cancel planned cuts in sick pay and to increase funding for child-care centers. Unemployment compensation and pensions will be raised to keep up with inflation. In addition, Palme has proposed a mammoth $320 million government investment scheme to build new roads, bridges and housing projects that he believes will generate up to 40,000 new jobs. To finance the programs, the Social Democrats want to hike the country's 21.5% sales tax by another 2%.

Palme's most controversial plan is known as the wage-earner fund, an innovative concept designed to increase worker investment in industry. The plan would impose a 1% levy on wages, paid by the employer, and a 20% corporate tax on "excess profits," to be contributed to a fund that would be set up in each of Sweden's 24 counties. The pool of money, expected to grow by $1 billion a year, would be used to purchase shares in profitable companies. Critics in business and industry as well as Palme's political opponents warn, however, that the funds would eventually take over the companies. Swedish industry crusaded vigorously against the proposal.

Many industrialists insist that if the plan is carried out the exodus of Swedish firms will accelerate. Faced with workers who earn the world's highest wages and a 57% tax on profits, Swedish companies have placed as much as one-quarter of the country's total investments overseas. A European Community survey of 120 European business managers conducted this year named Sweden as a country with one of the worst business climates.

Faelldin's defeat underscored a trend of voter discontent that has affected governments of all ideological shades in Western Europe. Even Palme had to admit last week that his party won mainly Because "the Swedish people wanted a change." If Palme's nostrums do not improve the economy, the Swedes may shortly want a change again.

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