Decade after decade, Sweden keeps inspiring the world in terms of innovative economic policy.
In the 1970s and 1980s, the "Swedish model" of social democracy was the indispensable reference for aspiring interventionist politicians around the world. It was proof that you could have a dynamic and productive economy with sky-high tax and spending ratios and a very elaborate social safety net.
Many people still haven't realized that this model started to change two decades ago, because it was undermining the country's prosperity and proving much too costly.
Grappling with serious public finance and unemployment problems in the early 1990s, Sweden underwent significant reforms, including decentralization and privatization of government programs and agencies, and the introduction of more choice and competition in health care and education.
It also managed to radically transform its public sector employment scheme without antagonizing unions and workers.
Two of the most sacred cows of public employment, seniority and job permanence, were simply abolished. An individualized system of remuneration linked to performance was put in place, replacing the former centralized, rigid and uniform national structure.
Job security is today guaranteed only by an employee's competence. Efficient employees can be promoted, whereas employees who do not fulfil their duties can be demoted or even dismissed.
Among the positive effects, the greater flexibility afforded to school principals allows them not only to reward teachers based on performance and effort, but also to offer different working conditions in order to attract and retain quality employees. For example, science and math teachers, which are more difficult to find, receive higher salaries than teachers in other disciplines.
Similarly, remuneration for nursing staff is now negotiated individually and linked to performance, and can vary greatly from one region to another. The more nurses are in short supply in a given region, the higher salaries tend to be.
Polls show that teachers, nurses and doctors are increasingly satisfied with the new system. Young dynamic employees in particular get more recognition and higher wages than under the previous system based on seniority.
Even more interesting, the unions, which dreaded the reforms at first, are now supportive. The benefits in terms of salaries and professional autonomy obtained through differentiated performance pay were such that they had no choice but to recognize them.
Sweden still has a relatively large government, but its public sector has become a lot more efficient and flexible than are those of Canada's federal and provincial governments. We could learn a thing or two from it.
Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.
* This column appears in Sun Media newspapers, published both in several of Canada's key urban markets (Toronto, Ottawa, Calgary, Edmonton, Winnipeg and London) and in its 28 community dailies.