Macroeconomics

A world of no lockdowns: The case of South Korea and Sweden

  • Blog Post Date 15 March, 2021
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Shritanjay Bhatia

University of British Columbia

shritanjay@alumni.ubc.ca

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Julia Brockley

University of British Columbia

juliabrockley4@gmail.com

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Nikita Navaneeth

University of British Columbia

nikita.navaneeth@gmail.com

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Utkarsh Sikka

University of British Columbia

utkarshsikka77@gmail.com

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Isha Trivedi

University of British Columbia

trivadachi@gmail.com

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Sanna Uppal

University of British Columbia

sannauppal@gmail.com

While most of the world was under lockdown during the Covid-19 pandemic of 2020, two countries, Sweden and South Korea, decided to keep their economies open. In this post, Bhatia et al. use a metric of six categories to compare the measures taken by the two countries in their respective economies last year.

While most of the world was under lockdown during the Covid-19 pandemic of 2020, two countries decided to keep their economies open – Sweden and South Korea. South Korea focussed on contact tracing and quashing the Virus while Sweden focussed on keeping its economy afloat. While both the countries prioritised maintaining the well-being of their citizens without imposing strict lockdowns, their methods and overarching goals differed. In this post, we use a metric of six categories to compare the measures taken by the two countries in their respective economies last year (Bhatia et al. 2020). We consider their cultural disposition, state of healthcare, supply chains, monetary and fiscal policy responses, use of technology, political economy and the impact of policies on the populations.

Cultural factors

Sweden, among the most developed countries in the world, operates more on individualistic principles than collective ones. Government policies such as individual taxation of spouses, easily accessible student loans, and an emphasis on child rights, promote the development of an independent and individualistic society that invests heavily in human capital in order to increase individual autonomy.

As expected, a demographic that was particularly hard hit in Sweden was the elderly, specifically those living in nursing homes. Many senior citizens in the capital city of Stockholm, followed government advice and implemented the recommended changes. Younger Swedes, more influenced by the individualistic nature of society, ignored or only loosely abided by the government recommendations. This highlights the differing prerogatives between the demographics.

In contrast, South Korean culture is more collectivist, evolving from the shared understanding that individual safety measures enhance the safety of the community and generally produce better outcomes. The pandemic necessitated that intensive safety measures be undertaken by all citizens, at the expense of some rights and liberties. Not only is South Korean culture exceedingly accepting of people living with their parents until they establish their careers or get married, there is also a cultural expectation that children will live with and care for elderly parents. It is not uncommon for families to live together in parts of the country. Along with these expectations, there is a high level of faith in the amount of respect that people have for families and communities, and subsequently, there is social pressure to resist from engaging in reckless behaviour. 

South Korea’s prior experience with the Middle East Respiratory Syndrome (MERS) epidemic meant that citizens were accustomed to government guidelines. The government’s nationwide stool-testing strategy for elementary school children in the 1970s and 1980s is a prime example of this. The children of that era are now adults and parents themselves, having maintained confidence in government leadership in measures relating to community health.   

State of healthcare

Sweden’s provision of high-quality, universal healthcare is a key factor that makes it one of the world’s most developed countries. Annually it spends over 10.6% of its GDP (gross domestic product) on healthcare expenditures which is higher than the worldwide average of 9.9%. Only 13% of Swedes have private insurance – considered as an indicator of the strength of the public health system. Yet, Sweden had the lowest rates of Covid-19 testing in comparison to its Nordic neighbours. It also had the highest proportion of positive test results and death rates in the region.  

Despite the Swedish government’s extensive spending on healthcare, it failed to cater to its biggest population strata: old and retired citizens. The small additional allotment of budget towards the Covid-19 response caused severe harm to citizens’ health and left them unsupported during a time of need. 

Like Sweden, South Korea has a highly regarded universal healthcare system. In 2018, South Korea spent 8.1% of its GDP on healthcare, and 100% of the population is covered. South Korea’s amendment to the Contagious Disease Prevention and Control Act (CDPCA) after the MERS outbreak enabled the country to roll-out intense Covid-19 contact tracing without encountering legal barriers.      

Use of technology 

Sweden has been known to be a technologically advanced country. However, it has been unable to capitalise on its state-of-the-art technological systems to respond to Covid-19. The only avenue where the Swedish government used their technological resources was to bolster the “digital transformation” of local businesses. Due to work-from-home mandates, online platforms have become the primary source of revenue in the pandemic. The Swedish government’s resource provision supports local businesses by helping them make a successful digital transformation but is not applicable to the majority of the citizens who would have significantly benefited from some technological support. 

Kuoppamäki and Östlund’s study (2020) highlights how older Swedish citizens’ usage of digital technology helps them maintain their mental health during this pandemic. The increased usage of digital media by the older population of Sweden during Covid-19 – specifically text messages – shows how technology is helping the older generation stay connected to others in a time when physical interaction is not considered safe. However, compared to South Korea the Swedish government failed to use its technological resources for contract tracing, which perhaps could have helped reduce the country’s high death rate of 65.61 per 100,000 citizens.

South Korea has used technology and artificial intelligence (AI) extensively to battle Covid-19. The South Korean government’s smartphone application, Corona 100m, is a prime example. This application shows the location of an infected patient, and any point of contact the user had with the infected. However, the application sparked concern over privacy issues. Following the MERS outbreak in 2015, South Korea passed legislation that explicitly allows government officials to publish personal information of infected patients to the public, including a detailed log of their movements containing sensitive personal information. This could have led to lower testing as people who had symptoms did not want to be tracked in that manner. Yet, due to overall public trust and support, the government managed to sustain the use of these apps and limit the spread of the Virus.  

Monetary aid

Following Sweden’s regulations to help curtail the effects of the pandemic, the government implemented a broad range of measures providing monetary aid, mainly focussed on local businesses. A key example is the state loan credit guarantee whereby the government agrees to take on up to 70% of loan risk when banks and credit institutions lend to SMEs (small and medium enterprises). About SEK (Swedish Krona) 100 billion has been sanctioned in this regard. The maximum loan per company is SEK 75 million, and no more than SEK 250 million in assessed exceptional cases.

The Swedish Export Corporation has received an additional SEK 250 billion to finance loans to export companies. In September 2020, the government allocated SEK 3.5 billion for 2020 and SEK 1.5 billion for 2021 to be paid out to compensate for 75% of losses in revenue related to Covid-19, with a cap of SEK 120,000 per individual trader.

While the motives for aid were very similar in the two countries, South Korea's aid packages focussed equally on individuals and businesses. The first supplementary aid package from March 2020 included KRW (South Korean Won) 10.9 trillion for Virus prevention, medical treatment, SME loans, and support for households. The second package, passed at the end of April 2020, had an additional KRW 14.3 trillion for emergency relief transfers to households. In early July 2020, the third package was approved, and it provided a total of KRW 35.1 trillion financial aid to companies, disease control, and the expansion of employment opportunities. In September 2020, a fourth package was agreed upon, providing an additional KRW 7.8 trillion for SMEs, employment support, support for low-income households, and day care support for families with young children.

Supply chain

Due to its large dependence on exports, the Swedish economy is expected to contract by 8.6% during April-June 2020 due to a decrease in foreign demand and supply chain disruptions. Similarly, Sweden’s place of importance in global value chains makes it susceptible to production shocks due to disruptions in other parts of these chains until the pandemic is over.

Although bars, restaurants, and other businesses remained open during the pandemic, citizens chose to follow social distancing and avoided frequenting public areas, which caused a drop in consumption in the country. Even large manufacturing plants, such as Volvo, had to temporarily close operations on account of safety considerations during the pandemic.

The South Korean economy was projected to contract 1.2%, which was its first contraction since the Asian financial crisis of 1997. The government’s goals and the economy’s reliance on exports was similar to that of Sweden, and they faced identical challenges. Fall in exports during April 2020, caused South Korea to have its worst economic slump since 2008. To address this, the President announced the creation of an industry stabilisation fund of KRW 40 trillion, managed by the Korean Development Bank, to support airlines, autos, electric power, general machinery, shipping, shipbuilding, and communications. Its biggest trading partners, China and the US, were disproportionately affected due to individual circumstances. The former was the epicentre of the Virus, sustaining the worst economic damage in the first half of 2020, while the latter struggled to manage cases due to a decentralised government with little semblance of a pandemic response plan combined with a large population of citizens sceptical of and resistant to guidelines.

Political impact

While the governments in both South Korea and Sweden are widely trusted by their respective citizens, their citizens’ approval of their Covid-19 policies has been mixed. A survey on 1,600 Swedes conducted in April 2020 showed that 31% of them did not find government restrictions to be “forceful enough”, while 63% of survey participants reported high degree of confidence in government’s handling of the Virus (Henley 2020). However, that decreased to 45% in June 2020 when the ‘trust-based’ measures of handling the pandemic failed, resulting in heavy criticism, urging politicians to adopt stricter measures.

South Korean citizens, on the other hand, have been ‘extremely satisfied’ with their government’s response to the Virus. In February 2020, President Moon Jae-in was already reeling from corruption scandals within his administration, and with the added pandemic pressure, was expected to lose the legislative election in mid-April. However, the country's success with Moon’s stringent ‘trace, test, and treat’ approach saw his approval rating rising from 44% to 67% in the first week of March, then continued to rise to 71% in the first week of May as the Covid-19 curve flattened. He was re-elected with an absolute majority, and voter turnout in the election was 66.2% higher than in any parliamentary election held since 1992. 

While South Korea is touted as a role model for other countries on how to respond to the pandemic, Sweden is looked at by many as a lesson on the exact opposite. Sweden’s high death rate of 65.61 per 100,000 capita, resulted in Sweden facing international backlash for its lenient policies. In contrast, South Korea has earned praise from the World Health Organization (WHO) and other nations for its pandemic response.

Concluding thoughts

In contrast to the strategy of the two economies discussed here, India imposed multiple nationwide lockdowns to help curb the spread of Covid-19. This impacted the economy and living conditions of the population in a drastically different manner. Our analysis of Sweden and South Korea indicates the presence of a chain of events that took place systematically in each country, depending on their prevailing situations, beginning with their historical experience with such situations, continuing in their reactions and responses to the challenges brought on by Covid-19. While some results of each country’s strategies were immediate, the long-term consequences remain unknown. It will likely be a combination of factors, including the length of the pandemic, that determine the lasting impacts of Sweden and South Korea refraining from imposing mandatory nationwide lockdowns.

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