Since the election of a new center-left government less than six months ago, Sweden has been carrying out a foreign policy experiment that politicians and business leaders worldwide are watching with interest. So far, three ambassadors to Sweden have been called home, trade deals worth hundreds of millions of dollars have been scrapped, and Saudi Arabia stopped issuing Swedish business visas.
The first hint that Foreign Minister Margot Wallström would be true to the Social Democrats’ electoral promise of conducting an ethical foreign policy came late last year, when Sweden became the first European Union country to recognize Palestine as a state. With that announcement, Israel sent its ambassador to Stockholm packing.
Most recently, Wallström criticized Saudi Arabia’s disregard for human rights and “medieval” legal system, specifically referring to the decision to flog a blogger and to the country’s lack of rights for women. The Saudi government then, with some success, framed her remarks as criticism of Islam, blocking a speech that Wallström was due to give at the Arab League in Cairo. Sweden promptly scrapped an arms deal with the Gulf state (the Swedish government said the decision was made beforehand). Two more ambassadors were called home (Saudi Arabia’s and the United Arab Emirates’). The Arab League also condemned Wallström’s statements.
Sweden’s businesses leaders have been almost unanimous in their condemnation of Wallström’s foreign policy stances. They claim the government’s bluntness is compromising important trade relations — Sweden is one of the largest arms manufacturers in Europe and Middle Eastern countries are important customers. In addition, Jacob Wallenberg, a leading Swedish industrialist, warned of wider consequences against Swedish companies, should foreign governments start to distrust the country’s commitment to honoring contracts.
The Swedish government has since backed down somewhat from the most incendiary statements, and the Saudi ambassador has agreed to return to Stockholm. But the incident is likely to have further consequences, both political and economic.
Sweden intended to apply for a seat on the UN Security Council, which it is now unlikely to obtain in the face of opposition from the Arab League. Moreover, since some Arab countries have framed Wallström’s criticism as an attack on Islam, there are concerns about an increased risk of terrorism. (This seems a bit farfetched, given Sweden’s stance on Palestine.)
In wealthy countries that can, to some extent, afford to be principled, ethics at a macroeconomic and foreign policy level has become more and more important. In early 2014 an apparently innocuous deal between the Danish state and Goldman Sachs (the financial giant bought 18% of the national electricity provider Dong Energy) caused demonstrations and widespread protests simply because some Danes did not like Goldman Sachs and what it represented. The deal went through, but it was a close call and came at a steep cost for the government. One political party left the ruling coalition, six ministers resigned, and the main coalition party plummeted in opinion polls.
And despite the protests (and attempts in Sweden to smooth over the situation somewhat), Swedish voters appear to have taken to heart Wallström’s unorthodox diplomacy. According to an opinion poll published by Novus in March 2015, she is the most trusted cabinet minister in the new government, by a wide margin.
If voters in Sweden and elsewhere decide that this is how foreign policy should be carried out — and that human rights abroad are important issues to them — businesses may well have to start weighing the ethical credentials of their business partners.
Oana Aristide is a Senior Economist on D&B’s Global Data, Insight and Analytics team. Based in the UK, she covers three Scandinavian countries as well as Romania, Japan, Malaysia, and the Philippines as a contributor to D&B’s Macro Market/Country Insight Products. She has a background in central banking.