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The Rehn-Meidner model in Sweden: its rise, challenges and survival

The Rehn-Meidner model in Sweden: its rise, challenges and survival

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Published by Stefano Ambrosini
The Rehn-Meidner model in Sweden: its rise, challenges and survival
The Rehn-Meidner model in Sweden: its rise, challenges and survival

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Published by: Stefano Ambrosini on Mar 15, 2014
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 The Rehn-Meidner model in Sweden: its rise, challenges and survival
Lennart Erixon (February, 2008) Department of Economics, Stockholm University, 106 91 Stockholm, Sweden Abstract A Swedish economic policy was developed by two trade union economists shortly after the Second World War. The Rehn-Meidner model recommends the use of selective employment policy measures, a tight macroeconomic policy and a wage policy of solidarity to combine full employment and equity with price stability and economic growth. Although never consistently applied in Sweden, it is possible to distinguish a golden age for the Rehn-Meidner model from the late 1950s to the early 1970s. In the 1970s and 1980s, Swedish governments abandoned the restrictive macroeconomic means of the Rehn-Meidner programme and decentralised wage bargaining obstructed the wage policy of solidarity. In the 1990s and 2000s a new economic-policy regime could not meet the strong requirement of full employment in the Rehn-Meidner model but it satisfied the model’s priority of selective employment policy within the framework of a restrictive macroeconomic policy. __________________
 JEL classification
: E24; E31; E62; J23; J31; J62; O23
: Swedish model; Rehn-Meidner model; third way; labour market policy; wage policy; productivity growth, fiscal policy; unemployment; inflation Contact author: Lennart Erixon, Department of Economics, Stockholm University. Tel.: +46 8 16 21 36; fax.: +46 8 15 94 82; e-mail: lex@ne.su.se.
1. Introduction
The Rehn-Meidner model (R-M model) is a unique Swedish contribution to macroeconomics. Two trade union economists – Gösta Rehn and Rudolf Meidner – advocated an active labour market policy, a wages policy of solidarity and a restrictive macroeconomic policy – primarily indirect taxes – to combine full employment with fair wages, price stability and high economic growth. The programme was presented in a report to the 1951 congress of LO, the central organisation for blue-collar workers in Sweden (LO, 1953). Rudolf Meidner was the head of LO’s research department 1946-1966 and Gösta Rehn the department’s leading macroeconomist 1941-1952. Erixon (2008) scrutinizes the efficiency of the R-M instruments and the validity of the model’s underlying economic theory in light of Sweden’s macroeconomic development in the post-war period. The aim of this paper is to analyse whether the R-M policy model was actually applied in Sweden until the fall of 2006. For the third time in the post-war period a social democratic government was then replaced by a centre-right coalition government. This paper also uses the R-M model as a point of reference for a description of Sweden’s economic policy in the post-war period. Another purpose of this paper is to distinguish the economic-structural and political-institutional conditions, ideologies, power relations, economic paradigms and economic-policy experiences underlying the application of and also departure from the R-M model in Sweden. This analysis is more comprehensive than the corresponding account of the model in practice. The following inquiry into Swedish economic and wage policy, with a particular eye on the R-M model, is based on official statistics and reports (including budget bills of Sweden) and on earlier work by social scientists on the practice of the “Swedish model”. The paper’s
contribution to statistics is a survey of Swedish labour market policy 1965-2005 and a description of trends in profits shares in 10 OECD countries (including Sweden) 1955-2003 (see Appendix). The study is both historical and country-comparative albeit without any systematic comparison between Sweden and countries that are similar in terms of size, openness, industrial composition or political institutions. The analysis of the application of the R-M model is not without complications. An economic and wages policy in conformity with the model does not necessarily mean that it itself has guided decision makers. Swedish politicians might have been governed by economic-policy models, in some respects similar to the R-M model. Neither do politicians’ references to the model
ex post 
 prove that it really had any influence over the economic policy during the period under review. Another problem when analysing the application of the R-M model is that its fathers do not provide an unambiguous blueprint for the design of macroeconomic policy (fiscal and monetary policy) for a recession. The model was basically formulated for an overheated economy and for the medium term. However, difficulties defining the content and influence of the R-M programme have not stopped me from drawing some conclusions about its applicability in Sweden. The R-M model was never fully and consciously applied, but it is possible to speak of a “golden age” for the model from the end of the 1950s up to the first oil crisis in 1973-1974. Section 2 presents the R-M policy programme. Section 3 outlines the application of a Keynesian economic policy in Sweden during the early post-war years. Section 4 analyses the golden age of the R-M model. Section 5 studies the period from the mid-1970s up to the deep economic crisis at the beginning of the 1990s with major external challenges to, and some obvious deviations from, the model in Sweden. Section 6 explores the status of the R-M

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