Sweden: Crisis and

Reform of the Social

Market Welfare State
REPORTER’S:
Sidro, Vina B.
Pame, Daisirie M.
Yape, Jeralyn P.
 Contents

 INTRODUCTION
 HISTORICAL AND CULTURAL ROOTS
OF THE SWEDISH MODEL
 LABOR MARKET INSTITUTIONS
● Corporatism
● Liberal corporatism

 THE RISE AND FALL OF

SWEDISH CORPORATISM
 WAGE SOLIDARISM
Contents

 GOVERNMENT POLICIES AND THE

LABOR MARKET
● Active Government Labor Policies
● The Welfare State, Taxes, and Labor
Supply
 SWEDEN AND EUROPE: CAN
REVIVED GROWTH CONTINUE?
● Macroeconomic Policy and Performance
● Sweden and the European Union

 IS THE SWEDISH MODEL DEAD?

INTRODUCTION
 INTRODUCTION

 The world has watched with a mixture of fascination and dismay the
evolution of the Swedish economic system—fascination by those
who have admired its many virtues and achievements, dismay by
advocates of laissez-faire, including many in Sweden itself. However,
as the Swedish economy experienced increasing difficulties after the
mid-1980s and a non–Social Democratic government between 1991
and 1994 moved the system toward less government intervention in
the economy, the shoe shifted to the other foot. Advocates of laissez-
faire applauded as Sweden joined the global trend, while admirers of
its welfare state watched despondently.
 INTRODUCTION

 Even after the recent changes, the Swedish economic system remains
different from that in the United States and most of the rest of the market
capitalist world. It may be converging more on the systems of its
Scandinavian neighbors and less on those of northern European countries
such as Germany. In chapter 1 we labeled these social market economies, a
term originally applied to the West German economy in the 1950s. These
economies avoid central planning and rely on market forces and private
ownership of the means of production while providing relatively high
levels of government income redistribution and social welfare spending.
INTRODUCTION

 Sweden developed the most extensive income redistribution and

social support system (often described as a system of “cradle-to-
grave security”), along with the highest levels of taxation of any
nonsocialist economy in the world.

 It also developed centralized wage bargaining, labeled

corporatism, an equalizing wage solidarism approach, and
active government intervention in labor markets for retraining.
 INTRODUCTION

 As late as 1980, the Swedish economy was one of the top four non-oil-
exporting nations in the world in real per capita income; however, in 2000
it was 17th, although this was an improvement from the late 1990s, when it
was not even in the top 20. For decades the United Nations rated Swedish
women as having the best living conditions in the world, although
according to the 2002 UN Human Development Report, Sweden has
fallen to fourth place globally in that category while holding third place in
gender empowerment behind Norway and Iceland, its fellow Scandinavian
countries.
INTRODUCTION

 It probably came as close to eliminating poverty as any nation

ever has at the peak of its redistributionist policies, with only
about 1% of its population belonging to an underclass. Although
it now reportedly has a slightly higher poverty rate than either
Luxembourg, Finland, or Norway, the 2002 UN Human
Development Report still rates it as having the world’s lowest
Human Poverty Index (HPI), a measure that also takes into
account education, life expectancy, and long-term unemployment
measures.
 INTRODUCTION

 Sweden seemed to transcend the equity-efficiency trade-off. It had high

real growth with high income equality and considerable macroeconomic
stability, all within a highly democratic political structure marked by
extensive individual liberties in social and cultural matters. Despite its
current problems, this past record of achievement has led some to present
the Swedish model as still an ideal for Eastern European economies in
transition.
 INTRODUCTION
 In 1991 Swedish voters replaced the long-ruling Social Democrats with a pro-laissez-
faire coalition government led by Carl Bildt of the Moderate Party. Supporting the then
just submitted application to join the EU, this government made noticeable cutbacks in
the social welfare system and accompanying tax cuts. To break the wage-price spiral, the
unemployment rate was allowed to soar to nearly 9 percent by the end of 1993.
 In September 1994, the Social Democrats returned to power and currently rule in a
coalition government led by Göran Persson. But they have been constrained by a high
budget deficit and the entry into the EU in early 1995 after a positive referendum vote in
November 1994. Sweden has remained outside of the euro zone but may enter it after a
scheduled September 2003 referendum on the issue. Despite recent hopeful signs of
stabilization and improvement, the Swedish model will never be the same again, even if
it still remains more welfare-state-oriented and corporatist than most in the world.
HISTORICAL AND
CULTURAL
ROOTS OF THE
SWEDISH MODEL
 Foundational characteristics significant in explaining Sweden’s history and its
character include an independent peasantry that was never enserfed; a powerful
Protestant state church; a deeply rooted respect for law; ethnic homogeneity of the
population; a long history of organized government; a tradition of honesty and
effectiveness in the bureaucracy; weakness of the middle class; and an intellectual
tradition of rationality and practicality.

 If the Swedish middle way depends on a pragmatic balancing of individual and communal
interests, this ethos was already present in Viking times (500–1100) before Sweden was
Christianized. A rugged and democratic individualism was enforced by the wide-ranging travels of
the Vikings and the rigorous climate of the country. Local parliaments whose laws were respected
elected their regional kings. But agricultural production took place in commonly held open fields,
reflecting a communalism encouraged by the need to cooperate with each other against the harsh
environment.
 After adopting Lutheranism in the 1500s, Sweden entered a period of royalism and
national expansion, achieving such power that it led the Protestant cause in the
Thirty Years’ War (1618–1648). This period established Sweden’s efficient
government bureaucracy and efficient financial system (including Europe’s oldest
continuously existing central bank) and the development of capitalist institutions in
iron and copper mining, which became Sweden’s leading export industries.

 During the less expansionistic but more liberal 1700s, science, technology, and education
developed vigorously in Sweden, which possesses a highly educated labor force today. The
enclosure movement in agriculture also began then, which ended the traditional open field system
by the 1860s as privately owned fields were separated from others by fences. This movement
displaced rural workers who would form the base of an urban industrial working class, although
many strongly independent farmers remained in the countryside.
 After a related expansion of the iron and timber export industries, the Swedish
economy took off in the 1870s, with expansion led by railroad investment,
resulting in the world’s fastest rate of growth until 1950 (exceeding even Japan’s).
This economic performance was aided by Swedish entrepreneurs’ technical
innovations that became the bases of later industrial empires. These innovations
include the invention of chemical pulp processing (Svenska Cellulosa is
Sweden’s 10th largest firm); significant improvements in telephones (L.M.
Ericsson is Sweden’s 6th largest firm); innovations in steam turbines (Asea is
Sweden’s largest firm); innovations in self-adjusting ball bearings (SKF is
Sweden’s 9th largest firm); and the invention of dynamite (Nobel Industries is
Sweden’s 8th largest firm and funder of the Nobel Prizes).
 Sweden’s rapid industrialization led to the emergence of a working class
movement. In 1889 the Social Democratic Party (SAP) was founded by union
members, and in 1898 the general trade union federation Landsorganisationen
(LO) was founded. The Swedish Employers Federation, Svenska
Arbetsgivareforening (SAF), which would later be the LO’s partner in centralized
wage bargaining, was founded in 1902. A period of bitter economic, social, and
political conflict followed, marked by many strikes and a near revolution in 1918.
This ended with the achievement of universal suffrage and absolute parliamentary
supremacy. After 1930 the economy fell. This recession led to the 1932 electoral
victory by the Social Democrats, who would remain in power until 1976.
LABOR MARKET
INSTITUTIONS
 Corporatism
 Liberal corporatism
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 Corporatism

 Most observers argue that key to Sweden’s ability to maintain both

low unemployment and low inflation from World War II to the mid-
1980s was the nature of its labor market. The most important factor
has been the centralized wage bargaining system widely
 Corporatism has two versions:

 Authoritarian and liberal (or voluntary).

 The former involves the state establishing and enforcing centralized

wage bargaining, as in fascist economies such as Mussolini’s Italy,
Vichy France, and Nazi Germany, which called themselves corporate
states.
 Corporatism has two versions:

 Authoritarian and liberal (or voluntary).

 The former involves the state establishing and enforcing centralized

wage bargaining, as in fascist economies such as Mussolini’s Italy,
Vichy France, and Nazi Germany, which called themselves corporate
states.
Liberal corporatism

 is largely self-organized between labor and management, with only a

supporting role for government. Leading examples of such systems
are found in small, ethnically homogeneous countries with strong
traditions of social democratic or labor party rule, such as Sweden’s
Nordic neighbors.
Liberal corporatism

 Using a scale of 0.0 to 2.0 and subjectively assigning values based on

six previous studies, Frederic Pryor in 1988 found Norway and
Sweden the most corporatist at 2.0 each, followed by Austria at 1.8,
the Netherlands at 1.5, Finland, Denmark, and Belgium at 1.3 each,
and Switzerland and West Germany at 1.0 each.
 Liberal corporatism
 Yet all studies agree that Sweden has one of the most corporatist of the
current economic systems, although it is probably the case that several of
its immediate neighbors are now more strongly corporatist than Sweden.
At least in Europe, the relative size of the economy seems to be important,
as one study indicates at least some corporatist elements in wage
bargaining in most of the EU members except for the largest economies:
Germany, France, and Great Britain.
 Liberal corporatism
 The lowest wage rigidity and the fewest changes in unemployment seem to
occur at the two extremes, the most corporatist (Sweden, Norway, and
Austria) and the least corporatist (the United States and Canada). Sweden,
Norway, and Austria have all had good unemployment/inflation
performances, matched only by the Switzerland and Japan since 1945.
However, some argue that this good performance is unstable over time, an
observation with considerable relevance to Sweden.
 T ha n k y o u !

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