Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Sweden: From Achievements To Uncertainty

Thorvaldur Gylfason 26th July 2017

Thorvaldur Gylfason

Thorvaldur Gylfason

A quarter of a century ago the economic policies of Sweden’s Social Democrats faced harsh criticism from political opponents as well as from academics. The party had governed the country continuously from 1932 to 1976, mostly in minority government, and then again 1982-1991 (and yet again 1994-2006 and from 2014 to date). Some critics thought then that they had gone too far in their emphasis on increased equality of incomes at the expense of economic efficiency. Others claimed that the tax burden imposed on households and firms had become too heavy. Others still thought that trade unions had been given too much say in economic affairs. Official statistics suggested that Sweden was lagging behind several OECD countries as measured, for example, by national income per person. That was then.

Sweden and Argentina

Yet no one could deny the revolution in living standards that had taken place under Social Democrat governments led by Prime Ministers Per Albin Hansson (1932-1946) and Tage Erlander (1946-1969). Sweden had been one of Europe’s poorest countries in 1900 and had lost about a quarter of its population through emigration to North America, a bit more than a million people during 1870-1920 out of a population of five million in 1900.

Around 1900, Sweden had roughly the same per capita national income as Argentina, a rough parity that lasted until 1930 when the two economies began to diverge. Argentina was badly hurt by the Great Depression of 1929-1941 while Sweden managed to insulate itself largely from its effects through pragmatic economic policy, including leaving the gold standard as well as deliberate public deficit spending under the influence of the Stockholm School that anticipated the teaching of John Maynard Keynes.

Parliamentary democracy took hold in Sweden in 1917, followed by equal suffrage in 1919. Political power was transferred from conservative parties to social democrats and farmers’ parties. Argentina was reasonably democratic until the crash of 1929 gave rise to authoritarianism, and did not see democracy restored until 1983. Under authoritarian government, economic policy in Argentina became reactionary and inward-looking, enabling the land-owning class to usurp disproportionate wealth and power. Under social democracy, by contrast, economic policy in Sweden emphasized open trade with the rest of the world as well as economic and social equality. Neutrality also helped Sweden to emerge after WWII as one of the most affluent countries in the world. The difference between per capita national income in Sweden and Argentina that had been negligible in 1900 had tripled in 1960 and was six-fold in 2016 in terms of purchasing power.

Turnaround

After 1990, official statistics suggested that Sweden had fallen behind Denmark and other industrial countries in terms of national income per person. The financial crisis that struck Finland, Norway, and Sweden in 1991 but not Denmark was partly to blame for this development. The Swedish authorities took the criticism directed at them seriously. They listened to economists, including the advice of a special crisis commission chaired by Professor Assar Lindbeck. This was true whether the Social Democrats were in office or their centre-right opponents – as happened during 1991-1994 and 2006-2014. There were differences as well as similarities. The centre-right government abolished the property tax on real estate while the Social Democrats abolished the  inheritance and gift tax and introduced a successful programme of budget discipline. Government expenditure was held back and, with healthy GDP growth, was gradually reduced from 64% of GDP in 1995 (just after the financial crisis) to 50% in 2015. This turnaround led to lighter tax burdens and a lighter debt burden for the government.

The Gini index, a common measure of inequality in the distribution of income, moved upward, both in terms of labour income alone and total income including capital gains. An increase in the Gini index signals less equality, which in Sweden resulted mostly from globalization, technical change, liberalization of markets, and reduced trade union influence on wage formation. Even so, Sweden kept its place among the countries considered most egalitarian. Studies suggest an increase in wealth inequality after 2008.

The controversial wage earners funds that had been established by law in 1983 on the initiative of the Trade Union Congress (LO) were abolished in 1991, a decision that the Social Democrats did not reverse on their return to office in 1994. These funds were intended to give union representatives direct influence on business investment and thus to create a counterweight to owners of capital and promote economic democracy. Opinion was divided as to which would weigh more heavily, the redistribution of power from capital to labour that the funds were intended to effect or the concentration of wealth in the funds. Many feared the funds would reduce the efficiency of investment and also living standards in the long run. The experiment proved short-lived, from 1983 to 1991, and is with hindsight widely viewed as having produced meagre results. After all, cross-border capital movements were set free by law at the same time so capital would most likely have fled from Sweden rather than succumb to partial trade union control.

Well done, yes, but…

All things considered, Sweden has done well. The authorities reacted well to criticisms offered by economists and others concerning the dangers that can stem from excessive government involvement in the economy, overly ambitious redistribution of income, and trade unions that show signs of behaving like a state within the state. The tax and collective bargaining systems were reformed to moderate wage increases/inflation and avert devaluation cycles familiar from the past. A flexible exchange rate and an independent central bank pursuing an inflation target were also important. State monopolies gave way to competition in several areas in the wake of Sweden’s accession to the EU. The economy started to grow more rapidly again.

Reform pays. Yet, there is much that remains to be done, for example in the housing market that remains rigidly regulated and in integrating immigrants that Sweden has welcomed in relatively larger numbers than other European nations. Sweden has a rather poor record of integrating immigrants into Swedish society and giving them timely jobs (than the nine years it takes on average now). This has led to the resurgence of a nationalist party, the Sweden Democrats, now the third largest party in Parliament. Neither of the traditional blocs, left or right, can govern without their or each other’s tacit support. The current coalition government led by Social Democrats is a weak minority government. The four centre-right parties appear unable to agree on a common programme to take to the electorate in 2018. Earlier achievements notwithstanding, the outlook for Sweden appears uncertain.

Even so, all things considered, the Swedish model – or, more precisely, the Nordic model – has proved a resounding success. Relatively small in size, Sweden and her Nordic neighbours are unwavering champions of free trade and globalization which makes them vulnerable to downswings in the world around them. At the same time, their economies have proved resilient when faced by adversity. From the 1930s onward, the Nordics understood the economic and social importance of distributive justice, a lesson that the UK and especially the US are now suddenly having to learn the hard way.

Thorvaldur Gylfason
Thorvaldur Gylfason

Thorvaldur Gylfason is professor emeritus of economics at the University of Iceland and a former member of Iceland´s Constitutional Council.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u421983467298feb62884 0 The Weak Strongman: How Trump’s Presidency Emboldens America’s EnemiesTimothy Snyder
u4201 af20 c4807b0e1724 3 Ballots or Bans: How Should Democracies Respond to Extremists?Katharina Pistor
u421983c824 240f 477c bc69 697bf625cb93 1 Mind the Gap: Can Europe Afford Its Green and Digital Future?Viktor Skyrman
u421983467b5 5df0 44d2 96fc ba344a10b546 0 Finland’s Austerity Gamble: Tax Cuts for the Rich, Pain for the PoorJussi Systä
u421983467 3f8a 4cbb 9da1 1db7f099aad7 0 The Enduring Appeal of the Hybrid WorkplaceJorge Cabrita

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641