EVOLUTION OF THE SWEDISH ECONOMIC MODEL

Abstract

The author looks at the emergence and evolution of the Swedish economic model (called herein: model 1.0) and confronts it with the performance of the economy. He stresses a particular feature of the Swedish history, namely the relation between the king and the peasantry, as the precondition for a successful introduction of the collectivist folkhemmet model, based on a large public (social) sector and egalitarian wages and income policies. This model was pursued determinedly (despite the slowly deteriorating performance of the economy) until the acute crisis of the early 1990s. Under its impact the model has been cut in size (from approx. 70% GDP to 50% GDP now) and modified in terms of access to various benefits (in order to reduce ‘free riding’). The modified model, called here: model 2.0, has few characteristics of the model 1.0 and is barely distinguishable from the more general European social model. The author evaluates the impact of the Swedish model (1.0) on the performance of the economy in negative terms. Partial evidence is supplied by improved performance after the crisis-generated reforms, with a faster growth of labour productivity, and greater international competitiveness of the Swedish manufacturing in the post mid-1990s period. These were spurred by the cuts in public expenditures and taxes (and resulting stronger incentives for individuals), as well as enhanced economic and civic freedoms. However, even the modified model 2.0 is still hobbled by the egalitarian wage structure, low R&D efficiency, with the resultant inability of the economy to create private sector jobs. Altogether, the author’s opinion is that whatever positive effects have been registered by the Swedish economic performance, they resulted from the impact of the history-shaped institutions (including the protestant ethics) and earlier successes of the liberal Swedish economy, which in the period of 1860-1950 grew the fastest in the world, preceding the expansion of the collectivist Swedish model.