Modern Economic History of Sweden

Sweden is one of the northernmost countries in the world, lying farthest from the equator with the Arctic Circle crossing its northern regions. With a total area of roughly 450,000 square kilometers, Sweden is one of the largest countries in Western Europe. Its population density is relatively low; however, it had a population of just over 8.8 million in 1998.

Sweden is a constitutional monarchy, traditionally neutral, since early 19th century. Norway, formerly united with Sweden, became independent in 1905. Sweden adopted parliamentary government in 1921.

Since World War II, Sweden has experienced a long period of economic progress based in the development of its resources (iron ore, timber, and hydroelectric energy) with major reliance on a market economy and participation in foreign trade. Sweden has a mixed economy in which private and state-owned enterprises exist side by side. This “Swedish model”, a concept that came about in the late 1930s, refers to the way Sweden fostered prosperity by avoiding the pitfalls of both communism and capitalism.
Since 1932, Sweden’s socialist government has steered “the middle way” by allowing the private and public sectors to develop together. This was very successful for many years. An essential factor was the cooperation of the three main players in the economy: government, labor, and business. Unlike other socialist nations, Sweden’s government did not nationalize important industries.
The public sector provides essential services, such as telecommunications, postal service, and energy. It is also responsible for health care, education, and social welfare.

Swedish economy has changed during the periods of 1960s, 1970s 1980s, 1990s and recently. This topic will emphasize that most economies of Sweden experienced difficulty during these times.

1960s
During the 1960s, the growth of the real GDP in Sweden was 5.3 percent per annum, among the highest growth rates in Europe. At the late 1960s, the Social Democracy began to advocate an event greater emphasis on equality, industrial democracy, and social control of investment. The social justice ideal, for which the slogan Jamlikhet appeared in the late 1960’s contains the belief that:

“All individual have an equal right to a rich and evolving life?(meaning)? security, freedom, happiness, the right to cultural opportunities, employment, and influence in the community. This (means) an approach to equalization of income. (It calls for reforms) directed against the privileged for the advantage of the underprivileged and the bettering of their conditions of life.”

Based upon a 1969 report by Alva Myrdal, this ideal stresses that Social Democrats should proceed beyond the promotion of full employment and social security. These advocates believed Sweden enjoyed general welfare due to achievement of full employment. A broader concept of full employment emerged along with a stronger commitment toward a more egalitarian distribution of income. Measures to achieve full employment and to support lower-income families required an expansion of public expenditures with employment and wealthier Swedish families bearing the greatest burden.

1970s
During the 1970s, Sweden had to face serious recessions. The energy shocks of the 1970s increased domestic costs, which, along with poor productivity performance, led to and erosion of the Swedish position in external markets. Also, the international economic crisis hastened by the dramatic hikes in oil prices in 1973 boosted unemployment in Sweden. During 1970s, the average of unemployment rate was 3.2 percent.

In addition, the economic crisis resulted in the departure of the Social Democratic after the 1976 parliamentary elections and the formation of a non-socialist coalition government under the leadership of Center Party. After the Social Democratic reelection in 1979, a drastic devaluation o the krona was permitted so as to promote domestic employment. This led a rapid expansion of industry, as Swedish exports became more competitive in modestly.

Nevertheless, the government followed a policy of expanding deficits, which in turn stimulated inflation. Although it was more complex than this simple description suggests, the situation appeared to many to illustrate a case where planners failed to find the appropriate policy mix, rather than betraying any fundamental problems in the Swedish system.

1980s
During 1980s, Sweden has experienced weaker growth in decades. GDP rose by an average of 2.0 percent. This can be compared with 3.3 percent during the 1950s and 4.6 percent in the 1960s.

In the 1982 parliamentary elections, employment and the budget deficit were among the focal issue of debate. The elections resulted in a victory for the Social Democratic Party and the new government succeeded in improving Sweden economic situation. The sharp upturns in the international trade cycle in 1983 and subsequent years enabled Sweden to balance the national budget once more, and the government utilized this for a massive expansion of the public sector. For example, housing, public amenities, social security, and welfare for full 54.2 percent of government spending in 1988. How ever, major government programs in Sweden are financed by major taxes. In 1988, total central government revenue in Sweden accounted for 42.9 percent of GDP.

In a survey of the Swedish model published in 1985, Erik Lundberg noted that in addition to failures of stabilization policies, support for the social democrats became more fragmented, and policy objectives were contradictory. Finally, Lundberg emphasized the changing limited policy options and a greater need to conform to policies of other major countries.

1990s-present
The accelerated growth in production that had formerly characterized economic development in Sweden ended in the 1980s. At the end of the decade and in the early 1990s, it gave way to a fall in industrial production and a negative balance of payment. At the same time, the big expansion of the public sector imposed heavy demands on the economy. A swift rise in unemployment contributed further to heavy deficits in the budget and a rapidly swelling national debt.

With a persistently high unemployment rate as well as a substantial deficit in the national debt, Sweden in the mid-1990s is facing major problems. The economic reversals that Sweden experienced coincided with an international recession.

Between 1990 and 1993, GDP declined by 5%. At the same time, employment fell by nearly 10%. After the 1991?93 recession, the economy recovered significantly. GDP climbed by 3.3% in 1994 and 3.6% in 1995. At the end of 1993, registered unemployment totaled more than 8%, or twice as high as at any other time since World War II.

The competitiveness of Swedish industry greatly improved, due among other things to the weakening of the krona that occurred between 1992 and 1993.

Raised taxes and savings characterize the policy that the Social Democratic government is obliged to pursue. However, improved international economic trends, rising export and a strengthened balance of payments afford hopes of brighter future prospects. Despite the economic crisis that affected Sweden in the first half of the 1990s, the country still features a high average standard of living and considerable social security.

The government has helped struggling industries like shipbuilding, steel, and forestry by taking a major ownership role. However, from 1991 until it was voted out, the conservative government tried to reduce the state’s role in the economy. A new coalition of four conservative parties ousted the long-ruling social democrats from power. The new coalition was elected on pledges to cut taxes and reduce the welfare state. Although some state-owned industries were privatized, the government was not able to substantially decrease the role of the public sector in the economy because of the recession. Unfortunately, a weakened social-democratic party returned to power in 1994, ruling as a minority coalition. Controls were reduced; real interest rates were allowed to rise significantly, which has resulted in a growing government budget deficit, a redistribution of income in favor of wealthier families, and a shrinking of domestic demand. In addition, changes were introduced to shift the economy away from public consumption, especially at the local government level, through changes in the social insurance system.

In January 1995, Sweden became a full member of the EU and withdrew from EFTA. Membership opened up an extended home market, making Sweden the best strategic location for corporate headquarters in Northern Europe. Like other relatively small-industrialized countries, Sweden is very dependent on international trade to maintain its high productivity and living standards. In 1996, exports were equivalent to 40% of Gross Domestic Product (GDP). More than 80% of total exports consist of industrial products. The most important export markets are in Western Europe. More than half of Swedish exports go to the European Union (EU).

Since joining the EU, the big advantage of Sweden is that the export is increasing; as a result, it creates more job opportunity. Between 1998 and 2000, it is estimated that employment rose by about 170,000 person.

The Swedish economy is in a phase of string expansion between 1999 and 2000. The domestic areas of the economy are growing rapidly, and industrial activity is strengthening as the economy improves. At the same time, inflation remains low. GDP growth is forecast at 3.6 percent for 1999 and 3.0 percent for 2000. Unemployment is 4.7 percent in 2000 that can be compared 8.0 percent during the 1993 and 8.8 percent in the 1996

Future
From the late 1990s, it is evident that early and mid-1980s marked a major turning point for the Swedish economy. During that time, the Swedish economy fundamentally changed course, partly in response to a severe recession but also because of the basic changes in Swedish society and its long pursuit of the welfare state.

In the future, inflationary pressure will be expected to remain low over the next few years. In addition to subdued wage growth high level of competitive pressure and a strengthening of the krona will contribute to holding down produce consumer price. In addition, the unemployment will be decreased progressively if the export still keeps increasing.

In my personal opinion, I think that the government should reduce the taxes and public expenditures. Tax rates have been reduce progressively, ranging from 5 percent to 42 percent, They have ranged from about 50 percent in 1959, 80 percent in 1981, about 60 percent in 1989, and 50 percent in 1991. To compare with other European countries, tax rates are still quite high. Consequently, it may cause more Swedish people get investment overseas. Meanwhile, the government should control the public expenditures because government can not get big revenue from this spending. That may be the main reason causes the GDP decreasing. However, during 1970s and 1990s, Sweden had to face serious recessions. It mainly caused the inflation, unemployment, decreasing GDP and other difficulties. However, Swedish economy has significantly improved after joining the EU. Such descriptions obscure the underlying and complex interrelationship among economic, social and political factors in Sweden.

Summary
To summary, in just over a century, Sweden has developed from a relatively poor farming country into a modern industrial society with a welfare state. The Swedish economy or model has often been described as a welfare state or as an example of democratic socialism. It is now one of the most technologically advanced countries in the world, exporting many industrial production. It is likely that the economy will be an important question for Sweden in the immediate future. After some very lean years, there are signs that there is some improvement on the horizon. However, unemployment figures remain high and the welfare state is being slimmed down. However, Sweden joined the European Union. Membership opened and extended home market, making Sweden the best strategic location for corporate headquarters in Europe, even the world.

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