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The 1992–93 Swedish Crisis Debate: How Economic Consensus Overturns Tradition

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Abstract

The very survival of Sweden’s famed welfare state was fiercely debated during its 1992–93 financial crisis, and as such, this experience is highly relevant for the debate over financial crises faced by the developed world, post-2007. This paper examines the role economists and other social scientists played in the Swedish public debate over that crisis. Ultimately, Sweden’s welfare state survived, but was fundamentally reformed. Contemporary policy analysts can gain insights into the process whereby expert, theoretical views of the economy clash with the world views of both laymen and other non-economist experts. This chapter, based on unpublished interviews performed during the spring and summer of 1993, examines the clash between different generations of economists (with different theoretical outlooks) and between economists and other social scientists. In particular, it focuses on the strong degree of consensus over Swedish economic analysis that dominated the public forums in Sweden. Besides simply understanding the Swedish case better, I attempt to add to the literature on policy formation and change and to add to a separate literature on the “rhetoric of economics.”
CHAPTER SIX
THE 1992-93 SWEDISH CRISIS DEBATE:
HOW ECONOMIC CONSENSUS OVERTURNS
TRADITION
KEITH JAKEE
Introduction
In a more extensive study, presented at the RATIO Conference on
Knowledge and Policy Change in August of 2011, I examined the role
economists played in the Swedish public debate over its financial and
economic crisis of 1992 and 1993 (Jakee 2011). I argued that this Swedish
experience is highly relevant for the financial crises faced by the United
States and Europe, post-2007. The very survival of Sweden’s famed
welfare state was fiercely debated during the 199293 crisis, just as the
redistributive polices of Western Europe and the United States are being
debated in the wake of their own crises.
Ultimately, Sweden’s welfare state survived, but was fundamentally
reformed nearly twenty years ago. As a result, the Swedish economic
conditions of the early 1990s and the subsequent policy adjustments hold
insights for current policymakers facing a very similar set of problems and
economic constraints. For example, many of the same underlying
conditions that gave rise to the austerity measures adopted in Greece,
Ireland, and Italy between 2010 and 2012, have much in common with the
1990’s Swedish experience. The same is true of the monumental reforms
contemplated (and largely ignored) with regard to Social Security or
Medicare in the United States.1
1 See, for example, the budget plan, referred to as the Ryan Plan, submitted to the
U.S. House of Representatives for fiscal year 2013 by US House republicans and
spearheaded by House Budget Committee Chairman, Paul Ryan (House
Republicans 2012).
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More to the point of this chapter, however, contemporary policy
analysts can gain insights into the process whereby expert, theoretical
views of the economy clash with the world views of both laymen and
other non-economist experts. In particular, how do non-economists
understand the policies that shape their lives and how do economic experts
try to persuade non-experts when it comes to the latter’s understanding of
policy and “the economy?” While the RATIO paper dealt with these broad
questions, this chapter focuses on the clash between different generations
of economists (with different theoretical outlooks) and between economists
and other social scientists. Indeed, as the title suggests, the question of
how the views of one generation of economists give way to the next
generation is of fundamental concern here.
In terms of the form of the economic debate, the Swedish media seem
to give policy issues, particularly economic ones, great emphasis. This fact
is evidenced by the large number of both regular and special features in
the newspapers, TV talk shows and news programs. Such programs
regularly featured Sweden’s top bank, industrial and labor economists.
The Swedish debate was, moreover, populated by a number of highly
distinguished academicians. That well-known Swedish academicians
played a key role in these debates and that they participated at all levels of
policymaking is not peculiar to the 1990s’ debate either. As Jonung states,
“A striking feature of the Swedish economics profession, in contrast to
most other countries, is the heavy involvement of its professors in public
life … a tradition going back to the founders of economics in Sweden”
(1992, 39). Academic and professional economists have taken to the
public forum dating back to the nineteenth century. David Davidson, Karl-
Gustav Hammarskjöld, Per-Erik Bergfalk and Knut Wicksell are among
the earliest to do so (Magnusson 1993, 89). This tradition also took firm
root among the first generation of Swedish economists early in the
twentieth century, which included Gustav Cassel, Eli Heckscher, Gösta
Bagge and Sven Brisman, as well as the generation that followed,
including Gunnar Myrdal, Bertil Ohlin, Erik Lindahl and Erik Lundberg.
As a result of such active public involvement, the economics
profession has probably been more visible in Sweden than elsewhere, if
not more influential (see, for example, Carlson and Jonung 2006). Going
back as far as the 1930s, a foreign visitor to Sweden took note of “the
influence that the professional economists seemed to have on politicians
both of right and left, on banking and business people as well as on the lay
public. [Economists in Sweden] seem, moreover as a class, to have a
better public reputation than elsewhere” (Brinley Thomas, quoted in
Magnusson 1993, 83). This visibility provides insights for students of
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113
public policy because it illuminates the process whereby academicians
enter the world of public persuasion. As such, Sweden may be just the
kind of ideal case about which many non-Swedish economists fantasize.
Krugman (1994) argues, for example, that the United States would enjoy
improved economic policies if academic economists could crowd out the
special interest “policy entrepreneurs” by playing a larger role in public
persuasion.
This study is based on unpublished interviews performed during the
spring and summer of 1993. I interviewed a number of economists and
other social scientists in Sweden, focusing on, among other things, the role
that economists were playing during the 199293 economic and financial
crisis. The interviewees were chosen on the basis of a variety of
characteristics, the principal objective being to assemble a list of
participants who could discuss the crisis from a variety of expert-
participant viewpoints, in historical context. As such, several interviewees
were economists involved to a greater (e.g., Calmfors, Edin, Södersten) or
lesser (e.g., Jonung) extent in the 1990s national public debate; two were
political scientists (e.g., Gustavsson, Petersson) and two were sociologists
(e.g., Korpi, Zetterberg). Several interviewees were not involved with the
1990s debate, but were major figures in earlier Swedish debates over the
advancement of the welfare state (e.g., Elvander, Faxén, Meidner, Rehn).
See Table 1 for a list of interviewees and summary biographies.
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Table 1: The Interviewees
Economists Position at the time of the 1992-93 Crisis
Lars Calmfors: Professor, Institute for International
Economic Studies, Stockholm University.
P.O. Edin: Chief Economist, LO (Sweden’s widely
encompassing blue-collar labor union)
F.O. Faxén: Former Director of Economic Research,
SAF (Sweden’s Employer Federation)
Lars Jonung: Professor, Stockholm School of Economics
and former Economic Adviser to the Prime
Minister
Rudolf Meidner: Former Research Director, LO; Swedish
Institute of Labor Market Studies,
Stockholm University
Gösta Rehn: Former LO economist
Bo Södersten: Professor, Lund University and former MP
Political Scientists
Nils Elvander: Professor emeritus, Uppsala University
Sverker Gustavsson: Docent (Assoc. Professor), Uppsala
University
Douglas Hibbs: Professor, Gothenberg University
Olof Petersson: Docent (Assoc. Professor), Uppsala
University
Sociologists
Walter Korpi: Professor, Stockholm University
Hans Zetterberg: Former Professor and Chair, Ohio State
University, Opinion analyst and Publicist
Policymaker
Kjell-Olof Feldt: Former Minister of Finance (and Chairman
of the World Bank and Chairman of the
International Monetary Fund)
The 1992-93 Swedish Crisis Debate
115
The larger study argues that four themes emerge from a careful
examination of hundreds of pages of interview transcripts:
i) Two opposing interpretations of the crisis can be discerned: one
that centered on causes of the crisis that were endogenous or
“internal” to Swedish policy; another that centered on causes that
were “external” to Sweden or outside of its control.
ii) A strong degree of consensus emerged among the academic
economists (and several of the non-economists) involved in the
public debate that largely aligned with the “internal” causes
narrative.
iii) Claims concerning the reliability and veracity of economic
arguments were exaggerated on both sides (and by participants in
previous debates).
iv) The “scientific” mantle of economists frequently operated like a
“trump card” in policy debates.
The current chapter focuses on one aspect raised in the larger study:
the strong degree of consensus over Swedish economic analysis that
dominated the public forums in Sweden. I discuss the implications of this
phenomenon, some potential reasons for its existence, and draw some
parallels and contrasts with previous policy debates in Sweden. Besides
simply understanding the Swedish case better, this study attempts to add to
the literature on policy formation and change. It also attempts to add to a
separate literature on the “rhetoric of economics,” which has, for the most
part, focused on how economists persuade one another, in other words,
how they argue among themselves, how they decide what constitutes a
valid argument, and what metaphors or stories they use (see, for example,
McCloskey, 1983, or Klamer 1983).2
Coats (1984) pointed out some time ago that a lacuna existed in the
analysis of the actual processes by which economists persuade non-
economistsunlike, for example, scholarship in the history of science;
this lacuna has largely remained unaddressed. Thus, we know little about
2 The seminal authority in the rhetoric of economics that uses actual interviews is
Klamer’s Conversations with Economists (1983). My study of Swedish economists
differs from Klamer’s approach in that his work is confined to discussions among
economists, and his rhetorical exploration is in the realm of macroeconomic
theory. In contrast, the current work explores the differences among economists, as
well as between economists and other social scientists, regarding approaches to
economic policy. The current study might therefore be thought of as an
investigation into how the theoretical discussions in Klamer make their way to
policy discussions.
Chapter Six
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how economists shift between their roles as academicians, protectors of
the “general interest,” and purveyors of special interests or, to borrow
Goodwin’s terminology (1988), the distinction between philosopher,
priest and hired gun. I attempt to shed some additional light on the process
whereby one generation of economists publicly engage both non-
economists and the legacy of previous generations of economists.
In the next section, I briefly outline some of the details of the 1990s’
Swedish economic crisis. Section three sketches the broad contours of the
199293 debate that surrounded the crisis. The fourth section focuses on
the overwhelming dominance of one side of the public debate and traces a
similar pattern in Sweden’s past. Section five discusses some potential
reasons for the pattern of narrow public opinions among Sweden’s public-
going economists.
The Crisis
Swedish society in 1992 and 1993 did not exhibit the model character
for which it had become renowned over the previous half century.
Although it had faced several other economic crises, including the oil
crises of the 1970s, a productivity slowdown, and budget crisis in the early
1980s, none appears to have threatened its progressive social, political and
economic agenda like the financial and economic crisis of the early 1990s.
In 1993, unemployment, one of the sacrosanct pillars of the Swedish
welfare state, sat above nine percent; the unofficial rate (including those
on state training schemes) was above thirteen percent (Lindbeck et al.
1993, 1). Compare these measures to an average of one to three percent in
the 1980s. Manufacturing output declined by seventeen percent between
1991 and 1993, a larger decline than the one experienced in the
Depression of the 1930s (Lindbeck et al. 1993, 2). This decline was nearly
fifty percent larger than the approximately twelve percent manufacturing
decline in the United States during the 20072009 financial crisis. GDP
fell a total of six percent between 1991 and 1993 and standards of living
fell: Sweden ranked fourteenth in OECD comparisons of GNP per capita
in the early 1990s compared to third place in the early 1970s. The federal
government budget position went from a surplus of almost six percent of
GDP as late as 1989 (OECD 1990, 136) to an unsustainable fifteen percent
deficit in 1993. In fact, Sweden’s public debt continued to increase
throughout the 1990s until it reached nearly eighty five percent of GDP. It
also suffered a currency crisis in which the krona fell by roughly thirty
The 1992-93 Swedish Crisis Debate
117
percent.3 And although the fall in the currency was a boost to exporters, a
number of important Swedish firms, including its largest banks, either
failed, or were bailed out by the Swedish government. Early cost estimates
of the state bailout of the banking sector were estimated to be more than
five percent of GDP (Lybeck 1993).
In political terms, the once-hegemonic Social Democratic Party no
longer ruled unchallenged and the so-called “corporatist” arrangement
had, for all practical purposes, fallen into disarray in the years leading up
to the crisis.4 There were also social upheavals. Many of the generous
social insurance programs for which Sweden had been famous were
reduced, causing social unrest and a concern for the future that had been
conspicuously absent in previous decades.5 Finally, Sweden began to face
problems familiar to other nations regarding a growing and dissatisfied
immigrant population.
The Crisis Debate
Not surprisingly, this state of affairs provoked controversy in Sweden
as politicians, social scientists and various commentators, not to mention
the average citizen, tried to sort out exactly what was happening to their
once-envied system. Outside the country, even strong proponents of
Sweden’s special brand of social democracy and corporatism noticed the
severe hardships faced by the welfare state par excellence and wondered
what had gone wrong. As one of the interviewees, Olof Petersson,
remarked, Sweden had been the destination for welfare-statist social
scientists for well over thirty years. By the early 1990s, the numbers had
dwindled to a trickle.
3 After months of trying to stave off a currency devaluation, the central bank was
forced to relent in November 1992, and the currency, which had been pegged, was
allowed to float. The crisis arose because of the government and central bank’s
determined commitment to keep the krona pegged at its old rate.
4 Corporatism refers to the coordination of the nation’s “overarching” interests
the tri-partite institutions of organized labor, organized employers and government.
A key aspect of the system was the setting of wage policies and the management of
other macroeconomic policies to, theoretically, maximize the objectives of the
three groups (see, for example, Micheletti 1993).
5 For example, there were cutbacks in health care and privatization in health
services encouraged (see Financial Times, March 18, 1994, for a brief description
of the privatization measures). Even sacred programs like the famous Daghems,
the publicly-run child daycare centers, were targeted for cutbacks and
privatization.
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The debate over policy and indeed the future of Sweden took a
prominent place in print and TV media during the 199293 crisis.
Ordinary citizens were deluged with news updates and commentary on the
plight of the country. There were nearly daily news stories, op-ed pieces,
special print series and even multiple televised prime-time educational
programs throughout the crisis. Each of the interviewees was a nationally-
recognized expert in his field and many were household names in Sweden.
Although not all of the interviewees were actively involved in the public
debate of 19921993, each had had some national public prominence
either during that debate or in earlier Swedish public debates.
A key feature of the interview material is that the fourteen participants
can be divided, relatively easily, into two intellectual camps. First, there
were those who reasoned that the crisis was largely the result of a fall-off
in aggregate demand that was, itself, a function of the general economic
malaise in other European economies; as a result, these individuals
expected the crisis to be short-lived. This is what I will call the “external
causes” argument and it implies that Sweden and its renowned welfare
state policies were not the cause of its troubles. The crisis, in other words,
provided no compelling reason to change policy course.
The opposing “internal causes” view interpreted the crisis as a long -
term result of structural imbalances within the heavily-regulated and
heavily-taxed Swedish economy. As such, Swedish policy was responsible
for the crisis. While it was relatively novel in Sweden at the time, the
argument has, by now, become reasonably familiar: High levels of state
intervention in the form of generous unemployment benefits and social
insurance programs were said to create strong work disincentives and
moral hazard problems. In addition, high marginal income tax rates and a
ballooning government budget deficit were argued to threaten future
economic growth prospects.
The internal versus external theses surely represent characterizations of
polar extremes. While some of the interviewees might have argued over
subtleties, as a general rule, it was not difficult to classify each participant
as falling into one camp or the other.6 In fact, positioning each interviewee
on the continuum from external causes to internal ones provides a key
insight into the public debate process. Most importantly, those who held
the view that internal causes were to blame argued for more immediate
and austereeconomic and political reforms, while those holding the
6 The following interviewees argued that internal factors caused the crisis:
Calmfors, Elvander, Feldt, Jonung, Petersson, Rehn, Södersten, Zetterberg; the
following argued that external factors caused the crisis: Edin, Gustavsson, Korpi,
Meidner.
The 1992-93 Swedish Crisis Debate
119
external-causes thesis were more likely to argue for maintaining Sweden’s
status quo.
Of the several themes that emerged from the interviews, I want to
focus on the overwhelming consensus of most of the contemporary
economists (and several of the non-economists) around the market-
oriented, internal-causes thesis, which implied that Sweden needed to
profoundly alter its policy course. The notion that there was a fairly
narrow range of economic viewpoints that dominated the public sphere,
and that it was predominantly market-oriented (with public choice
undercurrents), was supported by virtually all of the interviewees. In fact,
most suggested the public debate was relatively “one-sided,” and usually
over-simplistic, even when they found themselves on the dominant side.
Furthermore, most agreed that the public debates had been equally narrow
in previous debates when a much more progressive agenda had dominated.
This background sets up two key features of economists’ involvement
in grand Swedish policy debates. First, it is remarkable that a minority of
relatively free-market intellectuals were dominating the public “ideas”
sphere in a country that was probably most famous, even at that time, for
its highly-developed welfare state, labor union influence and social
democratic hegemony. There was, as a result, considerable dissonance
between the 199293 message of scaling back government and the many
decades of intellectual support for the welfare state.
In fact, Boréus (1994) documents the “rightward” ideological shift in
the public political-economic debate in Sweden between 1969 and 1989.
She concludes that neoliberals had “broken through” in the public sphere
by the early 1980s, and were “well established”—but not “hegemonic”
by the late 1980s (1994, 7). My analysis suggests that in the few years
between 1989, when the Boréus’ study ends, and 1992–1993, the period in
which I focus, the neoliberal position became hegemonic in the public
sphere. While expert dissent from traditional supporters of the welfare
state persisted, these voices were in a small minority.
The second noteworthy feature of the debates is that a small number of
policy experts arguing strongly against traditional experts and popular
views of the state and its capabilities was hardly novel to Sweden in the
1990s. Very similar dynamics had arisen in the previous hundred years,
around the turn of the twentieth century and again in the interwar period.
A Look Back: A History of Narrow Economic Views
To summarize, a relatively small group of academic economists
clashed with the Swedish policy establishment and Swedish lay opinion
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during the 1992–93 public debate. As such, this group’s views diverged
strongly from the previous generation of Swedish economic thought.
Indeed, both the policies and the dissemination of redistributive policies
owed a significant debt to at least several decades of economists who
spearheaded their development with both economic theory, participation
on official government “commissions” (utredningar), and public persuasion.
The progressive agenda began with a generation of economists, known as
the “Stockholm School” of the 1930s, that developed theories and public
arguments for price stabilization and the permanent elimination of
unemployment through public works projects.7 They also developed proto-
macro models independent of Keynes that involved, among other things,
the idea of countercyclical government policies. In the 1930s and 1940s,
Myrdal, along with his activist wife, Alva, provided the economic
rationale for comprehensive family and housing policies (see Lundberg
1985), arguing that these policies would both improve the living
conditions of Swedes and foster long-term economic prosperity.8
In the 1950s, Gösta Rehn and Rudolf Meidner, known for the “Rehn-
Meidner” model, aimed to solve the problems of both full employment
and inflation, simultaneously, by squeezing the profitability of firms. The
idea was to put pressure on firms to deny uncompetitive wage increases
and consequently cost-push inflation. Their model also encouraged
subsidizing the mobility of labor from declining industries to expanding
ones.9 Later, in the 1960s, Gösta Edgren, Karl-Olof Faxén and Clas-Erik
Odhner, economists from opposites sides of the leading industrial relations
institutes (i.e., labor- versus employer-sponsored), produced a collaborative
effort known as the “EFO” industrial relations model (1973).10 This model
was yet another example of the so-called collaborative corporatist
7 Carlson (1993, 190) details Lindahl’s and Myrdal’s public arguments for the
elimination of unemployment. See Lundberg (1985, 710) for a summary of the
Stockholm School’s ideas and a contrast of these with Keynes’ General Theory.
See also Jonung (1992, especially 29) for a brief survey and classification of the
twentieth century history of economic thought in Sweden.
8 See Heclo and Madsen (1987, 209210) for a summary of how various theories
were manifested in policy and the influence that Myrdal had implementing them.
See also Carlson (1990) for an extensive treatment of the Myrdal’s influence on
family policy in Sweden.
9 See Lundberg (1985, 1719) and Sandelin (1991, 22122).
10 Gösta Edgren worked for the Swedish Central Organization of Salaried
Employees (“Tjänstemännens Centralorganisation” or “TCO”), Karl-Olof Faxén
for the Swedish Employers' Confederation (“Svenska Arbetsgivareföreningen” or
“SAF”), and Clas-Erik Odhner for the Swedish Confederation of Trade Unions
(“Landsorganisationen i Sverige” or “LO”).
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121
approach that Sweden took to labor market problems.11 And, Meidner
needs mention again for his advocacy of the “wage-earner funds” in the
1970s, a policy designed to transfer the shares, and thus control, of
Sweden’s industries to the labor unions by means of a government-
sponsored pension fund.12
The policies espoused by these economists were pivotal in
rationalizing the corporatist welfare state and they tended to be far more
progressive than the mainstream work being done in the Keynesian-driven
Anglo-American world. They are the economists who dominated the
public debates from roughly the 1940s until the wake of market-oriented
economists came to dominate sometime in the early 1990s.
What most observersincluding many Swedesdo not realize,
however, is that this dramatic pendular swing in Swedish economic advice
did not begin in the 1980s and 1990s. Rather, the swing has precedent
much earlier: before the Swedish progressives of the mid-twentieth
century took charge of the economic agenda, a group of conservative, or
so-called “bourgeois” economists dominated the public sphere in the late
nineteenth and early twentieth centuries. Indeed, Sweden’s public-oriented
economic professors took a predominantly market-oriented stance for a
number of decades around the turn of the twentieth century. The support
for laissez-faire policies in Sweden was fashioned under the dominance of
economists such as Knut Wicksell, Gustav Cassel and Eli Heckscher.
Their stance was so clearly defined that Heckscher noted (around mid-
twentieth century) that the “most striking feature of the Swedish economic
debate during the last quarter of the nineteenth century was its
overwhelming laissez-faire character” (quoted in Magnusson 1993, 87). In
fact, Gunnar Myrdal’s complaints about the public dominance of the
bourgeois economists that preceded the rise of the Stockholm School
11 The EFO model set out rules concerning the range for wage increases in the
private sector based on growth and productivity. “It was understood that the
distribution would be carried out, in part, according to the ‘solidaristic wage
policy,’ which was pushed by low income unions in LO [“Landsorganisationen i
Sverige,” Sweden’s national trade union umbrella organization] , in order to
improve the income levels and wage differentials of low wage workers” (Olsson
1990, 30). Furthermore, the model assumed that public sector wage increases
would match private sector ones and that the government was responsible for the
employment level.
12 Swedish economists’ role in the progressive build-up of the welfare state
summarized here would correspond to the following classifications developed by
Jonung (1992, 29): “The Stockholm School (of the 1930s) and “Economics as a
science applied to the welfare state” (circa 1950–1975).
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instigated his project that would become The Political Element in the
Development of Economic Theory (Myrdal 1990 [1930]).13
This brief examination of twentieth century economic thinking on
Sweden’s grand policy trajectory suggests that the narrow range of public
debate was not novel to the 1990s. Indeed, the internal-causes proponents
often remarked about the difficulty of getting any market-oriented views
into the public forum prior to the 1990s. For example, Zetterberg
remarked, “You must realize that this country has been virtually insulated
from the capitalist debate and capitalist ideologies over several
generations. There’s not a single journalist in this country that defends
capitalism” (1993). And Jonung opined, “... in the old days, the social
democratic hegemony, or dominance, was just absolute. You had to be a
member of the party in order to have [public] input. It was basically a one
party country and [it] was not fostering any debate” (1993). Even one of
the star progressive economists who had been among those in a dominant
position in the 1950s, 1960s and 1970s, Rudolf Meidner, stated that he
thought,
we were dominant in a way which was not only positive ... [T]he
dominance of the labor movement ... gave [us] a position and an influence
which I think was a little too much. We had no real hard debates with, for
example, the economists of SAF [the employers’ union]. … We could
practically ignore them. It is my feeling that we neglected their existence
(Meidner 1993).
Why So Narrow?
While the Anglo-American world also saw an economic paradigm shift
from market liberalism to Keynesianism in the middle decades of the
twentieth century and back to liberalism in the final decades, the Swedish
case appears more extreme and was carried out more publicly than
elsewhere. What accounts for the strong degree of economic consensus in
Sweden? As noted, most participants felt the range of opinion was narrow
both in the 1990s and in previous debates. When asked what might
13 Carlson (1993), Jonung (1992), Lundberg (1985), Magnusson (1993) and
Sandelin (1991) all trace this swing from market liberalism to Sweden’s special
progressive agenda. In particular, Carlson (1993) provides an excellent description
of the shift from the earlier market-oriented economic views of the old school of
Swedish economists to the “new economics” of the 1930s, and the extent to which
that debate was carried out in the media.
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123
account for that lack of diversity in views, there was near unanimous
opinion that the size of the country constrained the range of debate.14
While small size might suggest less heterogeneity of views and
opinions, this rationale does not help us understand how a provocative
minority of economists comes to dominate the public debates. To decipher
this phenomenon, it is useful to briefly consider economic theories on the
“production” of ideas. A key aspect of the “economics of science,” for
example, posits the existence of increasing returns to scale in the process
of developing and disseminating ideas (Stephan 1996). In other words, the
production of ideas shares much in common with industries such as
software development (where the fixed costs of a new development are
enormous relative to the marginal costs of producing a single additional
unit once the application exists). Scale economies do not necessarily imply
that unorthodox ideas will be nonexistent, but rather they will need certain
forms of social and material support like institutional funding, professional
exposure, grants to support research in such areas, and the like, in order to
take hold and spread more generally. Thus, the presence of scale
economies in the production of ideas might well account for Sweden’s
narrow “specialization” in the production of economic advice.15
Other peculiar Swedish factors, closely connected to the scale issue,
also likely account for the narrow range of economic opinion. First, there
is a long tradition in Sweden in which the few full professors of economics
have played a substantial role in public policy and public debate.
Magnusson (1993) describes, for example, the public rhetorical efforts of
Swedish economists early in the twentieth century to popularize their
“science,” efforts from which the subsequent generation of Swedish
economists benefited enormously. Jonung (1992, 40-43) and Carlson and
Jonung (2006) also emphasize the importance of the “extracurricular”
activities of the academic economists of that time period. The two latter
articles provide a count of newspaper articles written by Knut Wicksell
(approximately 450), Gustav Cassel (1506), Eli Heckscher (approximately
300) and Bertil Ohlin (approximately 2000) along with a list of
publications in the topical Ekonomisk debatt, a journal which provides a
forum for policy debates and current economic issues of the day. Jonung
(1992, 21-22) also lists the twentieth century professors of economics who
became active politicians: of the eighty four Swedish professors of
14 Calmfors, Edin, Feldt, Gustavsson, Hibbs, Korpi, Meidner and Zetterberg all
noted this feature.
15 On a related topic, Jakee and Kenneally (2010) develop a formal model of
“paradigm change” within economics and empirically test it b examining the rise
and fall of the central planning paradigm.
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economics last century, seven were active in politics at the national level
and this does not include those who did not attain the rarefied rank of
professor. Incidentally, this list includes some internationally-renowned
economists, such as Gunnar Heckscher and Nobel laureates Bertil Ohlin
and Gunnar Myrdal.
Another factor, connected to the scale issue, centers on the fact that,
historically, Sweden’s academic structure has been extremely hierarchical,
typically with only a single full professor in a department. Because of the
limited number of economics departments, there is a significant concentration
of academic influence and power in those few departments; and the
Universities of Stockholm, Uppsala, Lund, and Göteborg have played the
most dominant role. Given Sweden’s academic structure, only a small
number of leading experts need to change their minds to profoundly
transform the dominant economic thinking. It is not surprising, then, that
changes in economic ideas are likely to occur more rapidly in smaller
countries like Sweden, particularly when very few players dominate the
disciplinary field at any given time.
Closely linked to the concentration of professors, the funding
mechanisms for research have been narrowly focused and controlled by a
relatively small number of funding agencies. When the objectives of those
agencies evolved, over time, from a welfare-statist to a more market-
oriented one, so too did much of the research. This feature is also likely to
be a function of the small size of Sweden, a view that was supported by an
external assessment of Swedish academic economics conducted by two
internationally-renowned economists, Avinash Dixit and Nobel-laureate
Robert Solow, along with Finnish economist, Seppo Honkapohja (1992).16
As part of the same assessment, Stenkula and Engwall (1992) also
conclude that “well over half of the overall [research] resources [going to
economics] were allocated to the nation’s capital” (66).
Tied to the forgoing characterization of a small number of hierarchical
departments dominating economics in Sweden, the Dixit et al. (1992, 175-
176) assessment highlights the deleterious effects of the lack of mobility
between and among Sweden’s various research institutes and academic
departments. These constraints on the movement of personnel may also
play a role in explaining why research resources were concentrated rather
narrowly. Several of the interviewees, on both sides of the debate,
indicated that support and funding had very much been a function of
whose “camp” one was in. In fact, several participants referred spontaneously
16 They concluded that the Institute for International Economic Studies at
Stockholm University is by far the dominant research organization (in terms either
of economics departments or independent research institutes).
The 1992-93 Swedish Crisis Debate
125
to the case of a well-known Swedish economist who could not get funding
for his projects, simply because he was unpopular with the research
establishment through much of his career. In one interviewee’s account,
even referees, who themselves did not have ultimate authority over
funding, were reluctant to give favorable reports for fear of reprisals from
those who did wield power.
At the broader level, Elvander also suggested the existence of influence
from the corporate world:
Not that big business has been able to buy social science people. No, there
is no corruption. But we have a system of fund raising where business has
been giving money, Wallenberg Funds, for instance. This is one where
you’re indirectly influencing research, but it is done in a very careful and
correct way. So there is not a question of directly demanding a special kind
of research from business, but indirectly by funding the right people
(Elvander 1993).
While Elvander’s point is a valid one, it would be easy to draw a
distorted inference from it, if unfamiliar with Swedish institutions: one of
the most important set of “organizations” that dominated research funding
in Sweden for decades was the extremely powerful group of labor unions.
Conclusion
Of the four themes that I identified in the more extensive interview
study, this chapter focused on the narrowness of opinion among
economists involved in the Swedish public debate of 199293. I noted that
virtually all the interviewees agreed with this assessment, but most also
pointed out that the range of economic analysis had been equally narrow in
Sweden’s past. I briefly outlined the historical context of Sweden’s grand
public policy debates beginning nearly one hundred years earlier: some of
Sweden’s most well-known economists of the twentieth century took part
in public persuasion of one kind or another. I then attempted to account for
the narrowness of public opinion by Sweden’s economists and argued that
some basic insights from the economics of science can shed some
theoretical light on this phenomenon: if idea production and dissemination
are subject to increasing returns to scale, then it is likely that a narrow
range of views will dominate at any given time, particularly given the
traditional concentration of professorships and resources in Sweden.
Most Swedesand indeed most policy experts elsewheredo not
recognize the connection between the undercurrents of 1990’s debate and
previous ones. For one, the Swedish debate and Swedish policy
Chapter Six
126
implementation have much to offer policymakers facing similar crises in
the United States and Europe twenty years later. Indeed, Sweden’s
anticipation of these more far-reaching European and American crises is
not unlike its presaging many of the debates over the building of
redistributive policies in the first place. For another, it is remarkable how
much the Swedish policy (and debate) terrain of the 1990s look like the
one described by Myrdal in 1930 (1990). Like the 1920s and 1930s, a
small group Swedish economists was deeply involved in trying to
persuade both the public and policymakers in the early 1990s.
One of the most noteworthy results of comparing and contrasting the
two debates is the reversal of the internal-external argument between the
two time periods. In the 1930s, it was the laissez-faire economists who
argued that Sweden’s problems were external (Carlson, 1993, 138), while
the champions for change argued that the causes for its economic distress
were fundamentally internal. Hence, the analyses that implicated internal
causes of the 1920s and 1930s economic crisis led to policy conclusions
favoring activist economic and social reform, in other words, a move away
from laissez-faire policies and toward the development of more substantial
redistributive institutions. The market proponents of the 1920s and 1930s
argued the reverse. They insisted that Sweden’s difficulties, at that time,
were caused by the outside world: profoundly altering Swedish laissez-
faire policies would only weaken its future economic prospects.
As we have seen, it was the market-oriented reformers during the
1990’s debate who argued the causes of economic crisis were internal and
therefore pushed for fundamental policy change. The juxtaposition of the
internal causes argument being used to justify radical interventionist and
redistributive policies in the 1930s and also being used to justify a radical
break with those same polices in the 1990s raises the question of whether
those involved in public debate simply employ whatever set of causes suits
their purposespurely instrumentallyin order to justify their policy
conclusions, or whether they come to their policy motivations neutrally or
“scientifically,” as it were. I consider this issue at greater length in the
wider interview analysis presented at the RATIO conference.
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Article
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This chapter examines the contributions that economists have made to the study of science and the types of contributions the profession is positioned to make in the future. Special emphasis is placed on the public nature of knowledge and characteristics of the reward structure that encourage the production and sharing of knowledge. The role that cognitive and noncognitive resources play in discovery is discussed as well as the costs of resources used in research. Different models for the funding of research are presented. The chapter also discusses scientific labor markets and the extreme difficulty encountered in forecasting the demand for and supply of scientists. The chapter closes with a discussion of the relationship of scientific research to economic growth and suggestions for future research.
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The field of economics proves to be a matter of metaphor and storytelling - its mathematics is metaphoric and its policy-making is narrative. Economists have begun to realize this and to rethink how they speak. This volume is the result of a conference held at Wellesley College, involving both theoretical and applied economists, that explored the consequences of the rhetoric and the conversation of the field of economics.