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Swedish Industrial Policy: From General Policies to Crisis Management, 1950–1980
Abstract
By industrial policy we may denote every type of policy intended to influence the pace and direction of structural change in the economy. Using this definition, we refer to not only the foreseeable and unforeseeable consequences of industrial policy measures, but also the unintended consequences of other policy measures, such as those in macroeconomic policy. As such, industrial policy is an elusive concept. In their introduction to European Industrial Policy, James Foreman-Peck and Giovanni Federico1 define three levels of industrial policy: a) ‘creating the landscape’, by which is meant the creation of clearly defined property rights; b) policies aiming at ‘modifying the ecological environment’, meaning growth policies which similarly affect all firms and sectors; and c) ‘changing the fauna’, that is policies aiming to further specific sectors or firms, which is often referred to as a ‘picking the winner policy’. Most policies followed in Sweden before the late 1960s fall into the second category. This does not, however, rule out that some firms or sectors benefitted from certain policies more so than did others.
... Post, telecommunications and railroads were state monopolies until the 1980s and 1990s. However, the public business sector never employed more than 10% of the workforce; the productive sector remained, for the most part, under private control (Magnusson, 2000;Bohlin, 2014). ...
... The compression of profits also served to pressure the unions to moderate the demands for wage increases, so as not to make firms and therefore jobs unfeasible. This wage moderation, especially in the higher-paid categories, prevented overheating demand and sharply rising inflation, while reducing social inequalities (Alexopoulos and Cohen, s/d;LO, 1953;Otter, 1980;Pontusson, 1996;Hibbs and Locking, 2000;Magnusson, 2000;Sejersted, 2011;Schön, 2012;Bohlin, 2014;Viana and Cunha, 2016). ...
... The IF, therefore, was a powerful countercyclical and developmental government instrument, while allowing the State to control the profit margin of large companies and mobilize it for national development purposes, which would not have been possible if companies were allowed use their profits freely (Bohlin, 2014;Högfeldt, 2004;Lundberg, 1985;Pontusson, 1996;Schön, 2012;Steinmo, 1988). ...
In general, the literature on the developmental state studies Asia and Latin America, not Scandinavia. This article examines the developmental character of the state in Sweden, distinguishing it as a specific case, because its institutions and policies combine the simultaneous promotion of industrialization and social equity. The paper analyzes the Swedish model of development, centered in Rehn-Meidner Plan (R-M), a political strategy of the national development headed by the Swedish Social Democratic Party (SAP). It is argued that in Sweden industrialization and the construction of the welfare state were two sides of the same coin. The R-M Plan played a key role in consolidating the Swedish model between 1945 and 1975. It combined and articulated economic development, centered on industrialization, reduction of social inequalities, and fiscal and monetary stability. It increased productive complexity and equality, unified economic policy and social policy, planned industrialization and income redistribution. It was structured through a broad power pact among workers, industry, farmers, political representatives elected by SAP and public bureaucracy. It was institutionalized, above all, by the democratic corporatist arrangement of centralized salary negotiations.
This study begins by addressing the instability of the capitalist system to examine ways of achieving full employment in terms of distributive conflict viability. Drawing on the theoretical frameworks of Minsky and Kalecki, the focus is on Minsky's proposal of a Job Guarantee Program as the subject of study and the guiding thread throughout three chapters, along with the introduction and conclusion. Each chapter employs different methodologies to investigate how to mitigate escalating conflict at full employment and make it less unstable.
The chapter that follows the introduction is dedicated to studying the risk of the Job Guarantee Program triggering an inflationary spiral through distributive conflict. In this analysis, we draw upon segmented labor market literature to investigate the transmission mechanisms that lead from full employment to inflation. On the one hand, we separate the labor demand by firms in the primary market from those in the secondary market. On the other hand, we differentiate high- and low-skilled labor supply. Based on this segmentation, we identify that the transmission channel from full employment to inflation will be more constrained if the Job Guarantee Program can concentrate labor demand on candidates in the secondary market and low-skilled workers. Thus, by applying this observation to an established inflationary spiral model from the literature, we highlight the potential of the Job Guarantee Program to restrict the mentioned transmission channel.
The third chapter adopts a Stock-Flow Consistent approach to simulate different scenarios of full employment in a peripheral economy. In addition to a conflict-claims inflation model, we incorporate equations that help us understand the impact of the external sector and various institutional agents such as households, firms, banks, the Central Bank, government, and the rest of the world. The simulations compare the same economy being driven to full employment under two different scenarios: traditional demand spurs and the Job Guarantee Program (JG). Based on the parameters used in the simulations, due to the fact that all the fiscal stimulus of a JG goes straight to the labor demand, this Program is capable of employing the entire labor force with less demand effort compared to traditional spurs. As a result, the lower fiscal stimulus leads to lower income growth that attenuates the impact on the balance of payments, exchange rates, inflation, and distributive conflict. The model suggests a trade-off between growth and balance of payment constraints that peripherical countries have to deal with. However, it is also shown that the JG program deals better with this trade-off regarding distributive conflict and external sector constraints under the full employment situation. Therefore, we also evaluate the effects of reducing the degree of financial openness and find results that emphasize the crucial importance of an international capital control policy as a necessary condition for maintaining full employment in these economies within the International Monetary System's periphery.
Finally, in the fourth chapter, we address the political aspects of full employment and examine an economic plan from post-World War II Sweden as a significant laboratory from which institutional lessons can be drawn to consider full employment in the present. At this stage of the thesis, the focus is on the Job Guarantee Program as a "path to full employment," which can partially address the Kaleckian dilemma. This dilemma, considered a paradox in Kalecki's thinking, highlights the political difficulties of implementing and maintaining full employment despite acknowledging no technical barriers to achieving it. In this regard, the chapter provides a review of the main Swedish institutions identified in the studied economic plan and lists which ones could be replicated by the institutions advocated in the current literature on the Job Guarantee Program. Based on this review, we suggest three new institutions to be implemented alongside the Program to reproduce some of the results of the Swedish plan: 1) Wage cooperation policy, 2) taxation on extraordinary profits, and 3) control of capital flow.
In conclusion, this thesis demonstrates that achieving full employment in a peripheral economy is not a trivial task and depends on the adoption of a series of prudent measures outlined throughout the work. The primary contribution lies in the mapping of potential areas of attention to enable economic policy to achieve and maintain full employment in a perihepral economy.
Minsky (1965) has presented the Job Guarantee program as a recommendation in the war against unemployment and poverty. Kalecki (1943), on the other hand, argued that the full employment situation could be technically feasible but politically hard to implement due to the class struggle, resulting in what we will refer to as the "kaleckian dilemma". Based on this contradiction, this paper aims to extract lessons from the Rehn-Meidner Swedish plan, which successfully combined low unemployment rates and creeping inflation for over three decades, as a means to study the chances of a Job Guarantee overcoming the kaleckian dilemma. From these lessons, this piece highlights the importance of a tripartite council bargaining board at the national level to settle the Job Guarantee's wage level. In addition, we highly recommended other desirable features, such as international capital control and taxation on extraordinary profits, to raise the chances of the program successfully dealing with the kaleckian dilemma, just as Rehn-Meidner did.
The Keynesian demand regime that existed until the 1970s was characterised by governments steering demand and employment through housing and infrastructure investments. By the 1980s, Western countries began to retreat from these capital-intensive subsidies and turned to the stimulation of homeownership-spreading private mortgage markets, but with three different ideal-typical trajectories until 2008. In construction-repressive countries, like Germany, growing exports were to fill the void of the withdrawing construction engine; in countries with construction booms, like Spain, the mortgage credit expansion temporarily generated another long construction cycle. Conversely, in countries with mortgage booms only, like the UK, mortgages exploded and generated more consumption, but no proportional construction output. We explain the divergence into different trajectories through a policy feedback mechanism: parties in construction (export) economies tend to favour construction (export) policies. While ex-
ports, construction and mortgages became alternative drivers of growth, all three
trajectories have their downsides which surfaced post-2008 and make them inherently unstable.
This chapter concerns regulatory changes in Sweden and internationally during the 1960s and 1970s. Domestically, a number of factors gradually changed the banking landscape which meant that adjustments to the regulatory post-World War II framework. The use of the Riksbank regulatory measures was increasingly adjusted to macroeconomic changes and stability problems, instead of political priorities. Internationally, the crumbling of the Bretton Woods and the oil crisis of the 1970s are the main topics covered. This set the stage for dramatic changes for the Swedish banking sector, as in other countries.
It has been suggested that Swedish policy during the early post-war period was strongly directed towards mobility-increasing expenditures – most notably relocation allowances – aimed at moving labour from north to south. While this view has dominated the academic discussion on labour market policy, there is little direct evidence. We make three claims. First, the relocation allowances have to be evaluated against the regional policy. Second, by doing so we show that the mobility-oriented policy was predominant only for a short period of time: in the early 1970s, there was a decisive shift towards a policy directed at stimulating employment in the north. Third, drawing on this, we revaluate the previous view on policy making in Sweden. Our analysis suggests that the Social Democratic government acted in a voter-maximizing way. The relocation allowances were introduced at the behest of the Trade Union Confederation (LO). The regional subsidies were expanded when voter sentiment turned against the perceived depletion of rural regions. However, this strategy interacted with the political and institutional environment. The new election law in 1970 and political competition from the Centre Party pushed the Social Democrats to shift their policies on regional subsidies. © 2017 the Historical Associations of Denmark, Finland, Iceland, Norway and Sweden
“Den Solidariska Lönepolitiken och Produktiviteten Inom Industrin,” (with H. Locking)
t, vol. 7, 1995, 537-548
This paper presents disaggregated estimates of nominal and effective rates of tariff protection for Sweden 1885–1914. In a methodological part of the article I argue that the proper way to measure tariff protection is an output weighted average of tariff rates for a representative sample of commodities. In the empirical part of the paper, I show that Swedish tariff protection increased substantially in the period even though tariff income as a proportion of total imports decreased slightly. This seeming contradiction is explained by the restructuring of Swedish imports that took place in the period under review; the share in imports of highly protected consumer goods declined while the share of capital goods with lower protection rates and duty free raw materials and input goods increased. The result stands in contradiction to some recent views expressed in the international literature.
There is a general consensus among scholars that centralised wage bargaining played a key role in the ability of Sweden to
maintain wage moderation in the early post-World War II period. Conventional wisdom suggests that it worked through one of
two mechanisms: internalisation of the negative externalities associated with excessive wage settlements or implicit contracts
that favoured cooperation between capital and labour over conflict. We contend, instead, that centralised wage bargaining
was introduced because Swedish firms and unions adopted the Rehn-Meidner plan. In this environment, centralised wage bargaining
was used to facilitate wage compression from below and promote labour release. Wage moderation then was a result of shifts
in the labour supply. In the final section of the article we argue that excessive wage compression in the 1970s sapped the
morale and effort of skilled workers, pushed down productivity and profits and eventually led to the demise of centralised
wage determination.
The Swedish record of enormous compression of relative wages under centralized “solidarity” bargaining, followed by substantial decompression of wages after central bargaining broke down, supplies observations well suited to empirical evaluation of arguments about the response of productive efficiency to shifts in wage distribution. We obtain no results supporting “fairness, morale, and cohesiveness” theories implying that wage leveling within workplaces and industries may enhance productivity. Reduction of interindustry wage differentials evidently did, however, contribute positively to aggregate output and productivity growth, most likely for the structural reasons first emphasized by Swedish trade union economists almost a half century ago.
At the end of the 20th century with stagnating industrial output, unemployment in many European countries has climbed to levels not seen since the 1930s. Interventionist industrial policies thus find new popularity after the gentle flirtation with liberalization in the early 1990s. Under the Maastricht Treaty, the European Union was granted industrial policy powers for the first time. The present study aims to contribute to an understanding of European industrial policy by introducing an historical perspective. National policy continuities and the considerable time over which industrial performance responds to changed environments emerge with greater clarity in the long run. The chapters in this book take a broad view of industrial policy, including those policies that establish the `framework', such as competition law, as well as sector for firm specific policies. The overall conclusion is that improved framework policies, such as liberalization and re-regulation, are still essential. Monetary union in the `core' will increase tensions arising from economic inflexibility. Although there are often strong political barriers blocking implementation of appropriate industrial policies, they will be even more necessary under monetary union.
At the end of the 20th century with stagnating industrial output, unemployment in many European countries has climbed to levels not seen since the 1930s. Interventionist industrial policies thus find new popularity after the gentle flirtation with liberalization in the early 1990s. Under the Maastricht Treaty, the European Union was granted industrial policy powers for the first time. The present study aims to contribute to an understanding of European industrial policy by introducing an historical perspective. National policy continuities and the considerable time over which industrial performance responds to changed environments emerge with greater clarity in the long run. The chapters in this book take a broad view of industrial policy, including those policies that establish the `framework', such as competition law, as well as sector for firm specific policies. The overall conclusion is that improved framework policies, such as liberalization and re-regulation, are still essential. Monetary union in the `core' will increase tensions arising from economic inflexibility. Although there are often strong political barriers blocking implementation of appropriate industrial policies, they will be even more necessary under monetary union.
At the end of the 20th century with stagnating industrial output, unemployment in many European countries has climbed to levels not seen since the 1930s. Interventionist industrial policies thus find new popularity after the gentle flirtation with liberalization in the early 1990s. Under the Maastricht Treaty, the European Union was granted industrial policy powers for the first time. The present study aims to contribute to an understanding of European industrial policy by introducing an historical perspective. National policy continuities and the considerable time over which industrial performance responds to changed environments emerge with greater clarity in the long run. The chapters in this book take a broad view of industrial policy, including those policies that establish the `framework', such as competition law, as well as sector for firm specific policies. The overall conclusion is that improved framework policies, such as liberalization and re-regulation, are still essential. Monetary union in the `core' will increase tensions arising from economic inflexibility. Although there are often strong political barriers blocking implementation of appropriate industrial policies, they will be even more necessary under monetary union.
This article presents disaggregated estimates of nominal and effective rates of tariff protection for Sweden during 1885-1914. In the methodological section of the article I argue that the proper way to measure tariff protection is an output-weighted average of tariff rates for a representative sample of commodities. In the empirical section, I show that Swedish tariff protection increased substantially in the period even though tariff income as a proportion of total imports decreased slightly. This seeming contradiction is explained by the restructuring of Swedish imports that took place in the period under review; the share in imports of highly protected consumer goods declined while the share of capital goods with lower protection rates and duty-free raw materials and input goods increased. The result stands in contradiction to some recent views expressed in the international literature.
In the 1970s and 1980s, it is often said, the rate of economic change is accelerating while the capacity for political adjustment is shrinking. Throughout the advanced industrial world this divergence has become both a rallying cry for conservatives demanding fewer state intrusions in the market and a challenge to liberals seeking more eaective state intervention. In the case of the small European states, this book has argued, economic flexibility and political stability are mutually contingent. The corporatist strain in the evolution of modern capitalism no longer yields readily to interpretations based on such established dichotomies as market and plan, private and public, efficiency and equity, Right and Left. Under conditions of increasing vulnerability and openness, the large industrial states are groping toward workable solutions for the economic predicaments of the 1980s. The incremental, reactive policy of the small European states and a stable politics that can adjust to economic change provide a point of orientation that is both helpful and hopeful. Students of the international political economy are undecided whether the most important development of the 1970s lay in the predictable growth or the astonishing containment of protectionism. Similarly, students of domestic politics focus their attention both on the cartelization of politics in the hands of party, group, and bureaucratic elites and on the challenge that new social movements pose to established institutions. In analyzing the democratic corporatism of the small European states this book dissents from the view that capitalism is being driven by structural crisis toward collapse, nor does it support the view that capitalism is being resurrected by the vigors of market competition. Contradictions are inherent in all forms of political and economic domination. But democratic corporatism has been able to tolerate contradictions because of its accommodation rather than resistance to market competition and because of its inclusion of all significant actors in the decision-making process. Copyright
Summary in English. Added t.p. with thesis statement inserted. Errata slip inserted. Thesis (doctoral)--Göteborgs universitet, 1989. Includes bibliographical references (p. 407-414).
Extra t.p. with thesis statement inserted. Thesis (doctoral)--Lunds universitet, 1997. Includes bibliographical references (p. [234]-254).
In 1945, many Europeans still heated with coal, cooled their food with ice, and lacked indoor plumbing. Today, things could hardly be more different. Over the second half of the twentieth century, the average European's buying power tripled, while working hours fell by a third. The European Economy since 1945 is a broad, accessible, forthright account of the extraordinary development of Europe's economy since the end of World War II. Barry Eichengreen argues that the continent's history has been critical to its economic performance, and that it will continue to be so going forward. Challenging standard views that basic economic forces were behind postwar Europe's success, Eichengreen shows how Western Europe in particular inherited a set of institutions singularly well suited to the economic circumstances that reigned for almost three decades. Economic growth was facilitated by solidarity-centered trade unions, cohesive employers' associations, and growth-minded governments--all legacies of Europe's earlier history. For example, these institutions worked together to mobilize savings, finance investment, and stabilize wages. However, this inheritance of economic and social institutions that was the solution until around 1973--when Europe had to switch from growth based on brute-force investment and the acquisition of known technologies to growth based on increased efficiency and innovation--then became the problem. Thus, the key questions for the future are whether Europe and its constituent nations can now adapt their institutions to the needs of a globalized knowledge economy, and whether in doing so, the continent's distinctive history will be an obstacle or an asset.
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