Refer to the study by Viana and Kunha on Swedish economy ( http://www.scielo.br/

Question

Refer to the study by Viana and Kunha on Swedish economy ( http://www.scielo.br/pdf/rep/v36n2/1809-4538-rep-36-02-00266.pdf). By using key macroeconomic data from IMF/World Bank/etc. datasets (use real, not nominal data), and/or findings from reputable studies, can you argue against the alleged successfulness of the Swedish economic model before Sweden started adapting more pro-market policies in early 1990-s? (Among others, you may want to look at the Swedish productivity growth compared to other OECD economies. You may also consult the following study by Rosen: http://www.nber.org/chapters/c6520.pdf) Next, 4 what alternative data (not necessarily purely economic data) can you provide to cast the strongest doubt on the success of the Swedish model and welfare state? Note you can copy and paste data, graphs but properly cite your references. [Maximum 4 reasonably concise sentences are allowed in your answer]

Explanation / Answer

The Swedish Model :According to Svanlund (2003), the Swedish model is the result of policies focused in the labour market and the institutional framework of the country: The Swedish model is referring to the special institutional arrangements of the society that is sometimes described as a middle way between capitalism and socialism.

Swedish model is characterized by a macroeconomic policy which provides price stability, fiscal results for selective industrial policies and social active policies, the latter being recognized as a wide universal welfare state.

The Swedish economic development derives from the introduction of a set of socio-economic policies promoted by the State, since the mid-1930s, with the rise of the Social Democratic Party (SDP) to power. This set of policies is recognized by economists, journalists and politicians as the Swedish economic model, or simply the Swedish model. In the context of the Swedish model, social policies are designed to ensure basic quality of living to all citizens, while economic policies are focused on the labor market and fiscal policy with the goal to achieve economic growth with price stability. During the 1950s and 1960s the Swedish model achieved full employment, promoted consistent growth and maintained price stability.

Sweden was a poor and agrarian country until the late 19th century. However, during the 20th century, it showed a fast socioeconomic development, which has its foundations in the industrial consolidation of the country through large companies, especially the ones related to metal and mechanical engineering. Whyman points out that the socio-economic performance of Sweden throughout the 20th century calls the attention of economists, because it is a mixture of a capitalist and open economy with an active social policy characterized by large universal welfare state.

Erixon (2000) agrees with the understanding that the labor market policy is an important element in the design of the Swedish model: The Swedish model, synonymous here with the Rehn-Meidner model, represents a unique policy in combining full employment and equity with growth and price stability. The combination is achieved by a wage policy of solidarity and the use of selective instruments – primarily labour policies and marginal employment premiums – within the framework of a restrictive general economic policy . Whyman confirms the argument presented in Erixon , understanding that the basis of the Swedish model is the Rehn-Meidner model (R-M Model)

The over-riding goal of public policy, and endorsing the need for a sufficient level of aggregate demand to prevent involuntary unemployment, the burden placed upon simple demand management was partly alleviated by the introduction of a range of additional policy instruments, the combination of which was to be treated as a self-reinforcing new strategy. This new approach has been designated as the ‘Rehn-Meidner Model’, after its two principal architects, Gösta Rehn and Rudolf Meidner. Outside Sweden it forms the basis of what we term the ‘Swedish Model’ .

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