Swedish Lessons for Post-Socialist Countries

When reforming their own countries, several observers, ideologues and politicians in former socialist countries have pointedf to Sweden as a blueprint. It is then believed that Sweden, or the "Swedish model", has combined the efficiency, dynamism and flexibility of capitalist market economies with the economic security and egalitarianism so highly evaluated by many social liberals and socialists. An analysis of the Swedish experience, and its relevance for former socialist countries, may therefore be of rather general interest. When addressing this issue, it is important to realize that basic features of the economic and social system in Sweden have changed considerably over time. Though attempts to divide history into periods are hazardous, in this paper I partition modern economic and social history in Sweden into three periods. The first is the century-long time span from about 1870 to 1970, which may be called "the period of decentralization and small government". During this period, the economic system in Sweden did not differ much from those in other countries in Western Europe, although Sweden was probably one of the least regulated economies in this part of the world. The second period, from 1970 to 1985/90, may be characterized as a "period of centralizaion and large government". In this time span, Sweden acquired idiosyncratic features, though still within the framework of a capitalist market economy. The third period, from 1985/90 onwards, may be regarded as a "period of transition" due to deregulation of markets for capital and foreign exchange, intensified importance of private saving and private supply of capital, comprehensive tax reforms (with lower rates, a broader base and fewer asymmetries), a shift of the macroeconomic policy regime towards greater emphasis on price stability, a stricter budget process in the public sector, as well as some (modest) attempts to reform and rewind various welfare-state arrangements. The paper deals mainly with the last two periods. By way of introduction, I will make a few comments on the first, century-long period, as it was largely then that the foundation of today's affluence in Sweden was established. Some of the experience from this period is also highly relevant for post-socialist countries