THE ECONOMIC AND SOCIAL RESEARCH INSTITUTE

ASPECTS OF

THE SWEDISH ECONOMY
AND THEIR

RELEVANCE TO IRELAND

ROBERT O’CONNOR, EOIN O’MALLEY

and

ANTHONY FOLEY

BROADSHEET No. 16 DECEMBER. 1978



THE ECONOMIC AND SOCIAL RESEARCH INSTITUTE COUNCIL
1977--1978

*T. K. WIIITAKER, M.SC. (ECON.), D.ECON.SC., LL.D., President of the Institute.
*.J.F. MEENAN, M.A., B.L., CTtairman of the Council.
R. D. C. BI.ACK, PH.D.,Professor, Department of Economlcs, Tke Queen’s University,

Belfast.
F. B. CI|UBB, M.A., D.PHII.., Professor, Department of Political Science, Trinity

College, Dublin.
SEANCROMIEN, B.A., Second Secretar); Department of Finance.
G. DEA N, M. D.. E R.C.P., Director, Medico SociaIResearch Board.

N. J. GD3SDN, B.SC. (ECON.), PII.D., Professor, Department of Economlcs, The New
University a] Ulster, Coleraine.

I’ATRICK A. IIALL, B.E., M.S., DIP. STAT., Director of Research, lnstltute of PubB¢
Adntinistratiorl.

*W. A. IIONOIIAN, M.A., F.I.A.
THE MOST REV. JAMI’S KAVANAGH, M.A., S.T.I.., Bishop of Zerta.

*KIERAN A. KENNEDY, M.ECON.SC., B.PIIIL., PII.IL, Director of the Institute.
IVOR KENNV, M.A., Director General. 1Hsh Management Institute.
MICI1AEL J. KILLEEN, B.A. (MOD.), B.COMM., D.P.A., Manage’rig Director, Industrial
Development Authority.

T. P. L1NFIIAN, B.F,., B.SC., Director, Central Statistics Office.
*P. LYNCH, M.A., M.R.I.A., Professor of Political Economy, University College, Dublin.
CHARLES MCCARTIIY, ILL., Chairman. Human Sciences Committee.

*EUGENE MCCAR’I’IIY, M.SC.(ECON.), D.ECON.SC., Federated Union of Employers.
*M. D. MCCAIUI’IIY, M.A.,PII.I).. D.SC.
JOHN J. MCKAY, B.SC., B.GOt’,IM., M.ECON.SC., D.P.A., Acting C.E.O. City of

Dublin Vocational Education Committee.
*C. H. MURRAY, LL.D., Governor, Central Bank.
J. C. NAGt, E, M.COMM.
D. NEVIN, Assistant General Secretary, Irish Congress of Trade Unlor~$.
THE MOST REV. J. NEWMAN, M.A., D.PH., Bishop of Limerick.
TADHG O CEARBHAILL, Secretary. Department of Labour.
REV. E. F. O’DOIIERTY, M.A., B.U., PII.D., Professor, Department of Lo~c and
Psychology, University Ck~llege, Dublin.

D. P. O’MAHONY, M.A., PH.D., B.L., Professor, Department ofEconomlcs, Uniaersity
College, Cork.

LABHRAS O NUALLAIN, D.ECON.SC., Professor of Economies, University College,
Galway.

*W.J.L. RYAN. M.A., Pll.D., Professor of Political Economy. Trinity College. Dublin.
REV. L. RYAN, M.A., D.D., L.PH., Professor. St. Patt4ck’s College, Maynooth.
T. WALSII, D.SC., Director, An Fores Taluntals.

*REV. C. K. WARD, B.A., S.T.L, PII.D., Professor, Department of Social Science,
University College, Dublin.

*NOEL WIIELAN, B. COMM., M.EGON.SC., PtI.D., Secretary, Department of Economlc
Planning and Development.

*Members of Executive Committee



ASPECTS OF THE SWEDISH ECONOMY AND THEIR

RELEVANCE TO IRELAND

Copies o] this paper may be obtained lrom The Economic and Social

Research Institute (Limited Company No. 18269), Registered OHice: 4
Burlington Road, Dublin 4

Price £3.00

(Special tare /or students £1.50)



Robert O’Connor is Deputy Director of the Economic and
Social Research Institute. Eoin O’Malley is a Doctoral Can-
didate at the University of Sussex, England and Anthony
Foley is an Administrative Officer in the Department of
Economic Planning and Development. Both were formerly
Research Assistants in the Economic and Social Research
Institute. The paper has been accepted for publication by the
Institute, which is not responsible for either content or the
views expressed therein.

Printed by Frederick Press Ltd., Dublin



ASPECTS OF 7"HE SWEDISH ECONOMY AND THEIR

RELEVANCE TO IRELAND

ROBERT O’CONNOR, EO1N O’MALLEY

and

ANTHONY FOLEY

© THE ECONOMIC AND SOCIAL RESEARCH

INSTITUTE. DUBLIN, 1978

ISBN 0 7070 0018 I



Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

CONTENTS

Page

Acknowledgements vii

General Sammary viii

Introduction xxii

Overview of the Swedish Economy 1

Reasons for Sweden’s Economic Growth 19

The Industrial Sector and Policies for
Industry, the Regions and Trade 29

Agriculture and Forestry in Sweden 40

Labour Relations 47

Stabilisation Policy in Sweden 64

The Statsforetag Group of Enterprises
and Appendices 1 and 2 87

Specific Lessons for Ireland 99

I.I

1.2

1.3

1.4

1.5

1.6

LIST OF TABLES

Indicators of living standards in selected
countries 2

Percentage increases of consumer prices in
selected OECD countries 8

Percentage ~ctoral shares of total
employment, 1950-1972 9

Composition of national expenditure as
percentage of GDP I 0

Size distribution of household incomes after
taxes and transfers by deciles 13

Structure and evolution of public
expenditure 15



1.7

3.1

3.2

3.3

4.1

4.2

5.1

7.1

Page

Structure and evolution of taxation 17

Percentage sector shares of GNP arising in
manufacturing industry, including mining 31

Energy--sources and uses, 1973 33

Percentage distribution of exports 1965,
1970 and 1974 35

Use of arable land in Sweden, 1974 41

Swedish prices for certain farm products
as a percentage of EEC market prices
(1972/73) 43

Industrial disputes--working days lost per
1,000 people employed 56

Number of companies in the Statsforetag
group, 1974 91

APPENDIX TABLES

Number of employees in principal
Statsforetag companies, average 1974

Statsforetag companies and products, 1976

96

97

vi



Acknowledgements

The authors wish to thank the following who made valuable
comments on earlier drafts of this paper: Dr A. Buttimer and
Professor T. Hagerstrand, University of Lund, Sweden; Mr B.
Ryden, Swedish Business and Social Research Institute, Stock-
holm; Mr L. Myrsten, Swedish Ambassador to Ireland; Dr P.
McGowan, Central Bank of Ireland, Dublin; Mr D. Mc-
Namara, Economic Information Officer, FUE; Dr E. A.
Clarke, Department of Economic Planning and Development;
Mr R. J. Curran, Department of Finance; Mr B. Halligan,
General Secretary, Labour Party, Dublin; Mr P. A. White.
IDA; Professor K. A. Kennedy, Dr P. Mooney and Mr Philip
Kelly, Economic and Social Research Institute. We also wish
to thank Brenda Forde who typed tile various drafts and
checked all the data and Bernadette Payne and Mary
McEIhone for preparing the manuscript for publication.

vii



General Summary

sWEDEN iS frequently regarded as a good model to imitatein terms of economic and solical policy in that it is now
one of the richest countries in the world. It appears to have
resolved the problems of unemployment and poverty which
are, regrettably, still features of the Irish situation.

There are a number of basic similarities between the two
countries which make an examination of Swedish policies
particularly relevant to us. Both economies are small in the
sense that as a proportion of the total world supply of trade-
able goods they provide only a small fraction. Sweden is,
however, among the largest exporters in the world of many
goods, particularly of paper pulp. Both are open economies
in the sense that the tradeable sector is of great importance
in each. Both countries have mixed economic systems (i.e.,
private and state-sponsored enterprises). Some features of
Sweden’s economic history also resemble Ireland’s. Income per
head in both countries was about the same in the early 1860s.
and Sweden, like Ireland, experienced large scale emigration
in the nineteenth century.
An overview of the Swedish economy is presented in

Chapter 1. Of all the OECD countries, Sweden has the
largest proportion of population over 65 years and the smallest
proportion under 15 years, reflecting the fact that for many
years the natural rate of increase in population has been low.

The material living standard of the Swedish people is
among the highest in the world. GDP per head of population
was second and GDP per head of labour force was eighth in
the OECD in 1974. High incomes are due to sustained eco~

nomic growth over a long period and not to any remarkable
recent development. The per capita growth rate from 1870 to
1970 is estimated at 2.1 per cent per annum compared with
1.5--2.0 per cent for most other countries in Western Europe
and North America. Also (until the recent depression) the
amplitudes of business cycle fluctuations in Sweden have been

viii



relatively small so that GNP has grown comparatively
smoothly.

Sweden’s employment record in the last 30 years has been
good. Between the two world wars unemployment generally
exceeded 10 per cent and rose to 25 per cent of the labour
force in the early 1930s, but, since the war, registered unem-
ployment has been far lower--usually below 2 per cent.
It should be pointed out in this connection, however, that
statistics on unemployment in most countries are most
unreliable, particularly if we wish to make international
comparisons. Sweden is no exception in this respect. In that
country those on retraining programmes and on early retire-
ment are not included in the unemployment figures. Despite
these omissions, however, there is good reason to believe
that Sweden’s employment record is among the best in the
world.
Up to 1960, increases in consumer prices in Sweden had

been similar to those in other West European countries.
There was a slight tendency for Swedish prices to rise faster
than other West European countries in the 1960s but, in the
early 1970s, Sweden experienced comparatively low rates of
price increase.--eight per cent per annum between 1972 and
1975 compared with 17 per cent in Ireland over the .same
period. In more recent years, however, prices have risen
steeply in Sweden, by about 10 per cent in 1976 and 11.5 per
cent in 1977, Part of these increases are attributed to rises in
import prices and, part to currency adjustments; but the
major part of the rise is attributable to unit labour costs
which rose by as much as 40 per cent in 1975 and 1976.

Sweden is supposed to be the most egalitarian country in
the OECD but the distribution of incomes in a number of
other countries, some of which are not reputed to be par-
ticularly egalitarian, is much the same as in Sweden, e,g.,
Norway, UK and Japan. However, incomes are more equally
distributed in Sweden than in Ireland, In the former country
50 per cent of income after taxes and transfers (disposable
income) is shared by 30 per cent of households while in
Ireland 30 per cent of households share 55 per cent of dis-
posable income.

ix



Social security benefits in Sweden are not greatly different
from those in other industrialised countries but the Swedish
benefits are superior in the area of pensions and social assist-
ance, such as cheap holidays for poor housewives and interest
free loans for newly weds to furnish houses. In order to pay
for the high social welfare benefits, taxation rates in Sweden
are very high. The marginal tax rate for upper income people
in 1974 was 78 per cent, while taxation from all sources as a
percentage of GDP in 1973-75 was 42.6 per cent. This was
lower than the corresponding figure for Norway and the
Netherlands and about the same as for Denmark. The Irish
figure for these years was 32.2 per cent.

Sectoral Composition o[ the Economy
The structure of the Swedish economy has changed in line

with the trend common in most developed countries since the
early 1950s. Employment in agriculture, forestry and fishing
steadily declined; mining, manufacturing and construction also
declined slightly, while employment in services, especially
public services, has grown. In 1972, about eight per cent of
the Swedish labour force was employed in agriculture, forestry
and fishing compared with about 25 per cent in Ireland. The
figures for mining, manufacturing and construction in the two
countries were 38 per cent for Sweden and 30 per cent for
Ireland, while the figures for services were 54.2 and 44.4 per
cent respectively. Sectoral shares of GNP originating from the
principal sectors in the early 1970s were: agriculture and
forestry six per cent; industry 41 per cent and services 53 per
cent. The corresponding figures for Ireland at the same time
were: agriculture and forestry, 18 per cent; industry. 35 per
cent and services 47 per cent.

Reasons [or Sweden’s Economic Growth
A number of basic factors appear to have been responsible

for Sweden’s development in the last century from a poor
underdeveloped economy to one of the richest countries in
the world. The most important of these were:

1. National independence which meant that, unlike Ireland.

X



the country was master of its own destiny and could
shape policies to suit its own people.

2. Abundant supplies of ore, timber and water power
which, when properly used, supplied exports and foreign
exchange for development of a modern economy.

3. The spread of capital intensive methods throughout
Europe and the adoption of free trade in Britain. The
former created a massive demand for iron and timber
products which were abundant in Sweden, while the
latter opened up remunerative markets for these pro-
ducts.

4. It is claimed also that the informed economic debate
which went on in the country throughout the nineteenth
century contributed greatly to enlightened legislation
and to the adoption of the economic and scientific
ideas which were being discussed at the time in the
scientific and trade literature. These ideas stimulated
the Swedes to borrow abroad, to improve the transport
system; and enabled them to utilise timber and phos-
phoric iron ore, which heretofore had been unumble.

In contrast to Sweden, Ireland is relatively scarce in natural
resources. This is a handicap but it does not lie at the heart
of the Irish economic problem. Other countries (like Den-
mark) with poor natural resources have not been held back
on this score. Our problems have been of a political nature
and our economic backwardness has sprung mainly from this
source. Ireland did not achieve independence until 1922 and
we are therefore masters of our own destiny for a very short
period. Of course national independence on its own would not
have guaranteed economic development, but under a native
government a more favourable environment for development
would have existed. At a time when Sweden was developing
her transport system and introducing advanced technologies,
we were fighting a land war. After the First World War,
when Sweden was adopting advanced policies for the relief
of unemployment, we were fighting a war of independence
and a civil war. Even in the 1930s, when Sweden was experi-
menting with counter-cyclieal pelicies to stimulate demand,
we were engaged in an economic war with our main pur-

xi



chaser, Britain, thus prolonging a crippling depression. The
debate over the years in Ireland has, therefore, been basically
political. Economic and technological matters have occupied
secondary roles.

Fortunately, however, the emphasis has shifted over time.
In contrast to past years economic matters are now beginning
to hold the centre of the stage. The First Programme for
Economic Expansion in 1958 marked the beginning of a new
era. Since then development has gone steadily ahead and we
hope that it will continue to do so.

Main Industries in Sweden
Sweden produces five per cent of the world’s iron ore and

is responsible for 10 per cent of all exports of this ore. Pro-
duction in engineering has increased more rapidly than other
manufacturing during the period 1950-1974--by 7.3 per cent
per annum as against 5.3 per cent for all manufacturing. The
main divisions of the engineering industry are: (1) Iron, Steel
and Metal; (2) Electrical; (3) Motor Vehicles; (4) Machinery
and (5) Shipbuilding, Native hydro-electric power has given
the incentive for the production of heavy electrical equipment
while the forest industry has helped spur on the development
of heavy machinery.

Sweden has about one per cent of the world’s forests, and
forest products account for 25 per cent of exports, Sweden’s
share of world timber production is four per cent and of
world export, 14 per cent. Timber provides the basis of the
Swedish paper industry which has expanded greatly in recent
years. In 1974 there were 96 pulp mills producing a total of
9.6 million tons of pulp. This accounted for eight per cent
of total world production and placed Sweden as the fourth
largest world producer after USA. Canada and Japan. About
two-thirds of the production of paper and board is exported.

A chemical industry did not develop in Sweden until after
the Second World War. Growth has been most noted in
organic chemicals, plastics and pharmaceuticals, Petro-
chemicals were given a special boost in the 1960s by large
capital investments, About 25 per cent of total chemical pro-
duction is exported.



The textile industry accounted for about 15 per cent of
Swedish GNP in 1950 but since then this industry has been
declining due to stagnating demand and increasing competition
from imports. The percentage share of textiles in GNP was
only five per cent in 1973. Efforts to stem the decline in this
industry have greatly increased since the latter date through
interest-free state loan guarantees. Despite these subventions,
however, the industry is still in serious trouble and further
declines are inevitable.

Energy Production
Though rich in timber and hydro-electric power, Sweden

lacks native supplies of coal, oil and gas. Oil products supply
70 per cent of her energy needs and so makes Sweden heavily
dependent on imports of oil which now accounts for about
16 per cent of all imports by value. A number of companies
are carrying out research into nuclear energy. Two new plants
with capacities of 760 and 820 MW came on line in 1977
with a projection that by 1980 nuclear power will be pro-
ducing 8,300 MW in capacity. This should supply about 20
per cent of all energy needs at that time.

Agriculture and Forestry
Though the area of Sweden is approximately the size of

California or twice the size of the United Kingdom, the area
of agricultural land is very low, being only about 7.5 million
acres, compared with about 12 million acres in Ireland. In
addition to the agricultural land, 95 per cent of farmers own
about 12 million acres of forest land from which they earn
a significant part of their income. Farmers own about one-
fifth of the total productive forest area of the country, the
remainder being divided between other private owners, stock
companies, the state and the Church.

About 98 per cent of the 150,000 Swedish farmers are
members of one or more agricultural co-operative societies
which include co-operative banks, mortgage societies, market
organisations and forest co-operatives. The total membership
is one million which is about six memberships per farmer.
Generally speaking, prices for livestock and livestock products

xiii



in Sweden are higher than in the EEC but crop prices, with
the exception of those for potatoes, are lower.
In 1971 more than 70,000 Swedish farmers had part-time

work outside their own farms and forests. In addition to this,
75 per cent of the farmers spent 40-50 per cent of their re-
maining time working in their own forests. This combination
of farming and forestry is of great importance in spreading
the work load over the year. The forestry work is done in
winter when all outdoor fana~ work has to be suspended.
Similar type part-time work could be provided by Irish far-
mers if they would only consider planting some of their
marginal land with fast growing trees.

Industrial and Regional Development Policies
Up to 1976 very little direct aid was given to industry but

during the recent depression the state has had to bail out a
number of ailing finals. Normally there are no capital sub-
sidies or direct financial aids for restructuring as are avail-
able in Ireland. Restructuring and the desired production mix
are obtained mainly through market forces. There is, how-
ever, a good deal of Government intervention in the capital
market. The state-owned Swedish investment bank is em-
powered to finance potentially profitable projects which might
not, for various reasons, obtain credit on the open market.

The range of policy measures which are used for regional
development is much more extensive than that used to assist
industry or development in general. In some areas, grants
of up to 65 per cent of construction costs are payable in con-
nection with the construction, extension or improvement of
premises. Cheap credit and interest-free loans are also
provided, as well as training and employment grants for extra
employees. Transport subsidies are also paid to offset the
disadvantageous costs inherent in long-distance transport from
the general aid area. According to Professor Torstan Hager-
strand of the University of Lund (personal communication)
Sweden has tried to pursue a national regional settlement
strategy which, in his opinion, is unique in the world. As a
result, the biggest cities have been losing population for a



number of years. The growing cities are now the provincial
capitals.

Sweden did not join the EEC. The Government decided
after long discussion that full membership of the Community
was not compatible with the Swedish policy of neutrality.
The final solution was a free trade agreement for industrial
goods which was concluded with the EEC in July 1972. This
agreement provided for existing tariffs between Sweden and
the EEC to be progressively dismantled in step with the tariff
reductions between the EEC and its new members. As a
result, free trade was achieved with the EEC on 1 January
1977 except for certain sensitive products. The transition
period is extended to 1980 for some metals and to 1984 for
paper board and paper products+

Labour Relations
The Swedish labour market has for long had a reputation

for harmony and stability. Compared with most other coun-
tries very few working days are lost because of disputes.
Many foreign observers have commented on the high degree
of trust between labour and management. Others have ex-
plained the labour peace largely by the Swedish national
temperament which is said to be submissive to authority and
orientated towards the needs of the group rather than the
individual. The remarkable labour peace in Sweden may, to
some extent, be due to this characteristic but there is more
to it than that. In the early decades of the century Swedish
labour relations were characterised by a bitterness and enmity
unmatched in most countries. The Social Democrats were
elected to power in 1932 on a promise of industrial peace and
the ending of unemployment. If it was to remain in power
it had to fulfil these pledges and this it did. Industrial peace
was arrived at after six years. The ending of large scale un-
employment was slower. This objective was not achieved
until the end of the war. It is now generally believed that the
most important factor in the prevention of industrial disputes
in Sweden is the highly developed system of collective bargain-
ing and regulations concerning industrial action which apply
to almost the whole labour force. The responsible action of

XV



the trade unions may also be due to the fact that they have
a strong influence on the economy and on government
policy, and they have every reason to believe that they have
become the dominant social panner.

Some people would argue that trade unions in Sweden have
acquired far too much power in recent years. Up to 1974
swift action in moving employees saved many ailing firms
from bankruptcy. Today the job security laws (achieved as
a result of union pressure) makes the movement of workers
more difficult to achieve and, as a result, companies which
would have been saved by staff reductions of 10-20 per cent
have been allowed to deteriorate to the point where they
would collapse entirely except for slate intervention. As a
result the new non-socialist Government (which replaced the
Social Democrats in 1976 after 44 years’ continuous rule)
has been forced to bring into public ownership a far larger
part of industry than their predecessors ever did.

Irish trade unions have not the same degree of social and
economic power as the Swedish unions and consequently
they wield less influence. In many ways, of course, they may
not wish to have too much power because of the responsibility
which goes with it. Nevertheless, the process of centralised
wage bargaining has caused Irish unions to act more as a
unit and to recognise the link between their wage claims
and the health of the economy. Trade union acceptance of
recent wage agreements has depended in part on Government
policy towards issues such as taxation and job creation, so
the unions seem to be able to use the need for their consent
to influence these issues. This is in many ways a leap forward
which would probably not have been possible before the era
of National Wage Agreements in the 1970s. At present there
is little evidence that trade unionists generally wish to follow
this line much further. Many clearly feel that wage-bargaining
alone is their proper area but if Sweden’s experience can
be taken as an indication, it is quite possible that Irish
workers will come to realise that by adopting a less militant
wage policy over the coming years they may be in a stronger
position than at present from which to press for more union
influence on public policy. Such a development would prob-

xvi



ably make for a more stable economy with better prospects
for incomes and employment.

Stabilisation Policy
In Sweden the central objective of economic policy since

the war has been the maintenance of a high level of employ-
merit. The main threat to employment has generally been
regarded as short-term cyclical fluctuations in the economy.
Consequently stabilisation policy has been the main focus
of attention. Such policy in Sweden has been based largely
on the management of aggregate demand.

The approach to demand management has been based on
the idea that it would be unwise to aim at a level of aggre-
gate demand which would ensure full employment in all
sectors and regions. If this were done, excess demand for
labour would exist in the stronger sectors with persisting
tendencies for wages and prices to rise, The method adopted
therefore was to aim at stabilising demand at a level which
would normally be expected to result in three to four per
cent unemployment. This would be combined with measures
to improve labour mobility such as retraining programmes,
public works, compensation for moving jobs, measures to
stimulate the establishment of firms in areas of high unem-
ployment and some subsidising of marginal firms.

Another basic feature of policy adopted by the labour
unions was that they should press for wage increases on the
basis of solidarity, i.e., they would not accept differences in
wages between industries for the same jobs. The advantage
of this policy was that weaker firms would be forced to close
and capital and labour moved from unprofitable to profitable
industries with the national labour market facilitating the
mobility of the labour force. The above policy has come in
for a good deal of justifiable criticism in recent years but
despite this, one of its basic ideas has been accepted generally.
namely: that the possibility of reconciling full employment
and price stability is enhanced if the mobility of the factors of
production is increased by a vigorous labour mobility policy.

As a general rule the Swedes try to base wage increases
for the whole labour force on the anaount that firms facing

xvi~



international competition can afford. Wages for workers in
the sheltered sectors are then related to these and not the
other way round, as tends to happen in Ireland. Unfortunately,
however, an exceedingly generous wage settlement in 1975
had an inflationary effect on export prices and resulted in
the loss of substantial market shares in 1976 and 1977. The
devaluation of the krona in the latter year produced a recovery
in export income but did not fully restore Sweden’s lost
position.

Other important demand management instruments are:
(a) Variations in public investment and Government

orders to industry, i.e., public relief works and control
of the timing of house and road construction.

(b) The investment reserve system, whereby in pros-
perous years companies are permitted to allocate up
to 40 per cent of pre-tax profits to an investment
reserve on which no corporation profit tax is paid.
The firms may use these funds for investment in
recession periods.

(c) The temporary investment tax which was used during
the 1950s. In two separate periods a tax of 12 per
cent was applied to gross investments in machinery
and buildings (excluding housing) in the private
sector. The tax was temporary and was deductible
for income tax purposes but it had the effect of re-
ducing planned investment in those years by five to
six per cent. It has not been used since 1958.

(d) Support for stockpiling, whereby the Government
makes a grant to cover 20 per cent of the cost of
increasing stocks if firms guarantee to maintain their
full number of employees during the grant period.
In 1970 to 1975 firms employing eight per cent of
the labour force used this form of support. Recent
reports indicate, however, that this high level of
support has put a severe strain on the available
funding and has even proved counter-productive. In
brief recessions, stockpiling support has proved very
valuable in maintaining employment. In the recent

xviii



prolonged recession, however, it has tended to have
the opposite effect. It has strained company finances,
increased their debts and has curbed productivity.

The Swedes are well aware that the success of any stabilisa-
tion policy is critically dependent on its timing. If the effects
of the policy action come at the wrong time they nmy even
increase instability. They therefore employ a number of
devices to improve the timing of stabilisation policies. Com-
mentaries and forecasts of economic activity are produced
regularly by the National Institute of Economic Research
and the Treasury Department. The Labour Market Board
produces monthly labour force surveys, and every employer
is required to notify the County Employment Board in ad-
vance of any intention to cut back production if at least five
employees are going to be affected. These reports enable the
Labour Board to keep up to date on labour market develop-
ments. If, on the basis of its infornaation, the Board finds that
unemployment is increasing, it is empowered (without parlia-
mentary approval) to initiate public works’ programmes and
other fiscal action. There is also an emergency stand-by budget
for public works to be used when unemployment is too great
for normal employment-creating measures. In addition to
public works, a reserve of other planned investment projects
is always available for immediate commencement when the
situation warrants it.

Swedish stabilisation policies in the 1950s and 1960s have
been criticised on the grounds that they concentrated too
much on the demand side of the market, while neglecting the
cost side. It has now come to be realised, that demand
management policies alone are inadequate when there is a
high level of international inflation. Under these conditions
a broader approach is essential. Control must also be exercised
on the cost side through wage restraint and this has become
very obvious during the recent depression when high wage
settlements and wage drift made many industries uncom-
petitive.

It is in the area of stabilisation policy that Ireland can
probably learn most from Sweden. In many ways our policies

xix



over the years seem to have had a destabilising rather than a
stabilising effect. Referring to the slow rate of growth in the
1950s, K, A. Kennedy and B. R. Dowling (1975) state that
the chief cause of this seems to be the failure to secure a
satisfactory rate of expansion in aggregate demand. In par-
ticular they say that "the massive cut-hack in public invest-
ment in 1957 and 1958 unnecessarily deepened and prolonged
the depression in the economy."

Nor according to B. M. Walsh (1977) has the depressing
experience of the years 1956-58 taught us much. In those years
he says "government expenditure was cut savagely during a
period when external factors were causing a decline in
domestic demand. Unfortunately, the same coincidence was
evidenced once again in 1967 although the rise in unemploy-
ment was much less pronounced then. In the very severe
recent recession we notice the same phenomenon has re-
appeared".

The implementation of counter-cyclical policies is, however,
not a simple task. It requires very careful planning, and up-
to-date information must be available in order to time the
projects properly. In addition, there is the problem of inte-
grating incomes’ policies with stabilisation measures. The
creation of a fast rate of increase in domestic demand with-
out a corresponding increase in exports means taking risks
with the balance of payments and external reserves, It may
also cause a sharp increase in the rate of inflation.

Stats]oretag
Statsforetag is the holding company for all the state-owned

commercial enterprises which operate in the legal form of
ordinary share companies in Sweden. The holding company
is Government-owned and any dividends declared go to the
state. The group is quite large. In 1974 it had 29 main sub-
sidiaries and employed 41,000 persons.

Up to 1975 the group as a whole had been profitable but
in 1976 an overall loss was experienced for the first time.
In that year the total loss was £58 million. The decline was
mainly due to the effects of the recession on earnings in the
basic industrial operations--mining, shipbuilding, steel, paper



and paper pulp. It is expected that some, but not all, of the
firms will return to profitability at the end of the recession.
Tho~ not doing so will be wound up unless they are main-
tained strictly on regional policy grounds. Shipbuilding is a
case in point. The shipyards, which once produced a tonnage
second only to that of the Japanese, are already undergoing
a 30 per cent reduction of capacity, but it is felt that further
closures are inevitable.

It is important to stress that the Statsforetag group is not
primarily a development corporation or an employment
creating agency. While it does have certain social objectives
its principal objective is commercial viability. It is really state
capitalism under another name. It differs from a private com-
pany only in that ownership of the assets are in state hands.

It is our opinion that the creation of a Statsforetag type
organisation is not a simple solution to the unemployment
situation in Ireland, though it may have some contribution
to make if the aim is the achievement of profitability and
not just the propping up of lame ducks. If it is to be an organ-
isation for the subsidisation of loss-making enterprises, we
are better without it.

Conchtsions
It is argued in Chapter 8 that Sweden has attained her

present level of development, not through any specific policy
instrument or set of instruments, but because her people made
a definite commitment to full employment in the 1930s and
have stuck to that commitment since. All other economic
objectives have been subsidiary to this.

It is the authors’ belief that if Ireland is to develop eco-
nonlically in the years ahead, we also must make a commit-
ment to full employment. But this commitment must be a total
one and must be made by all our people,--Government,
opposition, trade unionists, employers and ~lf-employed.

The Report concludes by noting that while Ireland may
not have the natural resources of Sweden we do have access
to the same fund of knowledge as the Swedes. The constraints
on the application of that knowledge will be of our own
creation.

xxi



Introduction

THE main purpose of this paper is to identify Swedish
economic policies and institutions which could prove of

benefit in tackling the problems of the Irish economy. Sweden
is frequently regarded as a good model to imitate in matters
of economic and social policy. For instance, Martin Schnitzer
claims that "Sweden has developed a system which appears to
have resolved the problems of unemployment, poverty and
income inequality that have affected Western civilisation
during this century. Sweden is a showcase country--a model
which other countries can examine from the standpoint of
perhaps exploring the possibility of utilising various employ-
ment and social welfare approaches" Schnitzer (1970). Schnit-
zer also remarks that the Swedish combination of high stan-
dards of living and a highly developed social welfare system
has created perhaps the closest thing to a Utopian society in
existence.

For a country of its relatively small size, the international
reputation of Sweden is certainly high, and foreign econo-
mists have shown considerable interest in Swedish policies.
A number of basic similarities between Sweden and Ireland
make an examination of Swedish policies particularly rele-
vant to us. Both countries can be characterised as small open
economies. They are small, in the sense that they provide only
a small fraction of the total world supply of any tradeable
good. Sweden is, however, a very large exporter of many
industrial goods and is the third highest exporter in the world
(after Canada and the Federal Republic of Germany) of paper
and pulp. Unlike Ireland, therefore, she has a certain amount
of monopoly power over many foreign markets. Both Ireland
and Sweden are open economies in the sense that the foreign
trade sector plays an important role in the structure of the
economy. Swedish exports plus imports are about 60 per cent
of GDP. The corresponding figure for Ireland is about 100

xxii



per cent. It should be noted, however, that Swedish industrial
exports are based, to a considerable degree, on home pro-
duced inputs while Irish industry is more involved in process-
ing imported material for export. Because of the above
characteristics the implications for policy are that textbook
macro-economic theory and trade theory, based on larger
industrialised and generally closed economies, cannot be
directly applied to Ireland or Sweden. Sweden is convention-
ally considered to be more socialist in orientation than Ireland
but it is doubtful if this is true. Both countries have mixed
economic systems- they have characteristics of both
capitalism and socialism like most Western economies.
Although there is some public ownership of industry in
Sweden, most of the factors of production are in private
ownership, and there is reliance on the market system rather
than on central planning to allocate resources. But both
national Governments have great economic importance due
to the size of the national budgets, public influence on invest-
ment, and various efforts to redistribute incomes.

Besides these basic structural similarities, some features
of Sweden’s economic history also resemble Ireland’s. Accord-
ing to estimates made by Kuznets, (1966) per capita income
in both countries was about the ~me in the early 1860s. At
that time Sweden and Ireland were two of the poorest coun-
tries in Europe. Sweden, like Ireland experienced large-scale
emigration to America in the second half of the nineteenth
century, and this continued until 1914. The Swedish popula-
tion in 1860 was 3.9 million compared with 4.4 million in
Ireland (26 counties) in 1861. Over the period 1860 to 1914,
about one million Swedes had emigrated to USA, yet the
population at the latter date was 5.7 million. This compares
with a figure of 2.4 million for Irish emigration (26 counties)
in the period 1861 to 1911, when the population dropped
from 4.4 million to 3.1 million.

But there are, of course, major differences in the economic
achievements of the two countries. The process of modern
industrial growth began in Sweden about 1870, and over the
hundred years, 1870-1970, Sweden experienced a growth rate
of real GDP per head which was second only to Japan.

xxiii



Sweden is now one of the richest countries in the world with
incomes considerably higher than Ireland’s. Unemployment
has not been a major problem since the early 1940s, and in
fact job vacancies have usually exceeded registered unemploy-
ment.

In this paper we first give a brief overview of the Swedish
economy, comparing Swedish economic achievements with
Ireland and other countries. Next we present a chapter giving
a history of economic development in Sweden from the middle
of the 19th century to the end of the Second World War.
We then give some details of the modern industrial and
agricultural sectors. We then go on to consider the working
and effectiveness of a number of Swedish policies and institu-
tions, which might be considered of relevance to Ireland.
We conclude by evaluating the extent to which Ireland can
learn from the economic experience and policies of Sweden.

xxiv



Chapter 1

Overview o] the Swedish Economy

WITH an area of 174,000 square miles, Sweden is the
fourth largest country in Europe, being approximately

twice the size of Great Britain. The whole country lies further
north than Ireland and the northern part is within the Arctic
Circle, yet it enjoys a relatively temperate climate due to the
Gulf Stream. Over half Sweden’s area is covered by forests
and less than one-tenth is arable land. Population density and
economic development are uneven. Except for some coastal
regions the northern part is very sparsely populated, and the
most densely populated area is a belt running south-west from
Stockholm and down the west coast. This area is quite small
compared with the size of the whole country. Of the impor-
tant industries, mining and quarrying tend to be concentrated
more in the northern region than in the heavily populated
south. Forestry, the lumber industry and pulp and paper also
give a certain amount of employment in the north but they
are more concentrated in the south.

Population and Labour Force
At the end of 1974 Sweden’s population was 8,117,000,

of which four million were in the labour force. For many
years now the birth rate has been low and the rate of popula-
tion increase relatively slow. In fact, about half of the in-
crease in recent years has been accounted for by immigrants.
The slow rate of natural increase is reflected in the age
structure of the population. Of all the OECD countries
Sweden has the largest proportion of population over 65
years and the smallest proportion under 15. The proportion
in the active age groups, 15 to 64, is about average. But the
participation rate in the labour force (the labour force as a
percentage of total population) is unusually high, at 49 per



cent. This compares with an average of 41 per cent in the
European members of OECD and 37 per cent in Ireland. The
high participation rate in Sweden is largely explained by the
particularly high proportion of women at work. Some 40 per
cent of the labour force is composed of women and more
than half the married women in the country work part-time
at least.

Living Standards and Growth
Incomes and other indicators of material living standards

in Sweden are among the highest in the world. GDP per head
of population was second and GDP per head of labour force
was eighth highest in the OECD in 1974.

Table 1.1 : Indicators of living standards in selected countries

G DP in US Sa
Per head Motor
o] labour carss pcer TlZss per Telephones

Per head [oree2 1,000 1.000 per 1,000
Country 1974 1974 ! 971 1972     1972

Switzerland 7,340 15,230 233 239 535
Sweden 6,878 14,070 290 333 576
USA 6,598 14,960 433 474 628
Canada 6,464 15,280 321 349 499
Iceland 6,280 14,950 222 220 370
West Germany 6,195 14.110 239 293 268
Denmark 6,026 12.300 231 282 377
Luxembourg 5,987 14,190 296 220’ 361
Australia 5,877 13,270 314 227 340
Norway 5,847 13,790 206 241 320
United Kingdom 3,371 7,380 219 305 314
Ireland 2,180 5,990 140 173 114

’GDP in purchasers’ values at current prices and exchange
rates.
Approximate figures.
1971.

Sources: National Accounts of OECD countries, 1974, Vol. 1:
Year Book of Labour Statistics, 1975; and OECD
Economic Survey of Sweden, June 1975.



High incomes in Sweden are due to sustained economic
growth over a long period, and not to any remarkable recent
development. According to Lindbeck (1975), the growth rate
per capita for 1870-1970 may be estimated at 2.1 per cent per
year, compared with 1.5-2.0 per cent for most other countries
in Western Europe and North America, and 3.1 per cent for
Japan’. However, while Sweden’s economic growth over the
last century as a whole was comparatively rapid, in more
recent times growth has not been as rapid as in many other
countries. After the Second World War, the growth rate
increased in Sweden as it did in other countries, but the im-
provement in many industrial countries (with the notable
exceptions of the United States and the United Kingdom)
was greater than in Sweden. Thus, though Sweden’s per capita
national product has been among the highest in the world
throughout the post-war period, its lead over many European
countries has been diminishing. In 1950.71, GNP per capita
grew by 3.3 per cent per year compared with 3.7 per cent per
year for Western Europe (Lindbeck, idem. p.2}. (These figures,
however, must be viewed with some reservation due to
measurement difficulties. In particular, it should be noted
that Sweden, like most highly developed economies, has a
relatively large services sector, in which productivity increases
as conventionally recorded tend to be low).

In the post.war years, business cycle fluctuations in Sweden
have followed the same general pattern as in most indus-
trialised countries, but generally lag behind international
developments. The amplitude of the fluctuations has however
been relatively small, so GNP has grown comparatively
smoothly. The world recession of 1974-75 did not bit Sweden
until 1976 and though the effect on GDP has been severe,
that, on employment was much milder than in most other
countries. In 1975/76 GDP increased by 1.7 per cent but in
1976/77 it declined by 2.4 per cent and it is expected to in-
crease by only 0.2 per cent in 1977/78. It seems that the
Swedes were taken somewhat unawares by the severity of this
recession. The Budget Statement for 1978/792 states that the

1The dlfferenee between 2.0 and a 1.5 per cent annual growth rate over
100 years is a total of 300 per cent.

zSce the Swedish Budget 1978/79.

3



people had lived for so long in a state of relative affluence
that they believed "that prosperity was given". Recent events
have certainly changed this attitude. They have shown that
no country is immune from world happenings and that de-
mand management policies, which had proved highly effective
in the 1950s and 1960s, were no longer adequate. New policies
were required and it is claimed (ibid, p.51) that the first steps
in implementing these policies have been taken. Though these
measures will involve a strain in the shortrun they are ex-
pected to contribute to an appreciable improvement in the
economy in 1978 and 1979.

Unemployment
Sweden’s employment record in the last 30 years has been

good, particularly, when compared with its earlier experience.
Between the two world wars unemployment generally ex-
ceeded 10 per cent (average for year), even in economic
booms; in the depressions of the early 1920s and the early
1930s it rose as high as 25 per cent. But since the early 1940s
registered unemployment has been far lower--usually below
two per cent. The large number of immigrants, which are
about seven per cent of the total population, is due to the
consistently high demand for labour.’ Unemployment in
Sweden has been very low compared with Ireland in post-war
years, but many other European countries have recorded
unemployment as low as Sweden for most of this period. This
is reflected in the fact that in the EEC about I0 per cent of
the labour force are immigrants. Although Sweden’s low
unemployment was not exceptional in post-war Europe until
the early 1970s, it is true that in the early years of the recent
recession Sweden has had exceptional success in maintaining
employment levels though not without problems in other
areas. We will examine tile contribution that Government
action has made to achieving high employment levels when
We come to consider stabilisation policy and manpower
policies in later sections. It should be pointed out in this con-
nection, however, that statistics on unemployment are notor-
iously unreliable in most countries, particularly if one wants

aMost immlgran~ come from other Nordle countries, mainly Finland.

4



to make international comparisons. In Sweden, for example,
those on retraining programmes are not included in the un-
employment figures and we do not know how many are
retraining all the time without ever getting a job. Early
retirement schemes are also used in many countries (including
Sweden) to conceal unemployment.

Banking, Finance and Exchange Rates
Like most countries Sweden has a central bank (Riksbank)

responsible for such duties as the execution of monetary
policy. In addition, there are three categories of banks which
base their activities on deposits from the public. The three
types are: commercial banks, savings banks and co-operative
banks; accounting for 62, 32 and 6 per cent respectively of
total bank deposits. The different type of banks are allowed
to operate in substantially identical areas. The Government
and its agencies exercise a thorough control of the finance
markets. In addition to the control of the volume and direc-
tion of credits, exercised through a great number of monetary
policy instruments, there are special laws for practically every
type of institution which govern these activities. There is also
a state-owned investment bank which is used to finance pro-
jects which might not obtain credit on the open market.

The Riksbank, which was founded in 1668, is the oldest
central bank now existing in the world. It is a Parliamentary
body subordinated to the Riksdag. Its activities are the same
as those of other modern central banks: to issue notes, ad-
minister the country’s official gold and foreign exchange
reserves and to act as the bank of the state and of tile other
banks. One of tile Riksbank’s most important tasks is the
execution of monetary policy. The instruments used for this
purpose are tile discount rate, open market operations and
regulations regarding liquidity and cash ratios.

The largest commercial banks (which are privately owned)
have long been very active in international banking. In the
last decade they have, to an increasing extent, established
affiliated banks and representative offices in foreign banking
centres and have also taken up participation in international
banks, ship mortgage institutions, etc. For such investments



abroad, permission from the government must be obtained.
Permission from the Riksbank is required before a bond issue
may be floated. During the post-war years very few foreign
bonds have been issued on the market. The Riksbank has also
been restrictive in granting permits for Swedish bond issues
abroad. Recently, however, its attitude towards financing
on the foreign credit markets has changed as a consequence
of the current balance of payments deficit caused mainly by
the higher oil prices.

Payments for all imports and exports may be made freely
through authorised banks and without the formality of pre-
senting an import or export licence. In eases where a foreign
investor seeks to transfer capital into Sweden for making a
direct investment a Riksbank licence is required and is nor-
mally granted. Direct investment abroad by Swedish residents
requires authorisation from the Riksbank. As a general rule
such investment will at present be approved only if the in-
vestor raises most of the necessary funds outside of Sweden.
A licence is required for the purchase, by non-residents, of
Swedish securities and as a general rule is not granted.

The Swedish Krona is fully convertible and Sweden has
undertaken not to impose restrictions on current payments or
to discriminate in exchange rates. The Krona was revalued
in 1946 from S.Kr. 4.10 to S.Kr. 3.60 per US dollar. It
followed the sterling devaluation in September 1949 to the
par value of S.Kr. 5.17 per US dollar. In accordance with the
decision taken at the Group of Ten meeting in Washington in
December 1971, the Swedish Krona was revalued to the par
value of S.Kr. 4.56 per US dollar. In March 1973, certain
EEC countries introduced the system known as the snake
which allowed their currencies to float jointly against the
US dollar and within which their own currencies can fluc-
tuate against each other within a band of 2.5 per cent. Sweden
was a member of this floating arrangement up to August
1977 when she was forced to leave. A rapid increase of costs
during 1975 and 1976 had led to a deterioration of unit costs
compared with the average for competing countries. Sweden
thus lost market shares at home as well as abroad.

Several industries, chiefly the shipyards, steel, textiles and



clothing were badly affected. When an expected improve-
ment in international activity failed to materialise in 1977 and
it proved impossible 1o achieve a requisite internal adjust-
ment in costs, the balance of payments deteriorated and it
was clear that remedial measures had to be taken. Adjust-
ments to the exchange rate were made on 4 April and 29
August 1977, these two devaluations amounting to 15 per
cent for the year. As a result Sweden has recovered a sub-
stantial part of her lost competitiveness and it is expected
that this will lead to an improvement in exports in 1978. The
present rate for the Swedish Krona is to be maintained at an
average for the currencies of her fifteen most important
trading partners.

Price Trends
Consumer price increases in Sweden have been similar to

those in Western Europe for most of the post-war period.
In the years 1953-70 prices rose by an average of 3.7 per cent
annually, compared with 3.8 per cent for the weighted average
of Western Europe, and 2.7 for Western Europe plus North
America. There was a slight tendency for Swedish prices to
rise faster than other Western European countries in the
1960s, but in the early 1970s, Sweden experienced compara-
tively very low rates of price increase. As Table 1.2 shows,
consumer prices in Ireland increased faster than in Sweden
and most of the other countries in the table, in the first half
of the 1970s. In more recent years, however, prices have risen
steeply in Sweden, by about 10.0 per cent in 1976 and 11.5
per cent in 1977. Part of these recent increases are attributable
to rises in import prices and part to currency adjustments,
but the major part of the rise is attributable to unit labour
costs which rose by as much as 40 per cent over the two years
1975 and 1976 (ibid. p.17).

Sectoral Composition of the Economy
The structure of the economy by sector has changed in line

with the trend common in most developed countries since the
1950s. Employment in agriculture, forestry and fishing steadily
declined; mining, manufacturing and construction also de-

7



Table 1.2: Percentage increases o] consumer prices in selected
OECD countries.

Country        Average annual             Twelve months to :
increase 1962-72 Dec. "72 Dec. ’73 Dec. ’74 Dec. "75

%
Sweden 4.7 6.3 7.5 10.5 7.2
France 4.4 6.9 8.5 15.2 13.5
West Germany 3.2 6.5 7.9 5.2 5.9
Italy 4.3 7.4 12.5 24.5 20.3
United Kingdom 4.9 7.7 10.5 19.1 21.2
Canada 3.3 5.1 9.1 12.4 ll.3
United States 3.3 3.4 8.8 12.2 10.3
Japan 5.7 5.3 19.1 21.9 14.2
Ireland 5.8 9.1 13.0 22.0 16.4
Total OECD 3.9 5.1 10.3 14.2 12.2

Source: OECD Economic Survey of Sweden, June 1975.

clined slightly, while employment in services, especially public
services, has grown. The pattern of sectoral shares in employ-
ment shown in Column 4 of Table 1.3 is not very different
from other highly developed European countries, though the
services sector is slightly larger and the industrial sector
slightly smaller than most. In Ireland the agricultural sector
is still very large by comparison, and both industry and ser-
vices are considerably less developed than in Sweden. These
factors must be borne in mind in drawing analogies between
Ireland and Sweden.
Sectoral shares in Swedish GNP at current prices have

changed in a similar manner to shares in employment. In
1974, GNP originated from the principal sectors as follows:
Agriculture and forestry--six per cent; Industry--41 per cent,
and Services--53 per cent. The corresponding figures for
Ireland in that year were: Agriculture and forestry--18.1 per
cent; Industry--34.9 per cent and, Services.--47.0 per cent.



Table 1.3: Percentage sectoral shares o] total employment.
1950-1972

Sweden /reland

Sector 1950 1960 1970 1972 1972

%

Agriculture 17.8 11.4

6.3) 7.8)25.5Forestry and fishing 3.4 3.8 2.3
Mining, manufacturing

and construction 35.9 43.6 39.9 38.0 30.0
Public services and

other services 42.9 41.4 51.5 54.2 44.4

Total 1 O0 1 O0 1 O0 1 O0 1 O0

Source: Some data about Sweden 1975-76, Skandinaviska
Enskilda Banken.

Composition o[ Expenditure
Table 1.4 shows the composition of National Expenditure

in Sweden in 1950 and 1974, and in selected countries in 1974.
Comparing the figures for Sweden in 1950 and 1974 there is
an evident decline in the share of private consumption which
is offset largely by an increase in public consumption. While
a small number of other countries, including West Germany
and Norway, have a similarly low share attributed to private
consumption, Sweden’s 53 per cent is close to the lowest figure
for market economies. Since the share of Gross Fixed Capital
Formation at 22 per cent in Sweden is quite in line with other
Western European countries, it is the share of public consump-
tion that is relatively large, In only a few other countries,
including Denmark and the United Kingdom, does the share
of public consumption exceed 20 per cent, while the figure
for Sweden is 24 per cent.

Gross Fixed Capital Fornmtion has increased its share of
GDP in post-war years in Sweden, as in most other indus-
trialised countries. The rising trend was more pronounced

9



Table 1.4: Compasition o/national expenditure as percentage o/
GDP

West    United
Sweden Sweden Denmark Germany Kingdom Ireland

Expenditure 1950    1974     1974      1974     1974     1974

Private consumption
Public consumption
Gross fixed capital

formation
Increase in stocks
Exports of goods

and services
Imports of goods

and services

GDP at market prices

%
69 53 56 53 64 71
13 24 23 20 21 18

18 22 22 22 20 25
-1 2 2 I 1 3

22 33 36 29 28 44

-21 -33 -39 -24 -34 -60

100 100 100 100 100 100

Soarce: National Accounts of OECD countries, 1974.



in the 1950s than in the 1960s, and a slight decline occurred
in the early 1970s.

The figures for exports and imports for all the countries
in Table 1.4 are large by comparison with earlier years since
they all experienced a large increase in foreign trade in 1972.
However, whether one looks at the share of foreign trade in
GDP before or after 1972, one sees that the Swedish economy
is less open than most others of a similar size (in terms of
GDP), but somewhat more open than the largest European
economies--West Germany, France, the United Kingdom
and Italy.

Income Distribution
Greater equali~tion of incomes has been a stated goal of

policy in Sweden since the Social Democratic Party first came
to power in 1932. (They remained in government, alone or in
coalition, for 44 years until 1976 except for a brief interreg-
num in 1936.) There is no doubt that progress was made in
this respect, though the biggest change in distribution occurred
in the 1930s and early 1940s, mostly due to the elimination
of large-scale unemployment at that time. It is less clear
whether equalisation has proceeded since 1948. The distribu-
tion of income to people included in official tax statistics
seems to have become slightly more unequal but for all
individuals over 20 years there has been some equalisation
in the post-war period. This disparity is largely explained by
the increase in the proportion of women at work; working
women receive higher incomes tban non-working women, but
they tend to receive less than men. Thus they receive enough
to swell the ranks of lower-income tax-payers, making the
income distribution to tax-payers alone less equal, but making
the distribution to all adults more equal. A similar develop-
ment has occurred in most other West European countries.

Recent research by Sawyer (1976) on size distribution of
incomes, indicates that Sweden is among the most egalitarian
countries in the OECD. But the distribution of incomes in
a number of other countries, some of which are not reputed
to be particularly egalitarian, is much the same as in Sweden,

11



e.g., Norway. UK and Japan (see Table 1.5). Thus Sweden’s
reputation as a particularly egalitarian country appears to be
somewhat exaggerated.

It can be seen from Table 1.5 also that incomes are cer-
tainly more equally distributed in Sweden than in Ireland. In
Sweden 50 per cent of income after taxes and transfers is
shared by 30 per cent of households while in Ireland 30 per
cent of households share 55 per cent of disposable income.

Of course, differences in the distribution of household size
in the various countries are quite marked and this distorts,
to some extent, comparisons based on the figures in Table
1.5. Sawyer, therefore, re-calculated the size distribution of
income in these countries (not including Ireland) on the
assumption that they all had the same standardised household
size distribution. The result was that, according to various
measures of inequality, Sweden was the second most egali-
tarian country listed, after the Netherlands, with Norway,
Japan and the United Kingdom following.

One interesting feature of income distribution in Sweden
is the fact that a much smaller fraction of household income
arises from ownership of capital than is the case in most
other countries. In 1971, only four per cent of household
income came from interest, dividends and rent, compared
with 12 per cent in the US, nine per cent in Japan and eight
per cent in the UI(. However, before concluding that the
ownership of wealth is a less significant source of inequality
in Sweden than is usual, we would need to know more about
the distribution of this wealth within households. In fact.
large amounts of wealth are held in semi-public pension
funds. The wealth which is actually held within the private
sectors is quite unevenly distributed--much more so than
incomes--but this is a common feature in other countries.
Stark’ says that on a pre-tax and direct income basis the level
of inequality in Sweden is relatively large but on a post-tax
household income basis it is less than in other countries.

4See Stark, T., Contribution to the discussion on the paper entitled
"Personal Distribution of Income in the Republic of Ireland" by Brian
Nolan, read before the Statistical and Social Inquiry Society o] Ireland,
2 February 1978.

12



Table 1.5: Size distribution of household incontes alter taxes and trany[ers by deciles

Percentage o] household income received by each deeile o] households

top     2nd     3rd      4th 5th     6th     7th    8th     9th lowest
Collntry Year tenth tenth tenth tenth tenth    tenth tenth tenth tenth tenth

Sweden             1971 21.3 15.7 13.3 11.5 10.0 8.5 7.2 5.9 4.4 2.2

Ireland" 1973 26.0 16.1 13.1 10.9 9.3 7.9 6.6 5.1 3.3 1.7

United Kingdom 1973 23.5 15.2 12.8 11.1 9.9 8.5 7.1 5.5 3.8 2.5

U~ Norway 1970 22.2 15.1 13.0 11.7 10.2 8.6 7.3 5.6 4.0 2.3

Netherlands 1967 27.7 15.2 12.4 10.3 8.8 7.6 6.4 5.2 3.9 2.6

West Germany 1973 30.3 15.8 12.1 9.8 8.2 6.8 5.7 4.6 3.7 2.8

France 1970 30.4 16.5 13.0 9.7 8.9 7.4 5.6 4.2 2.9 1.4

Japan 1969 27.2 13.8 11.3 9.9 8.9 7.9 7.0 6.1 4.9 3.0

¯ The figures for Ireland arc estimates calculated from data in the Household Budget Survey, 1973.

Source : Sawyer, M., (I 976).



The Public Sector
The Swedish public sector ranks among the largest of the

industrial nations measured in terms of percentage of Gross
Domestic Product (GDP). As can be seen from Table 1.6,
public expenditure as a percentage of GDP in Sweden was
surpassed only by the Netherlands for the period in question
(i.e., 1973-75). Ireland is also well up the league table ranking
fifth in terms of relative size of public expenditure. Ireland’s
42.6 per cent contrasts with the United States. Australia and
Japan, all with shares of around 30 per cent.
As can be seen from Table 1.6 also, the share of GDP

used in public consumption is noticeably higher in Sweden
than in Ireland--23.2 per cent compared with 17.5 per cent.
In fact, Swedish public consumption is the highest of the
countries listed. Only Denmark’s figures of 22 per cent is
close to it. All the other countries are below the 20 per cent
mark with Japan being as low as 9.4 per cent. As a means
of curbing the present recession the central Government is
exercising more restraint than usual on expenditure of its own
activities. The growth in real Government consumption is
planned to remain at the same level in 1978 as in 1977. Similar
restraints are being placed on local Government expenditures.

Public investment is higher in Ireland than in Sweden (5.8
per cent of GNP compared with 4.5 per cent respectively).
In the early 1960s investment shares were almost the ~me
in both countries but since then Sweden’s share has declined
while Ireland’s has increased. With regard to transfers, the
proportion spent on this item is higher in Sweden (16.8 per
cent) than in Ireland (15.1 per cent).

Social Security System
The basic social security benefits available in Sweden are

not greatly different from those of other industrialised coun-
tries. Huntford (1971) notes that family allowances are more
comprehensive in France, medical care is cheaper and better
in Gernlany and Switzerland, while in the United Kingdom
dental care is completely free, whereas it is not in Sweden.
Swedish benefits are superior in the areas of pensions and
supplementary social assistance. For example, poor house-

14



a e .: tructurea evo tttton o pu ic expenditure(’) (Per cent o] trend GDP at current prices)

Average 1973-1975(b)

Country                       Total(c)              Cottsumption(d)            Investments              Trans]ers(~)

U,

Netherlands 49.8 (36.3) 16.9 (15.2) 3.7 (4.7) 24.9 (13.5)
Sweden 47.4 (34.3) 23.2 (17.2) 4.5 (5.1) 16.8 (10.0)
Norway 45.6 (33.3) 16.5 (13.3) 4.6 (4.0) 21.9 (14.0)
United Kingdom 43.3 (34.3) 19.6 (16.9) 4.9 (3.8) 13.7 (9.8)
Denmark 42.2 (28.9) 22.0 (14.6) 4.3 (3.8) 14.0 (9.1)
Belgium 41.0 (31.2) 15.6 (13.0) 3.2 (2.6) 18.0 (12.3)
Italy 40.9 (32.7) 13.7 (13.4) 3.1 (3.6) 19.8 (12.8)
Germany 40.5 (34.3) 19.1 (15.7) 3.7 (4.3) 15.6 (13.5)
Canada 39.4 (29.2) 19.8 (14.8) 3.8 (4.1) 11.6 (7.2)
Austria 38.8 (33.0) 16.1 (12.9) 6.2 (5.3) 15.3 (13.9)
France 38.8 (36.9) 13.6 (13.6) 3.3 (3.1) 20.0 (17.2)
United States 33.2 (29.4) 18.1 (17.8) 2.2 (2.9) 10.2 (6.0)
Australia 29.8 (24.4) 14.5 (10.3) 4.2 (4.4) 8.0 (6.5)
Japan 22.3 (19.1) 9.4 (8.8) 5.5 (5.3) 6.5 (4.4)
OECD Totalct)    35.1 (30.5) 16.6 (16.0) 3.4 (3.5) 12.2 (8.4)
Ireland 42.6 (29.5) 17.5 (12.5) 5.8 (3.8) 15.1 (10.2)

Notes:

Sollrce$

Ca)The table refers to expenditure by the central administration and the agencies under its effective control,
national and local Government and their admiistration, social security agencies and autonomous Govern-
ment entities, exdluding public enterprises.

(b) Figures in parentheses are corresponding total for 1962-1964.
(c)Interest on public debt and other minor expenditure items not shown separately, are included in total.
d Consumption represents the current expenditure on goods and services undertaken by public authorities.
(c) Transfers to households and enterprises.
(t) OECD total has been calculated in US dollars at the average exchange rates then prevailing.

For further details of the definitions see UN publication A System o! National Accounts and Supporting
Tables, Studies in Methods, Series F. No. 2, Rev.
Taken from Full Employment and Price Stability (OECD) 1977.
Irish data derived by authors from National Income and Expenditure 1975, using similar classifications.



wives are provided with cheap holidays. Newly married
couples or unmarried parents are eligible for interest-free
loans to furnish their homes. Local welfare offices also have
great discretion in assisting needy people who have exhausted,
or are ineligible for, the statutory benefits. The main Swedish
social welfare benefits are the basic pension scheme, the health
insurance scheme, the industrial injuries benefit scheme and
the unemployment benefit scheme. In addition, there exist
such benefits as the child allowance, and housing allowance,
which are allowances paid to low-income groups to facilitate
the purchase of suitable housing. Between 1969 and 1974
spending on social welfare increased in constant prices by
43 per cent. The proportion of GDP absorbed by direct pay-
ments of welfare benefits and assistance was 10 per cent in
1969 and 12 per cent in 1973. The comparable figures for
Ireland are seven per cent and nine per cent respectively.
Unemployment benefits in Sweden are generally higher than
in Ireland, yet it would appear that they do not have a dis-
incentive effect on employment. There are many reasons for
this. The work ethic in Sweden is very highly developed and
there are strong social pressures on unemployed people to
take work. There are similar pressures to undergo retraining
programmes but there is no compulsion as such.

Taxation
The basic aim of the Swedish social welfare system is to

provide help where it is most needed, especially for the young
and old. With growing numbers of old people and rising costs,
the burden for the active population has become more diffi-
cult to bear. The result has been higher and higher taxation
with an increasing share of revenue being paid by employers.
Marginal tax rates in 1974 went from 32.6 per cent of taxable
income at the bottom of the scale to 78 per cent at the top.
Those in the latter group, however, would have gross incomes
of £20,000 per annum and over. Taxation as a proportion of
GDP in Sweden compared with similar figures for other
countries is given in Table 1.7. This table shows that income
tax in 197%75 amounted to 19 per cent of GDP in Sweden
compared to only 8.6 per cent in Ireland. This was mainly

16



Table 1.7: Structure and evolution of taxation (ht per cent of trend GDP at current prices)

Average 1973-1975ta)
Personal Socialsecurlty Generalconsumption

Country Total income taxes taxes taxes and excises Other(b)

Norway 47.4 (34.3) 14.3
Netherlands 44.8 (32.4) 12.6
Denmark 42.7 (28.2) 24.7
Sweden 42.6 (32.6) 19.0
Austria 39.1 (32.9) 11.5
Belgium 38.0 (27.9) 11.6
Germany 36.1 (33.7) 10.4

..~ France 35.1 (34.2) 4.9
United Kingdom 34.7 (29.1) 12.8
Canada 33.7 (24.6) 11.4
Italy 29.9 (28.8) 5.6
United States 29.4 (27.0) 10.0
Australia 26.9 (21.6) 11.7
Japan 20.6 (18.9) 5.2
Total OECD 30.9 (27.9) 9.5
Ireland 32.2 (24.2) 8.6

(11.7) 13.6
(10.0) 17.6
(11.7) 0.9
(14.3) 8.4

9.2) 8.9
6.6) 11.8
8.0) 11.6
4.2) 13.6
8.7) 6.1
5.5) 3.4
4.1) 12.7
8.9) 7.0
7.3) 0.0
3.7) 4.1
7.8) 7.9
5.0) 3.7

6.9) 18.0 (14.0) 1.5 (1.7)
9.6) 11.5 (10.1) 3.1 (2.7)
1.6) 15.8 (13.8) 1.3 (I.2)
5.1) 13.8 (11.4) 1.3 (1.8)
6.8) 16.9 (14.7) 1.7 (2.3)
8.2) 11.5 (12.3) 3.1 (1.7)
8.7) 12.6 (14.3) 1.4 (2.6)
11.3) 14.4 (17.1) 2.3 (I.7)
4.3) 13.4 (13.1) 2.4 (3.0)
1.6) 14.1 (13.2) 4.8 (4.3)

10.3) 10.4 (12.6) 1.2 (1.8)
4.5) 8.9 ( 9.2) 3.5 (4.4)
0.0) 11.3 (10.7) 3.9 (3.5)
2.9) 6.6 ( 8.1) 4.7 (4.3)
5.5) 10.4 (11.0) 3.1 (3.6)
1.6) 18.5 (16.3) 1.3 (1.3)

Notes: (a) Figures in parentheses are corresponding totals for 1962-1964.
(b) Mainly corporate taxation.     , . ..

Sources: Taken from Full Employment and Price Stabdtty (OECD) 1977.
Irish date derived by authors from National Income and Expenditure 1975.



due to the large agricultural sector in ]reland which at that
time paid little if any income tax and to the lower incomes
and the larger number of dependents per worker in Ireland.
As can be seen from this table also, Swedish social security
taxes amounted to 8.4 per cent compared with 3.7 per cent
in Ireland. The proportions of other taxes are the same in
both countries (1.3 per cent of GDP). Consumption and excise
taxes on the other hand total 18.5 per cent of GDP in Ireland
and only 13.8 per cent in Sweden. Because the public sector
in Sweden utilises a larger share of total resources than its
counterpart in most other countries, the tax burden has be-
come so heavy that the possibility of achieving restrictive
effects in the current recession via further tax increases are
very limited. Extra VAT taxes are, however, being imposed on
motor fuels and foreign travel to curb private consumption
but since there is no room for further increases in income
tax a re,assessment of priorities for the various public under-
takings has to be considered.

18



Chapter 2

Reasons ]or Sweden’s Economic Growth

IT was stated in the introduction that per capita income inIreland and Sweden was about the same in the early 1860s
when the two countries were among the poorest in Europe.
Since then the growth in the Swedish economy has been the
highest in Europe, whereas that in Ireland has been amongst
the lowest. What, we might ask, were the reasons for these
divergent growth rates since that time?

It could be argued that Sweden has had national indepen-
dence for centuries, whereas Ireland did not achieve such
status until 1921. This is only part of the answer, however.
It helps to explain Ireland’s slow growth, but it does not ex-
plain Sweden’s early stagnation or her good performance in
later years compared with many other European countries
which have had national independence for centuries also.

Sweden’s rapid growth can be traced to a number of factors,
but one of the basic elements underpinning all others was
probably her abundant supplies of ore, timber and water
power. It is estimated that her stores of iron ore are almost
inexhaustible. But these resources had been there from the
beginning of time and had remained undeveloped. Why were
they developed after 1860 and not earlier?
Heckscher (1954) says that one of the most important

factors initiating Swedish development was the international
migration of capital. In the 50 years between 1860 and 1910,
Sweden witnessed a large import of foreign capital which
was a vital prerequisite for the country’s rapid economic
upswing. Capital imports as such were nothing new; foreign
importers of Swedish ore had often financed exporters in the
Swedish sea ports enabling them, in turn, to extend credit to
producers. But this was on a trifling scale compared with
what took place in the 19th century. It was no longer a quest-

19



tion merely of supplying short-terna credit. Much of the
borrowing was done by long-term bond issues and the over-
whelming part of the foreign borrowing was done by the
Government to finance railroad construction. In turning to
foreign countries to finance the most capital absorbing opera-
tions of the time, the Government released domestic savings
for the use of private business. Some private people also
borrowed abroad at this time but this was insignificant com-
pared with government borrowing. Foreign borrowing ceased
around 1910 and eventually Sweden became a net exporter
of capital. (For details of the current situation see Chapter 3.}

The development of the Swedish railway system and other
land transport were the most important innovations in
Swedish history. Prior to these developments transport and
communications between provinces were impossible through-
out the year. In the late 1860s the north of Sweden was struck
by a near famine at a time when crops in the southern pro-
vinces were plentiful. This happened because food could not
be transported northwards. Nor could iron ore be carried
from the northern mines to the southern ports for shipment
abroad throughout the year. The development of inland trans-
port, therefore, was a vital prerequisite for economic growth,
as was the introduction of hydro-electric power for heating
furnaces and forges. The latter was facilitated greatly by
Sweden’s abundant water resources.

The improvement in the Swedish transport system was not
independent of a number of other developments which came
about at the same time and earlier. Three basic factors appear
to have set the whole process in motion. These were:

(1} The tremendous increase in the international exchange
of scientific and technological information during the
19th century.

(2} The change to increasingly capital intensive methods
throughout Europe and

(3} Britain’s adoption of free trade.
The increase in the international exchange of scientific

information benefited most countries but it was especially
important for Sweden. The appearance of an enormous body
of scientific literature in the 19th century, removed the veil of

20



secrecy in which new techniques and processes used to be
wrapped. It was no longer necessary, therefore, to import
foreign industrialists and workers in order to learn their
methods. From now on no country could expect to preserve
a technical monopoly as in the past and as a result some of
the best industrial techniques in the world were introduced
quickly into Sweden.

Probably the most important process brought in by this
method, was a technique for making steel from phosphoric
ores known as the Thomas/Gilchrist or basic process. Swedish
ores are overwhelmingly phosphoric; before the advent of the
basic process, they were not only useless, but even noxious.
Steel made from these ores would break under the hammer
and for this reason the richest fields in Sweden could not be
n~tined. The basic process, however, allowed Sweden to use
her vast ore deposits and set her industrial revolution in
motion.

The second basic factor in Sweden’s development, i.e., the
change to highly capitalist methods of production in Europe,
was also connected with iron. These new methods created a
tremendous demand for this product and as a result, Swedish
exports expanded enormously. There was a similar, but
smaller increase in demand for Swedish forest products, but
the expansion in the demand for timber for construction was
only a first stage in this development. In the second stage the
expansion in the forest products was closely tied to the con-
sumers’ goods’ markets. The swelling demand for wood pulp
was above all the consequence of increasing literacy and the
rise of the daily press.

The third basic factor contributing to Sweden’s develop-
ment was Britain’s adoption of free trade and the abolition
of colonial preference. During and after the Napoleonic wars,
most of Britain’s timber was imported from Canada. This
discriminated against other timber producing countries, in-
cluding Sweden. The reduction of penal tariffs against non-
colonial countries in the early 1850s was therefore a great
boom to European timber producers and particularly to
Swedish. Up to that time Norway was the main Scandinavian
timber producing country, being much better located for this

21



purpose than Sweden. Foreigners saw no need to go into the
Baltic for timber, when it was to be had on the shores of the
North Sea. Also the Norwegians possessed technological
superiority which was a further bar to the growth of Swedish
exports. Unfortunately for Norway, however, her forests were
becoming cut over by the early 1850s and attention was
therefore focused on Swedish supplies. The response was slow
at first, due to lack of technological appliances and a poor
transport system, but gradually these difficulties were over-
come. As stated above the transport system was developed
while at the same time steam saws and other devices were
introduced. Hydro-electric power, rather than charcoal was
used to fire the steel furnaces. Heckscher (op.cit. p.225) says
that the steam saw was one of the major contributions to the
industrial revolution in Sweden. The use of steam made it
possible to set up saws along the coastline, where they were
easily reached by timber floating down the rivers, as well as
by timber ships. As a result, the Swedish timber industry grew
at an enormous pace. "It was a gold rush like experience to
which there was no counterpart in earlier Swedish economic
history" (ibid.).
Another important factor aiding Swedish development

around this time, was the liberalisation of Swedish trade
policies. Tariff protection and prohibition of imports were the
characteristics of Swedish policy in the early 19th century.
The most restrictive policies were the Navigation Acts, which
restricted foreign ships entering Swedish ports. The first
relaxation of the old commercial polices was the disintegration
of these acts through the conclusion of navigation treaties
with various other countries. This happened throughout the
1850s and 1860s when the Swedish cabinet managed to do
away with practically all prohibitions against imports, to re-
duce import tariffs on manufactured goods and to establish
free trade in agricultural produce.

Though the liberal trade policies had numerous critics they
continued in operation until the 1890s when the competition
of American grain gave rise in Sweden, as elsewhere, to a
new tide of protectionism. Agricultural tariffs were followed
in 1892 by an increase in tariffs on industrial goods and

22



during the first decade of the 20th century, very heavy indus-
trial tariffs were in operation. Hence, at the outbreak of the
First World War Swedish industry was again protected by a
high tariff barrier.

Any assessment of Swedish protectionist policy is difficult,
but Heckscher (ibid. p.239) says, that in peace time, protection
was a somewhat retarding factor in the general growth of the
Swedish economy because it placed burdens on profitable
branches of industry in favour of unprofitable ones. On the
other hand, the price rise prevailing throughout the major part
of the protectionist period provided a valuable stimulus for
Swedish agriculture and many other industries.

Population
Few developments during the century preceding the First

World War were more dramatic than the population growth
which occurred in Sweden. Thus in spite of the industrial
expansion after 1850, industry was not capable of absorbing
the enormously increasing population, which occurred mainly
in the rural areas. The solution was emigration to the USA.

The first waves of emigration began in the 1850s and 1860s.
Two peak years were 1868 and 1869, when as a result of bad
harvests more than 70,000 people emigrated out of a total
population of 4.2 million. It slowed down somewhat in the
early 1870s but by 1880 it had become more or less a per-
manent phenomenon. The reasons for the exodus were plain.
At the root of the matter lay simply the great discrepancy
between living standards in the old and the New World,
coupled with the difficulty of finding employment at home.

Between 1860 and 1914, when emigration ceased, over one
million people had left the country. The population at the
beginning and end of this period was 3.9 million and 5.7
million respectively. It was primarily the landless agricultural
classes who chose to leave and in the short run their depar-
ture saved the country from agrarian pauperism. Later on.
rapid industrialisation and a declining birth-rate absorbed
the landless. But even in 1914, when emigration ceased, the
decline in the agricultural population did not cease. It has
continued unabated, even to the present day. Over the 50

23



years between 1880 and 1930, the proportion of the popula-
tion in agriculture decfined from 72 per cent to 22 per cent,
while over the past 40 years it has been reduced to about seven
per cent.

The First World War
Sweden, which had remained neutral, was unprepared for

a war such as the First World War turned out to be. Nothing
had been done specifically with a view to providing for the
exigencies of a blockade. No stocks had been laid up; no
economic programmes had been prepared. As a result, a most
serious food shortage was created by the Allied blockade of
foodstuffs and by demands from the Gernaans for extra live-
stock exports. The total nutritional deficiency caused by these
factors was 22.5 per cent of total food consumption (in terms
of calories) during the last two years of the war. This shortage
inflicted great hardship.

In the fall of 1920, the economic crisis, which had spread
throughout the world reached Sweden and developed into
an unusually deep depression. However, the solution to the
problem was simplified by the strong demand for Swedish
exports (above all pulp). Unemployment, which by Swedish
standards was exceptionally large, was met by measures de-
signed to bring the unemployed hack to work in private
enterprise rather than in public works. Also, though it may
seem paradoxical in this situation, all attempts to exclude
foreign competition by means of tariffs were resisted. It was
felt that the gains from exports should not be jeopardised by
curtailing imports.

Whatever the cause, Sweden was among the first of all
European countries to come out of the post-war depression.
Throughout the early 1920s, while the rest of Europe struggled.
Sweden experienced a partial boom, though there was per-
sistently higher unemployment than before the war. For labour
as a whole, however, this was offset by rising real wages.
These successes have been attributed (Uhr, 1977) to the
economic advice given the Government by economists of the
older generation--Davidson, Wicksell, Cassel and Heckscher
--who had all served the state during the First World War

24



and throughout the 1920s on problems of monetary policy,
taxation and international trade. For example, the character
of Sweden’s budget and tax system was essentially developed,
according to Davidson’s views on Public Finance, back in
1910, and remained substantially in effect until 1937, when
it was replaced by a system deliberately designed to operate
in a counter-cyclical manner.

The Great Depression
The Great Depression reached Sweden relatively late, in

the second half of the 1930s, though troubles had already been
felt in agriculture at an earlier date. In 1931 Britain aban-
doned the gold standard and Sweden followed almost
immediately as her external reserves were down to 30 million
Krona. The number of unemployed rose from 32,000 in
December 1930 to about 200,000 in March 1933. At the latter
date 45,000 of the unemployed had temporary jobs on relief
work at very low wages, 77,000 had cash relief benefits, but
the remaining 78,000 were receiving neither dole nor work
relief assignments (Uhr, ibid. p.113).
It was at this time that Sweden’s most distinguished

economists, Lindahl, Myrdal and Ohlin--all relatively young
men then I together with a handful of younger scholars,
collectively known as the Stockholm school, began to play
a prominent role in shaping the country’s recovery policies.
Indeed it could be said that this school anticipated by several
years Keynes’ "General Theory" which was published in 1936.
The first to announce a policy for recovery was Eric Lindahl
in a lecture entitled "Public Works in Time of Depression"
given to the Economics Society in Stockholm on 23 November
1932. This lecture turned out to have greater significance
than even Lindahl himself could have foreseen as it galvanised
public opinion and support for a positive recovery pro-
gramme.

Lindahl thought it unlikely that the then existing measures
(public works, freely available credit at reduced interest rates)
would suffice for the task of increasing employment; and he
rejected out of hand, the often repeated demand for a reduc-
tion in wages. He ~id that expansion of output for the

25



domestic market should be the primary aim and that people
must have money to buy the goods produced. He therefore
recommended that wages on relief works be kept at levels
only slightly below commercial rates.

Lindahl’s views, though opposed by some of the older
economists--Bagge and Heckscher--were supported, except
for certain details, by Myrdal and Ohlin. The latter, in a
remarkable monograph entitled "Monetary policy, public
works, subsidies and tariffs as measures against unemploy-
ment" in April 1934 (Uhr, ibid. p.107) brought to public
attention, concepts such as expectations, uncertainty and the
effects on confidence and on liquidity preference of public
works. Myrdal, in his contribution, which was an address to
Parliament, drew attention to the undesirable effects of
unemployment saying that prolonged maintenance of un-
employed workers on cash relief is very destructive of the
morale and skills of the human capital invested in them, and
that such deterioration is very costly to restore, if indeed it can
be restored at all.
The economists’ views on counter-cyclical polices were

accepted by the Social Democrats, who assumed power in
Autumn 1932, and by early 1934, 120,000 (63 per cent of the
unemployed) had jobs on relief work projects, while the rest
were on cash relief. From this time on, recovery was fairly
rapid.

Though the effectiveness of the policies pursued were
questioned at the time, by the older economists, most people
would now agree that they worked well, and saved Sweden
from a much more protracted depression. The fact that the
analyses turned out to be appropriate to the conditions of the
times, greatly enhanced the prestige of the economics pro-
fession in Sweden and by their services in this period, the
Stockholm economists, in particular, earned for themselves
and their successors, a permanent role in the nation’s policy
councils (Uhr, ibid. p.119).

The Second Worm War
The framework for economic policy that had been created

during the depression was essentially maintained throughout

26



the 1930s, even after the depression gave way to a minor
boom around 1935. At the same time, the working classes
managed, partly by strengthening the trade unions and partly
by use of political power to acquire an increasing share in
the national product.
Sweden also remained neutral during the Second World

War. After the invasion of Norway and Denmark in April
1940. she was cut off from the outside world to an extent
unknown even in the previous war. However, in spite of pro-
longed and virtually complete isolation, the people suffered
no deprivations similar to those of the First World War.
Although the food situation sometimes looked serious, there
was nothing like the hunger of 1917-18. This was due, in part,
to pre-war stimulation of agriculture, which left the country
in a very strong situation with regard to food production. It
has been claimed that planning made all the difference be-
tween the First and Second World Wars in this respect.

Conchlsions

In contrast to Sweden, Ireland is scarce in natural resources.
This is a serious handicap, but it does not lie at the heart of
the Irish economic problem. Other countries (like Denmark)
with poor natural resources have not been held back on this
score. Our problems have been of a political nature and our
economic backwardness has sprung mainly from this source.

Ireland did not acbieve independence until 1922 and we
are therefore masters of our own destiny for a very short
period. Of course national independence on its own would
not have guaranteed economic development but under a
native government a more favourable environment for
development would have existed. At a time when Sweden
was developing her transport system and introducing advanced
technologies, we were fighting a land war. After the First
World War, when Sweden was adopting advanced policies
for the relief of unemployment, we were fighting a war of
independence and a civil war. Even in the 1930s, wben Sweden
was experimenting with counter-cyclical policies to stimulate
demand, we were engaged in an economic war with our main
purchaser. Britain. thus prolonging a crippling depression. The

27



debate over the years, in Ireland, has therefore been basically
political. Economic and technological matters have occupied
secondary roles.

Fortunately, however, the emphasis has shifted over time.
In contrast to past years, economic matters are now beginning
to hold the centre of the stage. The First Programme for
Economic Expansion, in 1958, marked the beginning of a
new era. Since then. development has gone steadily ahead.
Let us ,see if it can be hastened, by examining in some detail,
modem Swedish policies.

28



Chapter 3

The Industrial Sector and Policies [or Industry.
the Regions and Trade

AS in other countries, economic progress in Sweden has
been largely sustained by the rapid expansion of indus-

trial output. The volume of industrial production expanded
by about 4.5 per cent annually in the 1950s. The rate of
growth accelerated in the early 1960s to over seven per cent
annually, and slowed down subsequently to just over five
per cent in 1965-70, and 4.7 per cent in 1970-74.

While the share of the labour force employed in manufac-
turing industry has dropped from 34 per cent of man-hours
in 1960 to about 28 per cent in 1973, output per man-hour
rose by seven per cent per year during the 1960s. Thus,
although GNP has grown somewhat slowly by Western Euro-
pean standards in the 1960s and early 1970s, the industrial
sector has bad a fairly rapid increase of output per man-hour.
Within the last few years, however, it is claimed (Swedish
Budget, 1978/79) that one of the central problems of the
Swedish economy has been a deterioration of industrial com-
petitiveness and this has been aggravated by the fact that
international recovery, more or less, petered out after the
first half of 1976. The adjustment of the Swedish exchange
rate by a total of 15 per cent in 1977 will yield an improve-
ment in industrial competitiveness but certain branches like
shipbuilding and textiles face severe structural problems that
cannot be resolved by measures such as devaluation. To re-
store international competitiveness in these branches, measures
are being introduced which aim at contracting certain indus-
tries and making them more effective so that resources can be
liberated for more expansive activities. Even when business
activity improves, Swedish industry will have to undergo
major adjustments and the Government has already taken

29



a number of measures in this direction, including steps for
improving the research and development potential of the
business sector.

Structure o[ Output
Changing patterns of demand, development of new markets

and technological progress are reflected in the changing
structure of industry. The importance of industries based on
raw materials and semi-finished goods is declining while the
dominance of the more advanced technology-based indus-
tries such as metals, engineering, and chemicals is growing.
This trend is similar to that in other highly industrialised
countries. Greater freedom of trade since the war has been
an important factor in the development of highly capital-
intensive industries in a small country such as Sweden. The
manufacture of goods such as motor vehicles, ships and air-
craft requires access to a very large market in order to take
advantage of economies of scale in production, administration,
marketing, research and development.

Table 3.1 shows the change in the structure of industry
since 1950.

Note on the Main Industries
Mining: Sweden produces 5 per cent of the world’s iron ore

and is responsible for I0 per cent of all exports of this ore.
Some 90 per cent of total deposits are in the North of Sweden
and they include not only iron ore, but also zinc, copper, gold,
sliver, lead and manganese.

Engineering: Production in engineering has increased more
rapidly than in other manufacturing industries during the
period 1950-1974---by 7.3 per cent per annum--as against
5.3 per cent for all manufacturing. In 1950 it accounted for
25 per cent of exports by value and by 1974 this figure had
risen to 44 per cent.

The main divisions of the engineering industry are (1) iron,
steel and metal; (2) electrical; (3) motor vehicles; (4) machi-
nery and (5) shipbuilding. Machinery accounts for about 30
per cent of added value in the industry, though the motor
vehicle section has been expanding. Native hydro-electric

3O



Table 3.1: Percentage sector shares o] GNP arising in manu]ac-
turing industry, includbTg mining (Measured in con-
stant prices)

Sector 1950 1960 1970 1973

Mining 4.7
Food 11.0
Beverages and tobacco 1.7
Textiles, clothing and

leather 14.8 9.3
Wood and furniture 7.7 5.9
Paper, pulp and paper

products 6.7 7.9
Printing and publishing 7.8 5.9
Rubber 1.3 1.2
Chemicals 4.9 5.1
Oil refining, oil and coal 0.8 0.9
Quarrying 5.2 4.3
Iron, steel and other

metals 3.7 6.8
Engineering 28.8 37.2
Other 1.1 0.9

%
5.2 2.9 3.1
8.0 7.8 6.7
1.4 1.7 1.7

6.9 7.4
7.1 6.5
1.5 1.3
6.6 7.6
0.8 0.7
4.5 3.9

6.1 6.1
40.1 41.4
0.5 0.8

Source: Some Data about Sweden 1975-76, Skandinaviska
Enskilda Banken, Stockholm.

power has given the incentive for the production of heavy
electrical equipment, while the forest industry has helped spur
on the development of heavy machinery. Sub-contracting has
become very important and a quarter of engineering output
is of products for further processing. The steel section of the
industry is, however, facing troublesome problems at present.
These have arisen in part from the lengthy and deep recession
among the Western industrial countries which has led to a
steep decline of steel consumption there since 1974. At the
~ame time, a modern steel industry has grown up rapidly in
several countries in Latin America, Asia and the Far East.
This can be expected to have Iong-terna repercussions on the

31



steel industry, not alone in Sweden but in the whole OECD
area. Actually Sweden is now concerned not so much with
steel exports as with holding its share of the domestic market.
Present policy is to concentrate production in the viable parts
of the industry, while the other parts are wound up.
Forest Industry: Sweden has about one per cent of the

world’s forests. Her importance in the timber industry springs
from the ease of exploitation of her forests. The main advan-
tages include a small variety of species, a long fibre, and
favourable conditions for growth and cutting. Forests products
account for 25 per cent of exports. Sweden’s share of world
production is four per cent and, of world exports 14 per cent.
Growth for the industry in the Long-Term Survey 1972-1974
is projected as 7.4 per cent per annum.
Paper Industry : There has been a very great expansion of the

paper industry in recent years. In 1974 there were 96 pulp
mills producing a total of 9.8 million tons of chemicals and
mechanical pulp. This accounted for eight per cent of total
world production and placed Sweden as the fourth largest
world producer after USA, Canada and Japan. About two-
thirds of the production of paper and board is exported,
though domestic consumption of paper and board is very
high, running at over 470 Ib per capita each year. As an ex-
porter of paper she ranks third after Canada and Federal
Germany.

Chemicals: A chemical industry did not really develop in
Sweden until the Second World War. Growth has been most
noted in organic chemicals, plastics and pharmaceuticals.
Petro-chemicals were given a special boost in the 1960s by
large capita/ investment. After petrochemicals the fastest
growing sector is pharmaceuticals, which is a section whose
products are largely the result of product development in the
companies’ own research laboratories in Sweden. A