In Praise of the Swedish Model by William Shepherd

Introduction

In the beginning of the 1970s the whole world flocked to Stockholm to discover the secrets of the Swedish Model...the middle way between Communism and Capitalism. But nowadays it seems only economic historians show any interest in the model. Yet it was never what it seemed. What you saw was not what you got but whatever you wanted...wysiwoolly rather than wysiwyg. The Swedish Model was all things to all men.

For a start Capitalism itself has always been a moving target with phrases like Contract Capitalism and even Guerrilla Capitalism currently in vogue. Swedish economic historians talk of four periods of capitalism: Classic Capitalism from 1840 to 1890; Organised Capitalism from 1890 to 1939; Participatory Capitalism from 1945 to 1970; and Corporate Capitalism from 1970 onwards.

The Golden Age of the Swedish Model coincides with the period of Participatory Capitalism starting after the Hitler War (1939-1945) and ending with the oil crisis of 1973.

During this time Sweden's economic power came from a small group of multinational corporations, based in Sweden but spreading first their wares and then their workforces around the globe.

International competitiveness was maintained by a continuing policy of devaluating the krona against the mighty dollar...a somewhat hazardous operation in Sweden where the big exporters were in the shipbuilding, engineering and raw materials sectors (forestry, mining and paper) so that any devaluation tended to suck in consumer goods from abroad. But they stuck to Gustav Cassel's recommendations and kept their eye on the purchasing power of the krona rather than the vagaries of the currency markets.

The policy has served Sweden well.

Between 1950 and 1970 Sweden's agricultural workforce declined by 75% to about one in twenty of the population...100 000 smallholdings vanishing in the process. Farmers specialised and no family farm could survive without its tractor. Meanwhile exports and imports increased rapidly throughout the period at between 7% and 8% per year...an astounding growth rate to sustain for such a long period from a mature base.

During this period the three city regions, Stockholm, Gothenberg and Malmö, expanded rapidly at the expense of the rural provinces. Industrial employment in these three city regions declined slightly from 26% to 24%.

But something relatively new, a waged service sector, grew up...fuelled at an ever increasing rate by a female workforce...on the back of an expanding public sector to take up the slack and keep unemployment, not just 'low', but 'non-existent'.

It was perhaps no wonder that the Swedish Model was able to replace the 'dole' with 'reschooling' and 'active measures'. There was only Sven and Lars to worry about on Monday morning when the AMS staff arrived for work. Contrast this with the thousands flocking into the dole queues in the north of England at the same time.

Wallenberg Dynasty

In shipbuilding it was Gothenberg and Malmö that were the driving forces...Eriksberg, Götaverken, Lindholmen and Kockums. In automobiles, Volvo, Saab and Scania-Vabis were the big names. But otherwise the story of the Swedish Model's industrial strength is the history of just one Swedish family...the Wallenbergs.

In electrical engineering, Ericsson, Asea, Electrolux and Luxor were all members of the Wallenberg family firm. In mechanical engineering Atlas Copco, Alpha-Laval, SKF, Aga and Facit took their orders from the family's holding company Investor and went to the family's private commercial bank Enskilda Banken for their credit facilities.

So it was fortunate for the Swedish Social Democratic Party...in power throughout the golden age of the Swedish Model...that the Wallenbergs were Swedish patriots and not foot-loose cosmopolitan bankers happy to get up and move out whenever the mood took them. Perhaps too Sweden's first family was mindful of the bale-outs that the founder of the dynasty A.O.Wallenberg had arranged for his Enskilda Bank in 1857 and 1878 with his old friend Johan Gripenstedt. Sweden's Minister of Finance.

The Left has argued that the importance of the Wallenberg firms to the Swedish Model is over-rated. In the 1960s the Left focussed its attention on 'the 15 families' and looked upon the Wallenberg family as one among many. Their argument was that the fifteen families may have accounted for 300 000 Swedish jobs in the 1960s but that this was only 7% of the workforce.

The nineteen families usually included in 'the 15 families' were Wallenberg, Söderberg, Wehtje, Bonnier, Johnson, Sachs, Kempe, Åhléns, Klingspor, Throne-Holst, Jacobsson, Åselius, Schwartz, Jeansson-Högberg-Hain, Roos, Dunker, Hammarskjöld, Broström and Wenner-Gren. The predominance of German rather than Swedish names was frequently noted. However though all the families may have been equal in the left...in industrial wealth-creating terms one was clearly more equal than the others.

The left's analysis led them to accuse the social democrats of a 'sell-out', attributing it to a conspiracy between the labour unions, the paymasters of the Social Democrats, and the Wallenbergs to divide up the spoils among themselves with high wages for unionised labour and high profits for the Wallenberg firms...at the expense of the Swedish working classes.

Some evidence to support the left's view comes from Lennart Erixon in 'The Golden Age of The Swedish Model' who points out the significant role played by Wallenberg firms throughout the 1950s and 1960s as 'wage-setters' for the rest of Swedish industry.

Labour Relations

In the 1970s foreigners saw Sweden as a land of freedom with no unemployment, clean streets, clean people, trains that ran on time and a welfare state that incorporated the most up-to-date social attitudes and welfare policies.

The older generation also noticed that from being a nest of industrial unrest in the 1920s when unemployment was uniformly running above 20%, Sweden had turned it all round with conflict almost completely absent from the shop floor.

In the 1950s and 1960s development economists believed there was a model of best practice that could be used to develop any country. Few believe this any longer. But they did then and so foreigners flooded into the Venice of the North seeking the holy grail of economic development and the elixir of everlasting growth. They were impressed with what Sweden had done and assumed there must be a model they could follow.

At the time both Swedes and outsiders believed the key lay in Sweden's central bargaining system where management and worker representatives sat down together and divided up the cake between them.

The unions then went to their members and reminded them that firms needed to make profits if they were going to invest and that wage solidarity meant higher paid workers showing restraint to improve the position of the lower paid…a policy which solved the problem of wage differentials. In practice the union leaders never did much about the solidarity side of the coin but the mantra 'Profits good & Wage rises low!' normally did the trick. The unions delivered.

One Party State

One aspect of the Swedish Model that fascinated foreign politicians, rather than economists, was the Swedish Social Democratic Party's hold on power.

This should be a subject of scrutiny by today's party of the future, Miljöpartiet de Gröna (Swedish Green Party) as they struggle to stay over the 4% threshold without any coherent strategy for turning themselves into a 40% party.

But as every business-man knows, however good your mousetrap, customers never beat a path to your door. They have to be fetched...one at a time.

And although 'parties of the future' have a rather special role to play in a democracy, at some time in their career they have to face the future square on and make the transition from a party of the future to a party of the present (see 'Evaluating Elections' in Appendix A).

This was the transition the Social Democrats made in the 1920s and 1930s. They decided to go for a collective future project that mobilised the whole Swedish population. They based their programme on the premise that they could achieve their goals by parliamentary means instead of by 'class struggle'.

 The fate of a political party is not in its own hands. What happens to it depends at least as much on what the other parties do or fail to do. When looking at the Social Democratic success, the parties of particular interest are Vänsterpartiet (Socialists), Centerpartiet (Farmers Party) and Höger or Moderaterna (Conservatives). And here it is instructive to make a comparison between Sweden and England.

In England the Fabian Society, the British Labour Party's think-tank, was making very similar noises in the 1890s to those that eventually emerged from the policy committees of the Swedish Social Democrats in the 1920s and 1930s.

'The Fabian Papers' were published in 1884 and led after four decades and one particularly nasty world war to their republication in a rather more definitive form as George Bernard Shaw's classic socialist tract, published in 1928, 'The Intelligent Woman's Guide to Socialism and Capitalism'.

Tale of Two Countries

Social democracy in the 1920s was a European political movement just as the green movement is in the 1990s. Bitterly opposing social democracy from the left throughout Europe were the communists and anarchists, who saw no future in the social democrats' parliamentary strategy.

In Sweden three things happened.

The hard left broke away and formed their own party.

The rural interests represented by the farmers' party decided to sign up for the social democratic project.

And the conservative party, representing capital, made two crucial decisions. They decided to do business with the social democrats rather than seek a stand-off with communism, anarchism or syndicalism...a force in Sweden in the 1920s. And they hedged their bets by funding the opposition Conservative party.

None of these things happened in England. Firstly there was no farmer's party. Disraeli had skilfully manoeuvred in the 19th century to position his 'One Nation Tory Party' as the rural party. They played their cards well and Labour was never really able to break out of its urban enclaves and capture the English countryside. The closest they have come was in 1997 when New Labour captured the suburbs.

Secondly the hard left in Britain decided to stay within the Labour Party movement and form a party within a party. The pendulum has swung over the years between New Labour and Old Labour. The Blair Project...and the reason he is so anxious to work closely with the Liberal Party...seeks to jettison the hard left once and for all. He is unlikely to succeed, the hard left being used to playing a long waiting game.

Thirdly the Conservative Party with its strong rural base in the south of England has continued the Disraeli policy of perpetual reinvention of itself. The Swedish Conservative Party never needed to do so. Its paymasters were more than happy with the arrangement they had with the Social Democrats. The threat to withdraw their support was always there. And until recently that was enough. The Social Democrats delivered a broadly acceptable capitalist agenda...behind a veneer of socialism as their critics on the left would insist on pointing out.

State Control

Characteristic of the Swedish model was a seemingly large number of state monopolies. The state-owned sector never employed more than 10% of the workforce but the firms were close to people's everyday lives so any inefficiencies or idiosyncrasies were very visible.

The theorists of the Swedish Model argued that markets could not meet needs. They accepted that the needs of markets such as health and housing were effectively without limit, but then went on to argue that this was no reason to limit their ambitions. Sweden could have it all.

And just because there were no limits, the public sector and not the private sector was the only way to ensure the best possible allocation of resources. R & D spending on drug research was usually mentioned as an example. As a consequence the Swedish state collected a portfolio of firms owned by the people but run by the government.

There were the public service firms... Televerket (telephones), Postverket (post), Luftfartsverket (airports), Vattenfall (water & sewerage), SJ (railways) etc. These firms provided essential public services which only the state could guarantee...the usual argument for special public concern with utilities.

Then there were politically motivated state subsidiaries...Penninglotteriet (lottery), SAS (national airline), Atomenergi (nuclear power), Svensk Tobak (cigarettes), Vin & Sprit (alcohol), LKAB (mining company) etc. For these firms the state played the role of holding company similar to the Wilson government's National Enterprise Board in the 1960s.

But the arguments went further. State firms could put pressure on private firms. This would keep them on their toes and stop them from colluding, forming price cartels and generally working against the public interest.

And these beliefs in public sector superiority soon became beliefs in planning and a distaste for market allocations. The 1944 Myrdal Commission encouraged this type of thinking by telling the Swedish government to get involved in planning the country's economic development.

Planning & Regulating

By 'planning' Myrdal himself meant a sort of indicative planning rather than a Soviet style Five-Year Plan. At that time housing in particular was crying out for this sort of approach. A two year planning horizon was what the Myrdal Commission suggested.

Unfortunately within any public sector agency what starts out as a two-year indicative planning exercise rapidly deteriorates into a 'nooks and crannies' regulating of everything within its planing orbit. Only strong leadership, intent on avoiding this, can limit the meddling.

Social Democratic instincts were quite the reverse so in Sweden another characteristic of the Swedish Model that developed over the years was regulation...particularly in housing, in agriculture and in the money markets.

In the housing sector it took the form of minimum standards in housing construction and in freezing rents by regulation. The results are impressive and speak for themselves. As for the agricultural sector, by the 1970s it was a maze of regulation into which only the hardiest of souls ventured. In the credit and money markets a system of strong regulation evolved and remained in place well into the 1980s.

In the 1960s the government used the capital adequacy ratio as its control lever on the credit and money economy. This is a very effective mechanism and a lot of Sweden's recent economic problems could have been averted had this lever been taken up again in the 1980s and 1990s (see ' Capital Adequacy Ratios' in appendix B).

In agriculture, in housing and in the money sector...through the dominant position of housing mortgage finance in the post-war Sweden...there has been another characteristic feature of the Swedish Model. This has been the presence of a third player...the Cooperative Movement...alongside the public and private players.

In these sectors the cooperatives regularly took a third of the market. But the cooperative movement was part of the social democratic coalition and so was effectively the commercial arm of the one-party state...shocktroopers for party, government and union policy.

Corporate State

This corporatist approach is characteristic of the Swedish Model. It started with the parliament commissions inviting in the non-governmental organisations (NGOs) of the day.

But then developed these into an alternative path for representative democracy...a sort of trade parliaments of interest organisations alongside the official elected parliament which represented 'locality' instead of 'interests'...a crucial distinction that H.J. Mackinder saw as a crucial difference between 'landsmen' and 'seamen' points of view in 'Democratic Ideals and Reality'.

In the golden age of the Swedish Model, decisions were made behind closed doors...nods and winks inside a very small group of representatives for the relevant interests. At best the government would play the part of ringleader and ensure that all the right parties were in the ring and part of the consensus. At worst it was Kafka and Orwell rolled into one.

It is perhaps no wonder that it is the inheritors of these interest groups that are overwhelmingly in favour of the Maastricht Treaty. Writ large the EU is the Swedish Corporate Decision Making Model. Few realise that the 'writ large' is the whole problem ensuring that the cosy little cabals the Swedish elite are so used to will exclude them. It may take awhile, but they will find out.

New Homes for All

A number of commissions were at work in the 1920s and 1930s worrying about such things as unemployment...the problem of the 1920s. Immediately after the Kaiser War the Social Democrats really had no other idea than to get into power. When they got there they had a problem. What were they to use their power for? The class struggle had been their ideology but they had now rejected it in favour of parliamentarianism.

By the mid-1920s they had two ideas. Firstly they would work to make the cake bigger... provided they got their fair share of the cake. This was quite a revolutionary posture. In America there has never been a question about who owns the rewards of increased productivity.

Secondly they would use their share of the cake to make things better. The problem for the think tanks was to translate that into policy language. The key breakthrough was deciding to make things better for the worst off. With hindsight this may all sound rather trivial. But economic development must have a purpose.

Much of the trouble in the world can be directly traced to pursuit of profit for profit's sake. Corporations have no purpose other than to become bigger and ever more powerful. Nations pursue growth for growth's sake...and because it is the only way to balance the books in a debt-usury system that fails to account for usury.

By 1928 the key decisions had been made. Making the poor better off meant jobs, housing, political participation and a measurable number of very specific goals. Per Albin Hansson's speech to the Swedish Parliament in 1928 was as momentous in its time as a speech by a Swedish Prime Minister today would be were he to stand up in parliament and announce that Sweden was applying to become a state of the union...the American united states that is.

His theme was a home for every Swede. But not just any home. A good home, well-made and of the very highest quality.
 

Social Democracy finally had its big project after almost a decade of searching. The architect was to be Gustav Möller although Gunnar and Alva Myrdal's 1934 book 'Kris i Befolkningsfrågor' was to be of crucial importance...not because the social democrats took much notice of their recommendations, but because it allowed the party to colonise social territory that had previously been the exclusive reserve of the right in Swedish politics.

Countercycling

The aspect of the Swedish Model that interested visiting economists in the 1970s was the investment funds invented by the Swedish Minister of Finance Gunnar Sträng in the 1960s. In America, as a one-off crisis measure, something very similar was already being done by Franklin Roosevelt in his New Deal response to the Great Depression although it never became enshrined in policy.

In Sweden the groundwork for the policy had been done by Gustav Cassell at the turn of the century and with the notable exception of David Davidson the idea was endorsed by the economists of Sweden's other golden age...that of economics. Both Wiksell and Hecksher viewed favourably the idea that government should intervene in the economic cycle by fine-tuning effective demand.

The Swedish Social Democrats were in a position to implement these ideas as early as the 1930s which would have made them the first government in Europe to embrace the new orthodoxy which has subsequently come to be known as Keynsianism.

But the question of whether or not the social democrats attempted any form of countercyclical intervention in the economy is a matter of acrimonious debate between the centre-left and hard-left (see'Social Democratic Government in the 1930s' in Appendix C).

Gunnar Myrdal and Bertil Ohlin were both busy proponents of the interventionist approach but in the cold light of day in the real world the Social Democrats discovered that this new policy tool dreamt up by the academics was a two-edged sword. Its usefulness depended on knowing when to apply it...and you only ever knew that after the bottom of the recession.

Gunnar Sträng reckoned he had figured out a way round the problem. It was really indicative planning all over again. Government would not intervene directly but would instead give incentives to the large companies.

This is how it worked.

A company could put money away tax-free in an investment fund and take it out again later. Government would operate the 'economic traffic lights'. Red at the top of the economic cycle...stop spending and put your money into your tax-free piggy bank. Green at the bottom of the cycle...raid the piggy bank if you want to. Amber at other times.

The catch from a company's point of view was that Gunnar Sträng circumscribed any creative accounting they might otherwise have done by insisting that they deposit an amount equivalent to the temporary tax savings with the Swedish Central Bank...interest-free. The companies of course would have preferred to have the money sloshing around in their corporate treasuries.

With hindsight most Swedish economists now believe that Sträng's investment funds never really worked. Not only did the investment funds distort the 'free workings of the credit and money markets'...that after all was the idea...but the mechanisms for triggering movement in and out of the investment funds tended to have a rather perverse ratchet effect that led to a steady one-way increase in public sector spending

Meanwhile other investment opportunities were squeezed out. The boost to the public sector at the low point in the economic cycle was never balanced out by drawing in expenditure at the high point...which was how it was supposed to work.

Historic Compromise

Some chose to see in the Swedish Model a historic compromise between labour and capital. The core of this viewpoint was the Saltsjöbaden Agreement of 1938. But the political reality was not quite what Swedes like to believe.

Per Albin Hansson, the Swedish Prime Minister was concerned that industrial unrest...which invariably affects third parties (ie. the public) more than those directly concerned...would erode Sweden's belief in democracy and open up the floodgates to a fascist takeover in Sweden. It was not just the hegemony of the Social Democrats he saw threatened but the ideas of liberalisation, humanism and democracy.

So he read the riot act to the labour union bosses and the captains of industry.

'Keep the peace or else!'

Now in Sweden throughout the golden age of the Swedish Model the real captains of industry were also the board members of the banks. Enskilda Banken was the Wallenberg family's private bank and the other big commercial bank, Scandinaviska Banken was a loosely knit group of three big city banks each run by and for the top businessmen in Stockholm, Gothenberg and Malmö respectively.

For their own different reasons neither the union bosses nor these bankers wanted government meddling in their 'internal affairs'. So they were able to agree on one thing. The government must be kept out at all costs. Once that had been agreed, negotiations went ahead on the details in the small print.

The crucial idea in among the small print was the dispute procedures. Both parties had experience to draw on from their bitter battles in the 1920s over compensation for overtime during the Kaiser war and the introduction of the '8-hour day'. The result was an approach to conflict resolution that possibly only Sweden could have produced. It was before its time.

But nonetheless the Saltsjöbaden Agreement of 1938 was an agreement between labour and capital to avoid any third party involvement in the affairs of the workplace. The principal purpose was to keep government out. The mythmakers have built it up into something else.

Welfare State

The Swedish Model has its roots in social engineering and the rationalisation movement brought across to Europe from America after the Kaiser War. The Swedish unions were sceptical to this new wonder cure for industrial productivity. But their objections were not addressed at the methods themselves...which any ordinary person immediately saw as dehumanising...but at the shift of power embedded in the new methods.

Scientific Management transferred responsibility for 'thinking' to a central planning department. Workers were to return to the dark ages and become once again dumb machines. Nonetheless the influence of the rationalisation movement pervaded society, not just in Sweden, but in Europe and America too.

As late as 1966, for instance, Cambridge University was still including Taylor's 1920s classic 'Scientific Management' in its compulsory course for engineering undergraduates on industrial management...at a time when Volvo was busy experimenting with 'people-oriented' rather than 'task-oriented' work organisation...yet another example of the sound thinking emanating from the home of the Swedish Model.

The Swedish unions lost the argument and as a result the oft-disputed Paragraph 34 was included in the Saltsjöbaden Agreement, reserving for management the right to determine the breakdown of work in the work place. But perhaps more seriously they and the Social Democrats also 'lost the plot'. The horse had bolted...and only a few philosophers had noticed.

Scientific Management still permeates the whole of Swedish society, from the factory to the office to the schoolroom. And in particular it found its way into the Swedish Welfare State.

But Sweden was not a special case.

The whole of Europe went for a welfare state after the Hitler War and all of them were manifestations of Taylor's scientific management. Some key dates in the build-up of the Swedish Welfare State are:
 

1938 First holiday law
1941 Workers' insurance
1944 Apprenticeships
1946 Workers' seats on company boards
1946 Basic pension rights
1947 Family allowance
1948 Workers' right to training
1948 Free school meals
1951 Holiday rights increased to 3 weeks
1955 Compulsory health insurance
1962 Nine years compulsory schooling
1966 Schools into local control
1968 Social services into local control
1974 Pension rights for part-time workers
1974 Improved healthcare insurance
1974 Maternity leave for parents
 

There was only one hitch in the whole process. That was in 1951. The ATP pension scheme was at the heart of the dispute.

The Social Democrats were venturing into forbidden territory. Money and pensions were the domain of the money power. So the tories demanded a private scheme. Who won is anybody's guess. There was even a referendum.

But apart from this little skirmish all went very smoothly and the Social Democrats gave the Swedish people the welfare state they had promised them. This too is seen as a characteristic of the Swedish Model.

Model Exports

Overtaking Assar Lindbeck one day when he was out for a walk along Brunnsviken with a group of visiting dignitaries and I was on my way to the university I overheard him say that the role of the Swedish labour unions as paymasters of the Social Democrats would be called corruption in any other country.

The point is well taken and raises some relevant questions.

Is there much difference, for instance, between Suharto in Indonesia, Marcos in the Phillipines or the Shah of Iran holding their nation's wealth in personal accounts in Zurich and a pension fund manager in the City of London placing Mr. & Mrs Jones life savings in an offshore fund on the Cayman Islands?

And how much difference is there between the Miners Union Pension Fund holding works of art in the basement and Chiang Kaishek Kuomintang Party...reputedly the richest political party in the world...or the Swedish Democratic Party holding members' assets in the party's name?

We throw around words like 'corruption' a little too easily. As economists we should perhaps seek to define such terms operationally. What we like to call corruption may in practice be a sensible way of holding accumulated capital safely until it is needed for investment.

To take another example, Mobuto would have been crazy to have kept money in Zaire. Obviously it was more sensible to put it in the safe-keeping of the Swiss bankers. Furthermore no banker or businessman would expect to judge a bankrupt concern by the same criteria as a going-concern. Yet that is what we do with 'fallen dictators'.

What really matters is not where the money is held when it is not being used but what the 'competent receiver' does with other people's money when he goes out and spends it.

Do they invest their money wisely in building up their country or do they use it in frivolous pursuit of their own private pleasures?

Do they fritter away their country's money on the grandiose white elephants so beloved by the World Bank?

Do they spend their people's savings on bringing weapons of destruction into their country...weapons that would not otherwise have found their way out of the war factories of the west?

Are these not more important moral questions than the name on the bank account?

A separate question is how these investment funds should be invested to maximise their purchasing power when sensible projects do become available and economic goals can be found that will lead to real economic development.

Chile under Pinochet, for instance, after Allende had cleared the decks with his land reforms...as opposed to the economic growth without development that is typical of Brazil and elsewhere in Latin America.

Friedrich List

Another question is whether there is any real difference between Gunnar Myrdal's Swedish Model, Franklin Roosevelt's New Deal, John Kenneth Galbraith's New Industrial State and Sun Yat-sen's 'Three Principles' which formed the basis for Taiwan's economic development.

Are they not all examples of the application of German economic theory as developed in the 18th and 19th centuries by Gottfried Leibnitz and Freidrich List. If this is the case, then why are students not being introduced to the writings of these economists?

List elaborated the difference between the British imperial free-trade doctrine and the 'American System' of economics. 'Outlines of Political Economy' was published by Samuel Parker in Philadelphia in 1827 and was later to guide Germany and Japan in their industrialization.

The Economist in reviewing a new edition on July 2, 1927 had this to say:
 

The real question and the one that is seldom asked is whether the surplus savings or temporarily held wealth is better off in one big pot or spread around in lots of smaller pots. The size of the pot and who is allowed to dip into it are the most crucial questions of all.

Britain & Sweden

So far Sweden has avoided the onslaught of Thatcherism. It could be argued that England needed a ten-year dose of Thatcherism.

But it is doubtful whether Sweden did. Sweden's union bosses and captains of industry had been running a good tight ship doing the job that Thatcher's Canadian generals (McGregor and Day) were brought in to do in the 1970s...a job that saw the demolition of the steel and coal (MacGregor) and ship building and automobiles (Day) industries.

The final act took place last year with the sell-off of the no-future automobile industry to the ever-gullible Germans.

But for all that, Britain and Sweden are now moving on parallel tracks. The Next Swedish Model could be remarkably similar to New Labour's Third Way. But only if New Labour's offshore islands are broken down into Swedish-sized chunks with England as six Swedens or a dozen Finlands or even a couple of hundred Icelands instead of a 44 million colossus.

It is sensible for Scotland and Birmingham to strive at being World Number One at something. And it makes sense to call on their worldwide web of blood relationships to help them. 'New Labour. New Castle!' is a worthy slogan. But 'New Labour New Britain!'? Never.

While the Swedish Model was failing in the eyes of the Swedes themselves, the English have subjected themselves to twenty years of market madness. Are we really sure that the true Swedish golden age has not been from the oil crisis until the present day? Avoiding what might have been wins no headlines but might yield greater happiness for a greater number of people.

In England those twenty years of Thatcherism have allowed reforms to be put in place that were designed to be 'irreversible'. The country now has an opted-out business class deeply committed to the harsh market individualism which so uniquely benefits them.

Other values - of public service, altruism, justice, even fair play - have withered. The task of rebuilding public institutions and of changing the British business culture is immense.

It is now almost second nature to distrust any form of public initiative.

The English are consumers rather than investors.

Takers of whatever Topside chooses to dole out.

And the belief that nothing can alter their fate has been drilled into the English over two decades and now sits deep.

How well the Swedes have done to escape all this?

How fortunate Sweden has been to allow the lingering afterglow of their Swedish Model to provide them with an alternative during the time Milton Friedman and his Chicago boys were opening up Chile to the spivs and hustlers of the global casino.

It could have happened to Sweden.

Home or Shop

Margaret Thatcher used to liken her country to her father's grocer's shop...conveniently ignoring the fact that her father's grocer's shop did not have a printing press in the attic and an arms factory in the basement.

Per Albin Hansson likened his country to a home.

With the ideal of the 'folkhemmet' he drew a line under the class struggle and set a new path for Sweden. Of course the path had political implications. But the path itself was in the land of values and not politics. Per Albin demanded that Swedes base their wider economic and social relationships on the same values that animated their personal relationships.

Recently Helmut Kohl has had the audacity to seek to evoke this metaphor of the home by talking about 'our common European Home'. That was not Per Albin 's meaning. He refused to accept the idea that his people should be 'soft' at home but 'hard' at work.

Sweden spent the next 40 years learning what their 'folkhemmet' meant in practice And they discovered that it meant far-sighted firms, a modern welfare state and solid public services...the very things that Len Hutton is calling for New Labour to deliver in the stakeholder society he describes in 'The State We're In' (1994) and 'The State To Come' (1997).

'Such things, wrote Hutton, 'do not emerge out of thin air; they need to be embedded in the institutions and patterns of incentive which sustain them - the most important being a political system which is of the people rather than above them.'

A properly funded system that underwrites the brute risks we all face - an essential component of any just society - is what is now needed. And for it to work in everybody's best interests, it must be run by a democracy which itself incorporates these values.

In this regard Sweden's needs are no different to England's...to create a polity of properly enfranchised citizens which is subject to a rule of law. And there is a world of difference between a rule of law and a rule of lawyers and arbitrary political directives of the sort emanating from Brussels and Luxembourg.

In Britain the question is whether New Labour…as careless of the liberties it removes as any the Conservatives took away in their drive to marketise society…is capable of addressing either these big needs or the smaller problems characterised by 'short-termism' and 'under investment' in Britain's public and private sectors.

But in Sweden a system is already in place, put there over fifty years by the struggle and commitment of three generations of Swedish men and women.

Has the propaganda from the right led to a crisis of faith and a failure of nerve?

Is there a risk that the baby will be thrown out with the bath water.

Money & Work

To the architects of the Swedish model the fulchrum about which the good society turned was the fair distribution of work and income. The most important source of poverty was joblessness. The most important indicator of individual well-being was the ability to work in ways that allowed people to feel they were acting on the world in the best way they could.

To work is to earn an income - and Gustav Cassel, Kurt Wicksell and David Davidson who trained the economists of the Stockholm School that provided the economic theories for the Swedish Model understood the critical role of effective demand in economic life.

But the linkages are not as well understood by non-economists as they ought to be.

Effective demand is wages plus profits.

It is what people have to spend...or save. Mobilising these savings is a separate issue. This is what stock exchanges are for...swapping £20 now for £1 per year.

But in classical economics, money is not given to people.

Money is given to firms.

Firms pay wages and make profits. That is how people get money.

The economists' bruttonational product (BNP) measures these two streams of money.

But classical economic theory was constructed to explain why trade and manufacture presented a better way for a country to get rich than mercantilism...the prevailing orthodoxy of the time which focussed on bringing as much gold as possible into national treasuries, not on increasing the size of the local harvest or the power of the parish church.

When Adam Smith wrote 'The Wealth of Nations' he took nothing for granted...except the nation state.

The original purpose behind classical economic theory was to keep money and goods in balance. Keeping prices steady was the main concern. And the classic demand equation 'Money (M) multiplied by its Velocity of circulation (V) equals Price (P) multiplied by the Volume of goods traded (T) served the purpose well.

It was true. The devil was in the detail.

'MV=PT' has outlived any useful purpose. It is now a playground for statisticians. Eurostat is the most important department of the European Union. Proving 4=5 is all in a day's work.

BNP was not invented to measure progress but to help regulate the amount of money in circulation and prevent prices rising. There is no reason why BNP needs to be 'national'. It could just as well be 'bruttovillageproduct' (BVP) or 'bruttoglobalproduct' (BGP).

Nowadays anything that moves and registers in the till is now called a traded good.

Money as coinage has been overwhelmed by credit instruments and cybercash.

A third of all traded goods are invisible to national statistics, passing within transnational corporations.

And goods can have almost any price tag on them. Distress sales, charity shops, advertising and fashion were never part of classical economics.

Only economic statisticians really understand the problems.

Work & Wages

But to work is also to acquire skills, to win friends, to gain status, to assert your very existence. Enforced idleness is numbing and it is no coincidence that the highest rates of suicide are among the unemployed.

So the first objective of any democratically elected government is the promotion of work. And its policy objective is to shape the demand for work while stopping work itself from becoming a hireable and fireable commodity.

The process has to respect economics. Unless employers can change the balance of their workforce as demand patterns change and pay them accordingly they confront trading losses and ultimately bankruptcy. No economy, industry or firm can operate with a prohibition on making workers redundant.

On the other hand few employers set out to treat people badly. Rather they find themselves having to choose the lesser of two evils. Either they lower their wage costs aggressively, for instance, or the prosperity and independence of their enterprise is in jeopardy.

James Meade has long argued that this is too great a burden for business to bear. Why not instead deliberately reduce the proportion of household income derived from wages? Several Conservative theoreticians have been moving in the same direction.

What then should take up the 'effective demand slack'? Profits suggests Meade...share options in lieu of higher wages. The Microsoft Way. But in the hands of everybody in the firm, not just the fat cats at the top.

Property argue others. One important plank of the Conservative Party agenda in Britain was always the creation of a property-owning democracy. This was a key component in the policy of privatisation. Margaret Thatcher in particular regretted that nothing of the sort actually happened.

Instead the most dubious Texan players have been scrambling all over the country buying up utilities to launder their losses and prop up their own ailing balance sheets.

Good Ownership

The tone, objectives and culture of any firm is set by its owners. So one of the first places to act upon to change the world of work is not the labour market itself, but the forces that shape the market and, in particular, the priorities of firms' owners.

One eccentric aspect of British capitalism is how poorly its business owners discharge their responsibilities. The ultimate owners of most British companies are individuals committing their life savings to pensions and insurance schemes.

There has been a dramatic shift in share ownership over the past twenty years. These new owners...you and me...want the companies they invest in to be patient and long-term in their strategies. But by law we are compelled to delegate the job of managing our ownership rights to professional investment managers.

These professional managers define their responsibility as being not to the company in which they invest, but to the savers who have entrusted to them their savings...whose assets they need to maximise over the shortest possible period in order to make their own business as investment managers prosper. This priority thus becomes the priority of the directors and managers of the companies in which they invest.

Worse, the structure of institutional share ownership is such that no one investment manager can ever take responsibility for the fate of any particular British company or group of companies. They are not large enough to be committed owner-anchors, nor small enough not to matter. The result is to create the takeover culture. Note once again how size is a critical variable in the equation.

So fund managers are locked in a classic example of how an efficient contract between contracting parties - between them and their savers - has a disastrous spillover effects for the operation of the system as a whole.

Unless the funds they manage keep up with or beat the stock market indices, they can lose the entire account to a new firm of managers. The contract can be switched with little notice, and billions of pounds of shares can suddenly be managed by someone else.

Because the firms want to keep the business and win business from others, they are forced into a position in which everyone is trying to do better than the average, which is obviously impossible. The resulting instability helps to generate uncommitted, disengaged owners.

Will Hutton's proposal is to treat investment managers the same way as the government treats franchise holders and their railways and media monopolies. Go for fixed term contracts, a term of five years being Hutton's suggestion.

But Sweden it seems has been blessed with patriotic owners willing to take the long view. The Wallenbergs in particular have always believed in active ownership. And, at least with hindsight, can be seen to have been impressively competent. They have acted much as 'the good government' would have acted. Perhaps it was sheer luck - a few lucky bets.

Certainly there is nothing intrinsic to private ownership that implies competence...nor in public ownership that implies incompetence. But yet government intervention seems to be a much more hazardous undertaking, with an impressive catalogue of failures littering the economic textbooks and only a few successes balancing 'the social score-card' of public ownership.

Fairness

There is one other point that is often ignored. A state, like a company, has both a profit and loss statement and a balance sheet. Commitments on public spending have important implications for the state as sponsor of collective insurance against the risks everyone confronts.

If the insurance component of public expenditure rises, this is part of the contract between the government and the people and is the most economically and socially efficient means of discharging the insurance obligation. But it is a balance sheet item and not a charge to the P&L like a nurse's salary is...or the purchase of a corporate Hallberg Rassy should be.

One of the key roles of the state is as risk sharer and risk-underwriter. The dynamics of contract capitalism, in thrusting unfair amounts of risk on to the disadvantaged, can only be addressed by redistribution of both the risk and the reward.

Most people would agree that rights should be balanced by obligations. But what we have been seeing from New Labour in its first two years in office is a dangerous tendency for obligations...to search for work, to save for pensions...to be imposed upon the poor, while rights...to enjoy low marginal rates of tax, to opt out into privileged private education...are voluntarily exercised by the rich.

This unfairness undermines the bonds that hold society together. Partial implementation of a rights and obligations framework hitting the poor harder than the advantaged is a mistake that Sweden has so far avoided.

The grey eminences behind the Swedish Model understood that moral principles are universal or they are not moral. And they persuaded both the Social Democratic Party's electorate and the advantaged themselves of the strength of their case...a case made again in recent years by the Harvard philosopher John Rawls.

Good Taxes

One current paradox in England is that while Conservatism and its works are still deplored by most of the electorate, Conservative philosophy remains intact. The dominant discourse of political debate still prohibits the advocacy of tax-funded public spending.

The intellectual hegemony of Conservatism remains in place.

And at present the signs are that New Labour remains imprisoned by the ideas it learned to ape and is limiting itself to governing within the parameters laid down by its predecessors.

Some of the best instruments available to governments to fight inequality, poverty and social marginalisation are public spending and taxes. Public goods like education, health and transport cannot be provided without public spending.

However two things are too often forgotten in the public debates on tax and public spending. The first is that public spending makes up a crucial component of effective demand. The second is that there is no more economic logic in giving 'interest' to the rich than in giving social credit to the poor or a guaranteed wage to all.

Any economic debate on income tax versus a Henry George land tax or a Carbon Tax or any other form of public sector revenue raising measures should hinge on the differences in the marginal propensity to save and consume of the various recipient and contributing groups.

Any move to enforce pension saving by the poor, for instance, can only make economic sense if linked to some form of confiscatory tax on what the Fabians always quite rightly called 'unearned income'.

Otherwise, as with usury itself, all one is doing is shuffling money out of the pockets of the middle class into the bank vaults of the super-rich.

The poor of course have no money.

They just shuffle their feet.
 
And at this point the nonsense of this 'in one pocket and out the other' game becomes so transparent to must sensible people that they start to wonder why the public sector doesn't get on with it just like they always used to...in the golden age of The Swedish Model.

Left to discuss then is the question of who should be the 'competent receivers' for the public treasuries and at what 'level' the holders of the public purses should be located...New York; Frankfurt; Stockholm; Visby, Ystad and Umeå; or Borgsvik, Ekerö and Mörbylånga.

Yorkshire 2034

New Labour has begun the task of dismantling the United Kingdom. The European Union is cock-a-hoop. Undermining the nation state and federalising Europe into administrative regions is right up its strasse. We will see how long it takes the Scots to realise they are better off outside of any union...not just the union with England. A canny people, it should not take long.

But the redistribution of power needed to happen. Setting up Scottish and Welsh assemblies is an excellent start. England is the next job for the Westminster Parliament. How should we start?

If I were Prime Minister I would start from where I am by handing out power just as fast as I could to the Lord Lieutenants of the Counties. Why not? Almost anything is better than the wedge the European Commission is pushing through England with its administrative megaregions whose sole purpose is to disable the English nation state by carefully cutting across traditional county boundaries.

It is the Yorkshires and Sussex who should be promoting 'national global champions'...just as Sweden has always done. New Britain is the wrong size. You cannot expect to do with a nation of forty four million Englishmen...half of them dependent upon the economic life of the London metropolis...what is possible with a nation of eight million Swedes.

But you might be able to do the same with England's city regions as Sweden does with her city regions. Sweden is already a confederate state. It comprises three city regions and 'Islandia'...a confederation of rural Icelands...Iceland's population is 250 000 with 150 000 of them in the capital Reykjavik...each one the size of an English county.

England is like that too...a dozen or so city regions rather than three but otherwise the 'Offshore Islandia' bits are not that much different. And if the three Yorkshire ridings want to get back together and use York Minster as a palace rather than a church, then so be it. Let them get on with it. Queen Diana of Yorkshire makes every bit as much sense as Queen Beatrix of the Netherlands or King Carl XVI Gustaf of Sweden.

Size matters. It is the bailiwicks and the hundreds that we need to rediscover. Instead of thinking 'national populations' we have to start thinking of people, families and households. Villages and parishes instead of statistical aggregations of numbers with dubious validity. In these matters the Chinese mandarins in Peking are already fifty years ahead of the self-styled elites in Brussels.

Stockholm 2034

Sweden however is has already been there and got its T-shirts. Gunnar Myrdal may have have got it wrong in 'Asian Drama' by taking much too pessimistic a view of Asia's potential for economic development. But he liked a lot of their thinking and incorporated it into Sweden's social democracy and the Swedish Model.

If China is fifty years ahead of Brussels, then at least outside of Brussels, Strasbourg and Luxembourg in places like Sweden and Catalonia the gap is nothing like as wide.

Europe could halve the gap at a stroke by abolishing the European Union just as Margaret Thatcher abolished Ken Livingstone's London Parliament.

All that is required is a few hand shakes at the next meeting of the Council of Ministers.

Charles de Gaulle showed how much of the Common Mark-Up is really bluff and bluster.

Power always resides with the people even if they are often reluctant to use it, preferring to take the reasonable view that they have paid a bunch of people to do the job for them.

Votes as property rights would be another institutional change that would set the cat among the europigeons.

So the Stockholm parliament does not have so urgent a task as the Westminster Parliament. Dismantling the Swedish confederation is not high on Sweden's agenda. Nonetheless an independent Skåne makes a lot of a sense.

Perhaps the Swedes should start thinking of allowing Skåne to do what Norway did peacefully in 1905. That would be a useful start. And then start talking about a Stockholm Model... something that could sit very comfortably within a Baltic Confederation of City States.

The United States has its political capital in Washington and its commercial capitals in New York and Los Angeles; Australia has its political capital in Canberra and its commercial capitals in Sydney and Perth; Canada has its political capital in Ottawa and its commercial capitals in Toronto and Vancouver.

So why doesn't Sweden move her political capital to Visby on the Island of Gotland? Just add a couple of weeks of parliamentary business to either side of Almadalveckan. That would do the trick. The English once ran a world empire and started a global industrial revolution on less. Sweden would then be well set to host the political capital of the Baltic Confederation...with its commercial capitals in Stockholm and St. Petersberg.

But perhaps before such ideas can be considered, it will be necessary for Sweden to abandon its love affair with the 20th century Swedish Model. One thing that would help would be for economic historians to begin talking of a Stockholm Model and of the next Swedish Model as a loose-knit confederation of these Stockholm Models.

The Swedish Model is Dead! Long live the Stockholm Model...and a Baltic Confederation of City States!

In Praise of the Swedish Model - Appendix A

Evaluating Election Campaigns

Education, Influence & Governance

Unlike ruling parties and opposition parties, any 'party-of-the-future' must play a double role at election-time. Not only must it seek to gather as many votes as possible but at the same time it must use the opportunity for enlightenment.

As a party-of-the-future gains power and influence so a third role may emerge, grounded in the need for the party to position itself and its policies for the purpose of governing today rather than tomorrow.

Any strategic and tactical decisions relating to a particular election campaign will represent a compromise between the needs of education, influence and governance and for any assessment of a party's campaign, its electoral performance must be measured against each of these roles.

However there is a time lag between enlightenment and influence. So while it may be possible to assess the success or failure of the influence and governance roles, the jury will be out on the 1998 education effects at least until the manifestos of the other parties appear in 2002.

Electoral Losers

A few years ago J.K.Galbraith in some autobiographical reflections pointed out that even though Adlai Stevenson was heavily defeated in his run for the US Presidency, his campaign was not a failure. Stevenson put forward policies and floated ideas that were taken up by other candidates in years to come...something candidates intent on victory seldom hazard.

What Galbraith is talking about here is an education success (with some future governance success) mitigating an electoral disaster from an influence and 'power now' point of view.

My own report to Fourth World Review in 'Report from a Swedish Election' a few days after the September 1998 Swedish Parliamentary Election related only to the influence role (and to some extent the governance role), but completely ignored the enlightenment role. Is there some way to correct this imbalance?

In my 1989 book 'The Rise & Fall of The Swedish Green Party (1982-1997)' my 'Speculations Future' chapter assumed that the rightness of Swedish Green Party's views (truth will always out...eventually) would ensure that the backward-looking grey political parties, in order to protect their governance and influence, would steadily (but always reactively) take upon themselves Swedish Green Party policy clothing.

Green Radicalism

And this is very much what has happened. We are told that we are all environmentalists now. But unfortunately there are still far too few deep ecologists, or sustainable economists, or true democrats or non-technocratic liberals...meaning those liberals who know you can't have the cherry of the liberal order without a cake of nationhood, law and politics underlying it. Indeed there may actually be fewer now than before the Swedish Green Party came on the scene.

The radical aim of the Swedish Green Party is after all something much less superficial (and much more threatening) than environmentalism: in fact nothing less than a spiritual and theoretical transformation in the guiding principles of western society...with a complete inversion of 'societal power' on the side.

And with this in mind we need to ask ourselves whether the Swedish Green Party's education role over the past two decades has been a success or a failure. And in particular ask whether we can measure the success or otherwise of education as well as that of influence and governance in the 1998 election, when in practice education and enlightenment are all bundled up together with power, influence, governance and even respectability...something which matters to Swedish electors.

I believe it may be possible. And here is how it might be done.

Manifesto Analysis

Unless it learns the art of renewing itself, a party-of-the-future eventually becomes an establishment grey party. If it has been successful, it eventually becomes all governance with education deteriorating into propaganda at election time in order to grab as much influence as possible in the political power game.

One of the tricks a grey party uses is to trawl the political market place after an election in order to grab any new ideas that seemed to work. Where they can be made to fit, these new ideas are co-opted for the next election. Where these new ideas are too threatening or too difficult to fit into the party line...or the interests of the party's backers...they are discarded and a strategy set up to discredit (or deliberately ignore) them at the next election.

In general these new ideas will only ever be found in a party of the future. And they will appear in their election manifesto at least one election before reappearing...often in disguise and occasionally in an inverted form... in a grey party's manifesto.

If I am right about this, then one measure of success or failure for the Swedish Green Party's enlightenment role in society could be made by taking the party's election manifestos from 1982, 1985, 1988, 1991 and 1994 and gauging the extent to which Green Party policies have appeared in the 1985, 1988, 1991, 1994 and 1998 election manifestos of the Social Democrats, the Conservatives, the Liberals, the Christian Democrats, the Centre Party and the Socialists. There is a PhD waiting for anyone who manages it.

Party Mergers

From this it may be possible to predict how much of the Green Party's 1998 manifesto is likely to appear in the other parties' manifestos in 2002...which is perhaps more useful anyway...but it is probably too early to throw any light on the success or failure of the party's efforts at political education in the September 1998 election.

However, because of its importance...and the imbalance in the 1998 election appraisal if it is ignored...some attempt should be made to find out whether specific Green Party policies (reduced working hours, for instance) are better understood across the electorate after the election than before...and whether more people are now considering voting for the Swedish Green Party in 2002 than were willing to do so in 1998.

And if this is not so, then it may be necessary to take bolder steps than few, if indeed any, within the party are currently considering. The time may be ripe, for instance, to look seriously at such off-the-wall ideas as a 'reverse takeover' of the rapidly declining 19th century Liberal and Farmer parties. What a powerful force this merger could be in Swedish politics if it got its theoretical underpinnings right.

Political Economy

And the theoretical foundations for such an alliance have been well-made (although quite unwittingly) by John Laughland in 'The Tainted Source: the undemocratic origins of the european idea' in which he sees democracy, parliaments and the liberal order under threat from the 'economism' emanating from Brussels and beyond.

The Swedish Green Party could do the Swedish people a service by seeing that the chapters on 'Fascists & Federalists', 'The European Ideology' and 'EuroMoney Matters' are available as a series of Swedish pocket books by June 1999.

'The arguments between a supporter of the European ideology and an opponent of it,' Laughland writes, 'are not arguments about different foreign policy options or economic priorities, but very profound disagreements between two different notions of the role of the state and law.'

The truth is that, as Shakespeare expressed it, there is a tide in the affairs of men. And the flood will soon be upon us. If we are not vigilant it will sweep away the liberal order and the many freedoms we have come to take for granted for several generations. In its place will be a new fascism that cannot fail to be more brutal and more destructive of the human spirit than anything Europe has yet experienced.

Money Unmaketh Man

And if an alliance against fascism and for the re-establishment of a liberal order is what is called for, then the other side of the same coin must be ensuring that Sweden's Socialists, Social Democrats, Christian Democrats and Conservative parties are publicly exposed whenever they veer away from Sweden's traditional liberal consensus.

And it is often out of naivety and ignorance of the Machiavellian intrigues of European politicians, bureaucrats and diplomats that these parties embrace a New European Order that would be rejected upon the instant by a large majority of the Swedish people were the true nature of their proposed new order shown up for what it really is and for whom it had been conceived.

In an interview with the German newspaper Handelsblatt reported in Dagens Industri on Monday 7th December 1998, the Swedish Prime Minister Göran Persson commented:
 

This remark may turn out to be more prophetic than anyone realises. The side effects are the main effects. Many a right answer has been given for the wrong reason. It's a funny old world!

Stockholm, Sweden
December 1998

In Praise of the Swedish Model - Appendix B

Capital Adequacy Ratios

The banking fraternity likes to keep very quiet about their fractional banking system. This is how it works. First parliaments pass a law placing limits on how much money private banks are permitted to lend. Written into this law is the idea of 'capital adequacy ratio' which is then given to government as a tool for administering the law.

With a capital adequacy ratio of 10%, for instance, it is then unlawful for a bank to lend out more than £ 1 000 when their deposits are only £ 100. You thought only £ 100 got lent out, didn't you? Well that is what you were supposed to think. Baloney!

Instead of permitting banks to lend out £ 12 500 for every £  1 000 pounds deposited, as with their present 8% fractional banking system, this ratio should be increased to 20% 'by decree'.

This means the private banks could issue only £ 5  000 of deposits instead of £ 12 500, leaving the government to issue £1 500 of gold-standard coin and currency notes directly to individuals (not via companies as wages) as newly minted money to keep the economy in balance.

And if it is logistics you are worried about, then reinstate the County Mints and ask the Queen to give our Lord Lieutenants something really useful to do for a change.

Theoretically that £ 1 500 will eventually find its way back to the banks giving them another £1 500 to add to the £1 000 of deposits they had when all this started. But 'we the people' are not back where we started. With the money in the right accounts... those of the little people...there will be no capital strike.

Capital strikes are actually little different to labour strikes but are never talked about in polite company...just as rising stock market prices are not talked about as inflation but rising food prices are.

The demand from this newly minted money will be effective. No inflation, no depression and a well-overdue shift of power from money to work and from 'The Money Power' to...and here I will add just a touch of spice...to Girl Power.

We all know who is best at spending money.

extracted from 'Through A Glass Darkly'; Stockholm, Sweden; May 1999

In Praise of the Swedish Model - Appendix C

Government Policy in the 1930s

Background

In 1974 Bo Gustafsson launched a devastating critic of the Social Democratic Government's response to the Great Depression in the 1930s. Coming from the 'Hard Left', Bo Gustafsson's underlying assumption would have followed the official Leninist party line where representative democracy is viewed as a capitalist device in which two parties alternate in power to give the semblance, but not the reality, of democracy. Björn von Sydow, an up and coming party apparatchik within the Social Democratic party at the time, was given the task of rebutting Bo Gustafsson's accusations.

J'Accuse

Bo Gustafsson made eleven accusations against the 1930s Social Democratic Government in his report to a meeting of the Nordic Historians in Uppsala in 1974. These were as follows:

1. There was no change in taxation policy when the Social Democrats came to power
2. Government practice was in sharp contrast to Social Democratic party policy
3. The cost of the depression was met by the working classes
4. The 1938 tax reform implemented policies designed in the 1920s
5. Government unemployment policy was to reduce wages by stealth through inflation
6. Government budget deficits occurred in the 1920s and not in the 1930s
7. In the 1930s the Social Democrats talked about the Stockholm School's policy of balancing the budget over the business cycle but in government did not do so
8. The Social Democratic Government's policy goal was the health of the Public Finances
9. Economic conditions were the sole determinant of budget balances in the 1930s and not any action by the Social Democratic Government
10. It was the Ekman Government that began debt financing in 1931
11. There was little difference between the impact of Government finance policy in 1931, 1932, 1933 and 1934.

Von Sydow's Rebuttal

Björn von Sydow chose two principal sources for his line of attack against the Gustafsson accusations: the views of the Minister of Finance, Ernst Wigforss and the budget allocations for labour market measures during the period 1929 to 1934. In both cases these sources were first brought into the debate by Bo Gustafsson and in each case von Sydow seeks to undermine Gustafsson's credibility by demonstrating that these sources have been wilfully misused by Gustafsson.

In retaliation Gustafsson argues that because Björn von Sydow lacks any factual arguments for an academic rebuttal, he has resorted to the tactics of smear and innuendo. Specifically Gustafsson accuses von Sydow of having read only 4 of the 49 pages and of attacking only two of his eleven charges, thereby implicitly accepting the truth of the other nine.

The two charges that von Sydow chooses to challenge are Charge Number Five that the Social Democratic Government sought to lower wages by what Gustafsson implies were the 'Machiavellian Keynsian' policy of price inflation and Charge Number Ten concerning the financial record of the Social Democratic Government.

As the labour market budget figures used in the debate are not in fact complicated they provide a good example of the von Sydow method of attacking Gustafsson's position.

Labour Market Budgetary Allocations

Those unfamiliar with reading government statistics would take one look at von Sydow's complex presentation and leave the matter there. I suspect this is a deliberate tactic by von Sydow and supports the Gustafsson view that von Sydow is arguing by smear and innuendo rather than on the basis of fact.

In fact von Sydow is using a sort of ideological 'double-bluff' strategy by purporting to be making a factual challenge on Gustafsson's abuse of his sources when in fact it is von Sydow himself who is deliberately massaging the figures for the specific purpose of disinforming his readers and confusing the debate. Here are the disputed figures in millions of Swedish kronor:

 

Budget Year	Open Market	Job Creation	Others	Total	Adjusted Total
1929/30	88	4	2	94	94
1930/31	103	8	1	112	112
1931/32	142	22	6	170	170
1932/33	143	38	30	211	211
1933/34	222	60	58	340*	270*
Total	697	132	97	927	857

 

When expressed in this clear manner, the figures are easy to understand. In particular it is clear that Björn von Sydow's argument that Bo Gustafsson has deliberately misrepresented the situation by excluding the 1933/34 figures can be seen to be a total fabrication, the trend that Gustafsson uses to make his argument being in no way altered by the addition of the fifth year figures.

Hence in the question of the labour market budget allocations von Sydow's technique is disingenuous. He makes no attempt to clarify the lines of debate, although this is a relatively easy thing to do. Instead he chooses to present his arguments with the full and active support of 'the smoke and mirrors department'. Let us look at von Sydow's claim that Gustafsson misrepresents Wigforss:

Wigforss

Von Sydow's 'smoke and mirror' tactics appear again in the question of whether or not the Social Democratic Government's unemployment policy was to reduce wages by stealth through inflation. But here von Sydow applies Himmler's 'big lie' theory...if you are going to lie then lie big if you want to get away with it. Von Sydow's bluff is so audacious that Gustafsson has difficulty in responding.

What von Sydow does is to cite a long section from Wigforss' memoires and then demonstrate that Gustafsson has selected only a few lines. By this ploy von Sydow is able to imply that the Wigforss extract has been selectively used by Gustafsson and that a full reading of this section of the Wigforss memoires would show Gustafsson's interpretation to be incorrect. The problem is that a full reading of the Wigforss extract endorses Gustafsson's argument and shows his selection to be well-balanced and a fair reflection of Wigforss' view of events.

The only criticism that could be directed at Gustafsson is that he fails to do justice to Wigforss' argument for why it was sensible and politically necessary to act in the manner the Social Democratic Government did. Had von Sydow taken this position he would have been on firm ground. But instead he takes the same line as he did on the labour market budget statistics and seeks by bluff and bluster to overwhelm his opponent instead of arguing on the basis of the facts.

Conclusion

It is disappointing to see an ill-tempered and ill-mannered controversy of this nature gracing the pages of a serious academic journal. This is political knock-about of the type you can see twice a week in the televised reporting of Prime Minister Question Time in the British House of Commons. It is politics not economic history.

It is sad to see a great political party like the Swedish Social Democrats resorting to these arrogant bully boy tactics. They have every reason to be proud of their record in government and, as is clear from the extracts from Ernst Wigforss' memoires, they do not need to hide behind smears and innuendos to defend their policies against legitimate debate with the left.

Björn von Sydow has done his party a disservice and a motion of censure against Björn von Sydow would be in order both from Sweden's academic community and his own political party. It is a reflection of the sad state of the Social Democratic Party that von Sydow has instead been elevated to the position of one of King Carl XVI Gustaf's ministers of state.

Stockholm, Sweden
April 1999