The Golden Age of the Swedish Model

by

Lennart Erixon

The Coherence Between Capital Accumulation and Economic Policy in Sweden in the Early Postwar Period

Published by Institute for Social Research, Munthes gate 31, 0260 Oslo, Norway

ISBN 82-7763-087-5
108 pages

Reviewed by William Shepherd - Stockholm, Sweden in June 1999

Introduction
EFTA
England & Germany
Sweden & Kondratieff
Sweden & Taiwan
Vanishing Economic Statistics
A New Swedish Growth Model

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.

Now after two decades of hard sell from the Chicago boys and their Reaganomics and Thatcherisms the whole subject is overlaid with disinformation and false analogies.

Lennart Erixon is just the guide we need to help us avoid the analytical pitfalls and see beyond the smoke. Erixon is an economist but thinks and writes like an economic historian, remaining true to the English tradition of political economy. He worries about his sources and has the courtesy...instilled into several generations of Swedish academic economists by Gunnar Myrdal...of discriminating between fact, opinion and premise. Erixon sees himself as a historian first and a historian of 'affaires economiques' second...unlike many of his American cousins who view economic history as a department of public relations and political advertising.

The task Erixon has set himself is to penetrate the web of ideology and political intrigue that has distorted debate about the Swedish Model and to get at the reality behind the 'golden age' of his title which begins after the Hitler War in 1945 and ends with the oil crisis of 1973. To develop an analytical framework for his study Erixon takes us back to the 18th century.

EFTA

When the last New Labour Government were in office, Harold Wilson ran a 'Buy British' scheme. This prompted a series of adverts from the Swedish car-maker, Volvo with the theme of 'Buy British, Buy Volvo'. This was not quite what Wilson had intended. But as the Volvo adverts pointed out, some 80% of each Volvo car came out of the British Midlands...courtesy of a very dynamic automotive component sector, a long tradition of engineering excellence and the good offices of the European Free Trade Association (EFTA).

EFTA is still around, although presently engaged in little more than swapping fish between Iceland and Norway. But this will change. A few years from now there will be a lot of countries in East and West Europe queuing up for membership.

EFTA was always what the Swedes and Brits needed out of Europe by way of trade. And for other purposes, there were other organisations each individually doing a much better job than the Brussels Common Mark-Up will ever do with its bloated bureaucratic ways and its socialist fetish for detailed regulation and total uniformity under the guise of 'harmonisation'.

Perhaps EFTA should offer a special membership package for city states. Ken Livingstone as Lord Mayor of London would be the first to apply. Back to the feudal system with variable geometry and no single focus of ultimate power. Why not? All power corrupts and absolute power corrupts absolutely. So spread it about a bit.

England & Germany

But in terms of the trading relationship between England and Sweden little has changed for the past two hundred years. At the end of the 18th century, Sweden and England were trading extensively with each other. By the middle of the 19th century the Swedish forests were provisioning the English fleet and iron from Swedish mines was feeding the export frenzy of the Lancashire textile magnates and the shipbuilders on the Clyde. Remarkable that all this was possible without a European Union to harmonise and regulate matters...and before income tax or value added taxes had been invented.

Sweden started investing in industry fairly late. It put its faith in canals up until 1840 but then went for the classic railway-led economic development that has served so many countries well and did wonders for the British companies who put up the money to build half of the world's railway mileage in the 19th century...and then spent much of the 20th century using what they had built to transport armies and prisoners of war to and fro across the world.

The Swedes are one of the few countries who got their railways virtually scot-free...which makes you wonder why the fares are so high. Another was the Russians who borrowed their money from the French and then unilaterally cancelled the debt after the revolution of 1917. The Swedes have President Woodrow Wilson and the Treaty of Versailles to thank for their good fortune. Their French bankers raised the money for the Swedish railways in Hamburg and President Wilson followed Lenin's example by canceling everybody's Germans loans.

After that who can blame the German government for ordering their industrial workers in the Ruhr to go on strike when the French marched in a to collect their unpaid war debts by seizing the collateral. That was the real root cause of the German hyperinflation of 1923. There was no strike fund so the government printing new money. Yeltsin has had much the same problem in Moscow in recent years and has solved it in much the same way...by hyperinflation.

But this railway-led wave of industrial capitalism was really what launched Sweden into the 20th century. It led to a period of innovation-led industrial growth and was all the time supported by a surprisingly dynamic rural economy.

Nonetheless by 1900 Sweden's productivity was still only 40% that of England. So Sweden did her real star turn in the 20th century, riding out the two world wars well and far outstripping Britain in productivity growth. By 1970 it was England's productivity that was 40% of Sweden's. The Swedish Model had a lot to do with it.

Sweden & Kondratieff

From his excursion into the 18th century roots of industrial Sweden, Erixon moves ahead a hundred years traces to the 1880s when the Wallenberg Bank was emerging from its second government bale-out and was buying up the best of Swedish invention-backed innovation companies at knock-down prices. The inventors inherited in the process were either turned into businessmen or were replaced and put out to grass...Gustav de Laval being a case in point.

It is from this point onwards that there is a continuity in its economic development that remains even today. The golden age from 1945 to 1973 was part of a longer two hundred year sweep through into the 21st century.

Now although Erixon does not mention the idea, he presents an abundance of detailed evidence for the existence of a Kondratieff 50-60 year long wave of innovation-led infrastructure renewal in the Swedish economy.

The omission of any Kondratieff analysis is unfortunately not a trivial matter. And it is not as if 'official economics' has not flirted with the idea. Joseph Schumpeter in particular came close to discovering the forces at work behind the Kondratieff cycle in the interplay between capitalism's needs for new projects and the clusters of innovation that accompany infrastructure renewal after appearing first in a much more random fashion as isolated inventions.

Were the idea of an economic long wave accepted by economists, rather than being regarded as the ultimate heresy, the Swedish Model might appear in a rather different light...as a useful tool to use in the upswing of the next longwave cycle rather than a flawed model to be stuffed at the back of the economic history drawer. This could be a matter of some considerable urgency.

For the next Kondratieff long wave cycle is currently building on the infrastructure needs of the information superhighway and the next generation of embedded microintelligence. Discarding the Swedish Model now just at the moment it is needed is the very last thing Sweden should do.

So it is good to know that there are economic historians like Lennart Erixon poking around in the ashes and asking the right questions. Because the worry is that the bankers, unions and governments who rule Sweden might in their ignorance...and with flawed advice from the latest economic fashion...seek to fight the last economic war instead of surfing the long wave into the 21st century. The European Commission has already fixed its yellow stars to this particular mast...and is busy sailing backwards into the wrong future, oblivious of its error.

Sweden & Taiwan

Lennart Erixon also homes in on another important point. For all the wonders that
Sweden's large export-oriented engineering firms like Asea, Atlas Copco, Aga,
Alpha-Laval, Ericsson, Electrolux etc. performed for the Swedish economy, they may
nonetheless have come at a cost. And the chickens are now coming home to roost.

Erixon produces evidence to suggest that the big boys with their preferential access to  capital may have squeezed out the little lads and destroyed what otherwise would have
been a dynamic small-firm sector.

My own comparison would be with Taiwan where the mix seems to have been better.
Taiwan has an informal private credit sector which provides a third of all private sector finance and virtually all the finance to the small firms sector. It is this which gives Taiwan
such winning mixture of 'contract' and 'guerrilla' capitalism.

In Taiwan all transactions are personal...with 'those you know'. This is a long Chinese
tradition but also a long human tradition. Georg Simmel has studied this at considerable length in his 'Philosophy of Money'. There is nothing particularly Chinese about it.

The Jews have always operated this way...they were given little choice. So too do the Asians in Bradford and Oldham. And this was the way of the English gentlemen merchant adventurers. A hand-shake was the contract.  My word is my bond.

And perhaps it is here that the success of the Swedish Model really lies. Vikings held personal relations and family ties sacred. A Viking oath was a terrible thing.

Perhaps Lennart Erixon should start to look more closely at the role of the Swedish
diaspora. Thousands upon thousands of Swedish importers shipped across the Atlantic
ocean at the end of the last century.

Indeed on Erixon's evidence my hunch would be that this Taiwanese mix is probably what the next Swedish Model will have. If this is the case then institutions will need to be established which make it impossible for large private interests to penetrate government while at the same time making it impossible for government to penetrate small private interests...for this too was key to Taiwan's success.

This will come as a major culture shock to the myths of corporatism and invasiveness
accepted unquestioningly by the current generation of Swedes. But at the same time it would roll back the veneer of hypocrisy that has grown up around
Swedish commercial life.

Vanishing Economic Statistics

If there is one criticism I have of Erixon's analysis it is the fallacy that he and all his economic colleagues make, that size is of no significance and a country is a country. Nowhere is this nonsense more apparent than in their fixation with the idea of 'exports' and their measurement and aggregation at the level of the nation state.

This is really a throwback to the days of mercantilism when the purpose of trade was to enrich the king. At least there was some philosophical coherence about mercantilism. But the modern revamping of the theory with its BNPs, free-floating exchange rates and trade imbalances lacks any coherence. No wonder it requires a trained priesthood to rationalise the system's subsequent misbehaviours.

Instead of trying to compare China exports with Sweden's...they were about the same in 1995...Sweden should be matched with Texas...and Iceland with Uppsala. Don't pretend that there is any difference between Boston and Stockholm...or Singapore. The city region is the most sensible level of aggregation for modern-day economic analysis.

Where trade is concerned the Swedish Wallenberg 'export' engineering firms behave no differently overseas to a South Korean 'chaebol' or a Japanese 'zaibatsu'. But whether this can be squeezed out of the statistics is another matter.

Manuel Castells in his 'End of Millennium' , for instance, threw out the remark that '...as much as one third of world trade seems to be intra-firm or intra-network, movement of goods and services thus largely invisible to trade statistics'.

Follow the money by all means...always a good rule of thumb...but do not for a moment believe this is more than one relatively small part of the big picture. This, in a nutshell, is really the critique that has to be aimed at 'market capitalism'. It begins and ends at the limits of a linear row of cash transactions.

Were that all there was involved it would be fine. But the truth is that this cash and money portion might be as small as just a few percent of the whole in a large range of 'affaires economiques'...which is why 'political economy' or the Wellsian terms 'Human Ecology' and 'work, wealth & happiness' should take the many departments of the economic priesthood back under its wings.

Sweden's growing band of 'gender' researchers are just one group of economic historians that have started pushing the profession in this direction...although for the sake of academic politics the expression 'multidisciplinary' is the label put on much of this sort of work.

In my Master's Thesis (see 'The Value of Specialistion' ; Stockholm University, 1972) ...it should have been entitled 'The Value of Generalisation' because that was what I was argung for...I inadvertently found myself pushing down similar paths. Although I did not know it at the time, the core of my argument was that the value of one generalist was equal to that of twenty specialists...and society would go to wrack and ruin if the generalists were squeezed out.

Be that as it may training is still needed to develop the fine art of both generalising from small particulars and particularising from general principles. And here translucence is the key. Size and scale matter. Because if you don't have your facts straight then it's 'garbage in, garbage out.'

A New Swedish Growth Model

If any Virgin enterprise gets bigger than about 50 or 60 people Richard Brranson cuts off Virgin funding until they figure out how to grow by division. For an enterprise like Sweden we should probably add five noughts to these figures and start to worry when the nation creeps above 5 or 6 million. Currently Sweden is at eight and a half million so it is time for the Branson treatment.

In a country with the land area of Sweden and a population of this size, underpopulation should be regarded as a national scandal...seen from a global viewpoint. Gunnar and Alvar Myrdal once had some thoughts along these lines but the old books have been long forgotten and the ideas corrupted. Nobody bothers to read the old books anymore, although here the internet may turn out to be a big help.

Instead of trying to integrate a trickle of refugees into their cradle to grave social system...which is all it can cope with...Sweden should be taking the more expansive American 19th century approach and parcelling out land by the county, by the townsworth and by the parishworth to any family or clan willing to make a go of it for a generation without recourse to the Swedish Model's benefits.

Tell these 'New Builders' to create their own welfare state within the Swedish Confederation with associate membership of the confederation until convergence sets in (sounds familiar?). This after all was very much the deal the Swedish emigrants to America accepted with such alacrity a century ago when they took themselves across the Atlantic Ocean by the boatloads to settle in New Sweden.

But before such ideas can be considered, Sweden will have to abandon its love affair with their 20th century Swedish Model. It might help if the economic historians like Lennart Erixon began talking of a New Stockholm Model. Disaggregate. Look upon the Next Swedish Model as a confederation of a couple of dozen of these New Stockholm Models. That is an idea that would sit very comfortably with the idea of sustainable development and a Baltic Confederation of small nation states...the real alternative to the European Union. The Swedish Model is Dead! Long live the Stockholm Model!