The rise and fall of the Swedish model - interview with Swedish economist Rudolf Meidner - Interview

Challenge, Jan-Feb, 1998 by Bertram Silverman

But cracks in the foundation of the Swedish model were already visible by the end of the 1970s.(1) By the 1990s the model had collapsed. In the interview that follows, Rudolf Meidner reflects on the evolution of the Swedish model and why it failed. Meidner was research director of the LO from 1945 to 1966 and director of the Institute for Labor Market Research at the University of Stockholm from 1971 to 1979. He is now associated with the National Institute for Working Life (Arbetslivsinstitutet).

Q For many people Sweden has been a symbol of a humane market system - a middle ground between free-market capitalism and state socialism. As one of the major contributors to its development, how would you define the Swedish model?

A. There are many ways to define it. Perhaps the best way to describe the Swedish model is to relate how we older economists with roots in the labor movement conceived of the Swedish model. It had two goals: The primary objective was full employment and the second goal was equality.

Q. Wasn't the central problem how to achieve full employment without inflation?

A. Yes, that was a crucial issue. The conflict between full employment and price stability became apparent immediately after World War II. At first the general view was that unemployment would be the most serious economic threat. But the opposite took place. A few months after the war ended, the risk of inflation became evident. You have to remember that the model was born in a period when we had full employment and high domestic and European demand for Swedish products. Sweden had benefited greatly from a ruined Europe hungry for our goods.

Q. What was the Swedish strategy to sustain price stability under such conditions?

A. In the beginning there was no strategy at all because these developments came as a real surprise. Our government and our economists were not prepared for such a situation. We had to think about what to do. Lord Beveridge claimed that full employment existed when there were more jobs than available workers.(*) We rejected that view because having more jobs than workers would create an inflationary situation. So the strategy at first was simply to convince the unions that inflation was not in their interest. But Gosta Rehn and I and some other union economists did not believe that persuasion would be sufficient. We believed that there had to be a political and economic strategy. We presented such a strategy piecemeal in the 1950s, in the form of a model in an LO report entitled "Unions and Full Employment." The basic strategy was to prevent price increases by imposing rather restrictive fiscal and monetary policies that would limit the demand for labor.

Q. But wouldn't the unions oppose such policies?

A. Imposing restrictive economic policies in a booming and flourishing economy presupposed a certain amount of political courage. Simply telling people that an overheated economy is inflationary is not enough to convince them. You must implement a policy that makes it possible for unions to be a little more cautious in their wage demands. In our view, excessively high profits are the cause of inflation because high profits make it possible for companies to offer higher wages at a time when higher monetary wages include a high risk of inflation.