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

Challenge, Jan-Feb, 1998 by Bertram Silverman

Q So, as union economists you needed to convince the unions to accept some level of unemployment, correct?

A. Yes. If nothing were done then, such policies would have resulted in labor redundancies in some branches and regions and among some categories of workers. Therefore, you must offset that by implementing active labor-market policies. You can fight inflation in two ways: through fiscal and monetary restriction or by imposing government controls. You can control prices and investments. Some proposals were made to impose an incomes policy to control wages. But we thought that this was not a very efficient way of fighting inflation. Price and investment controls are negative incentives. It is not a very nice thing to tell people you shouldn't invest, you shouldn't raise wages. So we tried to reverse economic policy. We suggested that we institute generally restrictive fiscal and monetary policies that would produce some difficulties in the labor market. But then government would intervene more positively and actively to eliminate what Gosta Rehn called islands of unemployment. As you can see, active labor-market policies are a part of the model and the strategy to achieve full employment and price stability.

Q could you briefly describe the kind of active labor-market policies you introduced?

A. If you have a restrictive macroeconomic policy, there is a risk of lower demand, at least in some parts of the economy. But that could be solved not only by compensating the unemployed but also by assisting them in finding new jobs. Such assistance includes helping them move to other regions, mobility allowances, help in selling their homes, and of course training and retraining to enhance their job prospects. There are many instruments in the arsenal of active labor-market policies. They differ from financial compensation, which is a more passive response to unemployment. Giving people money for their existence does not address the problem of jobs and new production. But the circumstances must be similar to what they were in Sweden after the war and up to 1990, when the economy was expanding. What makes the model a little antiquated is our present situation of mass unemployment.

Q. I would like to get to that in just a moment. But Sweden did have a full employment economy until the early 1990s. Unemployment rarely rose above 2 percent.

A. Yes, full employment was a fact, although very little was done to achieve it. Full employment was a result of the postwar situation in Europe. This was especially true in Sweden. Its productive resources were intact, and Sweden had suffered no losses of its human resources. Everything was in place for Sweden to play a very active role in the postwar boom in Western Europe. Therefore, it was not too difficult to achieve full employment because it existed without government initiatives.

Q. But what about inflation? Did you achieve full employment without inflation?

A. No. The Swedish government was successful in eliminating small recessions, but I do not think they were equally successful in fighting inflation.