Economic and social policy: the Swedish way Goran Persson argues the case for a comprehensive, taxpayer funded social security system and suggests that the Swedish model will play a more important role in a globalising world.

• Author: Persson, Goran

Just over ten years ago, a Social Democratic government came to office in Sweden. Sweden had gone through three years of economic decline. The national debt had risen dramatically and amounted to 84 per cent of GDP. Employment had fallen by over 400,000, and more than 300,000 of the jobs lost were in the private sector. Record high interest rates laid a dead hand on investment and production. Foreign distrust of the Swedish economy was intense.

Today Sweden is a country that has left the economic crisis behind. The Swedish economy is in a stronger position now than it has been for a very long time. Today we have a surplus in the public finances. Over the past ten years we have had an increase of more than 300,000 jobs in the private sector. We have had a higher average growth rate than both the European Union and the OECD. Our average has been 2.9 per cent. We have had a considerable increase in industrial production--more than 30 per cent. We have gone from a deficit in our foreign trade to a substantial surplus. We have low and stable inflation and competitive interest rates.

When the World Economic Form presented its assessment of competitiveness in world economies last autumn, Sweden came third. In 1998, it was ranked 23rd.

There are many explanations for how this turnaround was made possible. After the change of government, we had to put public finances on a sound footing quickly and decisively. We did so with tax increases and expenditure cuts. These measures restored foreign confidence and helped to more than halve interest rates. We got rid of inflation. Since 1994, prices have only increased by 12 per cent in total.

This was accomplished by labour market parties reaching responsible pay agreements. Real wages have increased substantially. We joined the European Union. I am convinced that without this membership, we would not have had the same good climate for investment and production. For an open and modern country like Sweden, this membership was absolutely essential.

We made important structural changes in our economic policy. Sweden's central bank became independent. A new budget process for public finances was introduced, including expenditure ceilings for several years. We have also had a strong capacity for continuous adjustment and renewal in the Swedish labour market. In recent years, we have had annual productivity growth of 6 per cent in the manufacturing industry. This is higher than in both the United States and the United Kingdom. This is living proof of the enormous transformation and rationalisation that Swedish industry has undergone.

Faulty logic

I chose to list these economic facts because it is sometimes said that countries with large public expenditures cannot be effective and successful growth nations. The greater the redistribution in society, the less people are said to want to invest in their work. It is claimed that growth and development are slowed down. I firmly maintain that developments in Sweden over the past ten years demonstrate that this logic does not hold. Despite high taxes, we have a higher level of employment than most other countries.

Despite high public expenditure, we have had greater economic growth in the past ten years than the OECD average. Despite the size of our public sector, there is a vigorous and expanding business sector that competes successfully in the world market. In my view, the most important factor for growth is not the level of taxes, but how they are levied. The most important thing is not how large public expenditure is, but how the money is used.

The Swedish welfare state creates both security and growth, both development and equality. All industrialised countries pursue some kind of welfare policy. They are pursued with different levels of ambition and have different focuses. I see three distinct welfare models:

* the liberal and market-oriented model, common in...