Capitalism, Welfare Economy and the Swedish Model

Guest lecture by Hans Sjögren, professor of Economic History and

Institutional Economics, LiU

The Hockey Stick Phenomena

Waves of globalization

First global economy Disintegration 1914-50 New global

1880-1914 Beginning of a economynew global economy 1950-

1880 1914 1950 1980 2010

• The evolution of the welfare economy and the “Swedish Model”.

• Country-specific characteristics and the role of business in the transformation of the economy.

Todays message to you

Varieties of Capitalism

• Liberal market economies

• Coordinated market economies

• Planned economies

• How does that apply to the Nordic countries?

• Difference between market economy and capitalism?

• Markets are always embedded in institutions (rules of the game). What does that mean?

• Politics, culture and history matter

Two types of Economies in the Developed World

• Co-ordinated market economies (strategic interaction between the state, trade unions, suppliers of finance and other actors)– Germany, Japan, Switzerland, the Netherlands,

Belgium, the Nordic countries and Austria• Liberal market economies

– USA, Britain, Austrialia, Canada, New Zealand and Ireland

• Some OECD-countries in between– France, Italy, Spain, Portugal, Greece and

Turkey

Measure of success

Stock price and dividends

Content among all interest groups

Largest issue Getting management to act in the interest of the shareholders

To balance between various interest groups

Execution of corporate control

Independent external actors with shares

Representation of various interest groups

Acting of interest groups

Instrument (means) Target and instrument

Does capitalism and business matter?

• Between 1820 and 1990 the advanced capitalist countries increased their production by a factor of 75.

• These advanced countries, with less than 15% of the world's population, produced half the world's GDP in the 1990s.

Questions to reflect on

• Why and how have some entrepreneurs, companies and countries been more successful than others in creating economic growth?

• How has capitalism and entrepreneurial leadership evolved over time?

• When and why did this strong economic growth began? Is it reversible? Is it sustainable? Does it make everyone happy?

Four periods

• Four periods of economic transformation:

1.1850-1890

2.1890-1935

3.1935-1975

4.1975-2005

Formative phases (20-25 years)

Four periods in Swedish economic history

• Liberalism and early industrialisation within agriculture society 1850-1890 – the foundation era

• Industrial society and financial capitalism 1890-1935

• The Swedish model, mature industries and welfare economy 1935-1975

• Neo-liberalism and internationalisation within the service society 1975-2005

A relational view of the firm

FFFffiFFinancial system

Company(firm)

State

Education & training

Labour market

Natural resource-based industry and mining, export of iron, timber and saw products, railway companies, strong mechanisation, factories, merchant houses.

Liberal, company act (joint stock banks), capital import, infrastructural projects, tension in the parliament between represents for agriculture and industry.

Institutional reforms, formalisation of the system, joint stock banks, Scandinavian Monetary Union 1873, central banking.

Compulsary six years schooling from 1842,technical training,import of foreign skills.

Custom-based, free setting of wage rates, urbanisation, working class, emigration (1.15 million people 1850-1930 with a peak in the 1880s).

Labour market

Company

State

Education & training

Financial system

Period 1850-1890

Lars Magnus Ericsson, 1846-1926

Engineering culture, inventions, cartels, strong growth in energy, pulp and paper, then electronics, chemical-technical and building and construction, from the 1920s strong rationalisation and structural transformation

Promoting growth, technological procurement, coordination of large investments, launching of social reforms.

Corporate finance (universal banks), growing stock market, deflation crisis 1920-21, mergers, Kreuger crash 1932, new banking law 1934

Special institutes for technical and commercial education, taylorism, professionalisation processes

First unions and employers’ confederations (LO 1898 and SAF 1902), collective agreements, industrial cities

Labour market

Company

State

Education & training

Financial system

Period 1890-1935

Sector 1890 1930 Absolute change 1890-

1930

1.Agriculture & related

activities

58 34 - 165,000

2. Industry and craft 17 26 + 400,000

3.Building& construction 7 9 + 120,000

4.Transport& communication 3 6 + 110,000

5. Private services 11 19 + 290,000

6. Public services 5 6 + 70,000

Total employment 100 100 + 825,000

Shares of employment in various sectors and change in absolute numbers.

Mature multinationals, consumer-related innovations, industrial society with a growing service sector, golden age 1950s and 1960s, many successful multinational firms

Re-distributive, Swedish model, growth of public sector, regulatory regimes and support of various favoured sectors (mainly housing, infrastructure), higher taxes.

Regulated credit-based system, stock market low importance, large bond market

Senior high school, expansion in educational system, advanced technology, training programs

Saltsjöbadsavtalen, solidaristic wage policy, Swedish Labour Market Authority and Swedish Labour Market Board, increasing women participation.

Labour market

Company

State

Education & training

Financial system

Period 1935-1975

Sector 1931/35 1951/55 1971/75

Agriculture and

related activities

34.2 18.6 6.8

Industry and craft 26.2 34.6 29.4

Building/construct. 8.1 8.4 8.6

Transport and

communication

5.8 7.5 7.5

Private services 18.9 20.4 23.9

Public services 6.7 10.5 23.7

Total employment 100 100 100

Shares of employment in various sectors 1931-35, 1951-55 and 1971-75. Per cent.

Marcus ”Dodde” Wallenberg, 1899-1982

Structural crisis and creative destruction from the mid 1970s, growth in services, increase in outward and inward foreign direct investment and M&A from the 1980s and onwards, increasing R&D, ICT-sector, biotech, change of corporate governance 21st C.

Increasing state debt and budget deficits leading to substantial depreciations 1976-1982, neo-liberalistic policies, joining the European union in 1995, EU-reforms, privatisation programs.

Market-orientation and reregulation, financial crisis 1991-1993, growing stock market, markets for venture capital.

Vocational training, mass university and regional university colleges, science, innovation and technology policies.

Structural crisis, activated labour authorities, labour market education system reorganised in 1986, high unemployment rate (early 1990s), then more fragmentation and differentiated wages, foreign labour, shorter labour contracts.

Labour market

Company

State

Education & training

Financial system

Period 1975-2005

Sector 1971-75 1991-95

Agriculture and related

activities

7.1 3.9

Industry 28.5 20.5

Building and construction 8.6 6.1

Transport/communication 6.6 7.0

Trade 15.5 15.3

Private services 9.7 13.8

Public services 24.0 33.4

Total employment 100 100

Shares of employment in various sectors 1971-75, 1991-1995. Per cent.

Cristina Mayville Stenbeck, 1977-

Annual growth

1800-1850 0.4

1850-1890 1.5

1890-1930

1930-1975

2.1

3.2

1975-1995

1995-2000

1.3

2.8

Annual growth in GDP/capita 1800-2000 in Sweden. Per cent and fixed prices.

GDP for Sweden 1993-2011, volume-index, fixed prices

Is there still a Swedish Model? Definition 1

• Solidaristic Wage Policy, central negotiations

(Saltsjöbaden Agreement 1938-, Rehn-Meidner Wage Bargaining Model, EFO-model)

Break up in the 1970s

2007-2009 unsuccesful re-start of Saltsjöbaden Agreement

Result: No Swedish Model today

Definition 2

• Welfare state, certain range and size of the public sector

The People´s Home 1930s, housing and infrastructure programmes, unemployed and women access to the labour market 1940s-, re-distribution of income, transferring system, high taxes, the state plays an active role, state ownership in the business sector, public expenditure/GDP 31%-62% 1960-80.

Definition 3• Mental modes, compromise thinking, egalitarian

spirit• Corporatism - negotiations between business,

labour, and state interest groups to establish economic policy

• To reach consensus in the parliament• State is centralized but open• Bureaucracy professional but not authoritarian• Policies differentiated but have a central

coordination• Low level of corruption

Swedish Model today – Yes or No?

• Definition 1 – No Swedish Model today

• Definition 2 – Partly

• Definition 3 – Yes!

Is there a Nordic Model?

• Or are there two, or even four separate models?

• Or, the other way round: is the Nordic model only a variation of models in other European countries?

• Reminds of models in other parts of the world?

YES, there is a Nordic model of capitalism.

But clear variations between the countries exist: – An ’eastern’ and ’western’ dimension: Sweden-

Finland vs. Norway-Denmark– Or regional: southern Sweden and Denmark

similar, as, Ostrobothnia in Finland and Northern part of Sweden.

– But also a forerunner vs. latecomer: dimension Sweden-Denmark vs. Norway-Finland

A Nordic Model of Welfare Economy

• The Nordic countries have had and still have a lot in common, culturally, politically and economically.

• But the Nordic Model of welfare capitalism has been challenged by globalisation, EU-reforms - weakened the power of the national states.

Takeaways……