The Swedish Model in Turbulent Times: Decline or Renaissance?

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  • 1 January 2006
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      • Published in RePEc
Abstract
The main objective of this paper is to analyse the major transformations of the Swedish model. We argue that the current Swedish model appears today more in line with the three core components of the original Swedish model developed during the 1950s. In our view, the period 1975-1991 represents a clear deviation from the original Swedish model, a departure that culminated in the most severe crisis than Sweden has experienced since the 1930s. After this period of turbulence, the Swedish economy has undergone a particularly favourable development. Unemployment has been cut by half, inflation has been curbed and the country appears to have recovered from the deep economic crisis of the early 1990s. The changes in economic policy towards a more restrictive and anti-inflationary macro-economic policy, the reorientation of active labour market policies towards supply oriented measures and the structural reforms undertaken in the tax and social protection systems during the 1990s suggest a revival and renaissance of the traditional Swedish model. The modifications in Swedish industrial relations, in particular the clear tendency to a re-coordination of collective bargaining have also played a vital role in the Swedish recovery. These new developments appear to respond to a three-pronged objective: ensuring industrial peace; limiting the impact of transaction costs associated with the absence of coordination mechanisms and the negative externalities on employment and firm competitiveness of uncontrolled wage drift; and finally guaranteeing a principle of subsidiarity making it possible to adapt the provisions contained in industry-wide collective agreements to the productive and competitive constraints of Swedish companies. The various reforms of the social protection system undertaken during the 1990s have essentially taken the form of a temporary reduction of income replacement rates and, with the notable exception of the restructuring of the tax and pension system, have
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