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Swedish economic history This is a brief introduction to approximately 150 years of Swedish economic history. During this time period, Sweden went from being a poor agrarian country in the outskirts of Europe to one of the wealthiest nations in the world. The articles below describe this transition. Agricultural toward Industrial From War to the Swedish Model Structural Problems and reforms Sweden today Agricultural toward Industrial
In the mid-1850s, Sweden was a poor agrarian country on the periphery of Europe. 120 years later, Sweden was one of the wealthiest nations in the world. A number of important changes and reforms led Sweden into the early stages of industrialization. Between 1850 and 1970 Sweden had the highest economic growth rate in the world, next to Japan, and became one of the wealthiest nations in the world in terms of GDP per capita. Which factors influenced this process? Early entrepreneurship
An important factor in Sweden's successful economic development has been the abundance in natural resources, such as iron ore and forests. In the early 19th century the Swedish business system was more or less based on commodities from these resources, in addition to the old metal and foundry village environments, that existed in the country. This has resulted in a long tradition of refinement and export of metals like iron and copper. In parts of Sweden where metals were not available there has been a long tradition of handicraft based on textile and wood. This became the foundation of early entrepreneurship, but until the mid-1850s, most of the economic activities were restricted by prohibitions and regulations. These regulations, gathered in a system called the guild system, contained clear rules of who, where and how different work could be carried out. One important step towards free entrepreneurship in Sweden was the liberal reform of 1846 that scrapped the entire guild system. Agricultural revolution
Another important condition for early entrepreneurship and economic growth was the agricultural revolution in late 18th century. Traditionally, Swedish farmers have always had a strong economic and political position in the Swedish society. The agricultural revolution introduced large scale and technically advanced methods of cultivating the land. These rationalizations meant that productivity rose in the sector and that the labor force made redundant could move to work in the early industries. In that sense, the agricultural and industrial sectors together created a positive environment for economic growth. The changes also implied increasing income for the land owners, which in turn led to higher demand for consumption and new machinery in the form of industrial products. In that sense, the agricultural and industrial sectors together created a positive environment for economic growth. Industrialization begins
The biggest leaps of the Swedish industrial development occurred in conjunction with two separate industrial revolutions. The first industrial revolution, which began about 1850, had its roots in the old agrarian sector. At that time, Sweden had 3.5 million inhabitants and approximately 80 percent were engaged in the agricultural sector. Only 10 percent of the population lived in the cities. Therefore, industries were established primarily on the countryside for labor purposes. Although Sweden was, industrially speaking, something of a slow starter, the country entered the scene at a favorable moment. The manufacturing sector, where steam was the main source of power, produced goods for export such as steel and iron and timber products. At that time Britain and a few other countries were already well under way in the industrial development process. Although Sweden was, industrially speaking, something of a slow starter, the country entered the scene at a favorable moment. The economic development in Europe raised international demand and paved the way for Swedish products. Free trade and technological development
The free trade movement that spread through Europe during the second half of the 19th century was crucial for the success of Swedish international trade. This enabled Sweden to ship products and goods such as iron ore, copper and timber products to Britain and to the rest of the European continent. The second industrial revolution started around 1890 and meant a giant leap for the Swedish economic development. The electric and combustion engines replaced the steam engine as power source in the industrial production process. The industrialization became more focused to the cities. The industrial production for the domestic market, such as clothes and shoe manufacturers, grew larger due to the overall income increase. This was also the era when new and more knowledge-based industries, such as engineering and the pulp industry, became the most important export industry. Large corporation structures
In the second industrial revolution a new type of enterprise emerged, the joint stock company. In the late 19th century the joint stock system had become the dominating form of ownership in Swedish industry, and has been seen as one of the crucial factor for the formation of large private corporations. Large, vertically integrated company groups began to form and many of the Swedish multinational engineering companies, such as LM Ericsson, ASEA/ABB, SKF, Alfa Laval, Aga and Dyno Nobel, were established. These companies were built around a number of revolutionary Swedish inventions and innovations. A changing economy
The developing industry was aided by of one of Sweden’s major natural resources: hydroelectric power. The large quantity of rivers and waterfalls in the north of the country made electricity relatively cheap. This, in turn, lowered costs and further raised the demand for Swedish products on the international market. Several additional factors created breeding grounds for Sweden’s rapid economic growth and eased the first steps toward the industrialization. They include · large scale investments financed by foreign capital in Swedish infrastructure, mainly railroads · rationalizations of agricultural methods · rapid population growth · city enlargement and technological improvements, such as telegraph expansion · the spread of daily press · the public school reform in 1842. Around 1900 more than half of the population worked within the agricultural sector. Sweden was poor but it was a nation which swiftly adapted during the age of industrialization. Even if Sweden was a slow starter compared to other European countries, once the industrialization process set off, the economy developed at a rapid pace. Sweden had all the ingredients that supported stable and long term economic growth. In the early 1900s the characteristically Swedish industrial mixture of engineering, mine, steel and pulp industry that we still see today was starting to take form. Structural Problems and Reforms
Despite the golden decades in the 50s and the 60s, Sweden had problems with dysfunctions within the economy. All of these problems surfaced in the mid 1970s oil crisis. During the later half of the 20th century Sweden experienced cost crisis, decreased competitiveness, deregulations and a severe economic crisis but also recovery. The 1970s brought many changes in international trade conditions which turned out to have a negative effect on Sweden. Since the country’s domestic market is relatively small, many industries rely heavily on export. The 1973-74 oil crises and the subsequent decline in international business activity therefore affected Sweden more drastically than many other countries. At that time, the Swedish problems also included tougher competition from other regions of the world, a dysfunctional wage formation that led to problems with high inflation and an inhospitable business climate due to high taxes. Subsidies and devaluations
The political answer to the problems was extensive government subsidies to suffering industrial sectors, such as steel and shipbuilding. These measures were not altogether successful, however, since they kept up employment only temporarily. In addition, they preserved structural problems in the economy which were to cause inflation as well as unemployment later on. These measures were not altogether successful, however, since they kept up employment only temporarily. High cost increases and fading competitiveness forced several devaluations of the Swedish krona during the 1970s and 80s. The devaluations temporarily restored the short-term competitiveness within for example the chemical, plastics, electronics and car industries but worsened long-term inflation problems in the Swedish economy. Deregulations
During the 1980s Swedish policymakers initiated deregulation in many sectors, with the intention to improve the economy’s functionality. Deregulations were launched against the monopolies within the transportation markets and electricity markets. Between 1983 and 1990 there also were several strategic deregulations of the financial market, especially liberalisation of the loan restrictions. This deregulation contributed to a very rapid increase in lending, largely focusing on the real estate sector. In retrospect, these regulations of the financial market were the main reason for an extensive and risky credit expansion. Deregulations were launched against the monopolies within the transportation markets and electricity markets. Due to the devaluations, the export sector had a large monetary surplus in the end of the 1980s. This liquidity problem was solved by investing in the stock market and real estate, which contributed to a rapid growth in overall asset prices. A bursting financial bubble
The abovementioned course of events led to a fully developed banking and financial service bubble that burst in the early 1990s. This crisis that followed the burst bubble went deep down into the very foundations of the Swedish financial system, due to massive credit losses. The bank and financial service sector nearly collapsed and could only been saved by governmental interventions to stabilize the situation. This crisis, combined with an international economic slowdown, governmental financial crisis, the following currency crisis that eventually led to the abandonment of the fixed exchange rate and the reconstruction of the Swedish tax system, became the starting point of the deepest economic crisis since the 1930s. Public finances under strain
The abandonment of the fixed exchange rate depreciated the Swedish krona considerably. But the positive effect for the export industry was not large enough to cover the losses in domestic demand, which in turn led to accelerating unemployment. Between 1990 and 1993, the registered unemployment increased from about 1.5 percent to 8.2 percent and GDP fell by approximately 5 percent. The central government budget deficit exceeded 15 percent of GDP in 1994 and the national dept climbed, peaking at around 80 percent of GDP in 1998. Falling GDP and lower employment resulted rather quickly in a sharp deterioration in public sector finances. The rising governmental expenditures, at the same time as tax receipts fell, created a great strain on public finances. The central government budget deficit exceeded 15 percent of GDP in 1994 and the national dept climbed, peaking at around 80 percent of GDP in 1998. Due to the combination of two decades of low growth and the severe economic crisis, Sweden slid in the prosperity league, measured as GDP per capita adjusted for purchasing power, from fourth place 1970 to 16th place, lowest so far, in 1998. Reforms and the dot-com bubble
In the aftermath of the extraordinary economic problems in the early 1990s, came a battery of structural reforms and austerity measures. Important structural governmental reforms were for example independence of the Swedish central bank, the Riksbank, from the Government, an inflation target and expenditure ceiling for the public sector. Furthermore, the membership in the European Economic Area, EEA, and from 1995 the membership in the European Union, implied stricter competition rules. The industry and business sectors in general implemented far-reaching efficiency measures. After 1993, the Swedish economy growth rate was well in line with the average of the other countries within the OECD. After the severe economic crisis in the early 1990s the economy stabilised. The improved efficiency along with the floating of the Swedish krona laid the groundwork for the rapid recovery in the output of the export industries during the rest of the 1990s. However, the rapid growth of the IT sector together with unrealistic prising of IT shares on the stock market created yet another bubble that burst in the early 21st century. This resulted in an economic slowdown and declining employment in the financial, telecom and IT sector. Compared to the crisis in the early 1990s, however, this downturn was mild. Structural Problems and Reforms
Despite the golden decades in the 50s and the 60s, Sweden had problems with dysfunctions within the economy. All of these problems surfaced in the mid 1970s oil crisis. During the later half of the 20th century Sweden experienced cost crisis, decreased competitiveness, deregulations and a severe economic crisis but also recovery. The 1970s brought many changes in international trade conditions which turned out to have a negative effect on Sweden. Since the country’s domestic market is relatively small, many industries rely heavily on export. The 1973-74 oil crises and the subsequent decline in international business activity therefore affected Sweden more drastically than many other countries. At that time, the Swedish problems also included tougher competition from other regions of the world, a dysfunctional wage formation that led to problems with high inflation and an inhospitable business climate due to high taxes. Subsidies and devaluations
The political answer to the problems was extensive government subsidies to suffering industrial sectors, such as steel and shipbuilding. These measures were not altogether successful, however, since they kept up employment only temporarily. In addition, they preserved structural problems in the economy which were to cause inflation as well as unemployment later on. These measures were not altogether successful, however, since they kept up employment only temporarily. High cost increases and fading competitiveness forced several devaluations of the Swedish krona during the 1970s and 80s. The devaluations temporarily restored the short-term competitiveness within for example the chemical, plastics, electronics and car industries but worsened long-term inflation problems in the Swedish economy. Deregulations
During the 1980s Swedish policymakers initiated deregulation in many sectors, with the intention to improve the economy’s functionality. Deregulations were launched against the monopolies within the transportation markets and electricity markets. Between 1983 and 1990 there also were several strategic deregulations of the financial market, especially liberalisation of the loan restrictions. This deregulation contributed to a very rapid increase in lending, largely focusing on the real estate sector. In retrospect, these regulations of the financial market were the main reason for an extensive and risky credit expansion. Deregulations were launched against the monopolies within the transportation markets and electricity markets. Due to the devaluations, the export sector had a large monetary surplus in the end of the 1980s. This liquidity problem was solved by investing in the stock market and real estate, which contributed to a rapid growth in overall asset prices. A bursting financial bubble
The abovementioned course of events led to a fully developed banking and financial service bubble that burst in the early 1990s. This crisis that followed the burst bubble went deep down into the very foundations of the Swedish financial system, due to massive credit losses. The bank and financial service sector nearly collapsed and could only been saved by governmental interventions to stabilize the situation. This crisis, combined with an international economic slowdown, governmental financial crisis, the following currency crisis that eventually led to the abandonment of the fixed exchange rate and the reconstruction of the Swedish tax system, became the starting point of the deepest economic crisis since the 1930s. Public finances under strain
The abandonment of the fixed exchange rate depreciated the Swedish krona considerably. But the positive effect for the export industry was not large enough to cover the losses in domestic demand, which in turn led to accelerating unemployment. Between 1990 and 1993, the registered unemployment increased from about 1.5 percent to 8.2 percent and GDP fell by approximately 5 percent. The central government budget deficit exceeded 15 percent of GDP in 1994 and the national dept climbed, peaking at around 80 percent of GDP in 1998. Falling GDP and lower employment resulted rather quickly in a sharp deterioration in public sector finances. The rising governmental expenditures, at the same time as tax receipts fell, created a great strain on public finances. The central government budget deficit exceeded 15 percent of GDP in 1994 and the national dept climbed, peaking at around 80 percent of GDP in 1998. Due to the combination of two decades of low growth and the severe economic crisis, Sweden slid in the prosperity league, measured as GDP per capita adjusted for purchasing power, from fourth place 1970 to 16th place, lowest so far, in 1998. Reforms and the dot-com bubble
In the aftermath of the extraordinary economic problems in the early 1990s, came a battery of structural reforms and austerity measures. Important structural governmental reforms were for example independence of the Swedish central bank, the Riksbank, from the Government, an inflation target and expenditure ceiling for the public sector. Furthermore, the membership in the European Economic Area, EEA, and from 1995 the membership in the European Union, implied stricter competition rules. The industry and business sectors in general implemented far-reaching efficiency measures. After 1993, the Swedish economy growth rate was well in line with the average of the other countries within the OECD. After the severe economic crisis in the early 1990s the economy stabilised. The improved efficiency along with the floating of the Swedish krona laid the groundwork for the rapid recovery in the output of the export industries during the rest of the 1990s. However, the rapid growth of the IT sector together with unrealistic prising of IT shares on the stock market created yet another bubble that burst in the early 21st century. This resulted in an economic slowdown and declining employment in the financial, telecom and IT sector. Compared to the crisis in the early 1990s, however, this downturn was mild. Sweden today
Sweden is the largest country in Scandinavia. It borders to Norway in the west and Finland in the northeast. In terms of area, Sweden is the 55th largest country in the world and 3rd largest in Europe. In terms of population Sweden is a rather small country, with around 9 milion inhabitants. Sweden is a parliamentary democracy under a constitutional monarchy, King H.M. Carl XVI Gustaf. The people are represented at national level by the Riksdag, with 349 members in one chamber, which has legislative power. The Government implements the Riksdag's decision and draws up proposals for new laws or law amendments. General elections are held every four years. In the 2006 general election the Moderate Party, allied with the Centre party, Liberal People’s party, and the Christian Democrats, with a common political platform, won a majority of the votes. Today's economy
The official Swedish economic policy focuses on stable central government finances and the Riksbank focuses on low inflation and price stability. More than half of everything manufactured in Sweden is exported. Sweden is an export oriented market economy. More than half of everything manufactured in Sweden is exported. Traditionally, the Swedish business and industry sector has been commodity-based. Paper, iron and steel are still important products but the main competitive factor today is knowledge and the flexible use of existing tangible and intangible resources. Public sector and taxes
Sweden has a large public sector with ambitious healthcare, educational and childcare system. Therefore, a distinguishing feature of the Swedish tax system in international terms is high income taxes, even on very low incomes. This is due to very low basic allowance and the highest marginal taxes, the percentage paid on the last krona, is about 57 percent and occurs at a, internationally speaking, low pay level. A distinguishing feature of the Swedish tax system in international terms is high income taxes, even on very low incomes. In relative terms, Sweden’s business sector is smaller than the EU and OECD averages, whereas the public sector accounts for a larger share of GDP those in otherwise comparable industrialized countries. Globalization
The Swedish economy has undergone some fundamental changes during the last 15-20 years. One of the most important is new organizational structures in companies, larger foreign ownership and less production in Sweden. It is especially “simpler” production that has been moved to countries with lower labour costs. The increased foreign ownership further strengthens Sweden’s economic dependency on other countries. Other important changes is a new basic IT-technology that permeates the whole society and the larger role that the knowledge, intellectual, capital play in competitiveness. Quick facts:· Capital: Stockholm · Area: 450 000 km2 = 174 000 sq.mi. · Language: Swedish · Prime Minister: Mr Fredrik Reinfeldt (Moderate Party) · Population: 9 174 464 (November 2007) · Member of the EU since 1995 · Member of a number of international organizations such as WTO and OECD. · Most important export goods: Electrical and telecom equipment, machinery, passenger cars, paper, pharmaceuticals, iron and steel. · Most important import goods: Electrical and telecom equipment, machinery, foodstuffs, crude oil, textile products, footwear, passenger cars. · Most important export and import markets: Europe, North America and Asia. |
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