Do the Nordic Lights Shine Bright Again? – Sweden's Response to the 1970s and 1980s Crisis

Abstract

Do the Nordic Lights Shine Bright Again? – Sweden's Response to the 1970s and 1980s Crisis

Twenty years ago, social scientists questioned whether the kind of «Third Way» Sweden exemplified as a corporatist and welfare state would be able to survive. Without doubt, there were reasons for such pessimism. During the 1980s, Sweden attempted to preserve its model through its so-called «bridging policy» which had unintended consequences: High inflation plus overheated real estate and financial markets stimulated by a negative real rate of interest. After 1991, these triggered an economic depression with high unemployment, which had important social and political repercussions for most of the 1990s. However, the trend seems to have been reversed since around 1996: In comparison to other European countries, unemployment in Sweden is quite low, while economic growth has been high, inflation low, the budget in balance, and the balance of payments positive. This article discusses the reasons behind this recovery and explains why the Swedish economy and politics seem to be quite well prepared at the moment for the coming challenges in the form of economic crisis and globalisation. Sweden is still looked upon as a country with a publicly financed generous welfare regime that is built upon the principle of universalism and the security of income during periods of sickness and unemployment. It is a country where the social partners still have a voice and regulate the labour market cooperatively to a large extent.