Postwar Growth
The Swedish model

Sweden displayed one of the highest growth rates among industrialized countries during 18701970 and became one of the most affluent countries in the world, but its economic performance since then has been weaker, and per capita GDP has fallen to the OECD average. In Discussion Paper No. 901, Magnus Henrekson, Lars Jonung and Joakim Stymne seek to identify the `ultimate' causes of this poor growth performance since the early 1970s, using the OECD as the main benchmark for comparisons. They identify and discuss the key features of the `Swedish model', based on active government intervention in the allocation and distribution of resources, in relation to Sweden's macroeconomic policies since the 1930s and structural changes since 1945. They assess possible explanations of poor growth performance based on the `catchup' effect, saving and physical capital formation, lack of competition, macroeconomic stabilization and labour market policies, public sector expansion, taxation, human capital formation and investment in R&D.

Henrekson, Jonung and Stymne reject explanations of the growth slowdown based on the exhaustion of catchup potential. Rather, political intervention has increasingly distorted incentive structures and economic decisions have increasingly been taken in the public rather than the private sphere, in an institutional structure with strong nonmarket elements. This has gradually reduced the efficiency of capital formation, while the public sector has increasingly formed a barrier between price signals and economic decisions and reduced the economy's ability to adapt to shocks and disturbances. They account for the timing of the slowdown as the result of an accumulation of structural weaknesses that were in part apparent before the oil shocks of the 1970s but whose severity increased thereafter. Explanations of Sweden's relatively low growth over the past quartercentury are therefore to be found in the design of its economic policies and institutions, which have not fostered an incentive structure conducive to rapid growth.

Economic Growth and the Swedish Model
Magnus Henrekson, Lars Jonung and Joakim Stymne

Discussion Paper No. 901, March 1994 (HR)