CAN WELFARE STATES SURVIVE IN THE GLOBAL ECONOMY?

...Instead of treating unemployment as an opportunity to provide goods and services in the public sector that have been long postponed, we prefer to junk the unemployed...

...The 353 idea," as Assar Lindbeck puts it in the standard text on Swedish economic policy, "is, as in the case of temporary investment taxes, to induce firms to change the timing of their investment expenditures from booms to recessions...

...One of the traditional problems of Keynesian measures of this scale in small, open economies has been the import-pull effect, in which a good portion of the stimulus of Keynesian policies is felt not in the domestic economy but in the countries that export to the Keynesians...

...Combined with the release of business investment funds, the inventory scheme kept the Swedish economy growing in 1975 while the rest of the industrial world contracted (the GDP grew 2.2 percent in Sweden and declined 0.9 percent in the Organization for Economic Cooperation and Development [OECD] countries in Europe...

...Gold bugs, silver corners, and commodity speculators seem to flourish...

...The third aspect of the Swedish effort to adapt to the new international environment concerns the basic Swedish attitude toward unemployment...

...6 For an analysis of the push for worker influence in corporate decisions and of the implications of the wageearner funds, see Don Hancock and John Logue, "Sweden: The Quest for Economic Democracy," Polity, vol...

...the United States' size is of a different order of magnitude, its policies fragmented and as inscrutable to the average person as modern particle physics...

...3 The heavy spending for energy conservation—another major source of the deficit—actually produces a net reduction in imports in the long run...

...It isn't in their interest...

...Forthcoming...

...The scheme ultimately did not succeed...

...It is a matter of political choice...

...Volvo sells three-fourths of its production of cars and buses and more than 90 percent of its trucks outside Sweden...

...But the model also became increasingly dependent on the global economy...

...The second act of the energy-price drama in 1979-80, however, produced major policy innovations...

...Yet the implementation of measures increasing employee influence during the global crisis probably has had a good bit of influence on economic decisions at the level of the firm...

...3 Swedish policy is premised on a division of the economy into two sectors: (1) an internationally competitive sector that includes production for export and domestic production that competes with imports and (2) a sheltered, noncompetitive sector that includes the public sector, services, and production in noncompetitive markets, like housing and construction...

...The overriding employee interest in employment security creates additional pressure for higher rates of reinvestment, and the implementation of the wage-earner fund system that began in January 1984 has added a new source of capital for investment...

...The government has discretionary spending power sufficient to fund the projects and the flexibility to implement them only where there is in fact local unemployment...

...The tools are simple...

...Today exports account for one-fourth of the gross domestic product (GDP) in Sweden and Denmark and one-third in oil-dependent Norway...

...Reagan's policies have drained both domestic and foreign savings...

...This is not a law of nature...

...First, heavy publicsector spending has, to a substantial extent, insulated the economy against a decline in domestic demand...

...Benefits were raised to levels sufficient to provide income maintenance for those remaining in the labor market during various forms of economic displacement and adjustment, including illness, short-term disability, unemployment, and the like...

...Programs for children and for assistance to the elderly, designed initially to provide support for the family's effort in these areas, were improved to the point that public-sector programs began to replace the family as the basic institution caring for the elderly and for children during the work week...

...imports play a comparable role...

...When the international upturn came in 1976, it was not sufficient to eliminate Swedish stockpiles, and the stock plan was phased out in 1977—with a resulting sharp contraction (2.0 percent...

...5 For analysis of the inventory support policy, see OECD, Economic Surveys: Sweden, 1975, pp...

...The second element of the Swedish policy response has been what could be called "supplyside socialism...

...THE FINAL COMPONENT was not intended as a response to economic crisis at all...

...In Scandinavia the state undertook, through the public sector, a direct reallocation of a good portion of the growth dividend to the worst off...

...To maintain international competitiveness, wages in the noncompetitive sector follow competitive-sector wages...

...An instructive example of how these aims might be achieved can be found in the policies pursued to protect the Swedish economy and the welfare state based on it from the vicissitudes of the international economic downturn...

...in the last two years...

...Public-sector expenditures went from about 50 percent of the GDP in 1974 when the crisis began to about 68 percent of the GDP in 1983...

...Ironically, a good portion of this is 355 financed indirectly with the $1.2 trillion in pension funds that are supposed to be invested prudently to provide a secure retirement for employees whose jobs are now threatened...

...The national government subsidizes the development of detailed plans by municipalities and government agencies for employment projects—generally improving the infrastructure—which are then put "on the shelf," as the Swedish phrase has it, until the government acts to release funds for these purposes in response to economic contraction...

...Thus, government spending is generally timely, and bridge, road, and, to a substantial extent, apartment construction is used for countercyclical purposes, both increasing economic stability and providing vital infrastructure...

...What is otherworldly in the American supplysiders' economic theology is the assumption that hardheaded, profit-maximizing American businessmen will choose to act altruistically by sinking their tax cuts into new production facilities when the existing ones are only operating at 60 percent of capacity and when government paper yields 14 or 16 percent...

...Look at our last few issues to see if your idea fits in...

...Thatcher's experience...

...Benefits were set at minimum levels sufficient to keep body and soul together, to take care of the sick, the disabled, and the elderly, and to protect families against economic catastrophe...

...Certainly, if they all did invest, a recovery would be generated, but it is in every businessperson's interest that the recovery be generated by the investments of others while one's own risks are minimized and profits made from increasing utilization of existing capacity...

...In turn, newly industrializing countries like Taiwan, South Korea, and Brazil desperately tried to expand exports to meet their debt service payments...

...As we're not an academic journal, we prefer that they, wherever possible, be dropped altogether or worked into the text...

...5) We're usually quick in giving editorial decisions...

...The extensive efforts to increase worker influence in the economy from the shop floor to the boardroom, from health and safety to co-ownership began 354 before the economic storm clouds appeared on the horizon...

...17, no...

...On the other hand, there is no question that employee influence will also reduce pernicious, speculative practices, including nonproductive speculation in art, old coins, gold and the like...

...Combined with the more general tools of macroeconomic policy and specific labor-market measures, the options available to the Swedish economic managers provided ample leverage for stabilizing the domestic economy...

...The new options exchanges, where one bets on the rise and fall of the value of the underlying stock or stock index, instead of investing in corporations themselves, have channeled immense sums into the Wall Street version of a Las Vegas casino...

...THE EDITORS 1:1 356...

...As a consequence, the Swedish economy is extraordinarily dependent on the world marketplace for its current health and its long-term viability...

...The Swedish Social Democrats have never expected businesspeople to act altruistically...

...To Our Contributors: A few suggestions: (1) Be sure to keep a copy of your ms—the mails aren't always reliable...

...The Swedish Social Democrats fought and won the September 1985 election precisely on the issue of their stewardship of the welfare state...

...During the decade of economic crisis, Sweden held its unemployment rate under 3 percent (despite the fact that female participation in the labor force is about ten percentage points higher than in many other countries, such as the U.S...

...Or take a chance and send us your article...

...Labor regards unemployment both as a tragedy for the individuals and families affected and as evidence of the irrationality of capitalism...

...The reason why the supplysiders in the U.S...

...OTHER POLICIES, OF COURSE, were possible...

...It is...

...New conservative administrations in Britain and the United States jettisoned national consensus for policies designed to promote economic revival by reinvigorating capitalism...

...In periods of boom in the 1950s, temporary investment taxes were imposed to cool businesses' investment ardor, while during recessions taxsheltered investment funds, laid aside by business in blocked bank accounts during good years, were released for the purchase of new machines and construction of new plants...

...Even the United States, with its $4 trillion economy and gigantic domestic market, has been battered by international economic tides that have eroded portions of its rudimentary welfare programs for children, mothers, and the unemployed even as need for them grows...

...2 (Winter 1984), pp...

...12-14...

...3) Type your ms double-spaced, with wide margins...

...2) Please don't write to ask whether we're interested in such and such an article—it makes for useless correspondence...

...4 The investment fund system was initiated in 1938, reformed in 1955, and perfected in the late 1950s and the 1960s...

...Labor governments try to minimize unemployment and maintain the purchasing power of the unemployed...

...Similarly, fiscal stimulus can be directed to sectors where the spillover in imports is limited...

...And please remember that we can't return articles unless they're accompanied by a stamped, self-addressed envelope...

...To do otherwise would be to abandon the gains of the past half century and destroy much of the social peace created 352 through them...

...The initial model, put in place in the 1930s, coupled maintenance of minimally adequate income levels for the urban working class and for family farmers with policies designed to stimulate employment...

...If there's a delay, it's because a few editors are reading your article...

...A good portion of the $200 billion in the annual stimulus of deficit spending that the Reagan administration is pouring into consumer pockets has stimulated the import of Japanese video recorders, Toyotas, and even Volvos...

...The cost of being a net debtor to the rest of the world will be passed on to our children...

...The Volvo and Saab figures are for 1982 and are taken from those companies' annual reports...

...Stockpiling Inventory THE 1970s BROUGHT AN INNOVATION in economic policy designed specifically for managing the international cycle...

...Yet it is hard to escape the sense that we are missing the opportunity of a generation in failing to deal with the issues of economic renewal when confronted by the globalization of the economy...

...In the 1940s and 1950s, both full employment and the economic security provided by welfare measures depended upon economic growth...

...Similarly, Saab sells 351 two out of three cars and nine of ten trucks abroad.' Other major Swedish companies— Electrolux, ASEA, L.M...

...and (3) They have to meet this competition without reducing living standards—as we have done—or relaxing environmental and social standards...

...But these measures seemed inadequate to bridge an international economic downturn...

...By contrast, exports represent under one-twelfth of the American GDP) Scandinavian industrial companies export roughly 40 percent of their production, and companies on the leading edge of the economy—world-class companies—are totally dependent on exports...

...2 This development is problematic in many ways, not least because of the heavy deficit it caused (13 percent of the GDP or roughly twice the Reagan deficits that have kept the credit markets in panic), but it has also been the single biggest factor in maintaining domestic demand and stimulating employment...

...These countries must handle the strain of stagnation and contraction while defending their societies in which the weakest members enjoy a modicum of economic security...

...While this unlikely panacea had no demonstrable constructive consequences for the basic economic structure of either nation, it created major rents in the social fabric in Britain, where police were on constant call to deal with distressingly regular race riots, football hooliganism, and uncharacteristically violent strikes...

...Swedish national policy is to regulate international capital flows, limiting capital (and job) export in accordance with national interests, and I have yet to run across any Swede who views deindustrialization as a plausible path for the nation to follow...

...What Sweden's experiences mean is that we have better choices...

...Mergermania has become epidemic...

...Don Schwerin, "Nordic Responses to 'Fiscal Crisis.'" In Norman Furniss, ed., Futures for the Welfare State, (Bloomington: Indiana University Press, 1986...

...5 Had the recession stayed within the general postwar range of twelve to eighteen months, we would all be studying the Swedish success...

...q Notes This article is based on a talk given at the Third Annual Conference on Industry and Society, Indiana University of Pennsylvania, October 1984...

...One might note, parenthetically, that not only do Swedish policies make decent economic sense, they make political sense as well...

...There is a lesson here for us: It is possible to run strong Keynesian countercyclical policies without being overwhelmed by imports and without resorting to protectionist measures...

...In the 1960s and early 1970s, however, the full-employment economy allowed the model to change...

...Responding to Crisis THE SWEDISH REACTION to the crisis has had four major components...

...The inequality generated in a dynamic capitalistic market economy was ameliorated through well-funded public programs...

...Instead of channeling investment in accordance with human needs, we are plagued with speculative excesses...

...failed so abysmally was not that it is not possible to manage a businessinvestmentled recovery...

...Sweden, for instance, with a population only about three-fourths that of Pennsylvania, has two major auto producers...

...That is obviously what has happened during the recovery in the U.S...

...Mitterrand's failure suggests that even countries with domestic economies of substantial size have lost their economic independence...

...If you want them to invest, don't give them the freedom to choose...

...The same tides are even more threatening to welfare states in small, open economies like those of the Scandinavian countries, which are far more dependent on the international economic cycle...

...Maintaining the national industrial base is a sine qua non for any reasonable national economic policy...

...4) Notes and footnotes should also be typed double-spaced, on a separate sheet...

...What Can We Learn...

...248-270...

...Sharp increases in public spending for infrastructure—roads, bridges, rail lines, the Stockholm metro—have relatively small import components as wel1...

...In the United States, the huge financing requirements for Mr...

...But dismantling major national industrial assets, such as steel, auto, or the machine tool industries would strike most Swedes as a primrose path to national economic suicide...

...through a variety of selective, as well as general, labor-market measures...

...What distinguishes Swedish Keynesianism is that much of the increase in public-sector spending is directed toward social services—such as expanding home care for the elderly and day care for children—where the direct import component is close to zero...

...By looking at the Scandinavian countries we can see how other nations, despite the more severe challenges they faced, dealt more successfully with the same problems, at least in the sense that it was not the weakest members of society— the lame, the halt, the poor, the sick, pregnant women, and babes in arms—who were expected to shoulder the heaviest burdens of the crisis...

...That is the lesson of Mrs...

...7-9, and 1977, pp...

...The problems of the internationalized economy were exacerbated by the economic policies adopted in response to oil price increases...

...It is hard to draw comparisons between Sweden and the United States...

...We have all been drawn into a global economy that threatens to swamp national policies and institutions...

...Instead of encouraging reinvestment, our depreciation and tax write-off rules seem to have subsidized a massive reduction in capacity in major industries, such as steel, with the federally subsidized transfer of billions from that industry into others, such as oil...

...2 These and the figures that follow are derived from Organization for Economic Cooperation and Development (OECD), Economic Surveys: Sweden (Paris: OECD, 1973-84...

...Reforms may undercut the entrepreneurial instincts and dampen the rate of innovation...

...Petroleumproducing countries, unable to expand their economies as quickly as their revenues, recycled their profits through Western banks, in part to finance oil purchases by nonpetroleumproducing Third World countries...

...But more than that, Swedish policy in the postwar period has come increasingly to treat the unemployment that economic downturns would otherwise create as an opportunity: an opportunity to provide, at a reasonable price, public goods and services which would otherwise not be provided, or which would strain resources...

...Economic growth and full employment eventually transformed the welfare state in Scandinavia...

...that requires higher rates of reinvestment...

...Similarly, it is more likely that other aspects of the internationalized economy, including Swedish multinational corporations activities and technology transfer, will be subject to substantial bargaining and compromise...

...From Sheltered Harbor to Global Economic Storms WE ALL KNOW the initial cause of the economic miseries of the last decade: the industrial democracies and Third World countries had to adapt to a 1,200 percent increase in the price of oil between 1973 and 1983...

...An elixir of greed, apparently, would restore youth to otherwise mature capitalist economies...

...Ericsson, SKF—are equally export oriented...

...I focus on Sweden because its policies present a coherent alternative consistent with these goals...

...The options for small, open industrial welfare states in today's world are far bleaker than those of the United States for three reasons: (1) Not only are these states dependent on international trade, they have to meet lowwage competition in markets where they cannot appeal to protectionist sentiments because they too are foreign producers...

...The aim was to stockpile Swedish inventories during the international downturn, to finance them with cheap money borrowed abroad (interest rates are supposed to go down in a recession), and then to export the stockpiled goods into the international upturn, maintaining employment during the contraction and winning new markets during the expansion...

...In 1981 the new French Socialist government under Francois Mitterrand attempted a unilateral program of reform and recovery that was ultimately swamped by the international economic tide...

...The Swedes have put into place incentives to discourage or encourage investment as the exigencies of managing a countercyclical economic policy demanded...

...Sweden is a small country, relatively easily managed, and national economic policies seem comprehensible to informed citizens...

...Check all your figures, dates, names, etc.—they're the author's responsibility...

...Industrial democracies muddled through the first round of oil price increases in 1973-74 with policies that demonstrated little vision but probably did not actually worsen our problems...

...4 Assar Lindbeck, Swedish Economic Policy (Berkeley: University of California Press, 1974), p. 98...

...6) Please bear with us—we have accumulated quite a backlog of material, and you may have to wait for a few issues before you see your article in print...

...From their origins in the 1930s through the mid-1960s, welfare programs were designed for hard times...

...At the same time these states desperately need economic growth to fund welfare state programs...

...It is possible, though far from certain, that the growth in employee equity capital through the funds may lessen pressure for wage increases as the funds' dividends are paid into the pension system...

...In any case, the enactment of the funds does seem to have moderated wage demands in 1983 and 1984...

...In an energy-price-induced recession like the current one, it is not surprising that particular attention has been paid to insulating public buildings and housing, improving rail transportation, building district heating systems, and increasing cogeneration...

...The Swedish Social Democrats have done that with considerable success, holding unemployment under 3 percent throughout the last decade through retraining and employment programs, and maintaining unemployment compensation at 90 percent of industrial wages...

...The rapid, artificial appreciation of the dollar temporarily transferred much of the burden of financing the American military buildup abroad, though at substantial expense to our industrial base...

...2) They have to control wages, since wagepush inflation could price them out of their foreign markets, and they have to push up productivity as fast or, if possible, faster than their competitors...

...That jacked up the general energy price level as a proportion of gross national product (GNP) by a factor of roughly three and ratcheted up inflation...

...Scandinavian welfare policies need little introduction...

...One can permit—and the Swedes have— the dismantling of some low-wage industries, such as portions of the textile, garment, and shoe industries, in order to absorb Third World imports in labor-intensive fields where the Swedes have no desire to compete on labor costs...

...6 It is very difficult to predict the long-term impact of the growth of employee influence in a capitalistic economy...

...Used for the first time on a small scale in 1972, the Swedish inventory production support scheme provided partial government financing for inventories that exporting firms built up by continuing normal production despite decreased international demand...

...Moreover, their home markets are too small to sustain their industry, and far too small to give them any bargaining clout in dealing with the Japanese...

...ARE THERE ANY lessons here for Americans...

...The Swedish Social Democrats have been working on designing policies to do just that since 1938...