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News : EU Economy Last Updated: Sep 6, 2013 - 9:33 AM

Sweden was the third richest country in the world in 1968
By Michael Hennigan, Finfacts founder and editor
Sep 5, 2013 - 7:43 AM

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President Barack Obama greets a guest following remarks honoring Swedish diplomat Raoul Wallenberg at the Stockholm Synagogue in Stockholm, Sweden, Sept 04, 2013.

President Obama will travel from Stockholm, Sweden to St. Petersburg, Russia, Thursday morning for a G-20 summit of the leaders of 19 leading advanced and emerging economies. On Wednesday evening the president attended dinner with the leaders of Denmark, Finland, Iceland, Norway, and Sweden. Sweden is the biggest Nordic economy and in 1968 it was the third richest country in the world. In terms of wealth, Norway's oil-based sovereign wealth fund is worth almost $750bn while Sweden is back among the top ten measured by GDP (gross domestic product) per capita, following a period of reforms. Ireland is at a level similar to Italy's and the EU average at 25, using an adjusted metric excluding various distortions that impact GDP and GNP (gross national product).

GDP decreased by 0.1% in the second quarter compared with the first quarter of 2013. The IMF forecasts economic growth of 1.3% this year.

The unemployment rate is 7.2% and
gross public debt in 2013 is expected to be 38% of GDP and net debt after offsetting public pension funds will be -18%.

A budget deficit of less than 1% is expected this year.

Sweden with a population of 9.5m, is often held up as a model where a modified welfare state was maintained while the economy was put on a sustainable basis. In the 1990s, almost all workers were given equal rights with the guarantee of work lifetime jobs withdrawn from 99% of public sector staff. Employment legislation in Sweden is very similar for the public and private sectors, with additional provisions regarding the misuse of public power, and similar issues, applying to the public sector.

In Ireland where the current crisis is not dire enough to trigger significant reforms, the majority of private sector workers have no occupational pension while public service staff have guaranteed employment and guaranteed pensions (there is no fund to pay from). 

The right to lifetime employment in Ireland dates from 1853 when Sir Charles Trevelyan recommended it in a report he co-authored for the British government.

Trevelyan features in the song, 'The Fields of Athenry,' and he had been responsible during the Famine for closing of food depots in Ireland that had been selling Indian corn. His motivation was to prevent the Irish from becoming "habitually dependent" on the British government.

One of the recent high profile beneficiaries of Trevelyan's guarantee was the wife of Eamon Gilmore, tánaiste/ deputy prime minister. A job had to be made for her on existing terms, when her public agency was abolished. Another was a manger of the Dublin Airport Authority who collected an early retirement bonanza of €867,000 and he was rehired as a consultant. Austerity is sure tough on them insiders!

Sweden was a largely impoverished agrarian society until it was transformed into a location of heavy industry in the 19th and 20th centuries. From the 1920s, the Social Democrats in government introduced the welfare state while the Wallenberg banking family directly invested in many of the companies that would later become international brands in their sectors.

However, in the 1970s and 1980s, spending went out of control, Sweden doubled its overall tax burden, nationalised several industries and re-regulated its markets. By 1990, GDP per capita was down 14 ranks from 1968 and in the two decades, real wages in Sweden rose by only one percentage point, according to Johnny Munkhammar, a Moderate Party member of the Swedish Parliament, and the author of "The Guide to Reform" (Timbro/IEA 2007), as reported in The Wall Street Journal.

However, between 1983 and 1990 there also were strategic deregulations of the financial market, especially liberalisation of  loan restrictions that contributed to a very rapid increase in lending, largely focusing on the property sector.

Among mainly developed countries, around 74% of people aged 15 to 64 in Sweden have a paid job, above the OECD employment average of 66%. Some 76% of men are in paid work, compared with 72% of women.

Fred Bergsten, an American economist, wrote last week that while Sweden retains its welfare state:

"After its crisis, Sweden reduced public expenditures by 20% of its GDP, slashing social transfers such as unemployment benefits and sick-leave compensation. It cut its public debt in half (its debt, as a proportion of the economy, is now about half that of the United States). It cut marginal tax rates and simplified its tax code so much that nearly two-thirds of Swedes simply confirm by phone that the declaration automatically prepared for them by the tax authorities is correct. The banking system was thoroughly reformed and emerged unscathed from the global financial crises.

Structural reforms were also adopted. Successive governments deregulated one market after another and privatized as market conditions permitted. All children receive vouchers so their parents can choose private or public schools at public expense. Swedish social security became a true insurance system, rather than a pay-as-you-go one with huge unfunded liabilities as in the United States."

There are of course challenges in particular for the manufacturing sectors of the Nordic countries and the Boston Consulting Group recently warned: "The chief handicaps of Nordic manufacturing are declining cost competitiveness and relatively inflexible labor rules in most countries. Manufacturing labor costs in Germany are around 20% lower than the Nordic average, while in the US they are around 40% lower."

IMF annual report on Sweden, issued today [pdf]

OECD statistical profile of Sweden

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