Sweden

Sweden A Scandinavian country which in the twentieth century has become best known as a model of a social democratic welfare state, in which capitalism was severely curtailed through state intervention. A relatively poor state in the nineteenth century, it began to prosper towards the end of the century as it became a large exporter of wood pulp, while its reserves of iron ore led to the expansion of industry. The growth of an industrialized, urbanized society was reflected in the establishment of the Social Democratic Labour Party in 1889. This combined with the Liberals to press for social and political reform, against a conservative political establishment dominated by the interests of agriculture, and of the monarchy and aristocracy. It became the last independent Scandinavian country to adopt universal suffrage, introduced by a Liberal/ Social Democratic coalition in 1917.

After a period of instability in the 1920s, which the country shared with the rest of Europe, the Great Depression triggered a social consensus and political stability that stood in marked contrast to the political instabilities of the rest of Europe, and which has been the hallmark of Swedish politics ever since. The Social Democratic government under Per Albin Hansson (Prime Minister 1932–6, 1936–46) engaged on a period of social reform which created a lasting alliance between agriculture and industrial workers in the cities. Agricultural debts were restructured and import tariffs raised. In return for more expensive food, urban workers received social welfare benefits and public works in periods of depression. Taxes were raised to pay for public works, which would reduce unemployment and stimulate demand. Large businesses supported this agreement in return for industrial peace and the maintenance of private property. There is no evidence that this application of Keynesian demand management actually helped Sweden overcome the effects of the Great Depression. However, the coincidence of the onset of the new policies with the economic upturn caused by the improvement in the world economy convinced most that the new consensus was, indeed, the source of economic betterment. This led to a long era of Social Democratic government.

During World War II, Sweden was the only Scandinavian country able to maintain the neutrality which its neighbours, Norway and Denmark, had also declared. This was partly because Sweden was strategically less important, while Norway also had crucial reserves of ore. Sweden therefore did not need to be occupied by the Germans, as long as the Swedes continued to allow Nazi Germany to transport its troops into Norway, and the iron ore out of Norway. A rare neutral country with access to world markets, Sweden also conducted much trade with Germany. Its exports of ball bearings were crucial to the German armaments industry, though in fairness they were also supplied to the Allies. At the same time, the country remained extremely vulnerable, sandwiched as it was between Germans occupying Norway and Denmark on the one hand and a Finland invaded by Russians in the Continuation War on the other. Ultimately, it was an important haven for refugees from continental Europe, Finland, and Scandinavia.

After the war, the Social Democratic Prime Ministers Erlander and Palme continued the construction of the welfare state interrupted by the war. Trade unions were strengthened, workers' benefits improved (sick pay, statutory holiday leave), pensions raised, and taxation increased so that Swedes came to suffer one of the world's highest rates of taxation, while enjoying one of the world's highest living standards. Full employment became the central economic priority. This system, which became so central to Sweden's raison d'être, was challenged by the series of world depressions that set in with the 1973 and 1979 oil price shocks. Initially, the state tried the easy alternative, stimulating exports through a devaluation of the currency. As this increased inflation further and led to even greater wage demands, it became clear that structural reforms were needed, particularly a reduction of the role of the state and a decline in trade union influence.

Since 1976, therefore, there has been an alternation of governments, each trying unsuccessfully to reduce welfare payments, limit public sector pay rises, and reduce trade union power. One successful approach to Sweden's problems led to its entry into the European Union in 1995, which had been approved by a referendum in 1994. This provided further impetus for structural reforms under the governments of Bildt and Ingvar G. Carlsson (1986–92, 1994–6), notably the liberalization of the agricultural sector, and efforts towards public deficit reduction. In March 1996 Carlsson was succeeded by Goran Persson, another representative of the right wing of the Social Democratic Labour Party. Persson's party lost in the 1998 elections, but he continued to form a minority government with the support of the Communists and environmentalists. Persson continued with his reforms, and in 2000 the Lutheran Church was disestablished. Spurred by the reforms of the 1990s, Sweden has enjoyed continued economic growth and prosperity. It did not, however, join the euro immediately, though by 2002 opinion polls indicated that Swedes were increasingly in favour of joining.