On Fri, 16 Aug 2002 Nomiprins at aol.com wrote:
> And now, of course we know that Ericsson is tanking, and that this
> preeminent example of Sweden following the lead of other over leveraged
> speculative corporations leads to the same dire consequences on the
> downside as for any other country.
Actually not -- they're doing better on the downside than other countries too. See article attached below. High tech was only part of their revitalization. The main part of it was an amazing fiscal turn-around that they executed in the first half of the 90s, before the stock market took off . And which they showed can be pulled off without gutting the welfare state. So long as people are willing to pay taxes and trust the government to take the bulls by the horns.
But of course you're quite right that this is a different question than why the Meidner Plan never brought socialism
Michael
Financial Times; Aug 14, 2002
EUROPE, MIDDLE EAST & INTERNATIONAL ECONOMY: Sweden's leader demonstrates the value of gain from pain
By Nicholas George
It would hardly seem an ideal backdrop for a government to be launching its election campaign.
The country's corporate flagship is in crisis, the stock market has slumped by about 35 per cent and the population is struggling under the highest tax burden in the industrialised world.
Yet, according to opinion polls, Sweden 's Social Democrats, the party that has governed the country for all but nine of the past 70 years, look set to retain power at the general election on September 15.
For the SDP and in particular Góran Persson, the prime minister, this solid position in the polls could be portrayed as a simple morality tale.
Facing a fiscal crisis in the mid-1990s, the government embarked on a deeply unpopular austerity programme, turning a budget deficit of 12 per cent of gross domestic product in 1993 into a surplus of 2.1 per cent in 1998, a figure that reached 4.8 per cent in 2001.
By cleaning up the public finances and enduring the pain, Mr Persson, architect of the austerity programme, has been able to indulge in classic Keynesian counter-cyclical measures, increasing public sector employment and cutting taxes.
This has created a robust labour and housing market and buoyed consumer confidence. Household income is forecast to grow by more than 4 per cent this year.
It is a position that Mr Persson's opposite number in Germany, Gerhard Schröder, must envy. With an election a week after Mr Persson, the Social Democratic chancellor is facing an uphill battle with unemployment rising and growth anaemic.
Restricted by Germany's budget deficit and the constraints of the eurozone's stability pact, Mr Schrýder has had little room to offset the global slowdown with expansionary fiscal measures that Mr Persson has been able to implement.
Moody's recognised Mr Person's and Sweden 's achievement this year by awarding the country an AAA rating for the first time since 1991. Kristin Lindow, a Moody's analyst responsible for Sweden, describes the turnround as "phenomenal".
"If you look at primary government spending it fell from 66.6 per cent of GDP in 1993 to 51.3 per cent in 2001, over 15 percentage points. That's huge."
Binit Patel, an economist with Goldman Sachs, says the transformation is "remarkable" and it is difficult to find a comparison in the industrialised world.
Ms Lindow believes European countries such as Germany could learn from Sweden. "In the past Germany has backed away from the reform and they have paid the price," she says.
In the 60s, 70s and 80s Sweden was regarded as "sclerotic and unable to take decisions", but it has proved much more pro-active in fields such as pension reform and spending controls than many other European countries.
"If a country is muddling along, it tends to continue to muddle along. In Sweden there was a crisis and tough decisions were taken."
However, not everyone is convinced about the country's new-found economic vigour. As Stefan Falster, economist at the Confederation of Swedish Enterprises, points out: "Sweden is not moving upwards. The accomplishment is we are not moving downwards any more."
It is certainly true that the recent economic turbulence has not left unscathed a country that is home to Europe's telecoms valley. Ericsson, the corporate flagship, the world's largest supplier of mobile networks and the cornerstone of Sweden's telecoms cluster, is cutting 45,000 jobs worldwide, many of them in Sweden.
Moreover, with the nation claiming the highest spread of share ownership in the world - about 80 per cent of adults in 2000 - the collapse in telecoms share prices has affected millions.
The dichotomy between the high-profile corporate and market setbacks and the general prosperity was apparent again last week when the telecoms sector produced more bleak tidings. Orange, the mobile operator, warned its 3G net in Sweden could be delayed by three years. On top of this Flextronics, the electronics group, said it was cutting 500 jobs because of weak demand for telecoms equipment.
Set against this grim news was the release of second quarter GDP figures that were stronger than expected, with growth at 2.1 per cent year-on- year.
Nowhere can this contrast be better seen than in the small southern town of Karlskrona. Once an unemployment black spot reliant on shipbuilding and the military, the town reinvented itself in the 1990s around the telecoms industry.
It is here that Flextronics plans to cut 300 jobs, yet Mayor Mats Johansson is relaxed. "Unemployment is still around the national average of 4 per cent and the labour market is so strong people are just sucked up elsewhere," he says. Even the shipyard is taking on staff.
In the election campaign, the opposition will point to the ballooning number of workers off sick and the failings of core public services, such as education and healthcare, once the symbols of the Social Democratic welfare state.
On a more fundamental level, government finances remain highly sensitive to swings in GDP. While an upturn rapidly increases tax revenues and reduces benefit spending, a slowdown has the reverse effect.
A healthy economy before the 1988 election was soon transformed into the crisis of the 1990s. The test for the revitalised "Swedish model" of high taxes and high public spending will be how it copes with an extended downturn.