Sweden was a latecomer in European industrialization. In the middle of the 19th century she was still an agrarian based European backwater. An ad hoc, by Sweden forcibly endorsed, union arrangement with her Norwegian neighbor, little but dimmed the reality of a Sweden compelled to insignificance by a Europe that had advanced at her deceleration. It was all very far from the, by Swedes still, revered 17th century when the Swedish king, Gustavus Adolphus, led the Protestant League to European domination. Aided by his chancellor, Axel Oxenstierna, the king administered Sweden into a centralized war machine, quite similar to the Prussian 19th century paragon; contrived by her domestic chancellor-equivalent Otto von Bismarck. The grand king of Sweden mobilized his realm with the pretext of total war. Europe's first central bank was created; a first national ordnance survey arrayed; and institutions were founded with the aims of national conscription and rapid mobilization in case of any such royal decrees. That Sweden lost her initiative with the defeats of Charles XII in the early 18th century might not be as surprising as the fact that this peripheral kingdom, with a mere fraction of Europe's population, was actually able to dominate the affairs of Europe during an entire century.
Nonetheless, with the onset of the Industrial Revolution in the late 18th century, Sweden was hopelessly behind and degraded to one of Europe's poorest countries. The developmental time lag eventually turned out to be an incentive for Swedish catch-up as British and continental demand increased for her produce. Iron-ore and forestry was the bulwark for Swedish industrialization, which was greatly enhanced by large investments in infrastructure; a reformed and more efficient agricultural sector; and the, since Gustavus Adolphus, entrenched bureaucracy that was now set for industrial development. With abundant rivers and waterfalls in the north of Sweden, hydroelectric plants were constructed and cheap electricity channeled to the industrial heartland further south around the capital Stockholm. Hence, two advantages discern that continuously has supported Swedish manufacturing: affordable and bountiful water and electricity. Add to that the earlier mentioned natural resources of rich forests and iron-ore, and process it with a diligent Lutheran work force used to bureaucratic adherence, and the very compact of Swedish economy starts to be construed. Between 1895 to 1914 Swedish industrial production doubled with a value increase of 150% (1).
Many of today's Swedish world-renowned companies were initiated during this intense catch-up phase. Often backed by a, or a set of, patented commercial inventions, Swedish companies raised capital at Stockholms Fondbörs, the stock exchange of Sweden, where the joint stock company enabled aspiring entrepreneurs to capitalize on their geniuses in an international environment favorable to trade and new discoveries. Thus, capital and market access formed large vertically integrated company groups in a national context of property rights and private ownership. Gustaf de Laval is a typical entrepreneur of this period. He invented the milking machine in 1896, which rationalized dairy extraction and released labor-resources from a time-consuming everyday chore. His equally innovative separator that subsequently separated cream from milk processed further dairy production. The multinational residual of his efforts is Alfa Laval a world leader in dairy processing. Ball bearing, another early 20th century Swedish invention, not only gave ground to the present world leading producer Svenska Kullager Förbundet (SKF) but also provided impetus to arriving Swedish car and shipbuilding industries.
Swedes generally proved apt to quickly apply patent protection, and many Swedish ascribed industrial inventions such as: the propeller, by John Ericsson; the zipper, by Peter Aronsson and Gideon Sundbäck; the safety match, by Gustaf Erik Pasch and the Lundström brothers; and not to mention the modern telephone, patented by Lars Magnus Ericsson in 1876, the founder of the telecom giant L.M. Ericsson, were actual elaboration on existing patents. Ericsson's invention was to combine Alexander Graham Bell's two pieced telephone device into a single receiver (2). Although Alfred Nobel, the chemist who invented dynamite and founded the Nobel Foundation, which is responsible for the Nobel Prize, is the internationally most acclaimed of Swedish inventors, he is nonetheless just a representative of a national era of leverage through innovation.
Sweden did not participate in World War I. Her 17th to 18th century actively aggressive stance in European affairs had become subdued with a growing awareness of that size does matter. In order to wage an ever more expensive kind of modernizing war, Sweden just did not have the scales necessary. That had become all too obvious with her encounters with Russia. Instead Sweden did what political scientists label "Hollandization": a withdrawal from war with an added emphasis on trade as the external raison d'être.
In Sweden, as elsewhere, industrialization also brought social changes. In the words of Roland Huntford:
Industrialization was carried out almost painlessly. The collective mentality and corporate organization inherited from the old agricultural communities and the bruks (mills) was exactly what was required to cope with the technical and social upheaval brought by the new times (3).
Huntford continues in his The New Totalitarians to gripe about an hierarchical peasant mentality predisposed to obedience that might have benefited rapid industrialization but also permeated rigidities into the Swedish model. In an eloquent, if rather rancorous, way Huntford defrocks Swedes of individuality and subsequently interprets their collectivism as servitude to centralism - an inherent societal weakness reciprocal with individual deficit. He has, however, completely missed the point. The harsh living conditions prevailing on the Scandinavian Peninsula had as corollary community cohesion as a method for effective survival. External threats and internal benefits were managed by precedence of party privileges over individual rights. Duties and responsibilities have at least until the late 1960's expressed command over rights and entitlements. The prevailing order should not be mistaken for xenophobia or voluntary insulation; quite the contrary. Viking explorations and Swedish New World successful settlements neither indicates ingrained servitude or operative rigidity but merely explains a national character shaped by condition more than discussion. Thus, as Huntford alludes Sweden's smooth industrial transition to a concordat of peasant mentality and central bureaucracy, his well-versed pen is disoriented into a paradox as the European example proves the two mentioned variables unable to equate. That Sweden was spared from massive upheavals during her ready industrialization, which so surprised not only Huntford but also other external observers, is due to the, specifically Swedish, conditional consensus of purpose prerogative.
Subsequently, labor and capital soon formatted for efficient negotiations. Landsorganisationen (LO), the Swedish Trade Union Confederation, was formed in 1897 with its employer equivalent Svenska Arbetsgivareföreningen (SAF), the Swedish Employers' Confederation, established in 1902. Central wage bargaining was henceforth more or less institutionalized between the two parties, which together constituted a pillar of industrial peace. Albeit that fewer weeks were lost to industrial disputes than in competitor countries, a national convulsion nevertheless occurred in 1931 at a place called Ådalen. At the onset of the Great Depression militant communists had started to infiltrate the Swedish labor movement inspired by their international comrades. The state of affairs was in a flux as subversive elements accentuated; the situation was particularly severe in northern Sweden where strikes at timber mills had turned into riots. The nervous provincial governor called in the military to stem the disorder and at Ådalen, during a protest march, five protesters were shot dead. This was an event non grata in the consensus based Sweden and at the national elections the following year, the to LO affiliated Socialdemokratiska Arbetarepartiet (SAP), the Social Democratic Party, gained power (4). SAP was faced with a precarious situation as LO tried to arm-wrestle concessions out of its ally, the labor government stood however firm, with the best for the nation as guidelines, and arranged a set of pioneering meetings between LO and SAF. In 1938, a blueprint for industrial harmony was set at the seaside resort of Saltsjöbaden, which even today with some amendments apply. The agreement stipulated a labor market council to handle disputes with third parties i.e. the government; it located negotiation principles; established guidelines for hiring and layoffs; and provided a framework for conflict mitigation in the public's interest (5). The co-operative mode of this agreement has a Swedish connotation in Saltsjöbadsandan, the Spirit of Saltsjöbaden, an embrace of mutual concessions for united progress.
The Great Depression was an obvious time of ideological confusion and national commotion. On the European continent communism in the east; fascism in the south; and nazism in the west, advanced totalitarian solutions. Sweden was able to weather both the depression and ideological challenges fairly well. She devalued her currency the krona in the early 1930's and in amalgamation with technical and quality improvements - Sweden increased exports and actually achieved national income growth at the end of the decade.
Sweden was once again spared during World War II when she declared neutrality and treaded gently between the axis powers and the allies. Sweden continued her trade with both sides more or less until 1944 when she cut her Germanic ties. Some scholars even speculate that Swedish supply of iron-ore and ball bearing for the German war machine prolonged the war. At the war's end the world haplessly witnessed the repercussions of total war - raged on the European continent. The Western economies' were however swiftly shielded into the American sphere of influence in which Sweden somewhat implicitly adhered.
Under American benevolence world trade was enhanced: a strong US dollar relative to other currencies boosted universal US bound exports; a 1944 conference at Bretton Woods, New Hampshire, provided a framework of multilateralism for open trade and against unemployment. Indeed, an unprecedented "long boom" occurred where the world economy grew from the early 1950's to the late 1960's with 4-5% annually. With Swedish industry dually intact and competitive "the long boom" translated into a real bonanza. Her textile sector suffered from cheaper external supply but strong external demand for machinery, oil tankers and motor vehicles elevated Swedish industry into a specialized value-added economy. In the late 1960's she had become the country with the world's highest per capita Gross Domestic Product (GDP) in company with Switzerland and the USA. Academicians from various origins and disciplines started to talk about, and closer examine, "the Swedish miracle economy" that had exterminated poverty as a social ill and despite rapid growth and private ownership been able to keep income differentials conspicuously narrow.
The talk of a "miracle economy", flattery promoted by the ruling Social Democratic party, was both premature and incorrect. Strains and stresses grew in the Spirit of Saltsjöbaden as the expanding public sector inflated manufacturing compensation. Increases in domestic costs, particularly cumbersome for the export sector, was met with series of devaluation instead of entitlement retrenchments, which would have been a more appropriate antidote for a country that started to live beyond her means. I do believe it to be both more subtle and accurate to describe Swedish post World War II economic development in a context of intact infrastructure; export-oriented domestic manufacture - greatly benefited from benign external conditions; framed in two decades of good and stable political governance.
Nevertheless, some peculiarities of that governance deserve to be examined. Sweden was the first industrialized country to employ Keynesian macroeconomic principles on a scale sufficient to make the difference between continuing decline and reviving prosperity. The Social Democratic party, in coalition with bondeförbundet, the Agrarian party, applied already in the late 1930's public works to spur growth and balance recession. The government tried, by an operative engagement in the domestic economy, to hedge capitalistic volatility without sweeping nationalization of corporations. When effective demand slumped, the government responded with fiscal spending. Another characteristic was the creation of nationwide co-operatives, which broke down inherent cartels construed by established industrial players. These co-operatives, still an omnipresent Swedish feature, used scale for purchase and production, and practiced rebate distribution to co-operative members, which established volume and customer loyalty; in the late 1970's almost two million households subscribed to co-operative participation (6). This co-existent velocity between labor and industrialists paved the "middle way". Labor was included both as a partner, in a capitalistic structure, and as an operative market actor. The government acted like an arbiter and distributor of the resulting spoils. Industrialists, the preferred Swedish synonym to capitalists, were kept content by an internal market of substantial governmental procurements and an external market, which the government accommodated through monetary adaptations i.e. currency depreciation. The Wallenberg family epitomizes this seemingly unholy alliance between a socialist government and private capital.
Rarely has any one family shaped the industrial landscape of a country as comprehensively as the Swedish Wallenberg dynasty. It is not only the scope that amazes outside observers but also the duration of their prevalence. At the incipience of Swedish industrialization André Oscar Wallenberg founded Enskilda Banken, today existent in the merged shape of SEB. The bank was commercially active in the nascent manufacture sector where its clout grew through equity stakes in corporate clients. In 1916, pre-empted by a new law that would limit banks ownership of companies, the holding company Investor was set up, which is still the device by which the Wallenbergs' head their empire (7). The holding company, which is noted on the stock exchange of Sweden, is a sacrosanct corporate conduit and untouchable from the uninitiated investor by family commanded foundations that hold majority shares. The foundation solution enables the Wallenbergs' to exercise power with relative little private equity. In so doing they can avoid not only high Swedish capital taxes but also engage in some management privacy, some would say secrecy, since foundations are not obliged to the same disclosure procedures as public companies according to Swedish law. Furthermore, the peculiarity of shares with different weighted voting rights empowers the family to control divisions of Swedish industry with just a fraction of the capital base. On any average trading day at the Swedish stock exchange, the Wallenbergs' control roughly 40% of total market capitalization (8). A sum total bordering US$ 120 billion or four times Vietnam's total GDP. The weighted-voting share phenomenon is increasingly criticized by external investors who deems it an anachronistic remnant of a shielded era; conspicuously obsolete in an inter-dependent financial milieu. The Wallenbergs' proxy response is that good corporate management and long-term industrial commitment is conditional to stable ownership. Late scandals involving obscene retirement benefits for Wallenberg first lieutenants as well as the family's perceived inaptitude to diversify and grow into new sectors have anew put the Wallenbergs' under fire. If their proxy response to the critique cannot be validated by actual events than their very power base is undermined.
The grand old man of the family was Marcus Wallenberg, cousin of the fabled diplomat Raoul Wallenberg. Tall and athletic, witty and brutal, he was both admired and feared by his contemporaries. His early challenger Ivar Kreuger built his empire on the earlier described Swedish invention of safety matches. In the 1920's he succeeded, in return for country loans, to conquer more than half the world market of matches. Kreuger, however, over-extended and when accused of financial improprieties, in the aftermath of 1929's stock market crash, he despaired into suicide. From Kreugers self-effacement of 1932 and onwards - Marcus Wallenberg ruled Swedish industry.
The system of vote weighted A and B shares were endorsed by the labor government since the oligopolistic structure of Sweden's domestic industry acted as a barrier against foreign entry and thus assisted the Social Democrats' in their labor -and social reform zeal without the inclusion of more conflict-prone alien industrial elements. Arguably, a sensed symbiosis grew out of this state of order between the Wallenbergs' and the Social Democratic party. In mutually recognizing each other's right for existence, a status quo unveiled where both forces could prosper. If Huntford's mentioned rigidities were ever allowed to permeate the Swedish society its inception is here, in the early 1950's amid Swedish economic success, since her innovative spirit and natural survival instinct were henceforth replaced with a monolithic industrial patriarchy and a socially spooning government that rewarded individual political correctness with public pampering.
In the late 1960's a rebuilt Western Europe and an assertive Japanese export machine had started to encroach on Swedish industrial domains like shipbuilding, motor-vehicles and machinery. The challenge was furthered severed as US president Richard Nixon defaulted on the American dollar and made US bound exports more expensive. When the first oil crisis broke out in 1973, the Swedish competitive situation went from bad to worse. The era of entrepreneurial invention had been curbed by a solid Wallenberg hegemony in the industrial sector. More than two decades of reforms and affluence had made the populace, read electorate, unappreciative towards retrenchment by a government that used social engineering for its own justification. The "long boom's" predictable dividends and protracted, close to, fixed political configuration had made Sweden inflexible and averse to regroup.
Subsidies and labor market programs were arrayed to halt the demise of both out-competed industries and raising unemployment. Billions (in kronor) worth of state subsidies were directed to the shipyards to no avail. In the late 1970's the yards not only had to tackle Japanese competition but also South Korea, which with an even greater comparative cost advantage than Japan, had emerged as a major supplier. Swedish shipyards went from a near 10% share of the world market for tankers and bulk-carriers in 1975 to virtually nil in the late 1980's. And that despite the subsidies and labor market programs, which drained state coffers and constituted a staggering 5% of Sweden's total GDP (9). By refusing to allow unemployment to rise more rapidly, Sweden caused her rate of growth of output per worker to fall faster than in competitor countries. Swedish tax levels also ejected in this period to the unprecedented portion of +50% of GDP. Domestic taxation increases; currency devaluation; and national budget overdrafts, were remedies that merely festered a structural abscess, which needed removal for consistent recovery. The American economist Alice Rivlin summarized Sweden's predicament as follows:
Yet Swedish macroeconomic policies in the middle and late 1970's were the reverse of what was needed. Instead of being constrained to newly appropriate levels, public and private consumption went on rising rapidly. Government spending increases, spurred by efforts to stave off unemployment, resulted in escalating budget deficits. Domestic saving plummeted, and even a low level of investment could be maintained only by borrowing from abroad (10).
A further thorough Swedish devaluation in 1981 and an improvement of the world economy during "the roaring 80's" provided some relief. Current-account surpluses contributed cash flow for national debt repayments and asset speculation spurred an equity- and property boom. Inflation remained, however, high; entitlements stayed unrestricted; and inflating asset prices did not make up for Sweden's loss of entrepreneurial initiative. The crash that came could have been both predicted and prevented. It might, nevertheless, have been a blessing in disguise as it shook the prevailing order in its foundation and released alternatives.
The property boom collapsed in the late 1980's and with it the inflated conception of a Swedish economy on the rebound. The early 1990's were a time of reckoning and reflection for a country that, until now, had been surprisingly unaware of her own vulnerability. Three consecutive years of negative GDP growth between 1991-1993 made Swedish Purchasing Power Parity (PPP) adjusted average income sink under European ditto in 1993-1994 (11), which was a first since World War II. Swedish press started to banter about Spaniards and Italians arriving to the, for foreigners, increasingly affordable Nordic kingdom. Previous waves of sun-seeking Swedes, invading the Latin coast lines of Provence and Andalusia, had to stay home, seeking content in summer cottages and garden-allotments. A realization emerged that just being Swedish did not justify affluence in itself. Awareness materialized that a small open economy like Sweden, heavily dependent on foreign trade, could not afford costs escalating beyond those of competitor countries. The new Social Democratic finance minister, Göran Persson, initiated a program of retrenchment backed by his credo "a person in debt cannot live free". Translated into politics: first fix the banks; than balance the budget; and thirdly rein in on inflation, present and future.
Let us examine the crash-triggers of 1991. The property -and equity boom of the late 1980's spiraled with a national cash infusion of easy credit. When the bubble burst, and asset collateral diminished in value, Swedish banks became loaded with non-performing loans and subsequent bad debt. Vital credit for the manufacturing sector dried up as banks tried to trim their balance sheets. A declining economy, with a contaminated financial system, high domestic costs and rigid labor structure, is in itself an alluring prospect for currency speculators, if you however add Sweden's historical propensity to devaluation, high national debt and insufficient foreign reserves; dinner is served. Earlier in 1992, financial volatility and currency speculation had de-pegged the British pound from the European Exchange Rate Mechanism (ERM) and now the tide was turned to Sweden. For some strange reasons Swedish power élite stood firmly behind Bengt Dennis, the head of the Swedish central bank, Riksbanken, in his futile attempts to save a local currency irretrievably lost by internal mismanagement and external furor. In the autumn of 1992 the central bank's overnight lending rate reached 500%. Normal business activities came to a halt and an entire nation held her breath as her perceived bedrock economy crumbled. The author of this paper was active running a Swedish trading company in the midst of the crisis and can easily recall the almost unreal feeling of business disintegration in literal encounters with bankruptcy trustees at the entrance of former customers' headquarters. The cause was lost of course and with currency depreciation came also to light the huge costs of fighting the inevitable. Bankruptcies peaked and hundreds of thousands lost their employment as the public sector entrenched and the private sector regrouped. A massive overhaul was construed with decisive governmental measures to merge and re-capitalize the fragmented financial sector. Over a broad political spectrum entrepreneurial ability was recognized as a major component of national revival. As uniquely Swedish solutions had lost their credibility and with European markets constituting more than 60% of total Swedish exports; access and integration made Swedes vote yes in the 1993 referendum over European Union (EU) membership. In 1994, Swedish economy bounced back registering 4.1% in GDP growth; one of the EU's highest rates (12). The finance minister, Göran Persson, was rewarded with the prime minister post in 1996 for his excellent management of post-crash financial reconstruction. Sweden once again proved that in times of distress she still possesses enough critical mass to transform herself. Labor entrenched and capital regrouped. Mighty construction and motor vehicles industries were replaced with telecom and IT as catalysts for growth. The population, which still enjoys an enviable standard of living, nevertheless, accepted to expect more individual preparations and less public support for future needs.
Sweden has since long enjoyed a larger role on the world scene than her size and geographic location justifies. Her multinationals, diplomats and athletes have made a recognizable print on the global landscape. As this historical survey has tried to outline that can partly be explained by some internal peculiarities and aptitudes but even more so by good management of external conditions. Spared from two World Wars, and implicitly protected by the Western sphere, she could engage in profusion very much as a consequence of both the needs that the wars provoked and the outcomes that they promoted. Sweden's golden era, in the 1950-60's, was indeed as a supplier to a war-wrecked Europe and an imports-prone USA. Today's entwined global environment makes exclusive national arrangements conspicuously exposed to external approval. Sweden has continued to be a force in international business through high investments in Research and Development (R & D) as well as in public education. Her multinationals continue to be competitive, and the Wallenbergs' has survived as Europe's only lasting industrial dynasty, since the Italian Agnellis' were neutralized in the 1990's. Two 45-year-old cousins now exercise the family's power as heads of SEB and Investor respectively. Yet, Sweden is much more dependent on the outside world than vice-versa. Her appeal as a role model has subdued in parallel with her obvious shortcomings. There is neither any miraculous Swedish panacea nor any shortcuts. Sweden must continue to reform, regroup and reconstruct. Present IT-embrace and renewed focus on innovation are encouraging signs; today's Swedish IT-sector employs 6% of the total corporate sector; a European record (13). Nevertheless, taxes remain astronomic, the total take exceeds 50% of GDP; also that on record levels (14). All in all maybe the greatest Swedish challenge is to continue to be an industrial paragon in her own right. Mergers and acquisitions worth more than US$ 52 billion swept Sweden only in 1998, which was US$ 6 billion more than Germany in that year (15), an economy of nine times Sweden's size. Volvo's car division is now owned by Ford; SAAB by General Motors (GM). The famous pharmaceuticals have merged with American and British counterparts i.e. PharmaciaUpJohn and AstraZeneca. Headquarters and R & D departments risk to be, or have already, moved out to larger domestic markets and stronger capital hubs. Sweden's chosen path is global participation, if that is to succeed, let us urge her to apply traditional contrivance and not interim complacence as distinguishing mark.
(1) Sverigeturism, Industry and Trade (online), available: http://www.sverigeturism.se/smorgasbord/smorgasbord/industry/dev/, 2002.
(2) Sverigeturism, Swedish Inventions (online), available: http://www.sverigeturism.se/smorgasbord/smorgasbord/industry/inventions/, 2002.
(3) R. Huntford, The New Totalitarians, Allen Lane The Penguin Press, London, 1971, pp. 44-45.
(4) T. Griffiths, Scandinavia, 2nd ed., Wakefield Press, Kent Town SA, 1993, pp. 130-131.
(5) T. Griffiths, op. cit., p. 131.
(6) M. Childs, Sweden: The Middle Way on Trial, Yale University Press, London. 1980, pp. 20-22.
(7) Investor, Investors Historia (online), available: http://swe.investorab.com/pages/Navigation/AboutInvestor/InvestorsHistory/, 2002.
(8) Business Week ´Busting up Sweden Inc.` (online), available: http://www.businessweek.com/1999/99_08/b3617019.htm, 2002.
(9) B. Bosworth & A. Rivlin, eds., The Swedish Economy, The Brookings Institution, Washington, 1987, p. 7.
(10) B. Bosworth & A. Rivlin, op. cit., p. 16.
(11) Svenska Dagbladet (online), available: http://svd.se/dynamiskt/Ettan/did_1168078.asp, 2002
(12) Svenska Dagbladet, op. cit.
(13) Statistiska Centralbyrån (online), ´IT-Statistik`, available: http://www.scb.se/internationellt/eu/it.asp, 2002.
(14) OECD (online), ´Tax Statistics`, available: http://wwwl.oecd.org/daf/fa/stats/stats.htm, 2002.
(15) Business Week, op. cit.
Bosworth, B. & Rivlin, A., eds., The Swedish Economy, The Brookings Institution, Washington, 1987.
Business Week ´Busting up Sweden Inc.` (online), available: http://www.businessweek.com/1999/99_08/b3617019.htm, 2002.
Childs, M., Sweden: The Middle Way on Trial, Yale University Press, London. 1980, pp. 20-22.
Griffiths, T., Scandinavia, 2nd ed., Wakefield Press, Kent Town SA, 1993.
Huntford, R., The New Totalitarians, Allen Lane The Penguin Press, London, 1971.
Investor, Investors Historia (online), available:
OECD (online), ´Tax Statistics`, available: http://wwwl.oecd.org/daf/fa/stats/stats.htm, 2002.
Statistiska Centralbyrån (online), ´IT-Statistik`, available: http://www.scb.se/internationellt/eu/it.asp, 2002.
Svenska Dagbladet (online), available: http://svd.se/dynamiskt/Ettan/did_1168078.asp, 2002.
Sverigeturism, Industry and Trade (online), available: http://www.sverigeturism.se/smorgasbord/smorgasbord/industry/dev/, 2002.
Sverigeturism, Swedish Inventions (online), available: http://www.sverigeturism.se/smorgasbord/smorgasbord/industry/inventions/, 2002.