The Welfare State in Transition: Reforming the Swedish Model.

Stanfield, James Ronald

Edited by Richard B. Freeman, Robert Topel, and Birgitta Swedenborg. Chicago: University of Chicago Press, 1997. Pp. ix, 477. $74.00.

The essays in this volume are the result of a major research project on the serious problems facing the Swedish economy that have culminated in an important redirection of policy over the past decade. The essays examine the performance of the Swedish model prior to the 1990s crisis, the nature of the crisis, the relation of the Swedish model to the crisis, and the consequences of the crisis for Sweden's ongoing economic performance.

An examination of Sweden's historical success in reducing economic deprivation leads one to conclude that Sweden's compression of income, while notable, is misleading if it is compared solely to the more skewed pattern in the U.S. This is because, whether one compares high incomes to low incomes or low incomes to median incomes, the U.S. is far more an outlier than Sweden. Hence, the common American perception of "socialized Sweden" is misleading even in terms of income distribution. It is less the case that Sweden is egalitarian than that the U.S. is inegalitarian.

An analysis of Swedish public employment, taxes, and labor market policies concludes that substantial welfare losses result from the point of view of individual utility analysis. The study indicates that a large bias is created toward employment in household services in contrast to goods production (p. 80). The objection that access to labor market policies is rationed. The argument that Swedes apply a more collective valuation to such policies is acknowledged but is considered to affect the value of the benefits of these policies, whereas the deadweight welfare losses are indications of their cost (p. 104).

In the last decade or so, Sweden has enacted several pieces of tax-reform legislation and significantly restructured its labor market policies in response to the global pressure to reduce tax rates and improve factor supply incentives. The authors of Chapter 3 insist unabashedly that "there can be no doubt that the Swedish income tax is vastly better now than it was in 1980" (p. 149). This conclusion follows from the compaction and reduction of effective marginal tax rates. Removal of distortions in capital markets is a further advantage of these tax reforms. The tax reforms are likely less important than restructuring income protection programs insofar as labor supply incentives are concerned (p. 253). The move away from centralized wage bargaining and the wage solidarity policy adds to the enhanced efficiency effects of tax-rate reductions and social insurance restructuring (p. 197). Another chapter concludes that active labor market policies should not be expected to have an appreciable effect on unemployment and suggests that generous and lengthy unemployment compensation benefits likely increase unemployment (p. 295). Moreover, in periods of substantially higher unemployment, the administrative prevention of abuse of the unemployment compensation system is likely to be much less effective than in the earlier period of low unemployment (p. 313). This suggests that reform of this social insurance program will become more important as Sweden's unemployment level more closely resembles those of the other democratic capitalist economies.

Chapter 8 concludes that Sweden's regulatory policies reduce market competition and lead to nontrivial efficiency losses (pp. 350-1). Swedish industry is likely to be forced to become more efficient as Sweden becomes more integrated into the European Community (p. 350). Further efficiency gains for Swedish industry are likely to follow from lower and more neutral tax rates and reform of industrial and expenditure policies, but Sweden still has much to do in removing political distortions of its economy (p. 395). An examination of Sweden's international economic status suggests that the entry into the global market place of the transitional economies may create opportunities for Sweden to take advantage of its wealth by increasing investment in its physical or human capital stock, depending on whether or not the human capital in the transitional economies proves to be effective in the global market place. The authors conjecture that the human capital in the transitional economies is not likely to be competitive, which in turn leads to the conjecture that Sweden's advantage lies in shifting its investment flow somewhat toward human capital formation (p. 463).

This volume is usefully read in juxtaposition to an earlier volume of essays on Sweden (Bosworth and Rivlin 1987), which examined many of the problems then facing the Swedish economy that later worsened and induced the fundamental policy changes examined in the present work. The essays are of uniform quality and are analytically rigorous. Yet they are, for the most part, quite one-sided. Little attention is paid to the benefits of the social policies under siege or to the problems and social movements that brought them into existence. In this, the essays resemble and provide further support for the neoliberal ideology that is driving the global Great Capitalist Restoration. If, as this reviewer expects, this renewal of the capitalist social structure of accumulation, growth, and change founders on the perennial problems of capitalism, a day of reckoning is not long off (and indeed may have already begun in the Asian crisis). At that time, the neglect of the aspirations of the policies being abandoned may loom large in relation to the pecuniary efficiencies celebrated in the volume.

Reference

Bosworth, B., and A. Rivlin, eds. 1987. The Swedish economy. Washington, DC: Brookings Institution Press.

James Ronald Stanfield Colorado State University