Re: Sweden

["schulte-baeuminghaus" <cresscourt@xxxxxxxxx>]

Sven,

Thank you for that account - terrifying as it is.
Each country must be examined separately. We all have our particular
environments, demographic situations, social histories. We all have
our various idiosyncrasies.
But there are elements in the situation in Sweden that are clearly
discernible elsewhere.
There are also attitudes of thought - among both academics and
policy-makers - that are discernible elsewhere - with all their
horrific implications.
We cannot but be ashamed and distressed that we - so-called
professional, highly trained economists - could have been and can
still be so stupid and irresponsible for so long.
We pursue the war criminals - rightly - but there is a criminality
among economic advisers in many countries - deriving from neglect,
incompetence, mental laziness, stubborn obsession with foolish
concepts and the rest - that can sometimes cause even more distress
and suffering among whole populations even than outright war.
It may not be definable as murder but it is a sort of manslaughter -
and women and children "slaughter" - on a grand scale.
Moreover, we cannot be at all sure that widespread violence, deriving
from economic and social distress, is not ahead for many of us, even
in the most stable, democratic countries. The Quebec experience is
another warning - and emphatic indication that wire fences and
tear-gas are not the way to get us out of what is now a worldwide
predicament.
Even so, the particularly distressing thing that your conclusions
identify and that has worried me for some years, is that error has
been persisted in for so long and is now so deeply entrenched - and
its effects are so widespread - that, however quickly and effectively
we move now, corrective measures must take time to have effect and,
inevitably, there must be even more pain, more distress - particularly
among the more vulnerable in our societies - for several years ahead.


James Cumes
The Bookshelf of James Cumes
http://members.chello.at/schulte-baeuminghaus


----------
>From: Sven R Larson <larson@xxxxxx>
>To: "pkt@xxxxxxxxxxxxxxxx" <pkt@xxxxxxxxxxxxxxxx>
>Subject: Sweden
>Date: Fri, Apr 27, 2001, 4:08 pm
>

> I get the feeling that there might be more interest in Sweden following
> the postings about the EU demonstrations, and since the mere topic
> "Sweden" makes my stomach turn upside down I'll make one and only one
> contribution. After this one I don't want to have anything to do with
> that topic anymore. So please excuse me for writing a long one here.
>
> Sweden, as most of you know it, "is" a country with a big, well
> functioning welfare state that stands as a role model to the rest of the
> world. You think health care is free, schools are great, people are
> friendly and crime is no big deal.
>
> Well, that's the country I grew up in. But it wasn't the country I left
> two years ago. Let me try to tell you what happened.
>
> There are three events in three different years that constitute the
> turn-around for Sweden:
>
> 1977 - the conservative finance minister decides to go for fiscal
> austerity in the midst of a recession. Although the idea as such is not
> new, it was the first move of its kind for decades. This could have been
> an isolated event, but two other domestic events conspired in the same
> direction.
>
> 1979 - the supposedly leading economics professors in Sweden gathered in
> the summer and decided to institute "coherence in political advise".
> This meant, in practice as well as by intention, that economists who
> spoke in public about fiscal policy and other economic matters should
> stay within close ranks of opinion.
>
> 1981 - the social democratic party tells its party congress that it will
> revert to good ole Keynesianism (at least a mild version of it) if
> winning the upcoming parliamentary elections. That was the most blatant
> lie to a political congregation seen so far in Sweden, and you might say
> it constituted an intellectual coup d'etat in the social democratic
> party.
>
> By the time the social democrats took office in late 1982 after winning
> the elections solidly, they did nothing of what they had promised to do.
> Instead they devaluated the currency (their economic policy analysis
> group had said in their party congress report a year before that the
> double-digit inflation then experienced was imported!) and cut fiscal
> spending both on the national level and in local governments (in the
> aforementioned report they had said that unemployment was a
> lack-of-demand problem!). The results were a clear down-gearing of the
> economy's growth, and only sluggishly falling unemployment. Actually,
> the reason why it fell at all was that the export industries had their
> hay-days.
>
> The public sector had seen fragments of general cutback programs during
> the six years 1976-1982 with various liberal and conservative
> governments. Now that regime, first outlined in 1977, was de facto
> transformed into an honor of public agencies. Every year the national,
> regional and local bodies of the government sliced two or three percent
> off their operations. In the beginning - actually for several years -
> this didn't have any other effect than to streamline to the better, but
> once the excess weight was shrunk away it wasn't as fun to be there
> anymore. (I still remember when I was in high school and budget cutbacks
> forced the school to give us teacher-free classes...) Once in a while
> the finance minister, Mr Feldt of the social democrats, would go on
> public television threatening to bring out the fiscal chain-saw if he
> wasn't allowed to keep on slicing 2-3% each year. He also made tax hikes
> an annual event - the only year in the 1980s when inflation in Sweden
> was below 5% was 1986. The only year no taxes were raised in Sweden in
> the 1980s was 1986.
>
> Budget balancing gradually became a part of the daily thinking among
> public sector managers and legislators. By the time a new recession
> broke out in 1990 the balancing principle had been impregnated into the
> minds and statutes of the public sector for 13 years, slowly and shakily
> at first and then with the efficiency of a modern, indicatively planned
> economy.
>
> During the 1980s the standard of living in Sweden grew more slowly than
> in the rest of the world. Sweden gradually drifted down from world
> leadership into a mainstream crowd with the rest of the Nordic
> countries. Things were, to be honest, still going OK, but as the early
> 1990s proved the economy was hanging in two fragile hooks: the export
> industry and the financial sector. These two, in turn, were
> interrelated. The export industry made enormous profits thanks to the
> devaluations in '81 and '82, and since they made such huge profits it
> wasn't really necessary to be world leading in investments. So much of
> the profits ended up in the financial sector, where world-leading
> speculation took place in the real estate market as well as on the stock
> market. In January 1982 the Stockholm stock market index was at 192. In
> July 1990 it peaked at 1314.7. (This world record is stunning; NB that
> index 100 is at January 1980 and growth in the next decade, to 1/90, was
> 1238%.) When speculation collapsed it brought the entire private bank
> system with it. Only a huge national bail-out by the conservative
> government in 1991-1994 saved Sweden from a complete macroeconomic
> melt-down.
>
> Financial speculation was the only "trickle-down" channel that could
> proliferate the wealth of the export sector to the rest of the economy.
> There are several tangible indicators that Swedes, during the 1980s,
> gradually grew poorer thanks to persistent fiscal austerity. One such
> indicator is the relative fall in private car purchases: while car sales
> were good an increasing share went to corporate leasing fleets; average
> families geared down in size and quality. Another indicator is the
> relative drop in home construction: between 1965 and 1975 Sweden (with a
> population of 8 million at the time) build 100,000 new homes per annum.
> During the 1980s the peak figure was 65,000. In other words: the housing
> standard began a slow but steady fall. Two important reasons for this:
> taxes and a purchasing power among households that to an increasing
> extent failed to climb. A third indicator: the distribution of income
> tipped to the disadvantage of average families. A fourth indicator: the
> country was no longer able to support its excellent pay-as-you-go
> pension system because average GDP growth during the 1980s (1.9% yearly)
> fell below the required 2.3% p.a..
>
> All of this does not sound very dramatic. But it is fundamentally the
> work of intention - the intention behind fiscal austerity. Throughout
> the 1980s taxes rose, spending was streamlined and a new generation of
> managers and politicians (on all levels) made career on being good at
> making tough cutback decisions. This institutional change is more
> important in the long run than it is in the short run; but it is a
> crucial part of any explanation of what happened next, after a decade of
> tepid economic development.
>
> In August 1990 a major financial corporation, Nyckeln ("The Key"), filed
> for bankruptcy. That triggered a huge financial crisis that, as
> mentioned, brought the whole private banking system with it. A financial
> system in speculation works like a pyramid game - it only yields profit
> so long as more people enter at the bottom than exit at the top - and
> therefore when equity values and the estate market had been so severely
> overspeculated that even the boldest, most insanely Ponzi-oriented
> speculators realized that they wouldn't be able to cash their profits,
> the collapse was imminent. This caused national panic, to say the least.
> I still remember how news broadcasts reported on developments in the
> financial sector as though it was a basketball tournament, with frequent
> updates and excited voices. The government and the central bank all went
> into panic, and the social democratic government of 1990 decided on a
> drastic move: to file an application on behalf of the country for EU
> membership.
>
> This financial collapse lead to a total break-down of the construction
> industry. In only two years the entire construction industry went from
> shock-full employment to an unemployment rate of 65%. The national
> unemployment figure went from almost zero to 15% in eighteen months.
> Industry investments ceased. And the public sector went into its biggest
> crisis ever, and there it has been ever since.
>
> The public sector is important as a hub in this whole story. Remember
> that the institutional turn-around during the '80s injected fiscal
> austerity into the minds of every person with any sort of budget and
> employment responsibilities in that sector. When the recession hit the
> country, including the financial crisis, the minds of all leading
> politicians and all "leading" economists (A Lindbeck et al) were already
> set for budget balancing. By the time the recession emerged a tax reform
> was already being implemented in the same theoretical spirit. It favored
> labor market participation by reducing marginal taxes; it favored saving
> over consumption; and it made it less attractive to borrow. The effects
> of the implementation of this reform were immediate, as household
> savings went from -2% to +10% in only two years (1989-1991). That
> savings shock was paired with increasing efforts in the public sector to
> cut spending, cut spending and cut spending.
>
> One might say that the financial crisis was unfortunate. But anyone who
> knows Keynesian theory also knows what triggers speculative processes. A
> crucial effect of the events in 1979, when economists decided on
> "coherence in advise", was that Keynesianism was passed on to the
> departments of economic history. Keynesian theory soon became little
> more than a passage in intro textbooks and the last academically active
> economist in Sweden who openly confessed himself to Keynesianism, Sven
> Grassman, was stripped of everything except his tenure. In this
> intellectual environment it is obvious that a recession of the kind
> Sweden experienced in 1990-1992 could only be met in one way: with more
> austerity.
>
> And austere they went. The conservative government 1991-1994 (succeeded
> the 1982-1991 social democratic government) did their very best not to
> engage in business cycle counter-balancing, but they were a relatively
> weak government, thank God, so the major effect was a rapidly growing
> budget deficit on the national level and fierce cutback efforts on the
> local level. However, since the national deficit wasn't actively used,
> but only stood in for failure to raise taxes and cut spending even more,
> nothing good really came out of it (other than relatively). But the
> social democrats rushed to help the government launch a really nice
> little austerity package in the fall of 1992, to save the fixed exchange
> rate as it was motivated.
>
> During the early years of the '90s the budget balancing efforts had
> taken on such grotesque proportions in Sweden that it was hard to
> believe even as one witnessed it. I'll give you a very typical example.
> A small town outside Gothenburg, led by conservatives, decided to cut
> down welfare payments. This had been done in absolute or relative
> (inflation adjustment) terms for years, so it was nothing dramatic as
> such. but the problem was that by making this cutback they actually
> lowered the payment standards below what national law prescribed. A
> recipient discovered this and sued. She won and the court ordered the
> town to raise its payment standards and compensate the woman in
> question. The welfare board refused and was backed by their national
> party friends in Stockholm (then in government) with promises that if
> they were taken to court for their "courageous" budget balancing efforts
> the fines they would receive would be paid by the party. This, of
> course, would have been a major legal scandal and never happened, but
> the mere intention is illustrative of a way of thinking that had emerged
> as a result of a decade-and-a-half of fiscal austerity.
>
> (Welfare standards have been cut every year since then, and are now so
> low that you wouldn't believe me if I gave you the figures. But they are
> all available to anyone who wants to research this.)
>
> By the time the social democrats regained power in 1994 they had decided
> to launch a major strike against the budget deficit. Their plan as
> announced in the election was put at only a fraction of the actual
> package they sent through parliament. With implementation starting in
> 1995 they cut spending and raised taxes over three years, totalling 9%
> of GDP. Disabled children lost their assistants. Many towns began
> charging elderly in their care so much it took practially their whole
> pension (until social democrats realized they could lose the election in
> '98 if they didn't put a ceiling these charges). Kids' school lunches
> were kept at acceptable standards in some cities only thanks to term
> fees. A visit to a doctor in the paid-by-taxes health treatment system
> cost $20 or more (in a country where the public sector grabs
> substantially more than half of GDP). Everywhere absurd effects of
> budget cuts were seen and felt. The pension system was completely
> overhauled, with a new pension tax that now claims 9% of a net-tax
> salary (30-35% income taxes have been paid), but the future recipients
> of these pensions know already now that they will be very poorly
> rewarded for their contributions - regular income earners can lose as
> much as 50% net tax.
>
> Class sizes in public schools have gone from 20-28 in the 1970s and '80s
> to 25-40 in the 1990s. AS such the change doesn't say much, but please
> remember that an average public school teacher makes $1,500 per month,
> pre-tax. Quality in public sector education has fallen dramatically,
> which can be seen in that illiteracy has grown sharply and social
> problems among kids has been a major cause of disturbance. When I went
> to school in the '70s there were not only more teachers but also other
> student-oriented staff in schools. These are now long gone and teachers
> are working harder than ever. The same has happened in the health care
> sector; on hospitals helpers practically do not exist anymore. Not that
> they've been replaced by nurses - they've simply been "budget balanced"
> away.
>
> These are only fragmentary illustrations of what the situation is like.
> Every day life, if you chose to live in Sweden, is much worse than this
> forum allows me to account for. Let me give you some more scattered
> facts off the top of my head:
>
> 1. If US welfare regimes were used in Sweden, one out of three families
> with children at home would be eligible for at least some support.
> 2. In Stockholm last year 1,900 people had to seek emergency room care
> at hospitals after having been beaten in the streets, a rise by 30% in
> one year.
> 3. The unemployment rate in Sweden is still 16%, if you take into
> account the eleven categories of employer of last resort and job
> training programs. For comparison, in Denmark (which has chosen a
> relatively OK Keynesian fiscal policy strategy) the same figure is
> slightly below 7%.
> 4. Ericsson has announced it will fire 20,000 of its staff, most of them
> in Sweden. At the same time all economic indicators point downward for
> Sweden.
> 5. After two decades of relentless budget balaning efforts, the
> government has had to open an emergency cash line to local cities who,
> in increasing numbers, line up because they cannot cover their expenses.
> 6. Closing of entire hospitals to cut public spending are being
> discussed and have in some instances been carried through.
>
> The outlook for Sweden is as follows.
>
> 16% of the work force is, again, outside the regular labor market. It is
> easier to impeach Bill Clinton out of the White House than it is to make
> a Swedish politician think Keynesian. Within 18 months the public sector
> - especially on the national level - will begin to experience real
> budget balancing problems. New programs to balance the budget will be
> launched, and unemployment will climb sharply. This will most probably
> lead to a macroeconomic collapse for Sweden, a collapse the effects of
> which we can only speculate about, since it hasn't been seen anywhere
> else. Remember: the problems in Sweden are self inflicted. It is already
> too late to try to change the course of its economy. Many local
> government agencies will probably be unable to pay wages on time. Taxes
> won't be collected as they should. Schools, perhaps even parts of the
> health care system, will stop functioning because of cash distress and
> lack of staff.
>
> This scenario is about 2½ years ahead, but the timing depends on how
> quickly the recession breaks out. The melt-down itself is inevitable. It
> is simply impossible to exercise fiscal austerity in a country with 16%
> unemployment at the outset of a recession, without major systemic
> effects.
>
> That's all from me on Sweden. I'm sure there are others on this list
> who'd like to provide their own interpretations of the situation there.
> I've had enough of it.
>
>
> Best Keynesian wishes,
>
>
> Sven
>
> --
> Sven R Larson
> PhD; Assistant professor of economics
> Department of Social Sciences, Bldg. 22.2
> Roskilde University
> Pb 260
> DK-4000 Roskilde, Denmark
> Phone: (+45) 4674 2910