Sweden’s shifting economic model

While industry is in decline in most developed countries, Germany is generally held up as an example for its excellent performance (Hénard,2012). Yet another country, Sweden, seems to be doing better still. Over the last twenty years, both of these countries have succeeded in keeping hold of more of their industrial base than their European neighbours and in maintaining very positive trade balances.

Sweden has cleaned up its public finances, which are currently in structural surplus, and has significantly reduced its debt, while maintaining a high level of public services and social protection. La Fabrique de l’Industrie decided to look into the reasons for the success of the Swedish model.

An economy supported by the impetus of major export groups

Today, Sweden exhibits highly enviable performance in terms of competitiveness, growth, GDP per capita, innovation, trade surplus and public finance management.
The country ranks ahead of Germany on all of these criteria, and is only slightly behind it in terms of industry’s share of GDP (22.4% in Germany compared to 19.3% in Sweden and 12.5% in France in 2009). From 1995 to 2007, the increase in added value in Sweden was eight points higher than its rate in the European Union. Note, however, that employment growth was nine points lower – the price of significant productivity gains made by Sweden in all sectors of activity, especially market and non-market services.

For industry, productivity gains were made possible in particular thanks to investment in ITC, research and development, and more broadly in immaterial capital. Sweden makes one of the biggest R&D efforts in the world (expressed as a % of GDP), due to private investment. In almost all industrial sectors – both low tech and high tech – and market services, technological intensity is higher in Sweden than it is in the rest of Europe.

The Swedish industrial base is dominated by major groups, most of which are controlled by big families that have built up capitalistic empires. These groups play a significant role in boosting exports. The structure of the Swedish industry, in terms of company size distribution, resembles that of France. Sweden is no better suited to developing start-ups or  even medium-sized industries than France; this clearly shows that strong economic development can have different characteristics than the German and American examples.

Does this impressive performance carry any hidden costs? It means making choices, in any case. From 1950 to 1990, growth was a little less high in Sweden than in the rest of the OECD. The country, which in the 1950s was very rich in relation to its neighbours and its own past, focused its efforts into building an equalitarian society while gradually losing its leading
position in terms of GDP per capita.