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Thursday, December 13, 2012

Saving the Swedish model: Learning from Sweden’s return to full employment in the late 1990s Publication :: IPPR

Saving the Swedish model: Learning from Sweden’s return to full employment in the late 1990s Publication :: IPPR

A homemade financial crisis Sweden was unprepared for the rapid deregulation of the credit market that it undertook in the mid-1980s. Cheap money led to a rapidly growing stock of debt
        Choosing the long term over the short term Financial crises and budget consolidation processes are typically followed by high and stubborn unemployment.
in October 1994, it had to take action. Sweden had a budget deficit of 10 per cent of GDP... In November 1994, the first bill presenting a large consolidation programme was presented to parliament, amounting to 7.5 per cent of GDP...
The government attacked the deficit by reducing government spending in general, by cutting cash transfers, and by raising taxes. Spending cuts accounted for approximately 53 per cent of total savings, compared to 47 per cent from higher taxes... 
The government safeguarded spending on childcare and education and instead made the deepest cuts in the social transfer system...This strategy, however, was not popular and led to massive protests, fuelled by the media... This wasn’t a surprise: cutting benefits in a situation with very high unemployment meant that many households suffered significant drops in income...
Telling a story of national survival  The Swedish financial crisis severely tested the political system. Debt always does. A country with deficit and debt problems is constantly monitored by the financial markets...The Social Democrats started telling their story: that the cuts were, at root, a fight for the survival of the Swedish model itself. 
Flexicurity – before flexicurity was even a word The Rehn-Meidner model is a unique Swedish contribution to the field of macroeconomics, and one of the few coherent visions of economic policy beyond Keynesianism.
Active labour market policy In a severe recession, many people who are inactive lose contact with working life and do not maintain the skills needed to rejoin the labour market when demand picks up. In these circumstances, it is important to avoid a ‘culture of unemployment’. 
 Strategic policies directed at future growth A fight against unemployment cannot be successful if it is not attached to a broader vision of what the economy will be like on the other side of the crisis.

Download and read it all, if you have the time. It is well worth going into.


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