Sweden, despite its reputation as
However, from about 1830 onward, protection was progressively lowered.[141] A very low tariff regime was maintained until the end of the nineteenth century, especially after the 1857 abolition of tariffs on foodstuffs, raw materials, and machines.[142] As table 2.1 shows, around 1875 Sweden had one of the lowest tariff rates of any of the major economies listed.
This free-trade phase, however, was short-lived. From around 1880 Sweden started using tariffs as a means of protecting the agricultural sector from the newly-emerging American competition. After 1892 (until when it had been bound by many commercial treaties) it also provided tariff protection and subsidies to the industrial sector, especially the newly-emerging engineering sector.[143] As we can see from table 2.1, by 1913 its average tariff rate on manufactured products was among the highest in Europe. Indeed, according to one study conducted in the 1930s, Sweden ranked second after Russia among the 14 European countries studied, in terms of its degree of manufacturing protection.[144]
As a result of this switch to protectionism, the Swedish economy performed extremely well in the following decades. According to one calculation Sweden was, after Finland, the second fastest-growing (in terms of GDP per work-hour) of the 16 major industrial economies between 1890 and 1900, and the fastest-growing between 1900 and 1913.[145]
The tariff protection of the late nineteenth century was particularly successful because it was combined with industrial subsidies as well as supports for R&D aimed at encouraging the adoption of new technologies. Economic historians generally agree that the promotional efforts of that time provided an important impetus to the development of certain infant industries, although one negative side effect was to create the proliferation of relatively inefficient small firms.[146]
Tariff protection and subsidies were not the only tools that Sweden used to promote industrial development. More interestingly, during the late nineteenth century, Sweden developed a tradition of close public- private cooperation to an extent that is unparalleled in other countries during this period, including even Germany with its long tradition of public-private partnership (see section 2.2.3).
This cooperative relationship first developed out of state involvement in the agricultural irrigation and drainage schemes. This same pattern was then applied to the development of railways from the 1850s. In contravention of the then dominant model of private-sector-led development of railways (notably in Britain), the government built the trunk lines (completed by 1870) and allowed the private sector to construct branch lines. The construction and operation of the branch lines were subject to government approval and, after 1882, price control. In 1913, the state-owned railway company accounted for 33 per cent of the railway mileage and 60 per cent of goods transported.[147]
Similar methods of public-private cooperation were applied to the development of other infrastructures – telegraph and telephone in the 1880s and hydroelectric energy in the 1890s. It is also often argued that this long- term technical cooperation with state-owned enterprises in the infrastructural industries was instrumental in making companies like Ericsson (telephones) and ASEA (now part of the Swedish-Swiss firm ABB, which manufactures railway equipment and electrical engineering) into world-class firms.[148]
Public-private collaboration also existed outside the infrastructural sector. In 1747, a semi-autonomous Iron Office was created. Its directors were elected by the Association of Iron masters (the employers’ association), and it maintained a price cartel, disbursed subsidized loans, provided technological and geological information, gave out travel stipends for the sourcing of technology, and promoted metallurgical research. The industry was liberalized in the mid-nineteenth century, starting with the liberalization of trade in pig iron within the country (1835) and achieving the removal of most restrictions by 1858. Even after this, however, the employers’ association continued to collaborate with the government in fostering better technical standards and higher skills. It is interesting that all of these initiatives resemble the patterns of public-private collaboration for which the East Asian economies later became famous.[149]
The Swedish state made great efforts to facilitate the acquisition of advanced foreign technology (including through industrial espionage, for a discussion of which see section 2.3.3). However, its emphasis on the accumulation of what the modern literature calls ‘technological capabilities’ was more notable still.[150] In order to encourage technology acquisition, the Swedish government provided stipends and travel grants for studies and research. A Ministry of Education was established in 1809, and primary education had already been made compulsory by the 1840s. The People’s High Schools were established in the’ 1860s, and a six-year period of compulsory education was introduced in 1878. At higher levels, the Swedish state helped the establishment of technological research institutes, the most famous being the Chalmers Institute of Technology in Gothenburg, and provided industry – particularly metallurgy and wood-related industries – with direct research funding.[151]
Swedish economic policy underwent a significant change following the electoral victory of the Socialist Party in 1932 (which since that date has been out of office for less than ten years) and the signing of the ‘historical pact’ between the unions and the employers’ association in 1936 (the
After the Second World War, use was made of the regime’s potential for promoting industrial upgrading. In the 1950s and 1960s, the centralized trade union, LO (
Sweden's postwar industrial upgrading strategy based on the combination of solidaristic wage bargaining and active-labour-market policy differs quite considerably from the strategies adopted by other countries discussed here. Despite their differences, both types of strategy are in fact based on similar understandings of how real world economies work. They share the belief that a shift to high value-added activities is crucial for a nation’s prosperity and that, if left to market forces, this shift may not happen at a rate which is socially desirable.
2.2.6. Other Small European Economies
A. Belgium
We have already talked about the dominance of the fifteenth-century wool industry by the Low Countries. The industry, concentrated in what later became Belgium, subsequently went into a relative decline, not
