Comment on T. M. Andersen, "Macroeconomic Strategies towards Internal and External Balance in the Nordic Countries"

Abstract

The purpose of the paper is to discuss and evaluate the different macroeconomic policy for combining high employment and external balance in the main Nordic countries. In view of the great similarities in institutional structures and policy priorities, this is a worthwhile exercise: comparing the policy of the Nordic countries is probably as close to a controlled experiment as one can come in this area. The main contribution of the paper is an insightful account of the various policies followed. I find the distinction between bridging, sheltering and production strategies very illuminating. I also agree with Andersen's classifications of policies in the various countries. Policies in all four countries were designed to bridge what was believed to be a temporary recession in the mid-1 970s. In Denmark, Norway and Sweden, the late 1970s were characterized by defensive attempts to maintain employment through targeted policies (public-sector expansion, employment programs, or selective subsidies) that would minimize the demand spillovers to imports. In the 1980s, policies in these countries have instead focused on achieving export-led growth via improvement in the relative cost position vis-d-vis foreign competitors. In Finland, these policies were followed in reverse order; the supply-side policies of the 1 970s have given way to more Keynesian demand policies in the 1980s. The main analytical preoccupation of the paper concerns the possibilities of affecting employment via aggregate demand policies and the tradeoff between employment and external balance. The aim is to combine the traditional open-economy analysis of the 1970s with more recent models of wage setting and equilibrium unemployment. This is a worthwhile undertaking since the latter models have usually been developed in a closed-economy framework and open-economy aspects are often added in