Modern Swedish Economic History

Abstract

The Swedish growth trajectory began in the mid-19th century as external demand for its staples added an important impetus to industrialization and structural transformation. Since then, GDP per capita has increased by a factor of 21, which means that GDP per capital has doubled 4.4 times. At the same time, the population has increased from about 3.5 million to 9.5 million. The manufacturing industry has been the outstanding force propelling the economy forward since the 1870s. It was early on based on the exploitation of the domestic supply of raw materials. From the 1890s, it was gradually producing products higher up in the value-added chain, manifested by the growth of the mechanical engineering industry and the emergence of the electro-mechanical industry. The share of manufacturing in employment terms peaked at about 35% in the 1960s but then declined to about 18% in the 2010s. Yet, the importance of it as a locomotive for economy-wide growth has not declined by nearly as much. Another principal characteristic of Swedish development is large public sector-spending, implying high taxes and ambitions welfare state arrangements. Much of the expansion in social spending occurred in the post-World War II decades by the emergence of the welfare state based on universal principles and income-related benefits. A third attribute of the Swedish economic history is far-reaching compression of incomes. Thanks to wide-spread unionization and centralized agreements between the major organizations in the labor markets, the road was paved for far-reaching compression of the wage structure, which occurred in brief episodes during the 1940s, the late 1960s, and the 1970s. The joint force of these compressions and the welfare state produced a remarkable flat income distribution by the early 1980s, testified by a Gini of about 0.2, perhaps unparalleled among developed countries. As in many other similar countries, the income distribution has widened since the early 1980s, and the other Nordic countries had lower Gini coefficients than Sweden by the mid-2010s. Migration has set a deep mark in Swedish society. Whereas the latter half of the 19th century witnessed a massive outflow of Swedes going to the United States, two different waves of immigration dominated population movements after World War II. The first wave comprised workers from Finland, former Yugoslavia, and South Europe seeking employment in the prospering labor markets of the post-World War II period. This wave ebbed out in the 1970s. The second one comprised mostly asylum seekers from conflict-ridden countries. It began in the 1980s, and it continues. Combined, these waves of immigrations have transformed the Swedish population from being very homogenous into a blend of different origins.