What can Sweden teach us about successful development?

September 7, 2010

     By Duncan Green     

What, if anything, can today’s developing countries learn from Sweden? That’s the question that a new paper by Ari Kokko, published by the UN University’s World Institute for Development Economics Research, seeks to answer.

StockholmSweden is particularly relevant because up until well into the 19th Century, it looked very much like a developing country: dependent on agriculture, forestry and mining, with little industry. In the space of a few decades it was transformed into the ‘Swedish model’ of high tech industry, political and social stability and a welfare state based on high, progressive taxation. How did it happen?

First, not by accident – “the initial success of Swedish industrialization and the subsequent development of industrial competitiveness are largely the results of intentional policies and strategies implemented by the state and individual companies. By investing heavily in institutional capacity, knowledge, and skills, Sweden has created the capacity to take advantage of new opportunities and to adjust to changing conditions in the global market.

Second, while the need for a welfare state was clear at an early stage—to balance the increased risk and uncertainty when household-based production systems were replaced by urban industrial systems—it took a long time to construct. The earliest components of the welfare state, such as compulsory education and insurance schemes, were closely connected to the industrialization process itself: literacy, insurance for work-related accidents, and unemployment insurance are necessary for successful industrial development. Subsequent developments were largely driven by political pressures. The socialist revolutions in Eastern Europe after the First World War had a strong impact on the political climate in Sweden, and contributed to a stronger emphasis on the public provision of social welfare.”

OK, that’s the how, but the interesting question is really ‘why Sweden?’ What was special about the Swedish model, and what, if anything, can be replicated elsewhere?. Kokko points in particular to the interaction between the spread of liberal ideas, examples from other European countries, and the role of military defeat and economic crisis in convincing Sweden’s elites of the need for change:

“an important reason was the spread of liberal ideas in Swedish politics that had started already in the late 18th century. The period 1772–1809 was characterized by absolute monarchy, restrictions on public debate, and two major wars with Russia. The wars were not only unsuccessful from a military and political perspective—for instance, Finland was lost to Russia in 1808–9—but the large public expenditure for the wars also led to high inflation and economic chaos. The dissatisfaction with the monarch led to a coup d’état, the appointment of a new king, and a new constitution. This new constitution stipulated a division of power between the monarch and the Riksdag, the Swedish parliament, and drew on ideas from the American and French revolutions. It also gave more political influence to interest groups promoting liberal ideas and commercial ambitions. Many of the institutional reforms introduced during the following decades seem to have been driven by comparisons with the leading industrial nations in Western Europe: if it could be done in England, then why not in Sweden?”

As for Sweden’s welfare state, Kokko argues that its “most important characteristic is its universal nature: many benefits are available on SwedishFlagDescendingequal terms to all residents. By defining universal benefits, it has not been necessary to identify those groups that are considered particularly weak or vulnerable. This has made it possible to avoid a polarization of the population into those that pay for social security and those that draw on the benefits of the system. Instead, all residents are net payers during some part of their life cycle, and net beneficiaries at other times. It has also been important for creating acceptance for the increasing tax burden that is needed to finance public welfare: people have largely been prepared to pay their high taxes as long as they have felt that their social welfare needs were met.”

What allowed this universalism to develop? “cultural homogeneity, and the egalitarian pre-industrial society”, but crucially also the role of agriculture – the  “traditionally strong independent peasant class also contributed to broad solutions that did not exclude any large population groups. The farmers’ party had substantial political influence in the early industrial era, and blocked welfare programmes that would have had an exclusive focus on industrial workers.”

Kokko highlights this universalist approach to the welfare state as the most important lesson for today’s developing countries.

And in case you think this makes Sweden sound unbearably worthy, and because it’s the only other thing I’ve seen on Sweden recently, here is a truly weird army recruitment video aimed at Sweden’s women. [h/t Chris Blattman]