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University of Southern California Dissertations and Theses
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Effects Of Swedish Fiscal Policy And Planning On Economic Growth And Stability, 1930-1964
(USC Thesis Other)
Effects Of Swedish Fiscal Policy And Planning On Economic Growth And Stability, 1930-1964
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This diMortetlon has b««n microfilmed exactly aa received 6 6 — 8 7 7 3 ANDERSSON, Henry F red rik , 1907- EFFECTS OF SWEDISH FISCAL POLICY AND PLANNING ON ECONOMIC GROWTH AND STABILITY, 1930-1964. U niversity of Southern C alifornia, P h.D ., 1966 E conom ics, general University Microfilms, Inc., Ann Arbor, Michigan Henry Fredrlk Andersson All Rights Reserved 1966 EFFECTS OF SWEDISH FISCAL POLICY A N D PLANNING O N ECONOM IC G R O W T H A N D STABILITY, 1930 - 1964- by Henry F re d rik A ndersson A D is s e r ta tio n P resen te d to th e FACULTY OF THE G R A D U A TE SCHO OL UNIVERSITY O F SOUTHERN CALIFORNIA In P a r t i a l F u lfillm e n t o f th e R equirem ents fo r th e Degree D OCTOR OF PHILOSOPHY (Economics) June 1966 UNIVERSITY O F SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES, CALIFORNIA 0 0 0 0 7 This dissertation, written by Henry F re d rlk Andartio n ......... under the direction of h%M...Dissertation Com - m ittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillm ent of requirements for the degree of D O C T O R O F P H IL O S O P H Y _______________________________ g / t Z Z e J p S D ta * Date..... ............................ * D is s e r t a t io n c o m m it t e e . C h a ir m a n TAB IE OF CONTENTS LIST OF TABLES Page v i i C hapter I . INTRODUCTION 1 The Problem B r ie f Resume o f th e H isto ry o f th e Problem Source M a te ria l D e fin itio n s o f S p e c ia l Terms and C oncepts A S h o rt Preview o f the Remainder o f th e T h esis I I . DEVELOPM ENT OF ECONOM IC POLICIES Economic Development and P o l i t i c a l Background Swedish Economic T h eo rie s E xpansion and D ep ressio n P o lic ie s E v a lu a tio n o f th e C y c lic a l P o lic ie s I I I . TECHNIQUES A N D M EA N S FOR FISCAL P O L IC Y ....................................................... k O C oncepts and A gencies o f F is c a l P o lic y F e d e ra l B udgets N a tio n a l Economic B udgets Budget T echniques fo r F is c a l P o lic y Summary IV. ECONOM IC PLANNING IN SWEDEN............................ 59 The P r in c ip le s o f Economic P lanning Short-Term P lan n in g Long-Term P lanning Summary V. THE FIRST LONG-TERM PLAN 19^7-1950 . . . . 78 O b je c tiv e s 1930-1939 21 i l l Chapter iv Page Development of P ro d u ctio n A n tic ip a te d N atio n al Income Outcome o f th e F i r s t Long-Term P lan A n aly sis o f Economic Changes Summary V I. THE SECO N D FIVE Y EA R PLAN 1951-1955 . . . . 98 O b jectiv es o f th e Second P lan S e c to r Development Major Components o f th e N a tio n a l Income Outcome o f the Second Five Year P lan Summary V II. THE THIRD FIVE Y EA R PLAN 1956-1960 . r . . 115 Purpose and Methods The 1956 N a tio n a l Economic Budget The 1957 N a tio n a l Economic Budget The 1958 N a tio n a l Economic Budget The 1959 N a tio n a l Economic Budget The I960 N a tio n a l Economic Budget Summary V I I I . THE FOURTH FIVE Y EA R PLAN 1961-1965 . . . . 13^ Development of th e P lan S ecto r P lan s The Program The Outcome Summary IX . EMPLOYBR-EMPLOYEE ORGANIZATIONS A N D THE LA BO R M A R K E T BOARD.................................... 155 Employer-Employee R e la tio n s The N a tio n a l Labor Market Board G eneral M easures f o r S ta b iliz in g Employment U ti l iz a ti o n of Manpower R esources Summary X. INVESTM ENT FOR ECONOM IC G R O W T H A N D STABILIZATION ............................... C oncepts, D e f in itio n s , and C o n tro ls B u ild in g C o n stru c tio n Chapter Page Investm ent R eserve Funds The Investm ent Reserve Fund a s an In stru m en t f o r Economic S ta b iliz a tio n The In flu e n c e o f P lanning on Investm ent Summary X I. M O N ETA R Y POLICY AS A TOOL FOR STABILIZATION.......................................................... 209 The Concept o f Monetary P o lic ie s Economic P o lic y and L iq u id ity R ecent M onetary P o lic y Summary X II • TAXATION A N D STA B ILITY ........................................ 227 Taxes i n Sweden F e a tu re s o f Taxes Which In flu e n c e th e B u sin ess Cycle The Im pact o f Taxes Summary X I I I . FISCAL POLICY SINCE W O R L D W A R I I .................... 262 O b je c tiv e s and L im ita tio n s of th e F is c a l P o lic y ~ Budget E x p en d itu res A n ti-C y c lic a l Measures F is c a l P o lic y Developments 19^-6-1965 Summary XIV THE OVERALL STABILIZATION OF THE BUSINESS C Y C L E ...................................................... 285 The Concept o f A n ti-C y c lic a l P o lic y The Labor M arket Board a s an Agent o f F is c a l P o lic y T ools f o r S ta b iliz a tio n M easuring th e B usiness Cycle Economic F lu c tu a tio n s Since W orld War I I Summary XV. S U M M A R Y A N D CONCLUSIONS......................................... 317 Summary C onclusions Vi C h ap ter Page BIBLIOGRAPHY . . . ............................................................................ 3*+0 LIST OF TABUS S Table Page 1 . E s tim a te d B a la n c e o f R e so u rc e s f o r 1957 • • • 53 2 . B a la n c e o f P a y m e n ts .................................................. 8 * + 3 . G ross N a tio n a l P ro d u c t ................................................. 86 *+. N a tio n a l Income 19*+7-50 ................................................. 88 5. Incom es and S av in g s o f C onsum ers, 19*+6-53 • • 95 6 . P ro d u c tio n o f I r o n Ore 1950-1955 103 7* B a la n c e o f R e so u rc e s 1951-1955 107 8 . B a la n c e o f T rade 19^+8-1951 • •• •• • . . , . 109 9* Volume and P r ic e Index f o r Im p o rts and E x p o r t s ................................ r . • ........................... 110 10. P e rc e n ta g e C hanges in G ross N a tio n a l P ro d u c t 1952— 1955 • • • •• •• • • • •• • 112 11. B a la n c e o f R e so u rc e s f o r 1 9 5 6 ........................... 118 12. B a la n c e o f T rad e 1955-1956 120 13. P r ic e Changes 1955-1956 .......................... 122 1*+. B a la n c e o f R e so u rc e s 1957 ........................................... 123 15 • B a la n c e o f R e so u rc e s 1958 . . . 127 16. B a la n c e o f R e so u rc e s 1 9 5 8 - 5 9 .................................. 129 17. B a la n c e o f R e so u rc e s 1959 .................... 131 18• B a la n c e o f R e so u rc e s f o r One B ranch o f I n d u s tr y ......................................................... 139 19* E s tim a te d D evelopm ent D uring 1960-1965 • • • l*+2 20. A g r ic u ltu r e . P ro d u c tio n , Em ploym ent, and In v e stm e n t 1960-196*+ l*+5 v l l viii T able Page 21* In d u s try P r o p e r .............................................................. l*+7 22. B alance o f R esources 1 9 6 0 -1 9 6 * + .......................... 2 3. G ross Investm ent a s a P ercentage o f the G ross N atio n al P roduct 1 9 * + 0 -1 9 5 9 .................. 176 2*+. The "C onjuncture I n d ic a to r ," 1922-1953 • • • 178 25* Investm ent Fund F inanced B u ild in g P ro je c ts in P r o g r e s s ................................................................... 187 26. Summary P re s e n ta tio n o f P r o f i t a b i l i t y o f Using Investm ent R e s e r v e s ...............................' 190 27. P ercen tag e D is tr ib u tio n of Major Investm ent Groups 19M-6-1955 ...................................................... 19** 28. G ross Investm ent Volume 19*+5-1956...................... 195 29. G ross Investm ent 1 9 5 1 - 1 9 6 5 ................................... 199 3 0 . The C re d it M arket 1961 and 1962 ........................... 202 3 1 . Changes in th e N a tio n a l Debt by Lender • . • 20*+ 3 2 . G ross N a tio n a l P roduct and th e Volume o f C re d it 19*+8-1961 . ......................................... 21*+ 33* Bond Is s u e s Broken Down In to Borrowing S e c t o r s ............................................ 217 3*+. Net In c re a s e in Government Borrowing by L e n d e r s ..........................~ ..................................... 218 3 5 . P r ic e s . Wages, Unemployment, and I n d u s tr i a l P ro d u ctio n 19*+9-196*+ .................. 225 36 • N a tio n a l Income Tax S c a l e ..........................• • • • 231 3 7 . C a p ita l Tax B a t e s .......................................................... 233 3 8 . C a lc u la tio n o f Swedish T a x e s ..................... 236 39. Tax Revenues fo r Budget Year 1961-1962 . . . 237 *+0. Example o f Main and Complementary Rule D e p r e c i a t i o n ............................................................... 2*+ 6 ix Table Page V l. Incomes and Savings o f Consumers 19V6-1953 • • 2 5 2 V2. E q u ity C a p i t a l ........................................................................ 25V V3. C a lc u la tio n of G ross P r o f i t s .........................................256 VV. B alance o f R esources f o r 1 9 6 V ....................................267 V5. C a p ita l and C urrent B udget 19V 6-195V .......................276 V6. F o re c a s ts and Outcomes o f C e n tra l Government C u rre n t and T o ta l B udgets 195V-1955 - 1 9 5 8 - 1 9 5 9 ..............................................................................280 V 7 . F o re c a sts and Outcomes o f C e n tra l Government C u rren t and T o ta l B udgets 1959-1960 - 1962-1963 ......................................................................... 282 CHAPTER I INTRODUCTION E conom ists in d em o cratic c o u n trie s g e n e ra lly ag ree t h a t our m onetary and f i s c a l p o li c i e s and th e i n s t i t u t i o n s th ro u g h w hich th e y o p e ra te should in c re a s e our stan d ard o f l i v in g , a s ev id en ced by economic grow th under p ric e s t a b i l i t y . The g o a ls should be ach iev ed p rim a rily by p r iv a te c i t i z e n s a s owners o f b u s in e s s o r by la b o re rs in th e p ro d u c tio n o f goods and s e r v ic e s . Government i n t e r v e n tio n i s d e s ir a b le when p r iv a te b u s in e s s cannot m a in ta in adeq u ate economic grow th o r when d i s t r i b u t i o n o f th e n a tio n a l income th ro u g h ta x a tio n may be n e c e ssa ry to m a in ta in a f a i r d i s t r i b u ti o n o f th e n a tio n a l incom e. Sweden h as been s e le c te d fo r t h i s stu d y sin c e i t has re a c h e d a h ig h degree o f economic developm ent and i t s p o l i t i c a l system g iv e s th e c it i z e n s a v o ic e in in flu e n c in g economic and s o c ia l p o l i c i e s . Being sm all in s iz e , i t i s p o s s ib le t h a t r e s u l t s o f adopted p o lic ie s may be more r e a d ily a s c e r ta in e d th a n would be th e case w ith a la rg e c o u n try . On th e o th e r hand, i t i s hoped t h a t any r e s u l t o f th e ex p erim en ts t h a t have been conducted in Sweden may be o f b e n e f it to th e U hited S ta te s o f America in prom oting i t s economic g o a ls . 1 THE PRGBIEM T his stu d y concerns th e m aintenance o f grow th in th e Swedish economy and th e achievem ent o f t h i s g o a l w ith re a so n a b le p r ic e s t a b i l i t y * The d e s ir a b le economic e f f e c t s could no doubt be o b ta in e d under a t o t a l i t a r i a n economy such a s e x i s t s in R u s sia , b u t t h i s stu d y lim i ts th e problem to th e economic achievem ent in a f r e e demo c r a t i c country* W hile i t i s w e ll known t h a t th e Swedish s t a t e e x e r c is e s g r e a te r government c o n tro l o f economic re s o u rc e s th a n does th e U hlted S ta te s o f A m erica, i t i s th e aim o f t h i s stu d y to e x p lo re th e e f f e c t s o f th e S ta te on p r iv a te e n te rp ris e * Some q u e s tio n s to be answ ered w i l l th u s be th e e f f e c t s o f S ta te in te rv e n tio n on p r iv a te in v e stm e n t, d i r e c t S ta te In v estm en t, and th e p o s s ib le rep lacem en t o r su p p lem en tatio n o f economic I in v estm en t a c tiv ity * S ig n ific a n c e o f th e problem The m aintenance o f grow th i s o f param ount impor ta n c e to w e ste rn d em o cractles i f th e y a re to meet th e S o v ie t t h r e a t K o t w orld dom ination* There i s a ls o th e co n cern f o r th e d ig n ity o f th e in d iv id u a l* The man w ith o u t a job f in d s i t d i f f i c u l t to m a in ta in h is s ta tu s In so c ie ty * The w idespread unemployment o f th e t h i r t i e s h a s r e s u lte d in a governm ent p o lic y to m a in ta in a h ig h l e v e l o f employment* The Employment A ct o f 19^6 proclaim ed th e r e s p o n s i b il i ty o f th e governm ent to f o s t e r an In c re a se d p u rch asin g power and p ro d u c tio n w ith th e c o o p e ra tio n o f p r iv a te e n te rp ris e * There may be a c o n f li c t betw een th e aim o f th e governm ent to p re se rv e th e l i b e r t y o f th e In d iv id u a l an d , a t th e same tim e , to p ro v id e w e lfa re m easures* In Sweden, a s In many o th e r c o u n trie s o f th e V e s t, th e re has been a tre n d to c a l l f o r th e S ta te to g iv e th e c it i z e n s In c re a se d p r o te c tio n from th e h a z a rd s o f 111 h e a lth , unemployment, and o ld age* The b e n e f its have to be fin a n c e d th ro u g h In c re a se d ta x a tio n o r p o s s ib le p r ic e I n f l a t i o n , a n o th e r form o f ta x a tio n * I t I s p o s s ib le t h a t ta x a tio n may be so o p p re ssiv e a s to a f f e c t th e c a p a c ity o f In d iv id u a ls to w ork, sa v e , and produce* The p r ic e p a id may v e ry w e ll be a d e c re a se In e f f e c tiv e demand w ith f a l l i n g employment o r th e d e f e a t o f one o f th e g o a ls — f u l l employment. O b je c tiv e s in r e l a ti o n to th e problem The o b je c tiv e s o f a good economic system a re g e n e ra lly s ta te d a s th e m aintenance o f grow th, h ig h employment, and p ric e s t a b i l it y * The purpose o f t h i s stu d y I s to e v a lu a te th e a tta in m e n t o f th e s e g o als* Economic m easures In Sweden, w ith I t s mixed economy, m ust be ta k e n w ith in th e framework o f governm ent d i r i o t e d p o lic ie s and t h e i r in flu e n c e in th e p r iv a te se c to r* Some governm ent e x p e n d itu re s a re b e n e f i c i a l to th e p r iv a te economy, such a s ro a d b u ild in g , h e a lt h , and ed u catio n * O thers may en cro ach on th e p r iv a te b u s in e s s , p a r t i c u l a r l y governm ent ow nership o f w ate r pow er, f o r e s t s , and means o f communica tio n * The fin a n c in g o f th e p u b lic s e c to r th ro u g h ta x a tio n o r th e management o f th e d e b t may i n d i r e c t l y a f f e c t p r iv a te b u s in e s s th ro u g h changes in th e c r e d i t system* Thus th e stu d y o f f i s c a l and m onetary p o l i c i e s w i l l be Im p o rtan t in a s c e r ta in in g to w hat e x te n t th e means have j u s t i f i e d th e end* The two m ajor l im i ta t io n s o f a tta in m e n t o f th e economic g o a ls In Sweden a re e x p o rts and th e la b o r fo rc e* In a c o u n try th e s iz e o f Sweden, w ith e x p o rts c o n s titu tin g 30 p e r c e n t o f th e g ro s s n a tio n a l p ro d u c t, a fa v o ra b le b a la n c e o f tr a d e becomes o f param ount Im p o rtan ce• An I n f l a t i o n a s a r e s u l t o f o v e rly am b itio u s economic m easures co u ld have s e rio u s e f f e c t s on th e e x p o rt m arket w hich, In t u r n , would low er th e n a tio n a l Income* The la b o r f o r c e , w ith r e l a t i v e l y f u l l employm ent, h as a d i r e c t In flu e n c e on e x p o rt p ric e s * The e f f e c t o f la b o r c o s ts on th e e x p o rt m arket h a s to be c o n sid e re d when la b o r i s a llo c a te d to d i f f e r e n t re so u rc e s* One a s p e c t o f th e stu d y w i l l th e n be an a tte m p t to a s c e r ta in th e d eg ree o f su c c e ss a t ta i n e d by th e governm ent I n a l l o c a t i n g s c a rc e la b o r betw een demands o f th e p r iv a te and th e p u b lic s e c t o r s . T h is I s one o f th e m ajor problem s c o n fro n tin g th e Sw edish Labor M arket B o ard . How th e n w i l l th e problem be m ost s u c c e s s f u lly so lv e d to o b ta in In c re a s e d Income w ith o u t econom ic d i s lo c a tio n ? P la n n in g , w hich I s v e ry e x te n s iv e , p ro m ises t o su p p ly th e b a la n c e n eed ed , and w i l l be s tu d ie d a s a means f o r o b ta in in g w hat In Sweden I s now c o in e d , "b a la n c e d e x p a n s io n .N The p o l i c i e s w hich d i r e c t l y and I n d i r e c t l y a f f e c t and g u id e th e econom ic program a re th e n th e f i s c a l , m o n etary , and la b o r p o l i c i e s , and econom ic p la n n in g . P ia e ^ i n o iie v — The co n cep t o f f i s c a l p o lic y p e r ta in s to th e I n te g r a te d and c o o rd in a te d use o f g o v ern ment f i n a n c i a l pow ers to o b ta in d e s ir a b le econom ic g o a ls . The g e n e r a lly a c c e p te d g o a ls o f f i s c a l p o lic y a re g r e a t e r econom ic g ro w th , re a s o n a b le p r ic e s t a b i l i t y , and r e l a t i v e l y h ig h em ploym ent. F i s c a l p o lic y f u n c tio n s th ro u g h e f f e c t i v e t a x , b u d g e t, c r e d i t , and d e b t management p o l i c i e s . F i s c a l p o lic y c a l l s f o r a d ju s tm e n ts I n th e f i s c a l pow ers o f th e governm ent a c c o rd in g t o econom ic c o n d itio n s . In a d e p r e s s io n , th e d i r e c t governm ent e x p e n d itu re s may In c re a s e w ith o u t com pensating ta x I n c r e a s e s , and th u s may le a d to a d e f i c i t b u d g e t. The m o netary p o lic y under th e s e c o n d itio n s may be l e s s e f f e c t i v e a s a d i r e c t s tim u la n t, b u t I t s c o o rd in a tio n w ith d e b t management p o l i c i e s th ro u g h low er I n t e r e s t s seems t o l e s s e n th e b u rd en o f th e d e b t. D uring more p ro s p e ro u s tim e s , m onetary p o lic y , c o o rd in a te d v l t h d e b t management p o l i c i e s and supplem ented by d i r e c t c o n tr o ls may r e s u l t In th e d e s ir e d b a la n c e d b u d g e t. In Sweden, th e f i s c a l pow ers o f th e governm ent have b een changed from th e d e p r e s s io n p o l i c i e s o f th e t h i r t i e s w ith u n b alan ced b u d g e ts t o th e more r e c e n t program o f I n te r v e n tio n . One p u rpose o f t h i s stu d y w i l l be to e v a lu a te th e v a r io u s a s p e c ts o f t h i s p o lic y In Sweden. M onetary p o li c y . — In Sweden, th e p o lic y o f c r e d i t and I n t e r e s t c o n tr o l came to th e f o r e f r o n t th ro u g h th e th e o r ie s o f th e Sw edish e c o n o m ist, S hut t f l c k s e l l . The b e l i e f t h a t a sound m o n etary p o lic y a lo n e c o u ld In s u re econom ic s t a b i l i t y was sh aken d u rin g th e e x p e rie n c e o f th e t h i r t i e s , when ban k r e s e r v e s had o n ly a lim ite d In flu e n c e In s tim u la tin g In v e s tm e n ts . The o p e r a tio n o f th e m onetary p o lic y th ro u g h th e v a rio u s t o o ls a v a ila b le to th e c e n t r a l bank was su p p le m ented by a number o f d i r e c t c o n tr o ls , such a s p r ic e c e i l i n g s , a l l o c a t i o n o f m a te r i a ls , and wage c e i l i n g s . The r e lia n c e on d i r e c t c o n tr o ls made i t more d i f f i c u l t to e v a lu a te th e e f f e c tiv e n e s s o f th e p o l i c i e s , sin c e changes In demand th ro u g h In c re a s e d e x p e n d itu re s were n o t imme d i a t e l y tr a n s m itte d to o th e r f a c t o r s th ro u g h changes in p ric e s * mfl-riret p o l i c y .—F u ll employment and s ta b le p r ic e s depend to a la r g e e x te n t upon th e k in d o f la b o r p o lic y pursued* I t w i l l be an im p o rta n t p a r t o f t h i s stu d y t o a s c e r t a in how la b o r p o lic y i s in te g r a te d w ith f i s c a l and m onetary p o lic ie s * 3- Labor p o lic y i s so im por t a n t t o th e econom ic developm ent t h a t a s p e c ia l b o a rd , th e N a tio n a l Labor M arket B o ard , h a s b een e s ta b lis h e d * T h is b o a rd y under Government s u p e rv is io n y g a th e r s d a ta on employment i n d i f f e r e n t s e c to r s , and th ro u g h i t s r e g io n a l and l o c a l employment o f f i c e s , d i r e c t s la b o r t o th o se i n d u s t r i e s and re g io n s where th e r e i s a m arket f o r lab o r* P la n n in g -—L ong-term p lan n in g see k s to re s o lv e th e c o n f l i c t betw een th e grow th and s t a b i l i t y * I t w i l l , t h e r e f o r e , be one o f th e aim s o f t h i s stu d y to seek to d eterm in e how c e r t a i n grow th o b je c tiv e s have been ach iev ed and to a s c e r t a i n th e e f f e c t s on em ploym ent, In v e stm en t, and p r ic e s t a b i l i t y * In Sweden, s h o rt-te rm p lan n in g and ^Gunnar O lsso n , "Employment P o lic y in Sweden,1 * Stockholm ! N a tio n a l Labour M arket B oard In fo rm a tio n S e rv ic e S e c tio n , 1961* (M imeographed) lo n g -te rm g o a ls have been I n te g r a te d w ith th e S ta te b u d g et th ro u g h th e N a tio n a l B udgets p u b lis h e d e v e ry y ear* BRIEF RESUM E OF THE HISTORY OF THE FRQBIEM The economy o f Sweden I s a m ix tu re o f m e r c a n t i l i s t th o u g h t, c l a s s i c a l and n e o - c l a s s i c a l econom ic t h e o r i e s ; b u t th e econom ic grow th th e o r ie s o f th e t h i r t i e s a r e more r e p r e s e n ta tiv e o f p re s e n t day econom ic developm ent In Sweden* M e r c a n tilis t th o u g h t D uring th e M iddle A ges, r e l i g i o u s and e t h i c a l c o n c e p ts c o n tin u e d to dom inate th e econom ic l i f e * W ith th e em ergence o f n a tio n a l s t a t e s , econom ic p o l i c i e s became th e means f o r prom oting n a tio n a l developm ent* E ncouraging tr a d e f o r th e p u rp o se o f o b ta in in g a fa v o ra b le e x p o rt b a la n c e m ight be seen a s one o f th e e a r l i e s t p r a c tic e d m ethods o f s t a t e In te rv e n tio n * The a tte m p ts t o prom ote m an u fa ctu rin g o f e x p o rt goods th ro u g h r e g u la tio n s p a r a l l e l s f i s c a l p o l i c i e s o f to d a y * s w e s te rn d e m o c ra c ie s*2 nim.Mleal unA W ith th e l a l s s e z fa ir© d o c tr in e p ro m u lg ated by Adam S m ith, th e pendulum swung from s t a t e I n te r v e n tio n to „ ®Bob#pt L akaehaan, A H lg to r r o fK c o n o ia le Id a a a (New York! H arper and B ro s* , 1 9 5 9 )t PP« b-lM-. 9 alm o st complete^ abandonm ent o f s t a t e c o n t r o l s . The consumer became th e s o le end o f p ro d u c tio n , and th e g o v ern ment ta x e d o n ly f o r n e c e s s a ry f u n c tio n s o f p r o te c tio n and p u b lic w o rk s. S t a r tin g w ith th e F h y s lo c r a tlc th e o r y o f " n a tu r a l o r d e r ," Sm ith c o n c eiv ed t h a t s e l f - i n t e r e s t o f I n d iv id u a ls w ould le a d to maximum w e a lth , and t h a t v a lu e and d i s t r i b u t i o n o f w e a lth c o n s ti t u te d th e m eaning o f econom ic p r o g r e s s . P ro ceed in g upon th e th o u g h t t h a t p ro d u c tio n o f w e a lth had b ee n s o lv e d , R icard o and John S tew art H i l l f u r t h e r e la b o r a te d on th e problem o f d i s t r i b u tio n and v a lu e . The n e o - c l a s s i c a l sc h o o ls f u r t h e r c o n tin u e d th e stu d y o f v a lu e from th e demand a s w e ll a s th e c o s t s i d e . F i s c a l p o lic y d id n o t come I n to th e f o r e f r o n t , s in c e th e d i s t r i b u t i o n th e o ry was c a r r ie d to I t s f i n a l s o lu tio n th ro u g h m a rg in a l u t i l i t y a n a ly s i s , b u t econom ic d i s t u r b an ces w ere c o n s id e re d to b e s e l f - c o r r e c t in g th ro u g h changes i n f a c t o r s o f p r o d u c tio n .3 As econom ics d ev elo p ed to w ard c l e a r e r view s o f Income fo rm a tio n and d i s t r i b u t i o n , th e r e em erged a g ra d u a l r e c o g n itio n o f th e grow th and Im portance o f p u b lic expend i t u r e s . On th e c o n tin e n t, th e German e c o n o m ist, Adolph W agner, re c o g n is e d th e In c re a s in g p e rc e n ta g e o f p u b lic p p . 82-8M-. 10 e x p e n d itu re s I n r e l a t i o n t o th e g r o s s n a ti o n a l p ro d u c t (d a s S o c la l-p ro d u k ts ) E ig h t y e a rs b e f o r e th e p u b lic a tio n o f th e tf e e lth o f H a tlo n a . S i r Jam es S te u a r t h ad d e s c rib e d th e p u b lic d e b t a s a b a la n c e w heel I n th e economy, and A lex an d er H am ilto n had c o n s id e re d p u b lic d e b t " a n a t io n a l b le s s in g * " ? PvnMMle th fto y ta a The d e p r e s s io n o f th e t h i r t i e s c h a lle n g e d th e t h e o r i e s o f s e lf - b a la n c in g f a c t o r s In th e economy and em phasized th e s t r a t e g i c e le m e n ts o f In v e stm e n t and th e d e s i r a b i l i t y o f su p p lem en tin g la g g in g p r i v a te demand th ro u g h In c re a s e d governm ent spending* K eynes' em phasis on a g g re g a te demand and Income a n a ly s i s p ro v id e d th e groundw ork f o r governm ent I n te r v e n tio n th ro u g h f i s c a l p o lic y * Modern gro w th t h e o r i e s , term ed " P o s t-K e y n e s ia n ,1 1 have em erged s in c e th e second V o rld War and have b een b a se d upon m odern Income and employment a n a ly s is * Econom ic grow th In v o lv in g change I n econom ic c a p a c ity dep en d s upon u t i l i z a t i o n o f such c a p a c ity I n o rd e r to ‘♦ U lrie h Schum acher, O f f a n t llc h e r Hanahftit. ( B t u t t g a r t i O ustav F is c h e r V e rla g , 1 9 5 b ), p* M - * H enry t° fS S S \ ^ 1 1 e f f e c t a h ig h le v e l o f ag g reg ate demand*^ SO URCE MATERIAL In o rd e r to o b ta in a b e t t e r u n d erstan d in g o f Swedish economic developm ent , a t r i p was made to t h a t co u n try d u rin g th e summer o f 196*t« C o n ta c ts were made w ith Swedish eco n o m ists, S ta te a g e n c ie s , banks and o th e r p riv a te o rg a n iz a tio n s , and i n s t i t u t i o n a l a s s o c ia tio n s * The o b je c tiv e s were (1) to o b ta in r e s e a rc h m a te r ia l, and (2) to a s c e r ta in th e r o le played by v a rio u s segm ents o f th e economy* I n d i v i d u a l s and a a a n n la a co n ta c te d Econom ists In te rv ie w e d .—P ro fe s s o rs Ounnar Myrdal and A ssar Llndbeck were v i s i te d a t Stockholm U n iv ersity * Through In fo rm al ta lk s w ith th e se men, In fo rm atio n was o b tain ed w hich le d to th e fin d in g o f much o f th e re s e a rc h m a te ria l* I t was a s c e rta in e d t h a t th e econom ists in Sweden p la y a v e ry a c tiv e r o le In th e economic p o lic y o f th e c o u n try ; t h e i r advice I s sought by th e Swedish s t a te b e fo re changes a re I n s t i t u t e d and fo rm u la te d through th e budget* ^W allace C* P e te rso n , Growth (New Yorki W. w7 N orton C o ., 1962), pp. 1 2 The N a tio n a l I n s t i t u t e o f Economic R e se a rc h .— T h is agency, whose Swedish name i s K o n ju n k tu r ln s titu te t, I s a s t a t e o rg a n iz a tio n f o r th e stu d y o f economic tr e n d s . I t Is a p p o in te d by th e Swedish governm ent, b u t I s g iv en com plete' independence In r e s e a r c h . I t i s engaged in s h o rt-te rm p la n n in g . The F inance D epartm ent— The F inance D epartm ent I s re s p o n s ib le f o r p re p a rin g th e p re lim in a ry and th e re v is e d b u d g ets and a ls o f o r lo n g -te rm p la n n in g . A s e r ie s o f fiv e - y e a r p la n s were developed to g u id e th e government in i t s f i s c a l p o l i c i e s . The f o u r th o f th e s e p la n s was te rm in a te d I n 1965* Mr. R ein H inno, a d ir e c to r o f th e F inance D epartm ent, p o in te d o u t t h a t th e p la n s a re f i r s t su b m itted by ec o n o m ists, p r im a r ily th o se p r e s e n tly con n e c te d w ith th e U n iv e rs ity o f Stockholm . D e ta ils o f th e p la n s a r e th e n p re p a re d by th e F inance D epartm ent, to be fo rm a lize d I n th e p re lim in a ry budget when approved by th e p a rlia m e n t (R ik sd ag) J The Labor M arket B o a rd .—T h is government agency, A rb e tsm a rk n a d ssty re lse n , i s Im m ediately under th e M in istry o f I n t e r i o r A f f a ir s and i s p rim a rily re sp o n s ib le f o r shaping and e n fo rc in g la b o r m arket p o lic y . The ? In te rv ie w w ith D ire c to r R ein Hinno o f th e Swedish F inance D epartm ent, J u ly 2 1 , 196*t. 13 In stru m e n t f o r c a rry in g o u t th e la b o r p o lic ie s i s th e Labor Exchange S e rv ic e , w ith co u n try -w id e, a s w e ll a s l o c a l a g e n c ie s . T h is agency i s a ls o re s p o n s ib le f o r v o c a tio n a l guidance and management o f in v estm en t fu n d s . The n a tio n a l b o ard c o n s is ts o f a D ire c to r G e n e ra l, a D eputy D ire c to r G e n e ra l, a C h ief E n g in e e r, and e ig h t members a p p o in te d by th e governm ent. Of th e aforem en tio n e d e ig h t a p p o in tiv e members, two a re nom inees o f th e Swedish em p lo y e rs' o rg a n iz a tio n , and two a re proposed b y th e Sw edish tr a d e union.® The Swedish E m ployers» O rg a n isa tio n . — Svenska A rb e tsg iv a re fo re n in g e n i s th e Swedish E m ployers' O rg an iza t i o n w hich r e p r e s e n ts th e m a jo rity o f th e em ployers i n th e c o u n try . T h is a s s o c ia tio n h a s a membership o f some 16,000 com panies, m o stly engaged in m an u fa ctu rin g . In 1965* nany s e rv ic e in d u s tr i e s were a ls o sch ed u led to j o in th e c o n f e d e r a tio n .? The p r in c ip a l p u rp o ses o f t h i s o rg a n iz a tio n w eres (1 ) to c o n s o lid a te em ployers and o rg a n iz a tio n s o f em ployers in to one j o i n t body; (2 ) to f u r th e r good r e la t i o n s betw een em ployers and em ployees; (3 ) to a s s i s t a f f i l i a t e d ® Intervlew w ith D ire c to r Gunnar O lsson o f Labor M arket B oard, J u ly 2 2 , 196^. 9In te rv ie w w ith Mr. S tu re B s k lls s o n . A sso c ia te D ire c to r Swedish Em ployers* A s s o c ia tio n , J u ly 21, 196M-. em p lo y ers' o rg a n iz a tio n s in n e g o tia tio n s w ith o rg a n iz e d la b o r ; and (* * ■ ) to com pensate a f f i l i a t e d em ployers f o r damages caused by la b o r c o n f li c ts * 10 The Swedish C o n fe d e ra tio n o f T rade O n io n s.— L a n d o rg a n lsa tio n e n i s th e c e n tr a l body u n itin g th e Swedish tra d e unions* The m a jo rity o f th e u nions a f f i l i a te d w ith th e tra d e u nions a re o rg a n iz e d on an i n d u s t r i a l b a s is * O ther employee o rg a n iz a tio n s In c lu d e s C e n tra l O rg a n iz a tio n o f S a la rie d E m ployees, and th e C e n tra l O rg a n iz a tio n o f S ta te Employees* The unions have g iv e n heavy f in a n c ia l su p p o rt to th e S o c ia l D em ocratic P a r ty , b u t th e y p rid e th em selv es In having l e s s I n te r f e r e n c e from th e governm ent th a n I s th e case In any o th e r co u n try * 11 The I n d u s t r i a l I n s t i t u t e f o r Economic and S o c ia l R ese a rc h , In d u s trio u s U tr e d n ln g s ln s titu t was s e t up In 1939 by th e Swedish E m p lo y ers' C o n fe d e ra tio n and th e F e d e ra tio n o f Swedish I n d u s trie s * I t s o b je c t i s to c a rry 108venska A rb e tsg lv a re fo re n ln g e n * The Swedish |^ g ^ v e r s '^ C o n f e d e r a tio n (S tockholm ! B roderna L ag erstro m , ^ I n te r v i e w w ith Hr* G ustav P ersso n and Hr* L ars S ta rk e ru d o f Swedish C o n fe d e ra tio n o f Trade U nions, J u ly , 22, 196^* 15 o u t re s e a r c h In econom ic and s o c ia l m a tte rs w hich have im p o rtan ce f o r I n d u s t r i a l developm ent* P ro fe s s o r In g v a r S v en n llso n was head o f th e I n s t i t u t e d u rin g I t s f i r s t te n years* T hroughout th e l i f e ti m e o f th e I n s t i t u t e , th e m ajor p a r t o f I t s re s e a rc h work h a s been d ev o ted to lo n g -te rm pro b lem s, e s p e c ia lly t o lo n g -te rm changes i n th e s tr u c tu r e o f th e economy, o f a p a r t i c u l a r In d u s try o r to changes i n p ro d u c tio n m ethods*3* 2 The Swedish Merchant Bank and the S can d in av ian Bank Svenska H andelsbanken and S k andinavlska Banken were th e two banks c o n ta c te d In o rd e r to a s c e r t a in th e r o le th e c r e d i t I n s t i t u t i o n s p la y and t h e i r In flu e n c e on th e econom ic developm ent o f th e country* Two economic pam p h le ts a r e p u b lis h e d q u a r te r ly by th e s e I n s t i t u t i o n s ! th e Index by th e Svenska H andelsbanken, and th e Q u a rte rly Review by S k an d in av lsk a Banken* B oth o f th e s e p u b lic a tio n s a r e p r in te d in E n g lis h a s w e ll a s In Swedish* R esearch method and a n a ly s is Having c o n ta c te d th e v a rio u s a g e n c ie s which d is s e m in a te econom ic In fo rm a tio n , th e b a s ic problem h as become t h a t o f a s c e r ta in in g th e m ajor o b je c tiv e s and th e n 12In te rv ie w w ith Mr* L ars G* V in e ll o f In d u s trie n s U t r e d n ln g s l n s tl tu t, J u ly 2 3 , 196*f* 16 a n a ly z in g them t o d is c o v e r how th e s e g o a ls h av e b ee n r e a liz e d * The a n a ly s is i s b o th d e d u c tiv e an d e m p iric a l* The s tu d y w i l l be d iv id e d i n to two tim e p e r io d s i th e f i r s t , from 1930 to th e end o f W orld War I I ; and th e se c o n d , from 19**5 to th e p r e s e n t tim e* P a r t i c u l a r a t t e n t i o n w i l l be p a id t o th e p u b lic an d to th e p r i v a t e s e c to r s and t o th e In flu e n c e o f b o th s p h e re s on th e d e s i r a b le g o a ls o f f u l l em ploym ent, g ro w th , and s t a b i l i t y * DEFINITIONS OF SPECIAL TERMS AND CONCEPTS g e n e r a l .ggn»BS.g, Sflononic g ro w th , —Econom ic g ro w th may be d e s ig n a te d i n g e n e r a l te rm s a s th e developm ent o f a h ig h e r s ta n d a r d o f l i v i n g f o r th e a v e ra g e fam ily * S in ce t h i s co n c e p t i s d i f f i c u l t to m easu re, th e grow th w i l l b e e v a lu a te d th ro u g h r e a l changes in th e g ro s s n a t io n a l p ro d u c t* F i s c a l p o li c y *—The co n c ep t o f f i s c a l p o lic y may w e ll be sum m arized i n th e fo llo w in g c o n c is e s ta te m e n t! What i s f i s c a l p o l l c y t I t i s th e I n te g r a te d and c o o rd in a te d use o f th e " f i n a n c i a l pow ers" o f governm ent d i r e c te d to th e f i n a n c i a l h o u sek eep in g o f governm ent and th e b e t t e r f u n c tio n in g o f o u r econom ic system * F i s c a l p o lic y in c lu d e s i (1 ) t a x a ti o n and ta x p o lic y . (2 ) b u d g e ta ry p o l i c y . (3 ) sp en d in g and In v e s tin g p o lic y , (*0 b o rro w in g p o lic y , and (5 ) d e b t management p o l i c y *^3 ^ W illia m H* t n ^ f n n T « | t 1nn Economy (New Yorks P r e n tic e - H a ll, In c * , 1961}, p* 566* 17 l a t l B M l - k a te l t * — In Sweden, a s In Germany, th e n a tio n a l b u d g et i s conceived o f a s an e x -a n te p re s e n ta tio n o f th e n a tio n a l Incom e. I t se rv e s a s a c o o rd in a tin g In stru m en t betw een th e economic o b je c tiv e s and f i s c a l p o l i c i e s .I*4 * P la n n in g . —P lan n ing i s th e fo re c a s tin g o f g o a ls f o r th e economy, ta k in g In to acco u n t a v a ila b le re s o u rc e s . I t I s concerned n o t o n ly w ith th e u ltim a te g o a ls , b u t w ith s e le c tiv e developm ent o f program s t o be used In th e p riv a te and th e p u b lic s e c to r s . S t a b i l i t y . — S t a b i l i t y can be achieved In a dynamic economy when th e su p p ly o f re s o u rc e s I s u t i l i s e d o r b a la n c e d by a g g re g a te demand In such a way t h a t h ig h employment I s re ach ed w ith minimum p ric e f lu c tu a tio n . In Sweden, th e term "balan ced ex pansion" d e s ig n a te s th e Id e a l o f a grow ing economy to be ach iev ed by p lan n in g and In v o lv e s f i s c a l and m onetary m easu res. gwiflirt ttnw infl wfiuiMtigpg A rb e ts s lv a re fS re n ln s e n . —The Swedish Employers* C o n fe d e ra tio n . — Thu R a tio n a l Labor l^Sehum acher, p p . c l t . , p . 5* M arket B o ard , a governm ent agency* 18 g in m n ad eo arte m en tet. —Government ag ency re s p o n s ib le f o r lo n g -te rm f i n a n c i a l p la n n in g and th e n a t i o n a l budget* IndnafcT-lana Tha I n d u s t r i a l I n s t i t u t e f o r Economic and S o c ia l R e se a rc h , one o f th e few p r i v a t e r e s e a r c h o rg a n iz a tio n s * K aniM nittnM f- —Thft Swedish word f o r b u s in e s s c y c le 8* K hninnirt:«M »instltutet*—The Sw edish R a tio n a l I n s t i t u t e o f Economic R esea rch , m a in ta in e d by th e g o v ern ment* Land ■oT»g*nl«ntion»n - — Tha C o n fe d e ra tio n o f Sw edish T rade Unions* Rikabank-— -Tha C e n tra l Bank o f Sweden* R iksdag . - -The Swedish p a rlia m e n t* f ita tl afci aka CantoalbvrSn Tha Sw edish C e n tra l B ureau o f S t a t i s t i c s , a governm ent agency* P trlk a a h a m la ln Voi-aIan t r a d e . A SHORT PREVIEW OP THE RBMAINDBR OF THE THESIS T h is d i s s e r t a t i o n d e a ls w ith Sw edish f i s c a l and 19 i s t a b i l i z a t i o n p o l i c i e s d u rin g d i f f e r e n t t i n e p e rio d s* C h a p te r I I t r a c e s th e econom ic t h e o r i e s and p o l i c i e s w hich became th e b a s i s f o r th e p o l i t i c a l d e v e lo p m ent d u rin g th e p e r io d 1930 t o 1939* The a p p li c a ti o n o f th e s e t h e o r i e s i n th e f i s c a l f i e l d I s a n a ly z e d I n d e t a i l i n C h a p te r I I I , e n t i t l e d "T ech n iq u es and Means f o r F i s c a l P o lic y * " The p o st-w a r p e r io d v a s one o f t r a n s i t i o n from a v a r economy to a p e r io d o f I n f l a t i o n , d u rin g w hich tim e lo n g -te rm p la n n in g em erged a s a means o f a c ti v e I n t e r v e n tio n * C h ap ter IV w i l l p e r t a i n t o c o n c e p ts and problem s o f lo n g -te rm p lan n in g * C h a p te rs V9 V I, V I I , and V I I I d e a l w ith th e fo u r lo n g -te rm econom ic p la n s d e v is e d b y th e Sw edish governm ent to prom ote econom ic g ro w th and s t a b i l i t y , and a s a means o f a c h ie v in g th e f o r e c a s t o b je c tiv e s * In C h ap ter IX , em ployer and em ployee o r g a n iz a tio n s and th e f u n c tio n o f th e L abor M arket B oard a r e d e s c rib e d * Kmployment p o l i c i e s and g e n e r a l p ro c e d u re f o r s t a b i l i z i n g em ployiM nt w i l l be a n a ly z e d I n r e l a t i o n t o b u s in e s s c y c le developm ent* The r o l e o f In v e stm e n t e x p e n d itu re s f o r econom ic grow th and s t a b i l i z a t i o n I s d is c u s s e d I n C h ap ter X* P a r t i c u l a r em phasis w i l l b e p la c e d on b o th d i r e c t ■"* g e n e r a l m easu res ta k e n f o r c o n tr o l o f In v e stm e n t e x p e n d i tu re s * 20 Because government e x p e n d itu re s r e s u l t I n changes In m onetary v a lu e s and c r e d i t , m onetary p o lic y i s d isc u sse d in C hapter XI* C o o rd in atio n o f m onetary and f i s c a l p o lic y t a s v e i l a s th e r e la tio n s h ip betw een c r e d it p o lic y and In v estm en t9 v i l l com prise th e s a l ie n t p a r t o f t h i s chapter* T ax atio n a s a c o n tra c tio n o f purchasing power i s an o th e r In stru m en t o f f i s c a l policy* Because ta x a tio n p o lic ie s have g r e a t e f f e c t on consum ption and In v estm en t, C hapter X II w i ll d e a l w ith ta x a tio n and s ta b i l it y * In C hapter X III th e concept o f f i s c a l p o lic y sin c e World War I I I s d is c u s s e d , w ith p a r tic u la r em phasis on budget e x p e n d itu re s and a n t l - c y c ll e a l measures* C hapter XIV tr a c e s th e a n t i- c y c llc a l m easures employed over th e v a rio u s tim e perio d s* An attem p t w i l l be made to e v a lu a te s t a b i l i s a t i o n m easures sin ce World War II* The f i n a l C hapter XV c o n s is ts o f a summary and co n c lu sio n o f th e d is s e r ta tio n * CHAPTER II DEVELOPM ENT OF ECONOMIC POLICIES 1930-1939 During th e t h i r t i e s a g r e a t d e a l o f e x p e rim e n ta tio n was conducted in Sweden In o rd e r t o f in d a means to combat th e d e p re ssio n and to s t a b i l i z e th e currency* T ools were developed In banking and f i s c a l p o l i c i e s w hich became th e b a s is f o r subsequent p o l i c i e s a f t e r W orld War I I *^ ECONOM IC DEVELOPM ENT A N D POLITICAL B A CK G RO U N D Sw eden's n a tu r a l re s o u rc e s a re f o r e s t s , Iro n o re , and w ater power* To th o se re s o u rc e s should be added an advanced economic s tr u c tu r e , an ed u c ated working fo rc e and c a p it a l re s o u rc e s , su p p o rted by a v ig o ro u s m an ag erial group u t i l i z i n g s o p h is tic a te d re s e a rc h and developm ent* C e rta in g o a ls and r e s t r i c t i o n s were Imposed upon th e economic system by th e Swedish governm ent, la b o r u n io n s, and em p lo y ers' a s s o c ia tio n s * Labor l e g i s l a t i o n was lim ite d to a minimum* The governm ent com plied w ith th e In s is te n c e o f la b o r unions and em p lo y ers' o rg a n iz a tio n s t h a t th e y should be f r e e to n e g o tia te term s o f ^-Harvard Law School I n te r n a tio n a l Program in T a x a tio n , (B ostons L i t t l e , Brown and Co*, 1959)» p* 13* 21 22 c o n tra c ts * There was no com pulsory a r b it r a ti o n * 2 P r iv a te ow nership dom inated m an u factu rin g and d is tr ib u tio n * N a tio n a liz a tio n o f in d u s try h a s n ev e r b een p a r t o f th e S o c ia l D em ocratic P a r ty 's program* T here h a s , how ever, alw ays b een s u b s t a n ti a l governm ent c o n tro l by f i s c a l and m onetary m easu res*3 The governm ent h a s c o n tro lle d a l l ch a n n els o f com m unication, such a s r a d io s , p o s ta l and te le p h o n e se rv ic e s * In a d d itio n , th e la r g e r sh a re o f e l e c t r i c power s t a t i o n s , f o r e s t s , ir o n m in es, and o p e ra tio n o f n e a r ly a l l o f th e ra ilw a y m ileag e h as been under S ta te o p e ra tio n and ow nership*^ The w e lfa re s t a t e The S o c ia l D em ocratic P a rty came in to power in th e f a l l o f 1932* I t s p la tfo rm com m itted i t t o overcome th e % d e p re s s io n by means o f f i n a n c ia l expansion*5 The p rim ary aim was t o a l l e v i a t e th e s e rio u s unemployment, b u t th e governm ent was a ls o pled g ed to co n tin u e to expand s o c ia l 2L a n d so rg a n lsa tio n e n 1 S v e rig e , Labour and S o c ia l (Stockholm * V ilhelm ssons B o lrb ry ck eri, ^H arvard law S ch o o l, op* c l t .* p* 32* ^ U iii* , p . 3^. 5A rth u r Montgomery, How Sweden th e D ep ressio n (Stockholm * B o n n iers B o k try c k e ri, 193 8 ), p . M -9 * 23 w e lfa re b e n e f its , such a s p e n sio n s, h e a lth In su ra n c e , m edical c a re , and a id to education* These were lo n g -ran g e g o als which could o nly be r e a liz e d by an expanding economy* In th e o p in io n o f-P ro fe s s o r B e r t i l O h lln , th e most Im portant f a c to r In th e economic p ro g re ss o f Sweden h as been I t s e d u c a tio n a l system* S ince l8*tO, a l l 8wedlsh people have re c e iv e d a t l e a s t elem en tary schooling *6 of Industry The b u d g etary e x p e n d itu re s f o r e d u c a tio n and h e a lth which became a ta x lo a d on th e c itiz e n s can a ls o be co n sid ered a s an Investm ent In human re s o u rc e s , and th e support o f ed u c atio n no doubt paved th e way f o r th e ra p id I n d u s tr ia liz a tio n t h a t g a th e re d speed a f t e r th e 1860*8* There was a s ig n if ic a n t g ro w th -In such I n d u s tr ie s a s m atches, b a l l b e a rin g s , te le p h o n e s , m easuring In stru m e n ts, c a lc u la tin g m achines, and r e f r i g e r a to r s SWEDISH ECONOM IC THEORIES ro m g w a -g f E9flttrn M litig riL .gggnffiy By 1930, two fo u n d ers o f economic th e o r ie s had a lre a d y p repared complex dynamic s o lu tio n s f o r economic ^ B e r til O hlln (e d * ), " S o c ia l Problem s and P o lic ie s P i ^ " f l ?f > 1 L k*tPa m w A t - Sciences. Vol* 197* May. 19^8, p. *t. 7 ibid* < ? 2b problem s* Khut W lc k se ll p io n eered to fram e problem s in t o t a l c a te g o rie s * In 1899» David D avidson founded Ekonomisk T l d s k r i f t , a p u b lic a tio n w hich was concerned m ainly w ith problem s o f ta x a tio n and m onetary p o licy * T h is q u a r te r ly jo u rn a l i s to d ay one o f th e most Im p o rtan t economic b u l l e t i n s in Sweden,® P ro fe s s o r W lc k se ll was in te r e s te d in t o t a l demands f o r In v estm en t and co n su m p tio n and t h e i r e f f e c t on th e n a tio n a l income* The Stockholm School The name o f th e sch o o l was c re a te d by B e r t l l . O h lln i n 1937 when he w rote an e ssa y in Ekonomisk T l d s k r i f t in w hich he la b e le d th e view s o f h i s contem porary econom ists a s th e "Stockholm School*" The th e o r ie s o f th e sch o o l can be tra c e d to P ro fe s s o r Gunnar M y rd al's 1927 d o c to ra l d i s s e r t a t i o n , " P rls b lld n in g sp ro b le m e t och F d ra n d e rlig h e te n " (P ric in g and th e Change F a c to r) i n w hich work he in tro d u c e d th e r o le o f e x p e c ta tio n s in economic developm ent* W ith th e p u b lic a t i o n o f t h i s book, dynam ics became th e approach o f alm o st a l l eco n o m ists o f th e p e rio d * 9 ^K arl-G ustav L andgren, Economics in Modern Sweden (W ashingtons L ib ra ry o f C ongress, R eference D ept*, 1 9 5 7 ), p* 2* 9lfeld*, p . 21* 25 An a r t i c l e e n t i t l e d "M onetary E q u ilib riu m " by M yrdal in 1932, and p u b lis h e d in Ekonomisk T i d a k r i f t became one o f th e b a s ic w r itin g s o f th e Stockholm S ch o o l. In t h i s e ssa y he e n la rg e d upon e x p e c ta tio n s to In c lu d e e x -a n te and e x -p o st a n a ly s is * In e x -a n te a n a ly s i s , th e complex m otives o f in d iv id u a ls became th e d riv in g f o r c e s i n th e economy and w ere t o be compared w ith th e outcom e, a s a s c e r ta in e d by e x -p o s t a n a ly s is * 10 W lc k se ll* s a n a ly s is o f sa v in g s and In v estm en t were sharpened and developed f u r t h e r by P ro fe s s o rs M yrdal, O h lln , and E rik L indahl* The Stockholm S chool was p a r t i c u l a r l y I n te r e s te d in dynam ic econom ic phenomena* M yrdal had in tro d u c e d th e In flu e n c e o f e x -a n te e n tr e p r e n e u r a l e x p e c ta tio n s on e x - p o rt developm ents* O h lln and L in d ah l employed t h i s ap p roach and re ach ed th e c o n c lu sio n t h a t th e e x -a n te in e q u a lity o f sa v in g s and In v e stm en t would a f t e r wards o r e x -p o st r e s u l t i n e q u a lity * O h lln proved t h a t th e re was no economic c o n tr a d ic tio n * 11 S avings and in v e stm e n t— In 1931, a t th e re q u e s t o f th e Swedish Unemployment Com mission, a number o f econom ists w re s tle d w ith th e problem o f p o l i c i e s to be B coyagic D oetvlnee (B ostons D 10J b l4 * , p . 23* 11C h a rle s Glde and C h a rle s R l s t , I D oetylnee (B ostons D* C* H eath 26 used to combat unemployment• The q u e s tio n s r a is e d were* "How can In v estm en t exceed sa v in g s? " " I f In v e stm en t e x p e n d itu re s r e q u ir e s a v in g s , where do th e sa v in g s come from ?" B oth O h lln and L in d ah l so lv e d th e s e p ro b lem s, b u t O h lln gave th e s im p le s t and m ost In g e n io u s e x p la n a tio n * P ro fe s s o r O hlln b u i l t h i s model upon W ic k s e llla n cu m u lativ e p ro c e s s and M y rd a l's e x - a n te , e x -p o s t a n a ly s is * To f in d th e r e la tio n s h ip betw een ex p e cted Income and s a v in g s , and r e a liz e d Income and s a v in g s , he used p e rio d a n a ly s is * He re aso n ed t h a t one can summarize t r a n s a c tio n s a t th e c lo s e o f a p e rio d by c o n v e n tio n a l a c c o u n tin g ; b u t how d id th e e x -a n te e x p e c ta tio n s In flu e n c e th e r e s u l t s and w hat governed th e a c tio n s w hich r e f e r to th e f u tu r e ? O hlln concluded t h a t e x p e c ta tio n s a r e b ased upon e x p e r i en ces In e a r l i e r p erio d s* A com b in atio n o f e x -p o s t and e x -a n te a n a ly s is would be one method o f e x p la in in g new e x p e c ta tio n s * T h is c a s u a l a n a ly s is would p roceed from th e assu m p tio n t h a t f u tu r e p la n s w ere based upon d is c re p a n c ie s betw een a n tic ip a te d and r e a liz e d plan s* O hlln made th e fo llo w in g d e f i n i t i o n o f h i s b a s ic co n c ep ts > When we lo o k backw ard to see w hat h a s happened d u rin g a p e r io d , I t seems m ost p r a c t i c a l to d e fin e Income I n such a way t h a t th e volume o f sa v in g s i s —alw ays—e q u a l to th e volume o f new In v estm en t In 27 te rm s o f money v a l u e s . T h is i s a m a tte r o f conven ie n c e .* ^ New b u i l d in g s and m achines com pleted d u rin g a p e r io d m ust h av e b e e n p a r t o f incom e o r , more s p e c i f i c a l l y , p a r t o f t h a t Income w hich had b e e n s a v e d . T h is re a s o n in g was s u p p o rte d b y th e c o n c lu s io n t h a t th e c a p i t a l equipm ent had n o t b e e n consum ed d u rin g th e p e r io d . Looking b a c k , th e n , i t was n a t u r a l to s a y t h a t s a v in g s e q u a le d i n v e s t m ent. E x p e c te d o r p la n n e d In v e stm e n t e x p e n d itu re s d id n o t have to a g re e w ith e x p e c te d s a v in g s , s in c e one group m ight be w i l l i n g t o buy more goods th a n th e o th e r e x p e c te d to s e l l . T h is d is c re p a n c y b etw een p u rc h a s e s and s a l e s , re a so n e d O h lln , w ould th e n be th e same a s th e d if f e r e n c e betw een e x p e c te d s a v in g s and e x p e c te d in v e s tm e n t. Expan s io n o r c o n t r a c t io n w ould th e n r e s u l t from th e s e d i f f e r e n c e s . gflYlngg Mifl I n t e r e s t rftta g * --S w e d is h ec o n o m ists assum ed t h a t b a n k s c o u ld a r b i t r a r i l y f i x I n t e r e s t r a t e s w ith in c e r t a i n l i m i t s , th ro u g h r e g u la ti o n o f c r e d i t . B ut w hat w ere th e l i m i t s and w hat was th e r e l a t i o n s h i p betw een i n t e r e s t and s a v in g s ? The answ er t o t h i s q u e s tio n , 12B e r t i l O h lln , Pm J r afrlSB■ PX-Bmlgyngftt. fitftblll- g t l y y ^(New Y orkt C olum bia U n iv e r s ity P r e s s , 19"+9), P P. 28 acco rd in g to th e Stockholm S chool, was t h a t sav in g s and Investm ent governed I n te r e s t ra te s * The r e la tio n s h ip betw een sav in g s and Investm ent was presumed to be I n d ir e c t, «t m ! b o th were In flu e n c e d by th e r a te o f In te r e s t* The I n t e r e s t r a te d i r e c t l y In flu e n c e d th e volume o f In v e s t m ent, w hich In tu r n a f fe c te d Income and sav in g s w ith a g iv en p ro p e n s ity to save.3-3 Im portance o f th e Stockholm School*—The Stockholm School h as a s y e t n o t developed a com plete economic theory* I t has a t tr a c te d much a tte n tio n because I t has d e a lt w ith dynamic p r in c ip le s and has experim ented w ith many new concepts* I t has p laced g re a t re lia n c e on government In te rv e n tio n and planning* EXPANSION A N D DEPRESSION POLICIES W ith th e w orld-w ide d e p re ssio n t h a t developed in th e t h i r t i e s , a number o f m easures were adopted in Sweden which aro u sed a g r e a t d e a l o f I n t e r e s t in o th e r p a r ts o f th e world* The v a s t amount o f economic re s e a rc h t h a t was c a r r ie d on by Swedish econom ists durin g t h i s p e rio d c a lle d a t te n t io n to th e Swedish experim ents* W hile many o f th e th e o r ie s r e s u lte d in f i s c a l and m onetary p o lic ie s to combat th e d e p re ssio n , th e p r a c t ic a l m easures adopted should be I s o la te d from th e o rie s in o rd e r to a r r iv e a t a 13Ib ld *, p p . 121-125* 29 p ro p e r a p p r a i s a l o f th e econom ic developm ent* The fo llo w in g p o l i c i e s and m easu res w ere o f m ajo r im p o rta n c e ! (1 ) m o n etary p o li c y ; (2 ) f i s c a l p o l i c y ; (3 ) p u b lic w o rk s; (3 ) a g r i c u l t u r a l p o lic ie s * A ll o f th e f o r e going p o l i c i e s w ere d e s ig n a te d a s e x p a n s io n a ry p o l i c i e s s in c e th e m ain p u rp o se was to In c r e a s e econom ic g row th f a v o ra b ly w ith a minimum o f p r ic e d i s t o r t io n * MPM.tarZ. Among th e re c o v e ry m easu res used i n Sweden t o com bat th e d e p r e s s io n o f th e t h i r t i e s , t h e i r p o lic y on management o f money a ro u se d g r e a t I n t e r e s t in Am erica* S w eden's s p e c ta c u la r re c o v e ry im p re sse d P r o f e s s o r I r v in g F l s h e r y who w ro te : W hatever th e f u t u r e h o ld s i n s t o r e , t h i s a c h ie v e m ent o f Sweden w i l l alw ay s b e th e m ost Im p o rta n t landm ark up t o i t s tim e i n th e h i s t o r y o f s t a b i l i z a t i o n : and th e v a r io u s e f f o r t s w hich have b e e n made t o d i s c r e d i t th e im p o rtan ce o f S w eden's exam ple can n e v e r e r a s e th e sim p le f a c t t h a t Sweden d id s t a b i l i z e th e i n t e r n a l p u rc h a s in g pow er o f h e r k ro n a a c c o rd in g 4*a 4*V ia m a e a i i f v a e a ^ n n f a i * t o th e o f f i c i a l m easure s e t up f o r t h a t p u rpo se* S u sp en sio n o f th e c o ld s ta n d a rd * — The m o n etary program may be more e a s i l y u n d e rsto o d when c o n s id e r a tio n i s g iv e n to th e f o r c e s t h a t co m p elled 8weden t o abandon th e g o ld sta n d a rd * When th e Bank o f E ng lan d susp en d ed g o ld paym ents on Septem ber 2 1 , 1931» th e e f f e c t on th e l**B rlnley Thomas, H M fttlg y P 0 l l 9 T ,i n d .f f r i g « i , London: Goerge R o u tle d g e an d S o n s, L td * , 1 9 3 6 ), P* 231* 30 8w edlsh c r e d i t system mas s e r io u s * ^ S e v e ra l e v e n ts had p r e c i p i t a t e d th e w eakening o f Sw eden's m onetary m arket* The Iv a r K reuger c ra s h I n 1931 fo rc e d th e banking system to ta k e o v e r fin a n c in g of' th e c o n c e rn 's lo a n o p e ra tio n s * The c o lla p s e o f th e C r e d i t a n s t a l t i n A u s tr ia i n th e same y e a r f u r t h e r d e t e r io r a t e d Sw eden's tr a d e b a la n c e • The e f f e c t o f th e e v e n ts added to th e a lr e a d y u n fa v o ra b le b a la n c e o f tr a d e and fo rc e d Sweden o f f th e g o ld s ta n d a rd on Septem ber 2 7 , 1931* W ith a f o r e ig n exchange re s e rv e o f 30 m illio n k ro n o r and g o ld h o ld in g s o f 198 m illio n k ro n o r, th e R iksbank was I n s tr u c te d to r a i s e th e d is c o u n t to 8 p e r c e n t to w ard o f f s p e c u la tio n in fo r e ig n e x c h a n g e * ^ M onetary o b j e c t i v e s .— D r a s tic m easures were now r e q u ir e d t o r e s t o r e c o n fid e n c e I n th e m onetary system * T here was f e a r o f I n f l a t i o n i n s p i t e o f unemployed re s o u r c e s and f a l l i n g w o rld m arket p ric e s * T h is f e a r gave r i s e to wage un io n demands f o r h ig h e r wages* The l i b e r a l governm ent and R iksbank o f f i c i a l s r e a l i z e d t h a t th e s o lu tio n w ould be th e m aintenance o f a s ta b l e p u rc h a sin g power o f th e krona* The announcem ent" ^ ^ B rlk T* H. K J e lls tro m , M o n ey , th e S ¥g||B » (New fo rk s Colum bia U n iv e rs ity l6 Thomas, o n . c l t . , p p . 183-I8*t* 31 was made by th e fin a n c e m i n is t e r t h a t th e aim o f th e m o n etary p o lic y w ould be t o m a in ta in th e i n t e r n a l p u rc h a s in g power o f th e k ro n a • ^ The new s ta n d a r d th u s became a commodity sta n d a rd * In o r d e r t o m easure f l u c t u a t i o n s o f th e m o netary u n i t , i t was d e c id e d t o c o n s t r u c t a co n su m ers1 p r ic e index* Monetary t o o l s - — -The announcem ent t o m a in ta in a s ta b le c u rre n c y was one o f th e m ethods now u sed b y th e R ik sb an k to r e s t o r e th e p u b l i c 's c o n fid e n c e i n f u tu r e commitments* T here w ere o th e r t o o l s a v a il a b le f o r a c e n t r a l ban k to c o n tr o l c r e d i t , su ch a s th e o f f i c i a l d is c o u n t r a t e , open m ark et o p e r a tio n s , ch an g in g r e s e r v e re q u ir e m e n ts , and f o r e ig n exchange tr a n s a c tio n s * The d is c o u n t r a t e , a s s t a t e d e a r l i e r i n t h i s c h a p te r , was r a is e d t o 8 p e r c e n t. T h is a c ti o n was m o tiv a te d by th e f e a r o f i n f l a t i o n * As th e s e f e a r s w ere fo u n d to be u n j u s t i f i e d , th e r a t e was re d u c e d t o 6 p e r c e n t i n O cto b er o f 1 9 3 1 * ^ The c a u tio u s p o lic y o f m ain ten an ce o f a h ig h e r d is c o u n t r a t e was m o tiv a te d b y th e R ik s b a n k 's d e s i r e t o a t t r a c t f o r e ig n re s e rv e * A f te r K re u g e r9s d e a th I n M arch, ^ R i c h a r d A* L e s te r , ^ r l s a a and RgfiiRfr U n iv e r s ity P r e s s , 1939)* P* 2j l 8 J b ia * , p . 2*t0* 32 1932, th e b a n k 's f o r e ig n exchange p o s i t i o n Im proved. One c r i t i c i s m o f t h i s p o lic y v a s s t a t e d a s f o l l o v s t I t i s now g e n e r a lly a d m itte d t h a t th e B a n k 's r e d is c o u n t r a t e sh o u ld h av e b een re d u c e d more r a p i d l y b e g in n in g In May, 1932. Changes i n th e r e d is c o u n t r a t e Im m e d ia te ly a f f e c t s h o r t term r a t e s , s in c e I t h a s b e e n cu sto m ary f o r th e Sw edish p r i v a t e b a n k s t o a d j u s t t h e i r t h r e e m o n th s' r a t e by th e R lk s b a n k 's r a t e , a n d , I n th e ab se n ce o f a n 1Q open m a rk e t, b an k r a t e s a r e g o in g r a t e s i n Sweden.'1 ’? Open m ark et o p e r a t i o n s .—The second t o o l seemed n o t to o w e ll u n d e rsto o d b y ban k in g o f f i c i a l s . One re a s o n f o r t h i s s i t u a t i o n was t h a t a u t h o r i t i e s had p oor u n d er s ta n d in g o f th e use o f open m arket o p e r a tio n s . A nother r e a s o n fo rw a rd e d by b a n k e rs was th e v iew t h a t p u rc h a s e s o f f o r e ig n exchange c o u ld a c h ie v e t h e same o b je c tiv e a s open m a rk e t o p e r a t io n s .20 P r o f e s s o r Lundberg a g re e d w ith th e b a n k e rs t h a t p u rc h a s e s o f f o r e ig n exchange w ould In c re a s e l i q u i d i t y w ith o u t e n g a g in g in open m ark e t o p e r a tio n s and t h a t e x c e s s c r e d i t c o u ld b e mopped up th ro u g h I n c r e a s e i n re s e r v e r e q u ir e m e n ts . Governm ent l e g i s l a t i o n p a sse d I n th e s p rin g o f 1937 gave th e b an k s p e rm is s io n t o In c re a s e re s e r v e r e q u ir e m e n ts ; h o w ev er, t h i s c o n tr o l was n o t u sed u n t i l 1 9 5 7 .21 19Ifeia*» p . 2*f3. p . 2Mfr. 21S r l k L undberg, .n * Economic 33 The Riksbank»s purchase o f fo re ig n exchange, w hile ea sin g th e money m ark et, was p rim a rily aimed a t In flu e n c in g exchange r a te s * 22 W ith a f r e e exchange r a te a f t e r su s p en sio n o f th e gold sta n d a rd , th e bank had to accum ulate a cu sh io n o f re se rv e s* The purchase o f fo re ig n exchange from May, 1932 to O ctober, 1932 tended to keep th e r a te from f a ll i n g below 19*50 kronor to th e pound* These p u rc h a se s, according to P ro fe sso r L in d a h l, were v ery e f f e c tiv e In p re v en tin g a drop in th e p ric e le v e l* 23 A m o d ific a tio n o f o b je c tiv e s o f Swedish m onetary p o lic y was made In 1937 by th e Board o f D ire c to rs o f th e Riksbank* The aim o f th e m onetary p o lic y would be to m a in ta in th e in te r n a l value o f the krona* P ric e s o f goods produced f o r th e home m ark et, as w e ll a s fo r e x p o rt, would be p e rm itte d to r i s e provided the c o s t o f liv in g d id n o t In crease* When th e S o c ia l D em ocratic P a rty came In to power In Septem ber, 1932, a p o lic y was launched which m ight be term ed an a n tl-d e p re s s lo n o r e x p a n sio n ist p o lic y *2if ^ | lc v (Londons George A llen and Unwin, L td*, 1957)» p* 22L e s te r, on* c i t * . p* 2k$. p . 251 2lfL e s te r , on. c i t . . p* 26k. 3* * Government o f f i c i a l s , a s w e ll a s a number o f le a d in g ec o n o m ists, b e lie v e d t h a t a s ta b le c u rre n c y was n o t enough to s tim u la te th e economy. They f e l t t h a t government spending th ro u g h a p u b lic works program would be n e c e s sa ry to use th e I d le bank b a la n c e s .2^ F is c a l p o lic y E rn s t V lg fo rs s proposed a lo a n -fin a n c e d p u b lic works p o lic y a s a s tim u la n t to b u s in e s s . T here were f e a r s among th e c o n s e rv a tiv e elem ent t h a t p u b lic e x p e n d itu re s would be o f f s e t by d im in ish in g a c t i v i t y In th e p r iv a te s e c to r o f th e economy, and t h a t co n tin u ed b u d g et d e f i c i t s would shake th e p u b l i c 's co n fid en ce In th e governm ent. The f e a r s o f unbalanced b u d g ets were to some e x te n t a l le v ia te d th ro u g h a new Swedish b u d g e ta ry system . C a p ita l b u d g e t* — Th« concept o f fin a n c in g s e lf - liq u id a tin g In v estm en t e x p e n d itu re s th ro u g h lo a n s le d to a se p a ra te c a p it a l b u d g et f o r such e x p e n d itu re s . The p ro v is io n o f a s e p a ra te c a p it a l b u dget gave f l e x i b i l i t y to f i s c a l p o lic y . Through t h i s b u d g e t, c a p i t a l in v estm en t could be expanded w ith o u t In c re a s in g ta x e s . In o rd e r to fo llo w th e p r in c ip le s o f p r iv a te book k ee p in g , p u b lic c o rp o ra tio n s were p la c e d In charge o f th e S t a t e 's p ro d u c tiv e e n t e r p r i s e s . B ranches o f th e ad m ln is- 2 ? L e s te r, o p . c i t . . p . 26b 35 s t r a t l o n w hich used s c h o o ls , h o s p i t a l s , and o th e r p u b lic b u ild in g s w ere re q u ir e d to pay r e n t , w hich was charged to a ru n n in g b u d g e t. Running b u d g e t.- - T h is b u d g et c o n ta in e d c u r r e n t r e c e i p t s and e x p e n d itu re s . D e f ic its d u rin g d e p re s s io n p e rio d s w ere b a la n c e d w ith s u rp lu s e s w hich accru ed d u rin g more p ro sp e ro u s tim e s . To g u a ra n te e t h a t d e f i c i t s would • t n o t d is a p p e a r from th e b u d g e t, a p ro v is io n was made t h a t th e y sh o u ld be c a r r ie d a s n e g a tiv e item s in to an e q u a liz a t i o n fu n d .2^ The o th e r f e a r o f b u sin essm en , t h a t d e f i c i t spending w ould r e a c t on b u s in e s s c o n fid e n c e , was due to la c k o f u n d e rsta n d in g o f th e s tim u la tin g e f f e c t s o f governm ent sp e n d in g . The b a la n c in g o f th e b u d g et o v er th e c y c le was an a tte m p t t o r e s t o r e t h i s c o n fid e n c e . In th e U nited S ta te s and i n England th e r e h a s been a r e a c tio n a g a in s t th e s e lf - c o r r e c tin g f a c to r i n an economy th ro u g h low er w ages. Such eco n o m ists a s Keynes and A lv in H ansen had em phasized th e r o l e o f demand i n in flu e n c in g econom ic c o n d itio n s . L in d ah l i n 1929 and K yrdal i n 1933 had p u t fo rw ard th e o r ie s re g a rd in g s tim u la t in g b u s in e s s th ro u g h p u b lic w orks w ith wages s e t h ig h e r ^ A r t h u r t a i t h l e s and J . K e ith B u tte r s ( e d s .) . A prlg«n.l9ttMaiQ,Aii9glatjL9Bi BtsdlMg iaA £l»qil (Homewood, 1 1 1 .s R ich ard D. Irw in , I n c ., 1955)» PP* 6 7 -6 9 . th a n th e d e p re s s io n le v e l* P u b lic w orks,«— »P rofessor M yrdal ad v o c a te d s tim u la t i o n o f b u s in e s s th ro u g h lo a n -fin a n c e d p u b lic works* He p o in te d o u t t h a t th e c o s t o f such a program d u rin g a d e p re s s io n would be r e l a t i v e l y low , sin c e unemployed f a c t o r s o f p ro d u c tio n would be u tiliz e d * The e x -p o st r e s u l t o f such m easures w ould In c re a s e th e governm ent revenue and make I t p o s s ib le t o re p a y th e loan* The bud g et would n o t be b a la n c e d d u rin g th e d e p re s s io n phase o f th e c y c le , b u t w ould be b a la n c e d over th e f u l l b u s in e s s c y c le *^7 I n 1933, th e R iksdag b u d g eted f o r p h b llc w orks to be fin a n c e d by loans* The p r o je c ts s e le c te d w ere th e c a p i t a l goods I n d u s tr ie s , s in c e i t was th e f e e lin g t h a t th e g r e a t e s t s tim u la tio n to th e economy w ould a c c ru e from such a p o li c y .2® In Sweden, a s In many o th e r c o u n tr ie s , th e p u b lic w orks program was conducted on a s m a lle r s c a le th a n was d e s ira b le * Some works were s t a r t e d to o l a t e , s in c e no advance p la n n in g had been done*2? B ecause o f th e sm a ll scope o f th e s e p r o j e c ts , i t was n o t p o s s ib le t o tr a c e th e ^ L u n d b e rg , o p . c i t . . p p . 117-118* 28I U d « t P« 269. ^ A m e ric a n Economic A s s o c ia tio n , o p. c l t . , p . 68* 37 e f f e c t o f th e new wage p o lic y In a u g u ra te d a t t h i s tin e * E x p a n s io n is t wage p o lic y .--T h e wage p o lic y t h a t was p lan n ed I n Sweden d if f e r e d fu n d a m e n ta lly from t h a t I n th e U nited S t a t e s . The wage p o lic y y c a ll e d " e x p a n s io n is t p o l ic y ," aim ed a t r a is i n g th e wage l e v e l a t th e b e g in n in g o f th e d e p re s s io n In o rd e r to s tim u la te th e demand th ro u g h In c re a s e d p u rc h a s in g pow er. The re a s o n in g p u rsu e d by th e eco n o m ists w as t h a t r i s i n g demand th ro u g h h ig h e r wage r a t e s would have a g r e a te r e f f e c t on demand th a n a p o lic y o f r a is i n g p r i c e s o f goods.3 ° A g r ic u ltu r a l p o l i c i e s The p r i c e s o f a g r i c u l t u r a l p ro d u c ts w ere f ix e d a t 75 p e r c e n t o f th e 1925-29 av erag e p r i c e s . The o b je c t o f t h i s p o lic y was t o s u s ta in th e p u rc h a sin g pow er o f th e farm p o p u la tio n and a ls o to p re v e n t an y sudden In c re a s e I n fo o d p r i c e s . In 1936, p r ic e s w ere p e rm itte d t o In c re a s e t o 85 p e r c e n t o f th e av e rag e p r ic e s o f 1 9 2 5 -2 9 . I t h a s b een th e o riz e d t h a t had no su p p o rt m easures b e e n ta k e n , th e a g r i c u l t u r a l Income d u rin g th e y e a rs o f 1933 and 1931 * would have f a l l e n 28 p e r c e n t and 36 p e r c e n t r e s p e c ti v e ly below th e Income o f 1929 3 ° 0 h lln , o p. c i t . . p . 6 6 . 3I l o c. c l t . E Y H O T t a R ecovery in Sweden o c c u rre d In th e summer o f 1933* w ith th e r e v i v a l o f e x p o rts * The Im provem ent In e x p o rt tr a d e was a r e s u l t o f fa v o ra b le i n t e r n a t i o n a l c o n d itio n s , p a r t i c u l a r l y In England* In J u ly o f 1937, when Sweden pegged th e k ro n a to th e s t e r l i n g r a t e . I t a ls o b e n e f ite d from th e Im proved c o n d itio n s * P a r a l l e l developm ents o c c u rre d I n F in la n d and Norway, w hich w ere a ls o lin k e d to th e s t e r l i n g r a t e . 32 'EVALUATION OF THE CYCLICAL POLICIES In w hat m easure d id th e p o l i c i e s a tte m p te d by th e governm ent su cc eed i n b rin g in g a b o u t a n econom ic r e v iv a l? The c u rre n c y was re m a rk a b ly s ta b le d u rin g th e p erio d * The su sp e n sio n o f th e g o ld s ta n d a rd f r e e d th e k ro n a from f l u c t u a t i o n s by c u r r e n c ie s ab ro ad and made I t p o s s ib le f o r th e R ik sb an k t o p re s e rv e th e exchange v a lu e o f th e krona* The f a l l i n r e t a i l p r i c e s was slow ed down by consunqption t h a t In c re a s e d l e s s th a n Incom es and rem ained re m a rk a b ly c o n s ta n t d u rin g 1929-32* The p a s s iv e wage l e v e l from 1933 t o 1939, rem oving th e p re s s u r e on p r i c e s , was a n o th e r s t a b i l i s i n g f a c t o r *33 The p u b lic w orks w ere o f se c o n d ary Im p o rtan c e, 32|fontgomery, on. cit*. pp. 60-6M-* 33Lundberg, on* cit.. pp. *t8-52. sin c e a b u ild in g s t r i k e delay ed th e f u l l e f f e c t o f th e Investm ent e x p e n d itu re s u n t i l 1 9 3 S th e r e v iv a l o f e x p o rts had Improved th e economy* The In c re a se In e x p o rts In 1933 was one o f th e most Im p o rtan t f a c to r s In th e r e v iv a l, and t h i s grow th In tr a d e was aid ed by a su c c e ss f u l m onetary p o licy * The p o lic y d is c u s s io n s d u rin g th e t h i r t i e s r e s u lte d In few p r a c t i c a l a p p lic a tio n s , b u t th e new d ir e c tio n o f t h e o r e t i c a l d is c u s s io n s paved th e way f o r f i s c a l and m onetary In te rv e n tio n * When th e Commission f o r P o st war Economic P lanning was form ed in 19^*-, th e fo u n d a tio n had been l a i d by th e re s e a rc h and e x p e rim e n ta tio n t h a t evolved d u rin g th e t h i r t i e s * CHAPTER III TECHNIQUES AND M EA NS FOR FISCAL POLICY The te c h n iq u e s and means f o r f i s c a l p o lic y depend upon th e o b je c tiv e s and th e economic e f f e c t s o f governm ent In te rv e n tio n * The g o a ls o f th e f i s c a l p o lic y a re b o th economic and s o c ia l* W hile th e r e may be g e n e ra l agreem ent ab o u t th e o b je c tiv e s o f f i s c a l p o lic y , th e means em ployed may come In c o n f l i c t v l t h p r iv a te firm d e c is io n s and econom ic a c tio n s * The q u e s tio n to be re s o lv e d I s th e scope o f th e n a t i o n 's o u tp u t w hich should be su p p lie d by th e p u b lic s e c to rs * Economic p r i n c ip le s o f m axim izing Income th ro u g h th e m ost e f f i c i e n t a ll o c a t i o n o f re s o u r c e s w ould su p p o rt a p o lic y o f l a i s s e z - f a i r e f o r p r i v a t e e n t e r p r i s e and l i m i t a t i o n o f th e g o v ern m en t's sp h ere to th e c l a s s i c a l co n cep t o f "n e c e ssa ry " fu n c tio n s* In th e l a s t c e n tu ry , th e German ec o n o m ist, Adolph W agner, c o r r e c t ly p r e d ic te d an In c re a s e I n governm ent fu n c tio n s n e c e s s a ry to cope w ith e x p a n sio n o f p u b lic s e r v ic e s , and new a t t i t u d e s tow ard governm ent* Government e x p e n d itu re s have In c re a s e d in th e U n ited (S tates from 9*^2 b i l l i o n d o l l a r s in 1925 to ab o u t 100 b i l l i o n d o l l a r s In h O th e e a r ly f i f t i e s k l CONCEPTS AND AGENCIES OF FISCAL POLICY The means o f a c h ie v in g f i s c a l p o lic y o b je c tiv e s th ro u g h a p p r o p ria te a g e n c ie s and te c h n iq u e s a re governed by th e econom ic and p u b lic p o l i c i e s p u rsu ed by th e govern m ent. Economic c o n c e n ts S ince th e d e p re s s io n o f th e t h i r t i e s , th e S o c ia l D em ocratic governm ent had to make a c h o ic e betw een com peting means In th e p u b lic and th e p r iv a te s e c to r s . The m arket mechanism had s u p p lie d goods d i c t a t e d by consumer w a n ts, b u t w ith la r g e unemployed re s o u rc e s th e governm ent had a m andate f o r s t a t e a l l e v i a t i o n o f unemploy m ent. In th e p u b lic s p h e re , a n a p p r a is a l o f s o c ia l b e n e f i ts and c o s ts was n e c e s s a ry . The m ost e f f i c i e n t a l l o c a t i o n o f re s o u rc e s would r e s u l t when th e m a rg in a l b e n e f it o f goods and s e r v ic e s e q u a le d th e m a rg in a l c o s t, b u t t h i s e q u a li ty was n o t r e a d i l y d e te rm in a b le b ecau se o f d i f f i c u l t i e s In v o lv ed in e s tim a tin g b e n e f i ts In th e absence o f th e m arket m echanism . N e v e rth e le s s , a d e c is io n had to be made re g a rd in g th e scope o f governm ent a c t i v - t y l l l l a m H . A nderson. T f-r* tio n a— Economy (New Y orkt P r e n tI c e - H a ll, I n c . , 1 9 5 1 ), p . 5 . 1*2 i t i e s * I t was d e c id e d to re a c h f o r I t s o b je c tiv e s th ro u g h d e c e n tr a liz e d p lan n in g * The Swedish governm ent a n tic ip a te d t h a t th ro u g h such p la n n in g , in d iv id u a ls and firm s would be a b le t o make t h e i r own economic d e c is io n s and ta k e appro p r i a t e a c tio n * The Swedish co n c ep t o f e n la rg in g p u b lic ex p en d i tu r e s h a s g a in e d th e su p p o rt o f eco n o m ists in th e U nited S ta te s * A lv in H ansen and Kenneth G a lb r a ith b o th arg u ed f o r l a r g e r f e d e r a l e x p e n d itu re s* The p r in c ip le s o f F u n c tio n a l F in an ce e n u n c ia te d by Abba P* L ern er can be d e te c te d in th e gap a n a ly s is u t i l i z e d in th e Swedish p lan n in g * In th e s h o rt-te r m and lo n g -te rm p la n n in g , th e ■ e s tim a te d econom ic e f f e c t s o f In v estm en t and spending a re a n tic ip a te d * 2 T h is p la n n in g w i l l be d is c u s s e d in l a t e r c h a p te r s . Gtmnar M yrdal, th e Sw edish ec o n o m ist, con s id e re d p la n n in g o f g r e a t e s t im p o rtan ce, and adv o cated d e f i c i t spending d u rin g d e p re ssio n s* He a g re e d w ith L ern er t h a t a f l e x i b l e f u n c tio n a l f i s c a l p o lic y was as Im p o rtan t a s th e t r a d i t i o n a l co n cep t o f th e b u d g et *3 P u b lic e x p e n d itu re s in F rance have shown an in c re a s in g tre n d * The f o u r th econom ic p la n (1962-1965) 2A rth u r S k it h ie s and J* K e ith B u tte r s , A m erican pp. 70-71* > ♦ 3 gave p r i o r i t y to s o c ia l form s o f in v e stm e n t, such a s e d u c a tio n , h e l a th , and urban equipm ent. Economic n a tio n a l b u d g ets i n F ra n c e , a s in Sweden, form th e fram ew ork f o r th e f i s c a l b u d g ets In West Germany, p u b lic In v estm en t e x p e n d itu re s fo llo w ed a s im ila r tr e n d . D uring th e p e rio d betw een 19M -8 and 1957, **3*5 p e r c e n t o f th e 213*5 b i l l i o n D eutsche Mark (German c u rre n c y ) was su p p lie d by th e governm ent. I n d i r e c t ly th e governm ent In flu e n c e d c a p i t a l fo rm a tio n th ro u g h ta x exem ptions f o r firm s t h a t w ere w illin g to In c re a s e In v estm en t e x p e n d itu re s .^ P a r a l l e l developm ent o cc u rred i n I t a l y , w here housing and p u b lic works ro s e 171*6 p e r ce n t betw een th e y e a rs 1951 and 1959* D uring t h i s p e rio d , th e p u b lic sh a re o f t o t a l in v estm en t ro s e from 2 6 .9 to 33*6 p e r c e n t. The In c re a s e d p u b lic in v estm en t was m o tiv a te d by th e d e s ir e f o r economic grow th and s t a b i l i t y . 6 ^ Ja c q u e s H. D reze, "Some P ostw ar C o n trib u tio n s o f F ren ch E conom ists to Theory and P u b lic P o lic y ," A m erican Economic R eview . LIV, No. * + (Ju n e , 196*0, pp* *t7-**9. ( Supplem ent•) ^K arl W. Roskamp, "C om petition and G row th--The L esson o f West Germany: Comment." Am erican Economic Review . L, No. 5 (Decem ber, I9 6 0 ), p . 1016. 6G e o r g e H. H ild e b ra n d , "Growth and S t a b i l i t y in th e P ostw ar I t a l i a n Economy," A m erican Economic R eview . P ap ers and P ro ce ed in g s o f th e S e v e n ty -th ird A nnual M eeting, L I, No. 2 (May, 1 9 6 1 ), p . 396. A gencies o f f i s c a l p o lic y Two p r in c ip a l governm ent a g e n c ie s a r e re s p o n s ib le f o r th e e x e c u tio n of th e f i s c a l p o l lc y t (1 ) th e F in an ce D epartm ent (F in a n s d e p a rte m e n te t), and (2 ) th e P a rlia m e n t (R ik s d a g )• The F inance D epartm ent p ro p o se s th e f e d e r a l and th e n a tio n a l economic b u d g e ts f o r en actm en t by th e P a rlia m e n t. In th e p r e p a r a tio n o f th e s e b u d g e ts , th e F in an ce D epartm ent u t i l i s e s In fo rm a tio n su p p o rte d by b o th g overnm ental and p r iv a te a g e n c ie s . The p r in c ip a l governm ent b u re a u s and o r g a n iz a tio n s a r e s (1 ) The N a tio n a l I n s t i t u t e o f Economic R esea rch ( K o n ju n k tu r ln s tltu te t) , (2) The S t a t i s t i c C e n tr a l B ureau ( S t a t l s t i s k a C e n tra lb y r& n ), (3 ) The N a tio n a l Labor M arket B oard (A rb e ts m a rk n a d s s ty re ls e n ), and (*t) The Long-Term P lan n in g Commission (L a n g tld s u tre d n ln g ) • O ther I n s t i t u t i o n s w h ich a s s i s t and c o o p e ra te In th e p la n n in g o r th e I n t e g r a t i o n o f f i s c a l p o l i c i e s w ith th e a id o f la b o r and management a r e s (1 ) The Sw edish E m p lo y ers' A s s o c ia tio n (A rb e ts g lv a re fS re n ln g e n ), and (2 ) The Sw edish T rade U hion C o n fe d e ra tio n (L a n d so rg a n lsa tio n e n ). In a d d itio n t o th e s e a g e n c ie s , th e su p p o rt o f f i s c a l p o l i c i e s I s o f te n o b ta in e d from th e p u b lic th ro u g h p u b lic a tio n o f a n tic ip a te d b u d g e ts and p o l i c i e s In th e p r e s s . The fu n c tio n s o f th e p r i n c i p a l p r i v a te and g o v e rn - m ent a g e n c ie s a re d is c u s s e d I n o th e r c h a p te r s . FEDERAL BUDGETS The econom ic d i v i s io n o f th e F in an ce D epartm ent p re p a re s th e d e t a i l s o f th e p ro p o sed f e d e r a l b u d g et (ZiMJMXLLftn) w hich, a f t e r some d e l i b e r a ti o n by th e m i n is t e r s , i s p re s e n te d to th e King and r e la y e d by him to th e opening s e s s io n o f th e R iksdag ea ch Ja n u a ry . The f e d e r a l b u d g e ts i n Sweden a r e s im ila r to th o s e In th e U n ite d S t a t e s . One d if f e r e n c e betw een th e two b u d g et sy stem s i s th e Sw edish d i v i s io n o f th e b u d g et i s d iv id e d in t o a c u r r e n t and a c a p i t a l b u d g e t. Budget procedure P r e p a r a tio n o f th e b u d g et s t a r t s w ith n e g o tia tio n s betw een th e M in is try o f F in an ce and o th e r m in is t r i e s r e s p o n s ib le f o r d ep a rtm e n t b u d g e ts . E xpenses and re v e n u e s a re d is c u s s e d I n r e l a t i o n t o e x p e c te d econom ic d e v e lo p m en ts. The p ro p o sed b u d g e t, c a ll e d th e F in an ce B i l l , i s p re s e n te d to th e P a rlia m e n t f o r en actm en t a t th e opening s e s s io n I n J a n u a ry . The F in an ce B i l l c o n ta in s a d r a f t o r f e d e r a l b u d g e t and an econom ic su rv ey ( n a tio n a l B u d g « t« n l. The b u d g e t p ro p o s a ls a r e f i r s t d e b a te d in th e R iksdag and th e n r e f e r r e d to sta n d in g co m m itte es. When a group o f p ro p o s a ls have b ee n d e l i b e r a te d , a r e p o r t i s k6 made to th e R iksdag f o r f i n a l d e c is io n .? The f i n a l d e c is io n s form th e b a s is f o r e x e c u tio n o f th e b u d g e t. A supplem entary F inance B i l l i s p re se n te d by th e governm ent l a t e in A p r il. T h is b i l l c o n ta in s p ro p o sa ls p re se n te d a f t e r th e f i r s t fin a n c e b i l l y to g e th e r w ith a re v is e d e s tim a te o f th e economic su rv e y . Late in May, th e R iksdag fo rm a lly a d o p ts th e b u d g e t. The F e d e ra l B udget System The b u d g e ta ry refo rm s o f 1937 and 1 9 ^ s e t up a f e d e r a l b u d g et d iv id e d in to tv o p a r ts t th e c u r re n t budget ( d r i f t b u d se te n ) and th e c a p i t a l budget * The c u r r e n t b u d g e t— Th« c u r re n t b u dget d e a ls w ith incomes from ta x a tio n , f e e s , and c a p it a l fu n d s . P r o f its from government-owned e n te r p r is e s and I n t e r e s t on govern ment lo a n s c o n s titu te th e m ain revenue from c a p it a l fu n d s. The e x p e n d itu re s in th e c u r re n t b u dget a re c l a s s i f i e d a s e x p e n d itu re s p ro p e r and d isb u rsem en ts f o r c a p it a l a c c o u n ts. The l a t t e r c o n ta in i n t e r e s t on th e n a tio n a l d eb t and d e p r e c ia tio n f o r new c a p it a l equipm ent. The c u r re n t budget a ls o p ro v id e s f o r a budget e q u a lis a tio n fu n d . T h is acco u n t i s s e t up b ecause th e governm ent c o l l e c t s a l l Income ta x e s and makes advances ( Stockholm t Is a a c Marcus B o k try c k e rl, 1 9 6 4 ), p . 7 5 . ^7 to lo c a l governm ents b ased on l o c a l assessm ents* The e q u a liz a tio n fund I s d e b ite d o r c r e d ite d b y lo c a l d e p o s its and advances to m u n ic ip a litie s The c a p i t a l b u d g e t— In th e c a p it a l budget a d i s t i n c ti o n i s made betw een p r o f i t a b l e , o r s e l f - l i q u i d a t ing p r o j e c ts , and n o n - p r o f ita b le investm ents* The form er re p re s e n ts an In c re a s e in governm ent w e a lth and p r o f i t s from th e p r o je c ts sh o u ld be s u f f i c i e n t t o cover d e p re c ia t i o n and a s e t o f r a t e o f i n t e r e s t (ap p ro x im ately 5 p e r c e n t ) • The n o n -p ro f i t a b l e in v estm en ts a r e in clu d ed in th e c u rre n t b u d g et and a re ch arged d i r e c t l y a s c u rre n t expend i t u r e s o r cure o f f s e t by d e p r e c ia tio n allow ances* The fin a n c in g o f c a p i t a l e x p e n d itu re s th ro u g h annual d e p re c ia t i o n allow ances i s e x p la in e d by th e fo llo w in g example g iv e n in th e 1962-63 fin a n c e b i l l s To ex em p lify th e fu n c tio n in g o f t h i s system , l e t us assume t h a t i t i s d ec id e d to b u ild a new la b o ra to r y wing a t one o f th e u n iv e r s i t i e s f o r a t o t a l c o s t o f K r. 5 .0 m illio n s * T h is ty p e o f in v estm en t i s im m ediately w r itte n o f f by one h a l f using a 5 0 % allo w an ce on th e b u d g e t, i* e * , Kr* 2*5 m illio n s* W ith in th e g e n e ra l r e a l e s t a t e fund i s f u r th e r a v a ila b le f o r new in v e stm e n ts, we assum e, a n o th e r Kr* 1*0 m illio n * S im u ltan eo u sly , an o ld o f f ic e b u ild in g —on w hich K r. 1*0 m illio n i s n o t w r itte n o f f — i s sold* The new borrow ing r e q u ir e m ents w i l l th e r e f o r e be (5*0 - 2*5 - 1»0 - 1*0 =) Kr* *5 m illio n * w hich amount w i l l ap p ear a s one o f th e item s w ith in th e t o t a l borrow ing r e q u ir e - 8IfelSlM 7 6 V8 m ents on th e c a p it a l bodget o f th e G eneral r e a l e s t a t e fund* The whole tra n s a c tio n w i l l be shown In th e b u d g et o f c a p ita l ex p en d itu re* ? Long-term b iid g ata Long-tarm (two to th re e y e a r) b u d g ets have been p re p ared by th e F inance Department* The o b je c t o f th e s e b u d g ets i s tw ofolds (1) to guide th e p re p a ra tio n o f lo n g -te rm p la n s and an n u al b u d g e ts, and (2 ) to c h a rt economic tre n d s so t h a t c o r re c tiv e m easures can be tak en * 10 Bn l a n d i n g t h « h u rt* a*. U n til 1937, I t was co n sid ered t h a t good f i s c a l p o lic y re q u ire d th e an n u al b alan c in g o f th e c u rre n t budget* A fte r th e 1937 b u d g e ta ry refo rm , t h i s p r in c ip le was abandoned and was re p la c e d by th e concept o f b a la n c in g th e b u d g et o y er th e b u s in e s s cycle* An e q u a liz a tio n fund was e s ta b lis h e d to accommodate su rp lu s e s and d e f i c i t s * 11 NATIONAL ECONOM IC BUDGETS N a tio n a l economic bu d g ets a re p re se n te d a n n u a lly to th e R iksdag a s supplem ents to th e f e d e r a l budgets* ^ F in a n sd e p a rte m e n te t, The flwedijrii Budget* 1962-63 (Stockholm ! Is a a c Marcus B o k try c k e rl, 1962), p* 10• 10F ln a n sd e p a rte m e n te t, "The 8wedlsh Long-Term B udget f o r th e P e rio d 1965-1968,* Stockholm ! F ln a n s- D ep artm en tet, 196V, p p . 1 -7 . (M imeographed.) l l p i n u M d .p p t M u n t .t , I h . S w d la h B adg«t- 1962-6 o p . c i t . , p p . 10-1 1 . * *■ 9 These b u d g ets a r e p re p a re d f o r th e economy a s a whole and can b e s t be c h a r a c te r is e d a s economic surveys* N a tio n a l economic b u d g ets in Sweden, w hich now su p p la n t th e f e d e r a l b u d g e t, have a Norwegian and D utch o r ig in and use n a tio n a l Income ac c o u n tin g a s a d i r e c ti v e f o r n a tio n a l f in a n c ia l p lanning* In th e U n ited S t a t e s , P ro fe s s o r H arold Groves h a s d is c u s s e d th e a p p r a is a l o f f i s c a l p o l i c i e s b ased upon n a tio n a l a c c o u n ts , a s fo llo w s t To c r e a te a f a c t u a l b a s is f o r a n a tio n a l f i s c a l p o lic y , th e governm ent i s now e x p e c te d to keep books f o r th e p eo p le a s a whole a s w e ll a s f o r th e g overn ment a s sucn* An I n t e l l i g e n t a p p r a is a l o f f i s c a l a c t i v i t i e s r e q u ir e s some f a m i l i a r i t y w ith n a tio n a l income a c c o u n ts a s w e ll a s governm ent acco u n ts* The N a tio n 's Economic B udget i s a summary o f such a c c o u n tin g and a d ir e c tiv e f o r n a tio n a l f i n a n c ia l p la n n in g . D uring th e l a s t t h i r t y y e a rs , r e s e a r c h o rg a n iz a tio n s and governm ent b u re a u s in th e U n ited S ta te s and o th e r n a tio n s have begun to d ev elo p r e l i a b l e s t a t i s t i c s o f n a tio n a l income* Much I n t e r e s t in n a tio n a l income i s b ase d on th e r e c o g n itio n t h a t i t i s a c a u s a l f a c t o r i n th e economy a s w e ll a s a mere r e s u l t o f th e econom ic p ro c e ss* 12 N a tio n a l economic b u d g et a g e n c ie s T hree a g e n c ie s w ith v a rio u s fu n c tio n s have been e s ta b lis h e d f o r th e p re p a ra tio n o f th e n a tio n a l economic budgets* Two a re perm anents th e N a tio n a l Economic D elega t i o n (N a tlo n a lb u d g e td e le g a tlo n a n ) and th e R esearch C o u n cil (F orskningbyr& n); w h ile one, th e S t a b i l i z a t io n B oard Y or*. (S ta b ills e r ln g s b y r a n ) * was tem p o rary . 50 The N a tio n a l Economic D e le g a tio n .—The N a tio n a l Economic D e le g a tio n was e s ta b lis h e d i n 19*+7 under th e chairm an sh ip o f c a b in e t m in is te r * K arin Koch. The o r i g i n a l m embership o f f iv e governm ent o f f i c i a l s was e n la rg e d in su cceed in g y e a rs to In c lu d e e x p e rts from v a rio u s o rg a n iz a tio n s * In 1957* t h i s d e le g a tio n was c o n v e rte d in to th e Economic D iv is io n o f th e M in is try o f F inance (F in a n sd e p a rte m e n te t) and h a s become re s p o n s ib le f o r th e S ta te a s w e ll a s th e N a tio n a l b u d g e t*^3 The R esearch C o u n c il— The R esea rch C ouncil* e s ta b lis h e d i n 1 9 5 * * » a c ts i n an a d v is o ry c a p a c ity to th e Economic D iv is io n o f th e M in is try o f F in a n c e . T his c o u n c il c o n s is ts o f th e d i r e c to r s o f th e I n d u s t r i a l R esearch I n s t i t u t e * th e A g r ic u ltu r a l R esearch I n s t it u te * th e N a tio n a l I n s t i t u t e o f Economic R esearch* th e R esearch D epartm ent o f th e C o n fe d e ra tio n o f T rade Unions* and th e R esearch D epartm ent o f th e C e n tra l O rg a n iz a tio n o f S a la rie d Employee s*^** The S t a b i l i z a t io n B o a rd .— In 1955* a bo ard was ^ G & sta Rehn* "The N a tio n a l B udget and Economic Benken Q u a rte rly ' Review. k3tk0 lU - ■ "In g v ar O hlsson* "The Sw edish N a tio n a l B u d g et." S kandinavlaka TUnken Q u a rte rly R eview . 3 8 «101 (Oct** 1 9 5 7 ). 51 e s ta b lis h e d f o r economic s t a b i l i s a t i o n . Board members were nom inated by th e S ta te M in iste r and approved by th e K ing. T h is b o a rd , c o n s is tin g o f f i f t e e n members, In clu d ed th e F inance D epartm ent B ureau C h ief and th e Speaker o f th e F i r s t Chamber, a s w e ll a s r e p r e s e n ta tiv e s o f b an k s, la b o r , and management.^ 5 The m ain purpose o f t h i s com m ittee was to I n v e s ti g a te p o s s i b i l i t i e s o f o b ta in in g and m ain tain in g a r i s in g sta n d a rd o f l i v i n g , f u l l and even employment, and a s ta b le c u rre n c y . The com m ittee com pleted I t s work In th e sp rin g o f 1 9 6 1 . n a tio n a l econom ic b u d g ets In a l e t t e r re c e iv e d from Mr. R ein Hinno o f th e Swedish F inance D epartm ent, th e n a tu re o f th e budgets-w as c l a r i f i e d . The n a tio n a l economic b u d g e t, acco rd in g to Mr. H lnno, r e f l e c t s th e a n tic ip a te d economic developm ent based upon f i s c a l e f f e c t s o f th e proposed f e d e r a l budget The n a tio n a l budget I s a p la n f o r th e t o t a l economy and ta k e s In to c o n s id e r a tio n proposed e x p e n d itu re s and r e c e i p t s e n a c te d In th e f e d e r a l b u d g e t. In a w ord, th e i * l^ F in a n sd e p a rte m e n te t. M&l och model i Stab 111- g e r l j ^ p o j^ |ti|g g ^ f Stockholm« Iduns T ry c k e rla k tle b o la g ^ L e t t e r from R ein H lnno, Swedish F inance D epart m ent, December 1 2 , 196*t. 52 n a tio n a l budget I s a l l - i n c l u s i v e , The n a tio n a l economic budget I s p rep ared by th e F inance D epartm ent, th e Labor M arket B oard, th e N atio n a l Board o f T rad e, and th e N atio n al I n s t i t u t e f o r Economic Research* C ontent o f national Tha budget d e a ls v lth g e n e ra l economic developm ent f o r th e coming year* The economic f o r e c a s t i s based on r e s u l t s o f q u e s tio n n a ire s se n t to firm s In th e p riv a te s e c to r , government expendi tu r e s and r e c e ip ts as shown in th e f e d e r a l b u d g et, a s w e ll a s an a p p r a is a l o f th e I n te r n a tio n a l economic co n d itio n s* Baianea of re s o u rc e s *—E stim a tio n o f th e b alan ce o f re so u rc e s I s th e p r in c ip a l In stru m en t fo r p ro je c tin g th e n a tio n a l Income a n a ly s is f o r th e coming year* An example o f b alan ce o f re so u rc e s c a lc u la tio n I s shown In T able 1 on page 53* The e stim a te d b alan ce o f re so u rc e s shown In T able 1 In d ic a te s th e e stim a te d changes f o r v a rio u s f a c to r s making up th e g ro ss n a tio n a l income* For each segment d e ta ile d s tu d ie s a re made* Thus, f o r th e p riv a te In v e s t ment s e c to r , e stim a te d Investm ent e x p e n d itu re s fo r each In d u s try a re presen ted * Purpose o f th e n a tio n a l economic b u d g et— The most Im portant purpose o f th e n a tio n a l economic budget I s to TABUS 1 ESTIMATED BALANCE OF RESOURCES FOR 1957 M illio n K ronor a t 1956 P r ic e s S upply 1956 1957 Change 1956 - 1957 M illio n K r. P er c e n t P ro d u c tio n 52,700 5 ^ ,1 0 0 l,MOO 3 Im ports 1 1 ,^50 1 1 ,7 5 0 3 0 0 3 T o ta l S u p p lie s 6 »f,1 5 0 6 5 ,8 5 0 1 ,7 0 0 3 Use P riv a te In v estm en t 9,050 9 ,3 0 0 2 5 0 3 P u b lic In v e stm en t 6 ,5 5 0 6 ,9 5 0 M O O 6 In c re a s e In s to c k s 750 2 5 0 - 5 0 0 E x p o rts 1 1 ,2 5 0 1 1 ,9 5 0 7 0 0 6 P r iv a te consum ption 30,150 3 0 ,6 5 0 5oo 2 P u b lic consum ption 6 , M O O 6 ,7 5 0 350 5 T o ta l Use 6 *f,1 5 0 6 5 ,8 5 0 1 ,7 0 0 3 • in g v a r O h lsso n , "The Sw edish N a tio n a l B u d g e t," BunVan OnM-rtmrl y R eview . O c to b e r, 1957 9 p r e s e n t th e means f o r a c h ie v in g econom ic o b je c tiv e s * As an In s tru m e n t o f t h i s p o li c y , th e n a t i o n a l econom ic b u d g e t may s u g g e s t th e u ltim a te r e s u l t s o f a g iv e n f i s c a l p o lic y * The a d a p ta tio n o f n a t i o n a l b u d g e ts to changes i n econom ic f a c t o r s le n d s f l e x i b i l i t y to f i s c a l b u d g ets* The f e d e r a l b u d g e t I n c o o r d in a tio n w ith th e n a t i o n a l econom ic b u d g e ts p r e s e n ts a p la n to b e fo llo w e d f o r o b ta in in g d e s ir e d econom ic o b j e c t i v e s *^7 BUDGET TECHNIQUES FOR FISCAL POLICY P la n n in g may In v o lv e c e n t r a l c o o r d in a tio n o f v a r io u s f a c t o r s in th e economy i n o rd e r to a c h ie v e a p re c o n c e iv e d o b je c tiv e * In th e b e g in n in g t h i s was th e p u rp o se o f n a t i o n a l b u d g e ts ; b u t s u b s e q u e n tly i t h a s come to r e p r e s e n t d e c e n tr a liz e d I n te n tio n s * T h is change from a c e n t r a l l y d i r e c te d p o lic y makes I t a l l th e more n e c e s s a ry to w atch econom ic d ev elo p m en ts when a d ju s tm e n ts have to be made t o re a c h d e s ir a b le ta r g e ts * TnI l a H Qn*T ‘v an* The f u n c tio n o f th e n a t i o n a l b u d g e t I s to I n d ic a te th e econom ic e f f e c t s I n c e r t a i n a r e a s t h a t w ould r e s u l t from p la n n in g * Such p la n n in g m ig h t r e s u l t i n a p r o je c te d grow th r a t e w hich c o u ld o n ly be m a in ta in e d i f th e 1 7 o h ls s o n 9 o n . c l t ** p p . 1 0 0 - 1 0 7 * 55 In c re a s e d p ro d u c tio n w ere u t i l i z e d th ro u g h e f f e c t i v e demand. Should th e a g g re g a te demand exceed t o t a l s u p p ly , an i n f l a t i o n a r y gap w ould r e s u l t ; i f su p p ly ex ceed s demand, a d e f la ti o n a r y gap w ould develop* I f a l l o f th e demand f a c t o r s a r e added up and th e sum ex ceed s th e su p p ly , th e e x p e c te d te n d e n c ie s m ig h t be In c re a s e d p r i c e s , In c re a s e d Im p o rts, o r p o s s ib le s to c k liq u id a tio n s * Should a d e f la tio n a r y gap be p r e d ic te d , th e e x p e c te d r e s u l t m ight be unemployment and In c re a s e I n I n v e n to r ie s .1® The gap c a lc u la tio n s have b een made under two d i f f e r e n t assum ptions* V ario u s item s m ight be c o n s id e re d d ep en d en t upon one a n o th e r; o r p r e d ic tio n s c o u ld b e made under th e assu m p tio n t h a t d i f f e r e n t Item s a r e f a i r l y In d ep en d en t o f each o th e r* The l a t t e r p o lic y was fo llo w e d d u rin g th e f i r s t y ears* Barlv fraflwt tgghaiqygg E a r ly b u d g et te c h n iq u e s w ere b a se d upon assu m p tio n s o f f u l l employment and f ix e d p ric e s * I f th e e s tim a te d n a ti o n a l Income c a lc u la tio n s I n d ic a te d a demand s u r p lu s , th e gap c o u ld be r e c t i f i e d th ro u g h f i s c a l m easures* The gap c a lc u la ti o n was made under th e assu m p tio n t h a t th e econom ic te n d e n c ie s w ould p r e v a il under th e s e c o n d itio n s * l 8 0h ls s o n , o n . c i t . . p . 1 0 3 . 56 P o s s ib le I n f l a t i o n a r y p r e s s u r e s c o u ld be c u rb e d th ro u g h in c re a s e d c o r p o r a tio n ta x e s o r th ro u g h s e l e c t i v e e x c is e ta x e s* L » ta r b u d g et t* a h n ifl» iM A f te r th e K orean c o n f l i c t w ith i t s r e s u l t a n t i n f l a t i o n a r y p e r io d , th e n a t i o n a l b u d g e t c a lc u l a ti o n was changed to some e x te n t* D ir e c t c o n tr o l o f p r i c e s d im in ish e d and employment c o u ld no lo n g e r be ta k e n a s a g iv e n f a c t o r , due to g e n e r a l s ta g n a tio n f e l t i n Sweden, a s w e ll a s i n many o th e r c o u n tr ie s o f th e w orld* The c a lc u la tio n s o f e x c e ss demand becam e l e s s im p o rta n t th a n th e in te rd e p e n d e n c e o f th e f a c t o r s making up th e demand and change i n th e g ro s s n a t i o n a l p ro d u c t in f lu e n c e d b y th e a g g re g a te demand* In th e f i r s t y e a rs fo llo w in g W orld War I I , b u d g e t te c h n iq u e s p r o je c te d econom ic te n d e n c ie s t o b e e x p e c te d i f no m easu res w ere ta k e n t o c lo s e th e i n f l a t i o n gap* Uhder a new a p p ro a c h , c a ll e d " D ir e c t A p p ro a ch ," a n a tte m p t was made t o f o r e c a s t th e f i n a l b a la n c e , in c lu d in g p o s s ib le p r ic e c h a n g e s. T h is m ethod d i f f e r e d s u b s t a n t i a l l y from th e fo rm e r m ethod o f c a lc u la ti n g th e gap a t f r o z e n p r i c e s and th e n a tte m p tin g to c lo s e th e g ap th ro u g h In c re a s e d s a le s ta x e s o r o th e r means a t th e d is p o s a l o f th e g o v ern ment* The D ir e c t A pproach I s a l s o a t r i a l and e r r o r 57 tech n iq u e a s compared to th e more s o p h is tic a te d Dutch m ethod. The D utch ap p ly m ath em atical fo rm u las to d a ta o b ta in e d from th e o u ts id e (exogenous) v a r ia b le s and to th o se f a c to r s (endogenous) t h a t r e s u l t from o th e r in flu e n c e s . The Swedish method i s a p ro c e ss o f t r i a l and e r r o r whereby su c c e ssiv e ad ju stm en ts a re made betw een v a rio u s item s a f t e r e x te r n a l f a c to r s have been ta k e n in to c o n sid e r a t io n . The m utual In flu e n c e o f b u dget item s i s re c o g n iz e d , b u t th e n a tio n a l budget becomes p rim a rily a judgment o f d if f e r e n t item s made in th e l i g h t o f economic a p p r a is a l. T h is method h as been defended by Swedish budget o f f i c i a l s who m a in ta in t h a t p o l i c i e s , pursued a f t e r d i r e c t d is c u s s io n s w ith p r iv a te and governm ent a g e n c ie s , a re more r e l i a b l e S U M M A R Y I t i s obvious t h a t i t becomes v e ry d i f f i c u l t to make e x a c t f o r e c a s ts f o r a y e a r, a s re q u ire d by th e n a tio n a l b u d g e ts. Budget f o r e c a s ts need to be sh arp en ed , a s do te c h n iq u e s fo r g r e a te r f l e x i b i l i t y . Long-term f o r e c a s ts have been a h e lp i n e stim a tin g , f u tu r e tr e n d s , b u t t o o ls —p a r t i c u l a r ly in th e m onetary f i e l d — should be read y to supplem ent f i s c a l p o lic y . Two m ethods have been 19Rehn, o p . c l t . . pp. su g g ested f o r improvement o f th e economic p o lic y t one method I s to a d ju s t th e p o lic y to In c lu d e u n p re d ic ta b le e v e n ts , c a lle d ttR o llln g A d ju stm en ts• " A nother I s to Improve tim in g o f c o u n te r - c y c lic a l p o l i c i e s y p a r t i c u l a r l y th e e x e c u tio n o f p u b lic works p o l i c i e s . The p o s s i b i l i t y o f b re a k in g down th e y ear in to q u a r te r ly p e rio d s in o rd e r to Improve p lan n in g h a s been su g g ested by th e S t a b iliz a tio n Com m ittee, b u t no d e c is io n has y e t been made on t h i s m a tte r. CHAPTER IV ECONOMIC PLANNING IN SW ED EN THE FRINCIPIES OF ECONOMIC PLANNING Economic p lan n in g can be c a r r ie d o u t In c o u n trie s w ith v a rio u s ty p e s o f economic s o c ie tie s * W hile th e econom ic program s may s t r i v e f o r s im ila r o b je c tiv e s , th e means f o r a c h ie v in g th e s e g o a ls d i f f e r , due to th e c o n tr o ls employed to ac h ie v e economic ends* T hus, th e c o n tr o ls in th e t o t a l i t a r i a n c o u n trie s a r e more d i r e c t , w hereas in d em o cratic c o u n tr ie s , th e i n v i s ib l e f o r c e s o f th e m arket economy have been supplem ented by governm ental c o n tr o ls w hich may be b o th d i r e c t and in d ir e c t* The co n cen t o f «r>onnnHr> nlnnnlntr Many a r e alarm ed by th e In c re a s e d use o f p lan n in g in th e W estern dem ocracies* T hus, P ro fe s s o r H ayek, in The Road to Serfdom , draw ing upon German and I t a l i a n e x p e rie n c e s , e x p re s s e s h i s b e l i e f t h a t p la n n in g and freedom a re in co m p atib le* The co n fu sio n and a p p re h e n sio n ab o u t econom ic p la n n in g can be re s o lv e d i f we d is tin g u is h betw een g e n e ra l co n cep ts and s p e c if ic ty p es* In i t s g e n e ra l c o n c e p t, economic p lan n in g in v o lv e s g u id a n c e , r a th e r th a n c o l l e c t i v i s t I n te r f e r e n c e w ith th e 59 60 economic p r o c e s s e s E c o n o m i c p la n n in g In I t s g e n e ra l form I s d e fin e d by P ro fe s s o r John E l l i o t t , a s fo llo w ss In i t s g e n e ra l form , p la n n in g means e x a c tly w hat th e d ic tio n a r y and common usage say i t m eans, a n a tte m p t to a p p ly re a s o n and f o r e s ig h t to th e o rd e rin g o f human a f f a i r s and th e a tta in m e n t o f human g o a ls . J u s t a s a p o lic y i s a program f o r a c tio n , a p la n , in e s s e n c e , i s a program f o r f u tu r e a c tio n . P lan n in g i s th e dynam ic p ro c e s s o f p re p a rin g and e x e c u tin g th e s e p rogram s, draw ing upon knowledge o f th e p a s t , a n a ly s is o f th e p r e s e n t, and f o r e c a s ts o f f u tu r e d ev elo p m en ts.^ As d e fin e d , p la n n in g in i t s g e n e ra l co n cep t i s n e u t r a l and can be a p p lie d in any form o f s o c ia l o rg a n iz a t i o n , c a p i t a l i s t o r s o c i a l i s t , and in th e underdeveloped c o u n tr ie s . The process of economic planning Economic p la n n in g in v o lv e s a ch o ice o f g o a ls , means o f e x e c u tio n and econom ic a n a ly s is o f th e p la n s . O b je c tiv e s . —The p u rp o se o f p lan n in g i s th e r e a l i z a t i o n o f c e r t a i n econom ic g o a ls . These g o a ls a r e g e n e ra l and may be p u rsu ed by d i f f e r e n t econom ic s o c i e t i e s and v a ry in Im portance ac c o rd in g to th e view s o f th e l C a r l L andauer. Thaorv of Motion*1 Economic P l a c i n g (B erk eley s U n iv e r s ity o f C a lif o r n ia n r e s s , 19**7), 2John E . E l l i o t t , " C a p ita lis m , M arxism , S o cialism s C om parative T h e o rie s o f Economic System s 1 1 (U npublished m a n u sc rip t. The U h lv e rs lty o f S o u th ern C a lif o r n ia , 196*0, C hapter I I I , p . 1 . (M im eographed.) 61 p la n n e r s 9 a s in flu e n c e d by th e r u l i ng c l a s s o r governm ent* Most g o a ls s t r e s s th e achiev em en t o f econom ic grow th w ith s ta b le employment and p r ic e s y and a n e f f i c i e n t a l l o c a t i o n o f re so u rc e s * E q u ita b le d i s t r i b u t i o n o f income «nd freedom a r e a ls o d e s ir a b le o b je c tiv e s and v a ry a c c o rd in g to th e m anner i n w hich th e p la n s a r e ex ecu ted * The a tta in m e n t o f th e g o a ls may in v o lv e c h o ic e s and c o n f l i c t s and may r e s u l t In m o d ific a tio n o f th e p la n s due t o problem s e n c o u n te re d In th e p ro c e s s o f e x e cu tio n * The problem s in v o lv e d and c h a r a c t e r i s t i c s o f th e p la n s have b een l i s t e d a s fo llo w s t 1* The p la n s a r e m u ltip le and in v o lv e a b a la n c e o f econom ic re so u rc e s * 2* The a tta in m e n t o f one g o a l, such a s s t a b i l i z a t i o n o f p r i c e s 9 may c o n f l i c t w ith th e l e v e l o f em ploy m ent. 3* The g o a ls a r e n o t p r e c is e and invoke v a lu e judgm ents* M > * A tta in m e n t o f g o a ls may be m o d ifie d th ro u g h p r i o r i t i e s * T h u s, In Sweden, p r ic e s t a b i l i t y h a s b een s a c r i f i c e d In o rd e r t o a c h ie v e more r a p id grow th and expanding employment* 5« G oals ca n n o t be I s o la t e d from th e means* S e v e ra l c h o ic e s may b e m ade, each in f lu e n c in g th e d e g re e to w hich th e o b je c tiv e s a r e a tta in e d * ^ E x e c u tio n o f may be s e v e r a l means f o r a c h ie v in g th e econom ic o b je c tiv e s * A c h o ic e w i l l have to be m ade, i . e . , in c re a s e d In v e stm en t o r in c re a s e d 62 consum ption may be In flu e n c e d more by p o l i t i c a l m o tiv e s th a n by econom ic c r i t e r i a * A lte r n a te p la n s may b e p re s e n te d to a c h ie v e a g iv e n I n c r e a s e i n th e g ro s s n a t i o n a l p ro d u c t* Economic m odels can b e c o n s tr u c te d t o show th e I n t e r a c t i o n o f th e com ponent p a r t s i n th e p ro c e s s o f g e n e ra tin g th e f i n a l o u tp u t* P la n s may have t o be r e v is e d , a s in Sweden, w here th e s h o r t- te r m p la n I s r e v is e d e v e ry s p rin g on th e b a s i s o f a d d i t i o n a l c u r r e n t econom ic d a ta * D uring th e p ro c e s s o f a c h ie v in g th e g o a ls , th e e x e c u tio n o f th e p la n s I s a id e d by ( 1 ) th e g r e a t e r amount o f s t a t i s t i c s a v a i l a b l e , and ( 2 ) econom ic c o n je c tu r e b a se d on f o r e c a s tin g * R e lia b le s t a t i s t i c s a r e r e q u ir e d I n o rd e r t o show th e e x te n t o f econom ic developm ent a t th e tim e f o r e c a s t s a r e made* F o re c a s tin g e n d e a v o rs to p r e d i c t econom ic developm ent u n d er th e a ssu m p tio n t h a t th e economy d e v e lo p s a t th e p r e s e n t t r e n d , w ith o u t th e I n t e r a c t i o n o f econom ic program s* T h is f o r e c a s tin g I s n e c e s s a ry due to th e la p s e o f tim e b etw een th e r e c o g n itio n o f th e p la n and th e tim e th e p la n I s p u t I n to e f f e c t * 4 * P la n n in g may be c e n t r a l i s e d o r d e c e n tr a liz e d * I n F ra n c e , p la n n in g I s more c e n tr a l i z e d th a n i n Sweden, w here e x p o r ts g r e a t l y a f f e c t th e g ro s s n a t i o n a l p ro d u c t lfC h a rl » 8 B * tt* lh » lj» . 8 tu d l« « ±n t h « T h .n r v o f P la n n in g (Raw Yorks A sia P u b lis h in g H ouse, 1 9 6 1 ), p* M -51* 63 and th u s may u p se t th e b e s t l a i d p lan s* A nother re a s o n f o r th e d e c e n tr a liz a tio n o f econom ic p la n s I s due to th e freedom g iv e n to p r iv a te firm s to i n s t i g a t e t h e i r own p lan s* The l e s s c e n tr a liz e d th e p la n n in g , th e few er th e c o n tr o ls n e c e s s a ry f o r th e e x e c u tio n o f th e p la n s* Con t r o l s may be d i r e c t , such a s p r ic e and wage c o n tr o ls o r i n v i s i b l e , a s found in a f r e e m arket economy* Some c o u n trie s have r e s o r te d to d i r e c t c o n tr o l a f t e r m ajor w a rs, b u t inducem ent to m an ip u late econom ic b e h a v io r h a s been employed to p re se rv e th e d em o cratic p ro c e s s , a s w e ll a s a means to gain* Inducem ent o f f e r s rew ard s a s w e ll a s punishm ents and o p e ra te s w ith l e s s d is tu rb a n c e to th e m arket economy th a n does com pulsion. Exam ples o f th e o p e ra tio n o f t h i s ty p e o f c o n tr o l a r e th e p o l i c i e s o f th e F e d e ra l R eserve System and th e c o ll e c ti v e b a rg a in in g ag reem en ts•5 G en eral c o n tr o ls , a s d i f f e r e n t i a t e d from d i r e c t c o n tr o ls , have been o f m ajor im portance i n in flu e n c in g th e economy* T hus, f i s c a l and m onetary p o l i c i e s in flu e n c e th e economy th ro u g h t h e i r im pact on consum ption, sa v in g , and in v estm en t* S in ce th e s e c o n tr o ls a r e more im p erso n al th a n d i r e c t c o n tr o l , com pliance i s ac h ie v e d to a g r e a te r e x te n t th a n w ould be th e case f o r d i r e c t c o n tr o l t o l e r a t e d ^ E l l i o t t , P* 12* 6M- d u rln g o r d i r e c t l y a f t e r a m ajor w ar. The e x e c u tio n o f th e p la n s r e s t s u s u a lly upon governm ent em ployees, who may n o t alw ays have th e n e c e ssa ry s k i l l to a d m in is te r th e programs* T h is w eakness can o f te n be rem edied by engaging In d u s try , la b o r , and th e p o p u la - t i o n - a t - l a r g e In th e fo rm u la tio n o f th e plans* Communica t io n o f th e p la n s th ro u g h th e p re s s and ra d io I s a n o th e r means o f g a in in g th e confidence o f th e c itiz e n s * F in a lly , c o n s ta n t a t t e n t i o n I s re q u ire d by th e a d m in is tr a to rs to make a d ju stm e n ts In th e p la n th ro u g h such p ro c ed u res a s " r o llin g a d ju stm e n ts 1 1 u t i l i z e d In Sweden* Economic th e o r ie s In p lan n in g P lanning In Sweden I s based upon th e K eynesian fu n c tio n o f a g g re g a te demand and a g g re g a te supply* In I t s sim p le st v e r s io n , th e d e te rm in a n ts consum ption and Investm ent m ust be s u f f i c ie n t to abso rb th e su p p ly and s e rv ic e s a t a g iv en l e v e l o f employment* The b a s ic c o n d itio n f o r e q u ilib riu m was t h a t th e e x -a n te sav in g s should e q u a l th e e x -a n te in v estm en t ex p e n d itu re s* The "gap a n a ly s is " u t i l i z e d In Swedish s h o rt-te rm and lo n g term p lan n in g I s an a tte m p t to e s tim a te consum ption and Investm ent e x p e n d itu re s n e c e ssa ry to re a c h a p red eterm in ed Income le v e l* S ince e x -p o st In v estm en t and sav in g s a re e q u a l, and s a v in g s , by d e f i n i t i o n , a re th e ex cess o f Income over consum ption, changes In Income may a f f e c t th e 65 m arg in al p ro p e n s ity to consume and hence a f f e c t in v estm en t f u r th e r dependent upon th e fundam ental d e te rm in a n ts . These f a c to r s a r e a p p ra ise d by th e 8w edish P lanning Com m issio n b e fo re th e e s tim a te d economic developm ent i s p r o je c te d . T hus, an e x te n s iv e In v e n to ry i s p re p a re d by th e Commission re g a rd in g th e la b o r f o r c e , th e q u a n tity o f r e a l c a p i t a l , te c h n ic a l know ledge, and n a tu r a l re so u rc e s down in to ( 1 ) p u b lic and p r iv a te in v e stm e n t, ( 2 ) p u b lic and p r iv a te consum ption e x p e n d itu re s , and ( 3 ) e x p o r ts . In v e stm e n t• —The p r in c ip a l components i n th e a g g re g a te demand a re th e p u b lic and p r iv a te Investm ent e x p e n d itu re s . Investm ent e x p e n d itu re s p la y th e p r in c ip a l r o le in d eterm in in g Income and employment, b u t th e Im pact o f f lu c tu a tio n s on th e b u s in e s s c y c le i s c o n sid e ra b le .® The param ount problem i n p lan n in g th u s becomes th e c o n tr o l o f In v estm en t e x p e n d itu re s , n o t an e a sy ta s k in a mixed economy. The scope o f In v estm en t i n th e p u b lic s e c to r th ro u g h changes in s a v in g s .6 The economic developm ent i s The a g g re g a te demand in gap a n a ly s is i s broken ■eorv o f c o u rt B race V V U U W f t J r l W I U C w y U O 8 | X J E ^ lg v m a n |^ |e r« « t^ n d Moniv 7 ] F ln an sd ep ar t entente t • B i B etankande A v x lv e t av 1955 kr<T IStockholm i Is a a c Marcus B o k try p . 2 1 . ®Keynes, o p . c i t . , p . 2 5 0 . 66 can be c o n tr o lle d th ro u g h b u d g et e x p e n d itu re s* In th e p r iv a te s p h e re , in v estm en t i s Induced th ro u g h fa v o ra b le c r e d i t and ta x tre a tm e n t p o lic ie s * Once th e a n tic ip a te d l e v e l o f p r iv a te in v estm en t h a s b een e s tim a te d (b ased upon in te n d e d c a p i t a l e x p e n d itu re s ) th e p u b lic e x p e n d itu re s f o r in v e stm e n t can be determ ined* Consum ption* —The m a rg in a l p ro p e n s ity to consume i s Induced by changes in income* In c re a se d Incomes n o t o n ly d e c re a se th e m a rg in a l p ro p e n s ity t o consume, b u t p r ic e s may change, th u s In flu e n c in g t o t a l consum ption e x p e n d itu re s* The b a s ic problem fa c e d by p o st-w a r p la n n e rs h a s been th e la c k o f b a la n c e betw een sa v in g s and inv estm en t* S ince sa v in g s i s th e same a s non-consum ption, p la n n in g must d e a l w ith th e r e la ti o n s h i p betw een sa v in g s and in v e s t ment* A grow th r a t e must be s e t w hich b a la n c e s consump t i o n w ith in v e stm e n t and th e p re s e n t g e n e r a tio n 's consump tio n re q u ire m e n ts a g a in s t t h a t o f f u tu r e g e n e ra tio n s* A nother problem p re v io u s ly m entioned i s t h a t sa v in g s m ust e q u a l In v e stm en t so a s n o t to d i s t o r t th e p r ic e le v e l* ^ g r n o r t* . —The t h i r d component In a g g re g a te demand, e x p o r ts , i s o f m ajor im portance i n a c o u n try such a s 9K arl J u n g e n f e lt, "The M ethodology o f Sw edish Lonf-Ter g «W nn^tog^* fikinrtlnnviaka B ankin Q u a r tw ly 67 Sweden, where e x p o rts com prise a la r g e p ro p o rtio n o f th e g ro s s n a tio n a l p ro d u c t• The P lan n in g Commission I s d e le g a te d to make a su rv ey o f th e e x p o rt m arket and to e s tim a te I t s f u tu r e m agnitude b ased upon e x p o rt p r ic e s and m arket agreem ents* S ince th e volume o f e x p o rts can n o t be c o n tr o lle d , a system o f " r o ll in g a d ju stm e n ts" m ust be u t i l i z e d by Swedish p la n n in g a u th o r itie s * SHORT-TERM PLANNING S h o rt-te rm p la n n in g In Sweden began In th e 1 9 3 0 's In c o n n e c tio n v i t h th e e x p a n s io n is t f i s c a l p o lic y * S ince 1 9 3 7 , th e p ro ced u re h a s been fo rm a liz e d and r e f in e d th ro u g h th e a n n u a l p r e s e n ta tio n o f th e N a tio n a l B udgets* Qgaflral principles of fl^nnnnlc f o r e c a s ts The econom ic program o f th e 1 9 3 0 's w hich changed from a p a s s iv e t o an a c tiv e I n te r v e n t io n i s t p o lic y re q u ir e d s t a t i s t i c s and economic a n a ly s is * The N a tio n a l I n s t i t u t e o f Economic R esea rch w hich was e s ta b lis h e d In 1 9 3 7 t was c r e a te d to a n a ly z e th e economic developm ent and make s h o r t f o re c a s ts * Methods o f s h o rt-te rm D uring W orld War I I , th e problem a ro se o f b a la n c in g th e In c re a s in g demand a g a in s t lim ite d re so u rc e s* The I n f l a ti o n a r y gap te c h n iq u e was d ev elo p ed to so lv e th e 68 p roblem . T h is method v aa used f o r s e v e r a l y e a r s , b u t l a t e r was supplem ented to d i r e c t f o r e c a s ts and s e c to r a n a ly s i s . Gan a r r i v a l - - I n gap a n a ly s is y su p p ly — In c lu d in g p ro d u c tio n and im p o rts— I s compared w ith demand. Demand I s composed o f p r iv a te In v estm en t and consum ption, a s w e ll a s p iib llc In v estm en t and consum ption, and I t a ls o In c lu d e s e x p o rts and change In I n v e n to r ie s . The com parison betw een demand and su p p ly g iv e s an I n d ic a tio n o f a p o s s ib le d is e q u ilib r iu m , and th e s iz e o f t h i s Im balance may su g g e st f i s c a l and m onetary m easures f o r c lo s in g th e g ap . T here may be s h o rta g e s I n some m ark ets and e x c e ss c a p a c ity In o th e r s . S ince th e gap te c h n iq u e d id n o t g iv e In fo rm a tio n a b o u t v a r io u s f a c t o r s in th e commodity m a rk e t, o r ta k e I n to ac co u n t r e g io n a l d if f e r e n c e s , a d i r e c t approach was d ev elo p ed to supplem ent gap a n a ly s i s . Direct approach.— The direct ap p ro ach , w hich was a ls o used In lo n g -te rm p la n n in g , was a t r i a l - a n d - e r r o r method o f a d ju stm e n t o f d i f f e r e n t s e c to r f o r e c a s ts to th e o v e r a ll b a la n c e , w hich was o b ta in e d by gap a n a ly s i s . The I n i t i a l assu m p tio n s w ere r e v is e d a s l a t e r f o r e c a s ts were o b ta in e d . fle e te r a n a ly s i s , w hich was a ls o 69 used in lo n g -te rm p la n n in g , employed e x -a n te n a tio n a l Income c a lc u la tio n s In o rd e r to b a la n c e demand and su p p ly w ith in v a r io u s s e c to r s , such a s b u ild in g , f o r e s t r y , o r a g r ic u ltu re * P re s e n ta tio n o f f o r e c a s ts S ince 19L t8 , th e s h o rt-te rm f o r e c a s ts have b een p re se n te d a t th e opening o f th e P a rlia m e n t i n Ja n u a ry a s a supplem ent to th e S ta te budget* The n a t io n a l econom ic b u d g e t, o r economic su rv e y , I s b ased upon f e d e r a l b u d g et e x p e n d itu re s and co n tem p lated p la n s In th e p r iv a te s e c to r* The fu n c tio n o f th e n a tio n a l economic b u d g et i s to p r e d ic t th e econom ic developm ent, b ase d upon s t a t e b u dget e x p e n d i tu r e s and th e a n tic ip a te d demand I n th e p r iv a te s e c to r* The R ev ised N a tio n a l B u d g et, p re s e n te d In A p ril o f each y e a r, form s th e b a s i s f o r th e S upplem entary F inance B i l l *1 0 LONG-TERM PLANNING Economic p la n n in g I s now a pernam ent I n s t i t u t i o n i n Sweden* Long-term program s were s e t up i n c o n n e c tio n w ith th e M a rsh a ll Plan* The problem o f r e c o n s tr u c tio n d u rin g th e p o st-w a r p e rio d c a lle d f o r c e n tr a liz e d c o o rd i n a te d p o lic ie s * The p la n n in g w hich dev elo p ed a f t e r W orld War I I In a number o f E uropean c o u n tr ie s v a r ie d from th e 10N a tio n a l I n s t i t u t e o f Economic R e se a rc h , "Methods o f S hort-T erm Eoonomlc F o re c a s tin g In Sw eden," 196M-, p p . l-*t* (Mimeographed*) 70 r i g i d d i r e c t i o n o f th e economy in F ran ce to a l e s s c e n tr a l is e d r e c o n s tr u c tio n p ro c e s s i n E n g land* The Sw edish p la n n in g p o lic y h a s ta k e n th e "m iddle way" betw een th e s e two p o s i t io n s ; b u t e s s e n t i a l l y th e F ren c h and Sw edish p o l i c i e s have b o th s e t o u t to d ev e lo p a f r e e m ark et economy* T hese p la n s a r e q u ite d i f f e r e n t from th e r e l a t i v e l y i n f l e x i b l e program s i n th e t o t a l i t a r i a n c o u n t r i e s *1 1 M achinery f o r lo n g -te rm p la n n in g Up to th e p r e s e n t tim e , Sweden h a s d ev elo p ed fo u r f iv e - y e a r p la n n in g p e rio d s * The f i r s t p la n was i n i t i a t e d i n 1 9 ^ 7 « when a r o y a l com m ission was a p p o in te d t o recom mend lo n g -te rm o b je c tiv e s to be fo llo w e d In th e p u b lic and th e p r i v a te s e c to rs * A new b o a rd was s e t up f o r each f iv e - y e a r p e r io d , b u t th e governm ent h a s now d e c id e d to e s t a b l i s h a perm anent s e c r e t a r i a t w ith in th e econom ic d iv is io n o f th e T reasu ry * The e x p e rie n c e g a in e d from th e f i r s t th r e e lo n g -te rm f o r e c a s tin g p ro c e d u re s h a s th u s become a n e s s e n t i a l elem en t i n th e 8 w edish economy* T h . P lan n in g An— j « . i o n — T h . p la n n in g Commission was composed o f r e p r e s e n ta t iv e s from governm ent a g e n c ie s , tr a d e u n io n s , e m p lo y e rs 1 o r g a n iz a tio n s , and th e u n iv e r - u J u n g e n f e lt, o p. c l t . * p . I l l 71 s l t l e s . The Com mission e x c lu d e d p r e s s u r e g ro u p s and r e l i e d upon th e judgm ents o f e x p e r ts in v a r io u s p r i v a t e an d governm ent a g e n c ie s . The A g r ic u lt u r a l M ark etin g B oard h a s g iv e n e x p e r t a d v ic e on farm d ev e lo p m en t. F o r e c a s ts b y p r i v a t e firm s have b e e n made a v a il a b le b y th e I n d u s t r i a l I n s t i t u t e f o r Econom ic and S o c ia l R e s e a rc h , m a in ta in e d b y th e e m p lo y e rs ' a s s o c i a ti o n (S venska A r b e ts g lv a r e f o r e n in g e n ) • The N a tio n a l I n s t i t u t e o f Econom ic R e se a rc h h a s a s s i s t e d In p re p a rin g r e p o r t s on h o u se h o ld s a v in g s , consum er dem and, and im p o rts . The p la n n in g h a s become a c o o p e ra tiv e e f f o r t o f p r i v a t e firm s an d governm ent I n s t i t u t i o n s . C o n ta c ts and m e e tin g s w ith th e s e a g e n c ie s have b ee n q u ite In fo rm a l and th e t a s k o f th e P la n n in g Com m ission h a s b e e n t o re v ie w m a t e r ia l and to c a r r y o u t th e f i n a l I n te g r a te d a n a l y s i s . T h ere h av e b een c e r t a i n a d v a n ta g e s from t h i s d e c e n t r a l i s e d o p e r a tio n . In fo rm a tio n from e x p e r ts h a s b e e n r e c e iv e d a t low c o s t . P a r t i c i p a t i o n by th e v a r io u s f irm s and I n s t i t u t i o n s s tim u la te d I n t e r e s t and In v o lv e d th e s e o r g a n is a tio n s In th e r e a l i s a t i o n o f th e p l a n s . ^ 2 The p r i v a t e s e c to r p la n s w ere c o o rd in a te d w ith th e a n t i c i p a t e d developm ent I n th e p u b lic s e c t o r . The l 2In g v a r S v e n n llso n and Rune Beckman, "L ong-term P la n n in g In Sw eden," Q u a r te rly fiaXlSX* J u l y , 1962, p T T . 72 r e s u l t i n g program to o k I n to a c c o u n t ( 1 ) t o t a l a v a il a b l e r e s o u r c e s o f la b o r and raw m a t e r i a l s , and ( 2 ) th e a d j u s t ment o f In v e stm e n t and consum ption i n o rd e r to a r r i v e a t a b a la n c e d economy c o n s i s t e n t w ith th e p re d e te rm in e d grow th r a t e . One o f th e t e s t s i n t h i s developm ent was s t a b i l i t y . Would th e demand i n th e p r i v a t e and p u b lic s e c to r s s u s ta in th e p r o je c te d g ro s s n a t i o n a l Incom e? I f a gap i n th e r e l a t i o n s h i p e x i s t e d , th e p la n was n o t c o n s i s t e n t and f u r t h e r m o d if ic a tio n m ig h t b e n e c e s s a r y . fiap t ftqhnia u e . — Should th e a g g re g a te demand d i f f e r from th e a g g re g a te s u p p ly , t h i s gap i n d i c a t e s t h a t f u r t h e r a d ju s tm e n ts become n e c e s s a r y . S te p - b y - s te p c o r r e c tio n s m ust now b e made in th e o r i g i n a l p l a n s . T hese c o r r e c tio n s to c lo s e th e gap may b e s i g n i f i c a n t . An Im balance betw een sa v in g s and In v e stm e n t may g iv e v a lu a b le In fo rm a tio n re g a rd in g th e c r e d i t m a rk e t. T e n d e n c ie s to w ard p o s s ib le I n f l a t i o n and d e f l a t i o n may be n o t ic e d , a s w e ll a s p o s s ib le c o s ts In v o lv e d in fin a n c in g v i a th e c a p i t a l m a rk e t.^ 3 " l n n * The o p e r a tio n o f th e P la n n in g Com m ission h a s been . f a c i l i t a t e d b y I n d iv id u a l f irm s and I n d u s t r i e s w hich c u s to m a rily have p re p a re d t h e i r own p la n s and f o r e c a s t s . 1 3 ju n g e n f e lt, o n . c i t . . p p . 1 1 2 - 1 1 5 . 73 The r e lia n c e upon p r iv a te a g e n c ie s h as been more th a n j u s t i f i e d and m a te r ia l In th e form o f p r iv a te s e c to r p la n s h as become more com plete and sy ste m a tic from p e rio d to p e r io d . There I s one problem w hich f i r s t o c c u rs when th e s e c to r p la n s a re I n te g r a te d to form th e f i n a l p la n . In th e b e g in n in g , th e In d iv id u a l firm s cannot have s u f f i c ie n t knowledge re g a rd in g developm ent p la n s . The f i n a l f o r e c a s t I s n o t com pleted u n t i l a l l s e c to r p la n s have been c o o rd in a te d and a d ju s te d by a method c a lle d "p lan n in g in s ta g e s ." T h is method p ro c e e d s, a s fo llo w ss PianntaR In .S tern a* —The F rench and th e Swedish b o ard s use a method r e f e r r e d to a s "p lan n in g in s ta g e s ." The f i n a l s o lu tio n I s a r r iv e d a t th ro u g h su c c e ssiv e ap p ro x im atio n s o f th e component p a r ts In o rd e r to a r r iv e a t th e p re d eterm in ed t a r g e t . In th e f i r s t s ta g e , f o r e c a s ts o f In d iv id u a l u n its a r e - p r o je c te d on th e b a s is o f tre n d s o f n a tio n a l Income grow th, e x p o rt m a rk e t, and la b o r developm ent. Q u e stio n n a ire s r e v e a l in d iv id u a l f ir m s ' I n te n tio n s re g a rd in g la b o r re q u ire m e n ts and In v e stm e n t. These "m icro p la n s " a re a g g re g a te d In to In d u s try o r s e c to r p la n s and a re review ed by th e e x p e rt a g e n c ie s r e f e r r e d to e a r l i e r in t h i s c h a p te r. f o i l i n g aflJttg ta g a tg The P lan n in g C om nlaslon a c t s In a n a d v is o ry c a p a c ity to th e governm ent • I t s f o r e c a s t s and th e m ethods o f re a c h in g th e f i n a l g o a ls may o r may n o t be In c o rp o ra te d In th e governm ent econom ic p o li c y . In th e p r iv a te s p h e re , d e c is io n s f o r p ro d u c tio n and In v e stm e n t a r e made by firm s In flu e n c e d by th e su g g e ste d developm ent to w ard lo n g -te rm t a r g e t s . The t a s k o f th e Commission i s to in d u ce d i f f e r e n t econom ic u n it s to re sp o n d and a c t a c c o rd in g t o f i s c a l and m onetary p o l i c i e s s e t f o r t h by th e p la n n in g u n i t . The p r iv a te s e c t o r . —T a rg e ts a r e in d ic a te d f o r b ro a d s e c to r s su ch a s a g r i c u l t u r e , in d u s tr y , and ed u ca t i o n . D e ta ile d s e c to r program s f o r p ro d u c tio n ,< i n v e s t m ent, and employm ent a r e w orked o u t by r e s p e c tiv e econom ic u n i t s . The p la n s must b e f l e x i b l e due to th e u n c e r ta in ty o f th e e x p o rt m arket w hich a c c o u n ts f o r a p p ro x im a te ly 2 5 p e r c e n t o f th e p ro d u c tio n . The p u b lic s e c t o r . — In th e p u b lic s e c t o r , th e governm ent can e x e r c is e more d i r e c t In flu e n c e on p ro d u c t i o n , in v e s tm e n t, and em ploym ent. L o cal e x p e n d itu re s i n tu r n can b e d ir e c te d th ro u g h governm ent s u b s id ie s . The m ajor l o c a l e x p e n d itu re s a re in th e f i e l d o f r e s i d e n t i a l c o n s tr u c tio n , w hich i s s t i l l c o n tr o l le d . The su g g e ste d t a r g e t s o u tlin e d in th e lo n g -te rm f o r e c a s t s , to g e th e r w ith new p a r lia m e n ta ry p o l i c i e s , a r e r e f l e c t e d i n th e 75 b u dgets* W hile ex p a n sio n p o l i c i e s g e n e r a lly fo llo w th e d i r e c t i o n su g g e ste d f o r th e economy a s a w h o le, a d j u s t m ents a r e made f o r s e a s o n a l changes i n th e employment s i t u a t i o n o r e x p o rt m arket* S ig n if ic a n c e o f p la n n in g What i s th e s ig n if ic a n c e o f a p la n w hich i s n o t fix e d and i s n o t b in d in g upon g o v ern m en tal o r o th e r s e c to r s ? The answ er to t h i s q u e s tio n i s t h a t th e In flu e n c e i s g r e a t b ecau se o f th e a c c e p ta n c e o f p la n s a s in s tru m e n ts In d i r e c tin g and o b ta in in g d e s ir e d econom ic g o a ls* The p u b lic a tio n and d is c u s s io n o f th e p la n h a s c o n tr ib u te d g r e a t l y to t h i s ac cep tan ce * S ubm ission o f r e p o r t s . —C onies o f th e r e p o r t s a r e s e n t to v a r io u s governm ent m i n is t r i e s and cham bers o f commerce* The M in is te r o f F in an ce may e n d o rse th e p la n and make recom m endations to th e P a rlia m e n t, b u t he i s f r e e to r e j e c t o r a c c e p t any p a r t s o f th e p lan * The m ain f u n c tio n o f th e p la n i s th e n t o s tim u la te d is c u s s io n * H e a rin g s and d is c u s s io n s o f p ro p o sed p la n s w ith r e p r e s e n ta tiv e s from th e p u b lic and p r i v a t e s e c to r s have r e s u l t e d In su p p o rt f o r c o n te m p la te d p ro p o sa ls* When p a r t i c i p a n t s a r e In v o lv e d who f i n a l l y e x e c u te th e program , th e r e i s g r e a te r p o s s i b i l i t y o f su ccess* A f te r th e p la n s have b een p u b lis h e d , th e r e i s w ide d is c u s s io n i n p r iv a te c i r c l e s a s w e ll a s on th e r a d io and 76 on t e l e v i s i o n . I n t h i s m anner, th e p u b lic becom es aw are o f f u t u r e econom ic tr e n d s and can make a d ju s tm e n ts to th o s e f a c t o r s w hich may in flu e n c e e v e ry c i t i z e n 's l i f e * In o rd e r t o have a s u c c e s s f u l program , in d iv id u a l e n t e r p r i s e s and g o v ern m en tal u n i t s m ust c o o p e ra te I n th e r e a l i z a t i o n o f th e econom ic t a r g e t s . The p la n s in d ic a te th e econom ic developm ent f o r ea ch s e c to r b u t p ro p e r fu n c tio n in g r e q u ir e s ea ch b u s in e s s u n i t to make in d iv id u a l f o r e c a s t s . SU M M A R Y Long-term p la n n in g h a s now become a perm anent i n s t i t u t i o n i n Sweden. P lan n in g in i t s g e n e r a l form In v o lv e s a program f o r a c h ie v in g econom ic g o a ls . I n Sweden, p la n n in g i s d e c e n tr a liz e d and th e a tta in m e n t o f econom ic o b je c tiv e s depends upon v o lu n ta r y c o o p e ra tio n o f p a r t i c i p a t i n g p a r t i e s i n th e p r iv a te s p h e re . 8h o rt-te r m p la n n in g i s acco m p lish ed th ro u g h th e a n n u a l econom ic n a t i o n a l b u d g e ts . T hese b u d g e ts ,o r s u rv e y s, a n a ly z e econom ic tr e n d s in Sweden and i n o th e r w e s te rn d e m o c ra c ie s. They c o n ta in s u g g e s tio n s f o r th e l e v e l o f In v e stm en t and consum ption e x p e n d itu re s n e c e s s a ry f o r th e r e a l i z a t i o n o f econom ic o b j e c t i v e s . A p r e d ic tio n o f f u t u r e econom ic developm ent i s b ase d upon modern income a n a ly s is and "gap a n a l y s i s ." The r e a l i z a t i o n o f th e p la n s depends to a la r g e e x te n t upon r e l i a b l e s t a t i s t i c a l m a te r ia l and f o r e c a s tin g * L o n g -term p la n n in g was i n s t i g a t e d i n 19*+7 i n re sp o n s e t o d i r e c t i v e s s e t up in c o n n e c tio n w ith th e M a rsh a ll Plan* The P la n n in g Com m ission r e p r e s e n ts e x p e r ts from p r i v a t e an d governm ent a g e n c ie s* S e c to r a n a ly s i s i s th e p r i n c i p a l te c h n iq u e em ployed f o r developm ent o f th e f i n a l i n t e g r a t e d p la n o f a c tio n * The in d iv id u a l s e c to r p la n s a r e m o d ifie d th ro u g h s u c c e s s iv e a p p ro x im a tio n i n o rd e r to a c h ie v e a com prehensive e c o n o m ic a lly sound p la n o f a c tio n * The accom plishm ent o f th e p la n s m ig h t be u p s e t th ro u g h u n fo re s e e n developm ent i n th e p r i v a t e sp h e re o r i n th e e x p o rt m arket* Changes i n th e o r i g i n a l p la n s a r e made th ro u g h r o l l i n g a d ju s tm e n ts t o m odify th e p la n s* CHAPTER V THE FIRST LONG-TERM PLAN 19^7-1950 The f i r s t lo n g -te rm p la n was sc h e d u le d to c o v e r th e y e a rs 19**7 to 1952; how ever, th e perm anent P lan n in g C om m ission, under th e ch a irm a n sh ip o f K a rin Koch, was n o t a p p o in te d u n t i l 19*+8. B ecause th e econom ic o b je c tiv e s o f t h i s p la n had b een a c h ie v e d by th e y e a r 1 9 5 0 , th e p la n was te rm in a te d in t h a t y e a r . The Commission was e s ta b lis h e d to p re p a re a p la n w h ich , i n c o n n e c tio n w ith th e M a rsh a ll P la n , had b e e n r e q u e s te d by th e O rg a n iz a tio n f o r E uropean Economic C o o p e ra tio n . The members o f th e com m ittee had d is c u s s io n s w ith r e p r e s e n t a t i v e s from p r iv a te b u s in e s s , p a r t i c u l a r l y I n th e e x p o r t m a rk e t . 1 o b je c t iv e s The m ain t a s k was to r e s t o r e a fa v o ra b le e x p o r t b a la n c e . The y e a r 19**7 was s e le c te d a s a b a se y e a r , when f a v o ra b le c o n d itio n s e x is te d i n th e e x p o r t m a rk e t. The m ethod a d v o c a te d b y th e Com mission f o r r e a l i z a t i o n o f th e g o a ls was to I n c re a s e p ro d u c tio n o f th o s e goods w hich 1H a n d e ls d e p a rte m e n te t, S v en sk t L A ngtldsprogram 19^7-1952 (S tockholm 1 K. L . Beckmans B o k try c k e r l, I9 * t8 ), p p . 5 -6 . 79 co u ld le a d to In c re a se d e x p o r ts , a s w e ll a s o f th o se goods which would make th e co u n try more s e l f - s u f f i c i e n t * I t was hoped t h a t a s u c c e s s fu l developm ent o f th e e x p o rt and th e im port tr a d e would e lim in a te r e s t r i c t i o n s w hich had been in e f f e c t sin c e th e War* M easures sh o u ld a ls o be ta k e n to develop th e in v i s ib l e e x p o rt tr a d e item s* ■XLuZauUx The Commission gave two re a s o n s f o r ex p ected in c re a s e in Im port tra d e s ( 1 ) a h ig h economic cy c le developm ent w hich had in c re a s e d demand f o r im p o rts above norm al req u irem en ts* I t was ex p e cted t h a t t h i s tre n d would c o n tin u e ; ( 2 ) a f t e r th e w ar, th e r e was a need to r e p le n is h low in v e n to rie s * O ff s e ttin g to some e x te n t th e above f a c t o r s , was co n tin u ed r a tio n in g o f fo o d , and th e d i f f i c u l t y o f buying c e r ta in p ro d u cts* In view o f th e u n fa v o ra b le b a la n c e o f tr a d e , th e Commission recommended (1 ) freedom from im p o rt- e x p o rt r e g u la tio n s , and ( 2 ) a b a la n c e d economy, such t h a t th e le n d in g f o r In c re a se d im p o rts would be dim inished* In com parison w ith th e war p e r io d , th e im port volume had in c re a s e d 3 0 p e r c e n t, a s compared w ith an In c re a se d n a tio n a l p ro d u c t o f 2 5 p e r c e n t *2 2Jbld*, pp. 8-10* 80 The Com nlselon was o f th e o p in io n t h a t th e d e s ire d l i m it a ti o n o f im p o rts woold be d i f f i c u l t in view o f h ig h e r demand f o r consumer goods in a growing economy* The s o lu tio n would th e r e f o r e be to In c re a s e th e e x p o rt tra d e * The e x p o rt volume In 19*+7 was about 20 to 25 p e r c e n t l e s s th a n In 1936-3 8 * The u n fav o rab le tre n d in th e e x p o rt tra d e was to some e x te n t caused by th e u t i l i z a t i o n o f e x p o rt c a p a c ity f o r home p ro d u ctio n * E x p o rts had d e c lin e d In th e p r io r p e rio d s f o r th e fo llo w in g re a so n ss 1* The in c re a se d dom estic m arket had reduced th e volume o f some goods w hich w ere in demand by th e W estern European c o u n trie s* 2* There was a la c k o f la b o r in ir o n , e l e c t r i c a l , and r o l l e r b e a rin g in d u s tr ie s w hich su p p lie d a la rg e p ro p o rtio n o f p ro d u c ts f o r ex port* 3* There were s t r u c t u r a l re a so n s f o r th e d e c lin e o f ex p o rts* E x p o rts o f wood p ro d u c ts had f o r a long p e rio d dom inated th e m ark et, b u t a l i m i t had been reach ed f o r In c re a se d pro d u ctio n * The Commission made two recom m endations to re v e rs e th e tre n d s 1* L arg er e x p o rts o f wood p ro d u c ts should be r e a liz e d th ro u g h d i f f e r e n t i a t e d wood p ro d u c ts f o r w hich re s e a rc h and In c re a se d in v estm en t were re q u ire d * 81 2 . The m ajor em phasis f o r th e developm ent o f " tra d e should be p la c e d on In c re a se d shipm ent o f h ig h q u a lity s t e e l , m anufactured p ro d u c ts such a s s p e c ia l p a p e r, c h e m ic a ls, and t e x t i l e s . DEVELOPM ENT OF PRODUCTION In c re a se d e x p o rts was one o f th e g o a ls to be a tta in e d d u rin g th e f iv e y e a r p e r io d . The a tta in m e n t o f th e o b je c tiv e s s ta te d I n th e fo re g o in g p arag rap h s depended to a la rg e e x te n t upon th e o v e r a ll developm ent o f th e economy. The Committee em phasised a few re s o u rc e s w hich I t c o n sid ered o f m ajor im p o rtan ce. Tto itefcw fittingly D uring t h i s p e rio d , th e sh o rta g e o f la b o r was ex p ected to c o n tin u e . The la b o r su p p ly had In c re a se d th ro u g h th e a d d itio n o f some tw e n ty -fiv e thousand w orkers d u rin g th e war y e a rs . Im m igration was ex p ected to c o n tin u e f o r a s h o rt tim e lo n g e r, b u t th e b e l i e f was t h a t t h i s a d d itio n to th e la b o r fo rc e would n o t co n tin u e ov er a long span o f tim e . Employment In a g r ic u ltu r e was ex p ected to d e c lin e , w ith th e p o s s i b i l i t y th e n o f u t i l i z i n g t h i s la b o r fo rc e In I n d u s tr i a l p ro d u c tio n . W ith a r e l a t i v e l y m odest In c re a s e in th e la b o r f o r c e , In c re a se d p ro d u c tiv ity was c o n sid e re d a s an Im p o rtan t elem ent fo r g r e a te r p ro d u c tio n . To In c re a se p ro d u c tio n and p r o d u c tiv ity o f la b o r , th e Commission 82 recommended la r g e in v e stm e n t I n m achinery used i n th e p ro d u c tio n o f i n d u s t r i a l and a g r i c u l t u r a l p ro d u c ts* A fte r c o n s id e r a tio n o f a v a ila b le r e s o u r c e s y th e Committee p r e d ic te d t h a t th e g ro s s n a tio n a l p ro d u c t w ould r i s e 10 p e r c e n t betw een 19*+7 and 1952* G oals f o r d i f f e r e n t s e c to r s A few s e le c te d s e c to r s w ere c o n s id e re d a s im por t a n t f o r th e developm ent o f th e e x p o rt m arket and o v e r a ll h ig h p ro d u c tio n * Agr-i r>ni t.n-ri —-Tho A g ric u ltu re Committee re p o r te d t h a t s i g n i f i c a n t in c r e a s e s c o u ld be e x p e c te d d u rin g th e f i v e y e a r p erio d * An e s tim a te d in c re a s e o f 8*5 p e r c e n t was b a se d on In c re a s e d use o f a r t i f i c i a l f e r t i l i z e r s * The Committee a ls o assum ed t h a t r a tio n in g o f fo o d would c e a se and t h a t a g r i c u l t u r a l p r i c e s w ould n o t change* W ater pow er. — S tim u la tio n o f . p ro d u c tio n o f w a te r power was fa v o re d f o r two r e a s o n s i 1* I t would d e c re a s e im p o rt o f c o a l and o i l ; and 2* i t w ould be used to in c r e a s e p ro d u c tio n o f i n d u s t r i e s engaged i n e x p o rtin g such p ro d u c ts a s l r o n y p a p e r p u lp y and ch em icals* An e x p e c te d in c re a s e o f 8 m illio n K H H would r e q u ir e a n in v e stm e n t o f 1*5 b i l l i o n k ro n o ry and a n a d d itio n o f 83 5 thousand men to th e la b o r fo rc e In th e s e I n d u s t r i e s . iTPB ftBd a tg f ll.—E x p o rts o f Iro n and s t e e l were ex p ected to double and r e s u l t In an Improvement o f fo re ig n exchange by 360 m illio n k ro n o r. T h is a n tic ip a te d In c re a se was b ased on an In v estm en t o f 120 m illio n k ro n o r, o f w hich 36 m illio n would re p re s e n t p u rc h a se s from th e U nited S ta te s o f A m erica.8 ANTICIPATED NATIONAL INCOM E Through In c re a se d e x p o rts and d e c re a se d Im p o rts, I t was e x p e c te d t h a t th e 19*+7 u n fa v o rab le b a la n c e would be changed to a b a la n c e o f z e ro in 1952. T able Number 2 I n d ic a te s t h i s developm ent. BAlanee of payments The b a la n c e o f paym ents (T able 2) r e v e a ls t h a t e x p o rts would have to be In c re a s e d by 817 m illio n k ro n o r. The rem ain d er o f th e In c re a s e to o f f s e t th e l,M tO m illio n k ro n o r u n fa v o ra b le b a la n c e would come from In c re a s e s in I n v is ib le Item s and d e c re a se s In Im p o rts. The Commission hoped t h a t th e Im p o rts o f f e r t i l i z e r to s u s ta in th e a g r i c u lt u r a l program would be more th a n o f f s e t by d e c re a se d Im p o rta tio n o f I r o n , s t e e l , t e x t i l e p ro d u c ts , and m achinery. pp. 15-22. 8*f TABIE 2 BALANCE OF PAYMENTS 19*+7 and 1952 (M illio n s o f K ronor) 1952 Change in 19*+7 (19^7 p r ic e s ) B alan ce Im p o rts -*t,60M- -*♦,259 + 3**5 E x p o rts +3,2»tO +*♦,057 + 817 T ra n s p o rts - 29 + m-8 + 177 O ther u s a b le Item s - * * - 7 + 9* + 101 -l,M +0 0 +1,M*0 »gygagtt HandfllaflflparteiMtttftl» gyonairt Iflnrtifla- 19^7-1952 CStockholm» K. L. Beckmans B oktryckerl, T o ta l p r i v a t e In v e stm e n t e x p e n d itu re s w ere e x p e c te d t o d e c re a s e I n 1952* a s com pared w ith 19*47 • The m ajor d e c re a s e w ould be a c c o u n te d f o r I n th e b u ild in g c o n s tr u c t i o n f i e l d * T h is d e c re a s e w ould r e s u l t I n c o n tin u e d h o u sin g s h o r ta g e , b u t I t was th e o p in io n o f th e Com mission t h a t t h i s change w ould r e le a s e wood p ro d u c ts f o r e x p o rt* P u b lic In v e stm e n t f o r th e p e r io d I n d ic a te d a s l i g h t In c re a s e * T o ta l in v e stm e n t f o r 1952 was p r o je c te d a s a p p ro x im a te ly 6*5 m illio n k ro n o r, a s com pared to 5*7 b i l l i o n k ro n o r I n 19*47• T hese f i g u r e s do n o t In c lu d e changes I n I n v e n to r ie s am ounting to 500 m illio n kro n o r* BgtlBfttgfl groag n a t i o n a l p ro d u c t T a b le 3 g iv e s th e e x p e c te d outcom e f o r th e g ro s s n a t i o n a l p ro d u c t b a se d on a n t i c i p a t e d ch an g es o f v a r io u s com ponents d is c u s s e d In p re v io u s s e c tio n s * T ab le 3 I n d ic a te s t h a t th e e x p o r ts w ould am ount to a p p ro x im a te ly 25 p e r c e n t o f th e n a t i o n a l Income* T h is developm ent was b a se d on th e a ssu m p tio n t h a t th e I n t e r n a t i o n a l m ark et w ould a b so rb t h i s In c re a s e * S hould t h i s In c r e a s e n o t be r e a l i s e d , d r a s t i c m easures w ould have to be ta k e n t o d e c re a s e Im p o rts more th a n th e 7 p e r c e n t shown I n th e ta b le * 8 6 TAB IE 3 GROSS NATIONAL PRODUCT 194-7 and 1 9 5 2 (M illio n Kronor In 194-7) 19^7 1952 In c re a s e o r M illio n K r. D ecrease P er c e n t G ross n a tio n a l p ro d u c t a t m arket p r ic e 24,368 2 6 ,8 0 2 +2,434 + 1 0 Im port (fo b ) 4,601 *♦,259 - 34-2 - 7 .4 T o ta l 28,969 3 1 ,0 6 1 +2 ,0 9 2 + 7 .4 E xport (fo b ) 3,240 *♦,057 + 00 $ +2 5 .2 I n v is ib le Item s - 76 2 0 2 00 CM + mt m m m m « Investm ent (e x c lu s iv e o f In v e n to r 7 changes 6 ,7 0 7 6,5 5 2 155 - 2 .3 Consumption 18,598 2 0 .2 5 0 +1 .6 5 2 + 8 .9 In v e n to ry changes 5 0 0 ----------- 5 0 0 T o ta l 28,969 3 1 ,0 6 1 2 ,0 9 2 7 .2 *S yenskt H an d e lsd ep artem en te t, S ranaltt L ftngtlfla- g*f>gyam 19*^-1952 (Stockholm* K. L. Beckmans B o k try c k e ri, 0UTC0M2 OF THE FIRST LONG-TERM PLAN The outcome o f th e p la n exceeded th e a n tic ip a te d t a r g e ts by th e y ea r 1950y two y e a rs b e fo re th e expected end o f th e period* For t h i s re a s o n , a c tu a l r e s u l t s f o r th e y ea r 1950 w i l l be compared w ith th e p ro je c te d goals* E xn orta The In c re a s e o f e x p o rts a s a means o f o b ta in in g a more fa v o ra b le b a la n c e o f tra d e had th e h ig h e s t p r i o r i t y in th e f i r s t lo n g -te rm plan* The d e s ire d g o a l o f 25 p er c e n t In c re a s e was su rp a sse d In 1950 when e x p o rts had In c re a se d 52 p e r c e n t o v er th e 19*+7 le v e l* 1 4 . A llow ing fo r a 6 p e r c e n t In c re a se in e x p o rt p r ic e s , e x p o rts by 1950 were alm o st double th e amount In d ic a te d f o r th e period* T his developm ent can be seen in T able w hich shows n a tio n a l Income c a lc u la tio n s f o r th e y e a rs 19^7-1950* frrggg MTCflttrt The g ro ss n a tio n a l p ro d u ct In c re a se d from 32*86 b i l l i o n k ro n o r to 36*75 b i l l i o n k ro n o r In 19*+9 p r i c e s , o r a change o f ap p ro x im ately 12 p e r cent* H ence, th e n a tio n a l Income in 1950 exceeded th e 10 p e r c e n t In c re a se p ro je c te d to 1952* E x p ressin g t h i s in y e a rly p e rc e n ta g e change, th e av erag e In c re a s e d u rin g th e p e rio d 19^7-50 Aft? BsMMMiato jk k ja t. C Stockholm ! Is a a c Marcus B o k try c k e ri-A k tie - 88 TABLE * * NATIONAL IN COM E 1 * 7 -5 0 1 * 9 P ric e s ( I n M illio n s o f K ronor) Supply 1 * 7 1 * 8 1 * 9 1950 G ross n a tio n a l p ro d u ct 27,330 28,1*80 29,910 31,**20 Im ports 5*530 **,980 **,330 5,330 T o ta l 32,060 3$,H6o 3**, 240 # , Ho Demand P r iv a te Investm ent 5,860 5,350 5,180 5,**50 P u b lic Investm ent 2,1*40 2,520 2,720 2,930 Change In in v e n to rie s 5**o **00 150 100 E x p o rts 3,800 **,210 **,820 5,760 P riv a te consum ption 17,670 18,030 18,250 19,380 P u b lic consum ption 2,850 2,950 3,120 3,330 T o ta l 32,860 3 3 , ^ 0 3**,2**6 3 M 5 o * £ o n ju n k tu r ln s titu te t, O v e rsik t Over P e t onnaiwW _19?1 (Stockholm ! Is a a c M a rc u sB o k try c- ri-A k tie b o la g , 1951), p . 13. 89 was k p s r c e n t, w hereas th e p e rc e n ta g e In c re a s e a s planned was ap p ro x im ately 2 p er cent* Thus th e r a t e o f grow th was doubled* Investm ent The a c tu a l p r iv a te In v estm en t e x p e n d itu re s , a s shown In T able * + were d e c re a se d by M -10 m illio n k ro n o r fo r th e p e rio d 191*7-50, a s compared to a planned d e c re a se o f 3*+0 m illio n kronor f o r th e p e rio d 19*+7-52* The Im p o sitio n o f b u ild in g r e s t r i c t i o n s in 19*+7 accounted f o r th e m ajor d ecrease* P u b lic Investm ent In c re a se d to a 1950 f ig u r e o f 790 m illio n k ro n o r, a s compared w ith a 272 m illio n k ro n o r p ro je c te d In c re a s e f o r th e f iv e y e a r p eriod* gftlM KE. 9 R eference to T able 3 , page 86, I n d ic a te s t h a t Im p o rts d ec rease d by 200 m illio n kro n o r f o r th e p e r io d , and e x p o rts — in c lu d in g I n v is ib le ite m s— In c re a se d by 1*96 b i l l i o n k ro n o r, a l l f ig u r e s e x p re sse d In 19**9 p ric e s * D e fla tin g th e f ig u r e s by In d ex , 121 f o r Im ports and 106 f o r e x p o r ts , th e Im ports and e x p o rts In 19*+7 p r ic e s would amount to 165 m illio n k ro n o r, and 1*798 b i l l i o n k ro n o r r e s p e c tiv e ly , o r a n e t b a la n c e o f 1*963 b i l l i o n k ro n o r, when com parison I s made w ith th e p lan n ed n a tio n a l In c re a se o f 1*1*5 b i l l i o n kronor* Thus, In s p ite o f w orsening term s o f tra d e by ap p ro x im ately 15 p e r c e n t betw een 191*8 and 90 1950, th e b alan ce o f tra d e by 1950 exceeded th e b alan c e e stim a te d f o r 1952* S t a b i l i t y The postw ar p e rio d in d ic a te d a co n tin u o u s r i s e o f p ro d u c tio n , consum ption, and employment* Im ports were g iv en th e h ig h e s t p r i o r i t y d u rin g th e e a r ly postw ar years* In th e f i r s t lo n g -te rm p la n , n o t much c o n sid e ra tio n was g iv e n to m aintenance o f p r ic e s t a b i l i t y , sin c e p ric e r e g u la tio n was in fo rc e u n t i l 19*+9» to be fo llo w ed by some r e la x a tio n o f c o n tro ls* P ric e s co n tin u ed to r i s e , due to e x c e ss demand* In s te a d o f g re a t f l u c t u a t io n , a s d u rin g th e p e rio d 1918- 1925, th e p r ic e s In c re a se d g ra d u a lly a f t e r 19^5* The r e l a t i v e l y low unemployment d u rin g th e f i r s t y e a r and th e y e a rs o f f u l l employment d u rin g 19^7-^9 made p ric e In c re a s e s in e v ita b le * B ecause o f p ric e and im port c o n tr o ls , i t i s d i f f i c u l t to a t t e s t th e f u l l im pact o f in f la tio n a r y fo rc e s on th e p r ic e le v e l* In th e p e rio d j u s t a f t e r th e w ar, e x p o rt p r ic e s ro s e r e l a t i v e to im port p ric e s * The change in term s o f tra d e (15 p e r c e n t r i s e in e x p o rt p r ic e s in r e l a t i o n to Im port p ric e s betw een 19^+6 and 191+ 8 ) no doubt stre n g th e n e d th e in f l a ti o n a r y te n d e n c ie s* 5 ^Brlc Lmuih«r» BM.ln.«. g fl ""M g, I* P o lic y (Londons George A lle n and Unwin, L t d ., 1997}, 91 ANALYSIS OP ECONOMIC CHANGES The m ajor o b je c tiv e s o f th e f i r s t plan, were a tta in e d b e fo re th e end o f th e f iv e - y e a r p erio d * However, In o rd e r to a p p r a is e th e su c c e ss o f th e econom ic pla n n in g , some a t t e n t i o n should be g iv e n to th e su c c e ss o r f a i l u r e o f th e Com m ission9s p o l i c i e s In In flu e n c in g th e economic d ev elo p m en ts• In th e d e c e n tr a liz e d p la n n in g p r e v a le n t In Sweden, th e d eg ree o f d i r e c ti o n v a r ie s In d i f f e r e n t s e c to r s o f th e economy* F i r s t , d e c is io n s f o r p ro d u c tio n , In v e stm e n t, and employment a re made l a r g e ly by p r iv a te firm s and c o o p e ra tiv e s* G en eral t a r g e t s a r e su g g e ste d by th e P lan n in g Com m ission, b u t t h i s agency I s lim ite d to Induce economic u n its tow ard econom ic t a r g e t s th ro u g h f i s c a l , m o netary, and com m ercial p o lic ie s * S econdly, th e p o s s i b i l i t y o f a c h ie v in g th e d e s ir e d o b je c tiv e s i n fo r e ig n tr a d e I s even more lim ite d by th e u n c e r ta in tie s In E uropean m arkets* Consumer c h o ic e , la b o r su p p ly , and In v estm en t In e x p o rt I n d u s tr ie s ca n be p r o je c te d , b u t th e m argin o f u n c e r ta in ty I s a ls o w ide in th e s e a re a s* The la r g e p e rc e n ta g e o f e x p o rts to produc t i o n , a b o u t 25 p e r c e n t, p re c lu d e s r i g i d p la n n in g f o r ex p o rts* R e s t r i c t i o n o f Im p o rts I s p o s s ib le to some e x te n t th ro u g h Im port c o n tr o ls supplem ented by m easures pp* 62-66* 92 to r e s t r a i n e x c e ss a g g re g a te demand a t home* I t I s p r i n c i p a l l y In th e p u b lic s e c to r t h a t th e governm ent h a s a d e c is iv e In flu e n c e * The Sw edish S ta te can In flu e n c e p u b lic In v e stm en t e x p e n d itu re s th ro u g h changes In th e c a p i t a l b u d g e t, and r e s i d e n t i a l c o n s tru c t i o n I s c o n tr o lle d th ro u g h governm ent s u b s id ie s * F u r th e r more y b u d g et s u rp lu s e s and d e f i c i t s have g iv e n th e g o v ern ment th e power to In flu e n c e consuinption* The a n a ly s is o f th e econom ic developm ent d u rin g th e f i r s t lo n g -te rm p la n w i l l b e c o n fin e d t o t (1 ) e x p o r ts , (2) In v e stm en t e x p e n d itu re s , p r ic e s and s a v in g s , and (3 ) p r o d u c tiv ity and wages* The change in th e s e f a c t o r s from one tim e p e r io d to th e t a r g e t p e r io d may be th e r e s u l t o f d e li b e r a te p o l i c i e s , o u ts id e m a rk e ts , o r sec o n d ary e f f e c t s such a s th e p o s s i b i l i t y o f th e la b o r s u p p ly 's e f f e c t on In v e stm e n t, w hich i n tu r n may a f f e c t th e e x p o rtin g I n d u s tr ie s * Changes may a ls o b e caused by exogeneous f a c t o r s , such a s th e In c re a s e d demand f o r e x p o rts and th e r e p e rc u s s io n on p ro d u c tio n and Investm ent* JErmvr-hg The g a in I n e x p o rt tr a d e r e s u l t e d I n th e r e a l i z a t i o n o f th e t a r g e t f ig u r e In 1950* The fa v o ra b le tr e n d I n th e e x p o rt m ark et s tim u la te d th e economy, e n a b lin g firm s to expand In v e stm en t and to m a in ta in a h ig h l e v e l o f em ploym ent. However, th e r e re m a in s th e q u e s tio n a s to 93 th e e f f e c tiv e n e s s o f th e p la n n in g p ro c e d u re . The p r i n c i p a l re a s o n s f o r th e g row th In f o r e ig n tr a d e w ere e v id e n tly th e M a rsh a ll P la n and th e fa v o ra b le change I n te rm s o f tr a d e o f 1 5 p e r c e n t betw een th e y e a rs 1 9 ^ 6 and 1 9* + 8 . 6 and aaylBK a Investment. — The p o lic y o f th e P la n n in g Commission was t o p e rm it a m oderate In c re a s e in t o t a l In v e stm en t e x p e n d itu re s w ith th e m ajor em phasis on p u b lic In v e stm e n t. C o n tro l o f governm ent e x p e n d itu re s th ro u g h b u d g et and b u ild in g r e g u la tio n s h e ld b ack c o n s tr u c tio n I n th e p r i v a t e s e c to r to th e d e s ir e d l e v e l . P r ic e a. —D uring th e p e rio d 19^7-19^9, when th e d if f e r e n c e betw een p lan n ed and a c tu a l e x p e n d itu re s c o u ld have r e s u l t e d In I n f l a t i o n a r y p r e s s u r e s , p h y s ic a l c o n tr o ls o f p r ic e s an d im p o rts lim ite d p r ic e I n f l a t i o n . A fte r 19*+9, when c o n tr o ls were r e la x e d , I t was more p o s s ib le f o r p r ic e s to r e f l e c t th e d if f e r e n c e betw een demand and s u p p ly . 7 During the fiscal periods of 19M-7-M-8, 19*+8-l+9, and 19^-9-50, gross Investment Increased by 5, 3, and lM- per cent, with wholesale prices following a similar trend P* 66* , p . 6 2 . 9M- o f 8 , 1 , and 5 p e r c e n t, I n d ic a tin g th e c o r r e l a t i o n o f In v e stm e n t e x p e n d itu re s and p r i c e s and th e r e l a t i v e l y n e u t r a l e f f e c t o f p r ic e c o n tro ls * In th e ab se n ce o f p r ic e r e g u la ti o n s I t I s n o t p o s s ib le to a s c e r t a i n th e full e f f e c t o f th e I n c r e a s e o f a g g re g a te demand on p r i c e s and a l l o c a t i o n o f re s o u rc e s * Savings.— No s t a t i s t i c s a r e a v a ila b le sh o v in g ch an g es In th e m a rg in a l p r o p e n s ity to save a s Incom es In c re a s e d a f t e r th e w a r. The N a tio n a l R e se a rc h I n s t i t u t e h a s made a n e s tim a te o f sa v in g s f o r th e p e r io d 1 9 ^ - 5 3 » a s shovn I n T ab le 5* The m a rg in a l p r o p e n s ity to s a v e , a s may be o b se rv e d from th e t a b l e , was n e g a tiv e In 19^7 and 1950 and no d e f i n i t e tr e n d f o r th e c o n tr ib u tio n o f s a v in g s tow ard In v e stm e n t ca n be p ro je c te d * I t ca n b e assum ed t h a t r e g u la tio n s I n t e r f e r e d w ith th e n o rm al developm ent o f th e sa v in g s fu n c tio n * As c o n tr o ls w ere r e la x e d a f t e r 19^9, a p o s i t i v e c o r r e l a t i o n o f s a v in g s e x i s t e d f o r th e y e a rs 1950-1953* P r o f i t s in c re a s e d a f t e r 19*+7, p ro v id in g b u s in e s s s a v in g s f o r th e In v e stm e n t e x p e n d itu re s d u rin g t h a t p e rio d * S in ce th e com m ercial c r e d i t s In c re a s e d g r e a t l y , bank f in a n c in g m ust have p ro v id e d th e b a la n c e o f fu n d s to com pensate f o r la g g in g p e r s o n a l s a v in g s p* 70* TAB IE 5 MC01BS AND SAVINGS OF C0NSTOGR6, 19^-53 (1,000 million kronor) 19**6 1*7 1*8 1*9 1950 1951 1952 1953 Cons unction expenditure lh.8 16.0 17.5 17.8 19.2 21.7 23.9 2^.7 Net Insurance premiums O.k 0.5 0.5 0.5 0.5 0.7 0.9 1.0 D irect ta x a tio n 1.9 2.9 3.1 3.2 3.1 5A 5.8 Savings 0 -0.»f 0.8 1.3 1.0 1.6 2.7 2.5 T o tal incomes (= t o t a l expenditures) 17.1 19.0 21.9 22.8 23.8 28 . i f 32.9 3^.0 »2rik Imdharg. Bnalnaas Cycles a n A Economic Policy (London: George Allen and Onvin, Ltd., 1957)» p. 69. v O VA P r o d u c tiv ity and wages 96 P r o d u c tiv ity . —The N a tio n a l B udget D e le g a tio n in 1950 r e le a s e d f ig u r e s w hich show a m easure o f in c re a s e d p r o d u c tiv ity a s a r e s u l t o f g r e a te r in v e s tm e n t. The added p ro d u c tio n In 19*+9, m easured by 19*+8 p r i c e s , was o v er 900 m illio n k ro n o r. S ince th e work fo rc e in 19*+9 was a b o u t th e same a s f o r 19^-8, th e p r o d u c tiv ity m ust have been in c re a s e d . The D e le g a tio n e x p e c te d t h i s tr e n d to c o n tin u e , and th e 3*5 p e r c e n t grow th in 19^8 c o n trib u te d to im provem ent in p r o d u c tiv ity .9 Wages. The m aintenance o f a c o n s ta n t p r ic e le v e l im p lie d a l i m i t a t i o n o f wage in c r e a s e s w hich w ere o n ly p a r t l y com pensated f o r th ro u g h changes in p r o d u c tiv ity . A wage fre e z e was in e f f e c t from 19^-9-1950, b u t a c tu a l wages were augm ented th ro u g h "wage s l i d e s 1 * o r compensa t i o n s n o t co vered by c o lle c tiv e wage a g re e m e n ts. Average h o u rly e a rn in g s I n In d u s try In c re a s e d by an av e rag e o f 3 .3 p e r c e n t p e r y e a r from 19*t8 t o 1950, compared to a y e a r ly In c re a s e o f 2 .3 p e r c e n t in th e consum er p r ic e index.^® ^ K o n ju n k tu r in s titu te t, fiv e ra lk t Over P e t g j » B g ^ ^ ^ g ^ ^ l 9 5 0 ^ ^ o c M i o l n » Is a a c M arcus Bok l°L u n d b erg , o p. c i t . , p . 6 ^ . SU M M A R Y The m ajor o b je c tiv e o f th e f i r s t lo n g -te rm p la n , to In c re a s e e x p o r ts , was a t t a i n e d e a r l y in th e p erio d * In view o f th e In flu e n c e o f e x p o rt p r ic e s on th e i n t e r n a l p r i c e s , p r ic e s t a b i l i t y was n o t accom plished* However, p r i c e s d id n o t f l u c t u a t e so much a s was th e c a se d u rin g th e W orld War I p o stw ar p erio d * The im p o rta n t l a s t i n g r e s u l t s were th e la u n c h in g o f two p la n n in g p e r io d s s th e lo n g -te rm p e rio d i n 19^7» and th e s h o r t- te r m o r a n n u a l econom ic b u d g et in 19*+8. The e x p e rie n c e g a in e d d u rin g t h i s p e r io d , p a r t i c u l a r l y w ith a f l e x i b l e p la n , made p la n n in g a perm anent In stru m e n t f o r d ir e c ti n g th e economy i n Sweden* One w eakness, t h a t o f a p p o in tin g a new b o a rd a t th e b eg in n in g o f each lo n g term p la n , was rem edied in 1962 when a perm anent p la n n in g b o a rd was e s ta b lis h e d w ith in th e M in is try o f Finance* CHAPTER V I THE SECOND FIVE YEAR PLAN 1951-1955 B ecause th e g o a ls o f th e f i r s t f i v e y e a r p la n had b ee n r e a l i z e d b y 1950, a new f i v e y e a r p la n was la u n c h e d on June 9 o f t h a t y e a r . I n f l a ti o n a r y f a c t o r s in W estern Europe and th e U n ited S ta te s o f A m erica, to w hich Sweden was v e ry s e n s i t i v e , r e s u l t e d i n new e v a lu a tio n s o f th e p la n s I n e f f e c t . OBJECTIVES OF THE SECOND PLAN A q u e s tio n n a ir e s e n t to member c o u n tr ie s by th e O rg a n iz a tio n f o r Economic C o o p e ra tio n and Developm ent re g a rd in g each c o u n tr y 's p la n s a f t e r th e c e s s a tio n o f th e M a rsh a ll P la n was com pleted on F e b ru a ry 3 , 1951* The an sw ers to t h i s q u e s tio n n a ir e I n i t i a t e d th e m ajor d i r e c t i o n s o f th e new lo n g -te rm f o r e c a s t s . The fo rm a tio n o f th e PlMPins gvmittvv A com m ittee o f th r e e w ith Arne S . Lundberg a s C hairm an was a p p o in te d by th e King to re sp o n d to th e O rg a n iz a tio n f o r Economic C o o p e ra tio n and D evelopm ent in q u ir y and to p ro c eed w ith th e p r e p a r a tio n o f a p la n f o r 1951-1955* The Com m ittee em phasized t h a t i t d id n o t aim a t a f ix e d p la n b u t c o n s id e re d p la n n in g to w ard s g e n e ra l econom ic g o a ls a s th e m ain f u n c tio n o f i t s in q u iry . 98 D ir e c tiv e s The Committee was ask ed to p re p a re g e n e ra l g u id e l i n e s f o r th e y e a rly s h o rt-te rm f o r e c a s ts o r n a tio n a l b u d g e t. P a r t i c u l a r em phasis sh o u ld be p la c e d upon a s ta b le economy In view o f th e p lan n ed r e la x a tio n o f c o n tr o l s . In v estm en t sh o u ld be c o n sid e re d w ith re g a rd to e f f e c t s on Incom e, em ploym ent, and s t a b i l i t y . Maw aggunm tlnnn And O b je c tiv e s In P l a n n i n g A ssum ptions and a n tic ip a te d developm ent o f th e economy w ere b ase d on e x p e c te d economic changes In W estern E uropean c o u n trie s and upon i n t e r n a l f a c t o r s . a flgnmnti on a — Tha fo llo w in g assu m p tio n s w ere made re g a rd in g economic developm ents 1 . I t was assum ed t h a t In c re a se d tr a d e , h ig h em ploym ent, and I n f la ti o n a r y te n d e n c ie s would c o n tin u e I n th e w e ste rn w o rld . 2 . The Commission e x p e c te d t h a t Im p o rts o f e s s e n t i a l raw m a te r ia l would c o n tin u e . 3 . E x p e n d itu re s f o r d e fe n se t h a t had In c re a s e d d u rin g th e f i r s t h a l f o f 1951 were ex p e cted to c o n tin u e . New o b je c tiv e s . —The fo u r g o a ls f o r th e economy were a s fo llo w s! 1 . F u ll employment 2 . A b a la n c e d economy 100 3* S ta b le c u rre n c y b. S t a b i li z a t io n th ro u g h f i n a n c ia l c o n tro ls * The r e a l i z a t i o n o f th e s e g o a ls depended upon a fa v o ra b le b a la n c e o f t r a d e , th e m ain o b je c tiv e o f th e f i r s t plan* I t was fe a re d th e d e s ir e d h ig h employment would p re s e n t d i f f i c u l t problem s f o r p r ic e s t a b i l i z a t i o n , p a r t i c u l a r l y a f t e r th e r e la x a tio n o f c o n tro ls * S t a b i l i z a t i o n would have to be ach iev ed th ro u g h b a la n c in g demand, p a r t i c u l a r l y In v e stm e n t, a g a in s t e s tim a te d supply* The Commission a ls o ex p e cted to c o u n te ra c t I n f l a tio n a r y f o rc e s th ro u g h c r e d i t c o n tr o ls •* SECTOR DEVELOPM ENT The g ro ss n a tio n a l p ro d u c t had In c re a s e d by 18 p e r c e n t d u rin g th e p e rio d 19^6-1950* C ontinued In c re a s e o f th e p ro d u c tio n w ould be lim ite d by th e la b o r fo rc e and raw m a te ria l* Ih v Iftlw r fg rsfl No s i g n i f i c a n t changes were ex p e cted I n th e p ro d u c tiv e la b o r fo rc e (age b ra c k e t 15-65 y e a r s ) , and th e tr e n d o f d e c re a sin g employment I n a g r ic u ltu r e was e x p e c te d t o c o n tin u e • iF ln a n s d e p a rte m e n te t, L ln g tlrifp ro g ram :5 (S to e k h o l* i I s a a c Marcus B o k try c k a ri-A k tia - ?53>, PP. 1-3>K X 101 L abor a a rto li-P O llfig * — -A la b o r p o o l w hich c o u ld be u t i l i z e d was th e number o f m a rrie d women and p a r t- tim e w orkers* Tax m easures fa v o ra b le to employment o f women w ere proposed* A d e c re a s e i n t o t a l la b o r h o u rs was f o r e se e n b e c a u se law s w ere p a sse d i n 1951 to e lim in a te n ig h t s h i f t s and to In c re a s e v a c a tio n s to th r e e weeks* The e f f e c t o f t h i s l e g i s l a t i o n , I t was hop ed , c o u ld be c o u n te ra c te d th ro u g h In c re a s e d p r o d u c tiv ity and Im p o rta tio n o f la b o r* A g ric u ltu re The d o m estic a g r ic u lt u r e was e x p e c te d to su p p ly 8 3 p e r c e n t o f th e c o u n tr y 's needs* The b a la n c e o f 17 p e r c e n t would be s u p p lie d th ro u g h Im p o rts o f f e r t i l i z e r , g r a in f e e d , and sugar* The Commission su g g e ste d to In c re a s e d o m estic p ro d u c tio n o f c e r t a i n Item s t h a t had b een Im ported th ro u g h s e l e c tiv e p r ic e c o n tr o ls * 2 In d u s try S h o rtag e o f la b o r was e x p e c te d to l i m i t th e e x p a n sio n o f th e I n d u s t r i a l s e c to r* 81nce la b o r c o s ts w ere e x p e c te d to In c re a s e a t a f a s t e r r a t e th e n th e c o s t o f c a p i t a l eq u ip m en t, th e n eed s f o r In c re a s e d o u tp u t would have to be met th ro u g h Investm ent* S u b s titu tio n o f c a p i t a l f o r la b o r was a ls o h a s te n e d by th e th r e e weeks PP« 35-36 102 e x te n s io n o f v a c a tio n s * The fo llo w in g I n d u s t r i e s re c e iv e d th e m ajor em phasis b y th e com m issions I r o n o r e . —The p r o je c te d e x p a n sio n o f I r o n o re p ro d u c tio n I s In d ic a te d i n T ab le 6* W ith r e f e r e n c e to T ab le 6 , th e s h a rp In c re a s e i n p ro d u c tio n was e x p e c te d t o n e c e s s i t a t e a n In v e stm e n t o f 150 to 200 m illio n k ro n o r* Of th e In c re a s e d to n n a g e , a p p ro x im a te ly 80 p e r c e n t w ould be e x p o rte d In th e form o f h ig h q u a l i t y s t e e l , f o r w hich th e demand was g r e a te s t* The wood In d u s try * —The volum e o f wood p ro d u c ts I n 19**9 was a b o u t th e same a s I t h ad b ee n t e n y e a rs e a r l i e r * In o rd e r t o In c re a s e th e e x p o r t p o r tio n , th e Com m ission a d v o c a te d p ro d u c tio n o f q u a l i t y p ap e r p r o d u c ts 9 w a ll b o a r d s y and b le a c h e d c e llu lo s e * Tha in d u s tr y . —The c h e m ica l I n d u s tr y In Sweden had shown a g r e a t g ro w th , b u t had n o t en jo y ed th e same developm ent a s I n th e U n ite d S ta te s * T h is I n d u s tr y was p a r t i c u l a r l y fa v o re d f o r developm ent b e c a u se o f th e r e l a t i v e l y sm a ll am ount o f la b o r r e q u ir e d f o r p ro d u c tio n * To p r o t e c t th e g row th o f th e I n d u s tr y , t a r i f f s w ere ad v o cated * T r a n s p o r ta tio n The tr e n d to w ard r a p id I n c re a s e I n t r a n s p o r t a ti o n was e x p e c te d t o co n tin u e * In th e p h b llc s e c to r , th e 103 T A B IE 6 4 PRODUCTION OF IRON O R E 1950-1955 (In M illio n s o f Tons; Year Production Domestic Consumption Export 1950 1 3.8 .09 1 2 .9 1951 1 6 A 1 .6 l*f.8 1952 1 7.0 1 .9 1 5 .1 1953 17.7 2 .0 15.7 195»f 1 8 .5 2 .1 1 6. 1955 19 .0 2 .2 1 6 .8 •F in a n sd sp a rtm sn te t, BlfonomiaV-fc iAngt-.-Mgnrogpflm 1951-1955 (S to ck h o lm Isaa c Marcus B o k try c k e ri-A k tie h o la g , 1953) i P* 10*i government-owned p o s ta l te le g ra p h and telep h o n e system s v o o ld re q u ir e in c re a s e d In v e stm en ty w h ile th e governm ent- owned r a ilr o a d s had developed a t a slow er pace* The in c re a s e o f autom obiles was expected to r e q u ir e an in v e s t ment i n ro ad c o n s tru c tio n o f *f9?00 m illio n kro n o r f o r th e f iv e y e a r p e rio d *3 M AJOR COM PONENTS OF THE NATIONAL INCOM E The Commission planned an an n u al in c re a s e o f 3 p e r c e n t d u rin g th e p eriod* Investm ent became o f m ajor im por ta n c e f o r th e a tta in m e n t o f th e grow th ra te * L arger e x p e n d itu re s f o r Investm ent would have to be b alan ced w ith a v a ila b le la b o r consum ption in o rd e r to conform to th e s t a b i l i s a t i o n o b je c tiv e s* Inv estm ent ex p e n d itu re Q u e stio n n a ire s and c o n s u lta tio n s w ith p r iv a te and p iib llc a g e n c ie s had re v e a le d th e in v estm en t re q u ire m e n ts f o r th e d i f f e r e n t s e c to r s o f th e country* M ajor in c re a s e s were a n tic ip a te d in in d u s tr y f p u b lic t r a n s p o r t a t i o n r e s i d e n t i a l c o n s tr u c tio n and defense* The t o t a l in v e s t ment f o r th e p e rio d was c a lc u la te d to be ap p ro x im ately 1 ,600 m illio n kronor* The g r e a te s t ex p an sio n was programmed f o r r e s i d e n t i a l c o n s tru c tio n in o rd e r to a l l e v i a t e th e ac u te pp. 55-65* 105 housing shortage* P u b lic in v estm en t was a l l o t t e d th e g r e a te s t p o rtio n o f th e t o t a l Investm ent f ig u r e s , w hereas no In c re a se was planned f o r a g r ic u ltu r e and p riv a te in d u s try . Consumption ex p e n d itu re The p u b lic consum ption caused by s ta te expend i t u r e s f o r goods and s e rv ic e s was expected to In c re a se ap p ro x im ately 2*5 p er ce n t p er annum* T h is in c re a s e was a t t r i b u t e d to la r g e r e x p e n d itu re s f o r h e a lth ca re and th e change from a 6 to a 9 y ear groundschool* The In c re a se o f community consum ption e x p e n d itu re s to 7*5 p e r c e n t p er annum r e f le c te d th e growing tre n d o f ex p e n d itu re in th e p u b lic secto r* SSPftglfg E x p o rts were expected to In c re a se h p er ce n t annually* I n d u s tr ia l p ro d u c tio n and ir o n ore were exp ected to supply th e m ajor p o rtio n , w hereas wood p ro d u c ts would show o n ly a m oderate in cre ase* Im ports In o rd e r to m a in ta in a fa v o ra b le b alan ce o f tr a d e , Im ports were expected to in c re a s e a t a r a t e o f 3 p e r cen t p e r year* T his r a te was based on th e assum ption th a t p r ic e s would n o t a p p re c ia b ly change* 106 gllttBM 9f. rfl.gg.lgggg T able 7 In d ic a te s th e p ro je c te d change in th e g ro s s n a tio n a l Income f o r th e f iv e y e a r period* The ta b le shows t h a t p r iv a te consum ption I s a r e s id u a l amount a f t e r a l l o th e r f a c to r s o f th e g ro ss n a tio n a l p ro d u ct have been estim ated * The an n u al In c re a se I s 3 p e r c e n t, o r th e same amount a s th e change In th e g ro ss n a tio n a l product* O U T C O M E OF THE SECO ND FIVE YEAR PLAN The outcome o f th e f iv e y e a r p la n can be an aly zed th ro u g h th e a n n u a lly p re se n te d s h o rt-te rm economic f o r e c a s t s , term ed n a tio n a l budgets* Each y e a r 's developm ent can be a n a ly z e d , sin c e th e n a tio n a l budget b a se s f o r e c a s ts on th e p re v io u s y e a r 's a c tu a l outcome* BsmwmIq ghaagfg flaring 19731 The p re lim in a ry budget su b m itted In Ja n u a ry , 1951* fo llo w ed v e ry c lo s e ly th e p ro p o rtio n a l in c re a s e s fo r d i f f e r e n t f a c t o r s proposed by th e lo n g -te rm fo r e c a s e , a s shown In T able 7* The B udget D e le g a tio n made I t c le a r t h a t th e re m ight be a g r e a t m argin o f e r r o r due to th e f lu c tu a tio n o f p r ic e s in W estern Europe and In th e U n ited S ta te s* The la r g e d efen se e x p e n d itu re s were r e la te d to th e p o l i t i c a l te n s io n In E urope• In Sweden, i t was fe a re d t h a t war p re p a ra tio n s would r e s u l t In sh o rta g e s o f TAB IE 7 B A LA N C E O F RESOURCES 1951-1955 (M illion Kronor in 1950 P rices) Supply 1950 1951 1952 1953 195^ 1955 Gross n a tio n a l product 31,550 32,500 33,500 3^,500 35,550 36,600 Investm ent 8,610 9,030 9,“ t“ t0 9,850 10,300 10,750 Change in In v en to ries - 200 “ too “ too boo boo b O O Foreign tra d e balance 190 200 200 200 200 200 P ublic consumption 3,370 3,5“ t O 3,720 3,910 k9 U0 ^,320 P riv a te consumption 19,580 19,330 19,7“ t O 20,lb0 20,5^0 20,930 T otal 31,550 32,500 33,500 3^,500 35,550 36,600 *Flnansdepartem entet, Bknnem*pVt iA ngti dsnrogram 1951-1955 (Stockholm: Isaac Marcos B oktryckeri-A ktiebolag, 1953)» P* 102* 108 m a te ria ls and h ig h e r Im port p ric e s .1 * 1 Im ports and e x p o r ts The Korean boom r e s a lte d In ra p id In c re a se s In Im port and e x p o rt p r ic e s , which were tra n s m itte d to r e t a i l p ric e s* In the th re e y e a rs , 19^9-1952, th e r i s e in Im port p r ic e s of ap p ro x im ately 50 p e r c e n t In c re a se d c o s t o f p ro d u ctio n and t h i s r i s e was u ltim a te ly tra n s m itte d to th e r e t a i l p r ic e s through th e p re ss u re f o r h ig h e r wages* W holesale p r ic e s ro se M -7 p er c e n t, I n d u s tr ia l wages by * * 5 to 50 per c e n t, and c o s t o f liv in g 27 p e r c e n t*5 Em ployers In e x p o rt in d u s tr ie s were a b le to In c re a se wages sin c e th e e x p o rt p r ic e s In c re a se d more th an Im port p ric e s* The e f f e c t o f p r ic e s on th e b alan ce o f tra d e i s shown in Table 8* R e fe rrin g to T able 8 , using 1950 p r ic e s , th e 1951 n e t tra d e b alan c e would have been minus 830 m illio n kronor In s te a d of th e p o s itiv e b alan ce o f 200 m illio n kronor p re v io u sly estim ated * Due to th e change In Im p o rt-ex p o rt p r ic e s , a p o s itiv e b alan ce o f 710 m illio n kronor re s u lte d * T able 9, page 110, shows th e change In export-lnqport p ric e s* ^ n J ^ t g 1 n st l t a te t , > i r a ^ r t A j Y o r i ^ t B tonm lato get* 1951 (Stockholm ! Isa a c Harcus B o k try c k e rl-A k tle b o - g , 1$?1)7 pp. 1 -6 1 . LqndbTg. BaalaMB £yglgg aafl.Esaagals P o lic y (Londons George A llen and unwin, 19575, P* yl* TABIE 8 B A LA N C E OF T R A D E 19^8-1951 (In M illions of Kronor) 19^8 i2!i2 1220 1951 c u r r e n t p r i c e s Imports 4 -,9 * * 0 ^,330 6,100 9,*t00 Exports 3,980 *f,250 5,710 9,250 Balance - 960 - 80 - 390 - 150 Freight (ships) 6 * K > 590 600 950 Other invisible amounts - 80 - 20 - 20 - 90 Balance - H oo ^90 190 710 1950 pr ice s Imports 6,100 7,300 Exports and net invisible services 6,290 190 6,1*70 555g N O *K onjunkturinstitutet, Ovarslktfoar Pat Ekpnomlska LSgat, 1952 (Stockholm: Isaac Marcos Boktryckeri-Aktiebolag, 1952) , p. 7. 110 T A B U S 9 V O L U M E A N D PRICE INDEX FOR IMPORTS A N D EXPORTS Vnliimo Try^TT M M M W P re lim in a ry P re lim in a ry 19^9 1950 1951 19*»9 1950 1951 E x p o rts 115 lM t IbQ 93 100 157 Im p o rts 87 108 129 101 11*+ 1**7 In v e n to r ie s In v e n to r ie s in c re a s e d by 800 to 850 m illio n k ro n o r I n 1951 p ric e s * M easured in 1950 p r ic e s used In th e o r i g i n a l lo n g -te rm p la n , th e In c re a s e s am ounted to ap p ro x im a te ly 900 to 950 m illio n kronor* T h is was an I n d ic a tio n o f a m ild r e c e s s io n fo llo w in g th e o u tb re a k o f th e K orean War* The p a r t i c u l a r I n d u s tr ie s a f f e c te d were t e x t i l e s and footw ear* The g ro s s In v e stm en t d u rin g 1951 In c re a s e d by 300 m illio n k ro n o r I n 1951 p ric e s * Compared w ith th e 1951 p r o je c te d In c re a s e o f *+10 m illio n k ro n o r combined w ith an In c re a s e In I n v e n to r ie s , th e s e f a c t o r s s ig n a le d a weaken in g demand* B u ild in g c o n s tr u c tio n d u rin g th e y e a r , w h ile • 1 1 1 l e s s th a n th e g ra n te d p e rm its , expanded a t th e p r o je c te d r a t e o f 5 p e r c e n t9 o r In l i n e w ith th e p lan n in g schedule* S ince th e t o t a l In v estm en t d e c re a s e d , th e d e s ir e to In v e s t m ust have o c c u rre d In o th e r p r iv a te and governm ent I n v e s t ment* G ross n a tio n a l Income The g ro s s n a tio n a l p ro d u c t showed no s i g n i f i c a n t change from 1950, h u t i n d u s t r i a l p ro d u c tio n ro s e by ab o u t 5 p e r cen t* T hus, th e g o a l o f a n In c re a s e o f 3 p e r c e n t In th e n a tio n a l p ro d u c t had n o t b een re a liz e d * The changes In Im port and e x p o rt p r ic e s had made I t Im p o ssib le to m a in ta in a s ta b le c u rre n c y and a b a la n c e d grow ing economy* I t i s n o t p o s s ib le to make a com plete e v a lu a tio n o f th e economy b ecau se o f th e f lu c t u a t i o n o f p ric e s * One may o n ly conclude t h a t r e c e s s io n a ry te n d e n c ie s m ight have been g r e a te r In th e ab sence o f p la n n in g *6 D uring th e l a s t fo u r y e a rs o f th e second f iv e - y e a r p la n , th e economic ex p an sio n o c c u rre d a t an even tr e n d w ith some d e v ia tio n s from th e p re lim in a ry e s tim a te s * T able 10 h a s been c o n s tru c te d to show a c tu a l fifiSQfii ^ K o n J u n k tu r in s titu te t, Ova: e r s i k t Oyer P e t t Is a a c Marcus cos B o k try - TA BLE 10 PERC EN TA G E C H A N G E S IN GROSS NA TIONAL PR O D U C T 1952-1955 122=22 1952-51 1953-5*f 195»f-55 Gross n a tio n a l product 1 6 5 3 Im ports - 7 o 13 6 P riv a te Investm ent - A 9 3 P ublic Investm ent 3*5 10*7 10 3 E xports - 9 2.8 9 b P riv a te consumption 2 ,5 0 b 6 P ublic consumption 5*5 *t*3 5 b aE rik Lundberg, Bu»ini»»» CvaIos «nH Rrnpomic P olicy (Londons A llen and Ifavin, 1957), P . 188. bKonj unktorInstitutet, Cyersikt Oyer Pet Bkonomlaka Lggat (Stockholm: Isaac Marcus Boktryckerl-Aktlebolag, 1953), P* 8M-. cKonj unkturinstitutet, N^tioryiihnriget for Ar 1955 (Stockholms Isaac Marcus Boktryckerl-Aktlebolag, 1955), p« 7« dKbnjimktar Inst Itutet, Matin™ lhnrtgat f5 r i r 1<W 6 (Stockholm: Isaac Marcos Boktryckeri-Aktiebolag, 1956), p . 7* 1 1 2 113 p e rc e n ta g e changes In th e g r o s s n a t i o n a l p ro d u c t f o r th e y e a rs 1952-1955* T hrough p e rc e n ta g e f i g u r e s , a co m parison can be made w ith a c tu a l outcom e and th e e s tim a te d d e v e lo p m ent. The p e rc e n ta g e changes I n f a c t o r s making up th e g r o s s n a t i o n a l p ro d u c t I n d ic a te d t h a t o n ly I n th e p u b lic s e c t o r , co m p risin g e x p e n d itu re s f o r In v e stm e n t and con su m p tio n , d id th e a c t u a l outcom e e q u a l o r ex ceed th e e s tim a te s g iv e n i n th e f i v e - y e a r p la n . The low g row th r a t e m ig h t h av e tu rn e d I n to a m ild r e c e s s io n I f th e governm ent had n o t In c re a s e d sp en d in g In th e p u b lic s e c t o r . The l a s t two b u d g et y e a rs r e v e a le d a more b a la n c e d e x p a n sio n and d e v ia te d o n ly s l i g h t l y from th e p r o je c te d t r e n d . The u n fa v o ra b le tr e n d o f Im p o rts r e l a t i v e to e x p o r ts was th e main d e v ia tio n and I n d ic a te d t h a t th e econom ies I n o th e r c o u n tr ie s h ad some e f f e c t on th e Sw edish econom ic d ev e lo p m en t. The p la n n e d g row th r a t e o f 3 p e r c e n t p e r a™*pm f o r e x p o r ts an d p u b lic In v e stm e n t h ad p ro c eed ed a c c o rd in g to s c h e d u le . Employment had b ee n h ig h b u t th e o v e r a l l econom ic developm ent had p ro c eed ed d u rin g g r e a t p r ic e f l u c t u a t i o n s , w hich was one o f th e o b j e c t i v e s . SU M M A R Y The second f i v e - y e a r p la n was d e v e lo p e d I n 1950, two y e a rs b e f o r e th e e x p i r a ti o n o f th e f i r s t p la n . n * f E a r li e r r e a l i z a t i o n o f th e g o a ls o f th e f i r s t p la n , a s w e ll a s changing economic c o n d itio n s ,m o tiv a te d th e King to a p p o in t a new commission* Investm ent e x p e n d itu re s now re p la c e d e x p o rts a s th e c e n tr a l f a c to r in g e n e ra tin g demand* A f l e x i b l e p la n was in s tig a te d f o r th e r e a l i z a t i o n o f th e fo u r g o a ls * (1) f u l l employment, (2) a b a la n c e d economy, (3 ) s ta b le c u rren cy , and (*0 s t a b i l i z a t i o n th ro u g h f in a n c ia l c o n tro ls* The Committee came to th e co n c lu sio n t h a t th e s iz e o f th e la b o r fo rc e could be a lim itin g f a c to r i n th e r e a l i z a t i o n o f th e goals* An a c tiv e la b o r m arket p o lic y was recommended i n o rd e r to f u l l y u t i l i z e la b o r re so u rces* Investm ent in h ig h ly m echanized in d u s tr ie s was fa v o re d In o rd e r to conserve th e la b o r fo rce* The a n tic ip a te d grow th r a t e o f 3 p er c e n t p e r annum was r e a liz e d , b u t In c re a se d p r ic e s o f e x p o rts and im p o rts made i t d i f f i c u l t to m a in ta in a s ta b le currency* The l a s t two y e a rs re v e a le d a b alan c ed ex p an sio n w ith s l i g h t d e v ia tio n from th e p ro je c te d tr e n d , b u t th e o v e r a ll g a in had been ach iev ed a t th e expense o f f lu c tu a tio n in th e currency* Replacem ent o f d i r e c t p ric e c o n tro ls by c r e d it c o n tro ls had n o t e f f e c t iv e l y re ta rd e d p r ic e in c r e a s e s , however, i t i s d o u b tfu l t h a t th e grow th in th e n a tio n a l g ro ss p ro d u c t would have been r e a liz e d i f th e cu rb in g o f c r e d it had slowed down in v estm en t ex p e n d itu re s* CHAPTER VII THE THIRD FIVE TEAR PLAN 1956-1960 A p lan n in g com m ission composed o f f iv e members was ap p o in ted by th e King on A ugust 25* 1955 to fo rm u late a p la n f o r th e y e a rs 1956-60. The f iv e members proceeded upon th e assum ption t h a t th e r e would be no sudden change in th e i n t e r n a tio n a l s i t u a t i o n . In v estm en t was ex p ected to p la y th e c e n tr a l p a r t in th e d ir e c tio n and p lan n in g o f th e economy. PURPOSE A N D M ETHODS In th e c o n s id e ra tio n o f p lan n in g f o r th e n e x t f iv e y e a rs , th e Committee p o in te d o u t li m it a ti o n s in v o lv ed in d ir e c tin g th e economic developm ent f o r such a long tim e a s f iv e y e a rs . F l e x i b i l i t y in p lan n in g In view o f p o s s ib le unexpected economic d evelop m ents, th e Committee d ec id e d n o t to p re s e n t a r i g i d p ro gram. A more p ro g re ss iv e p la n would be r e a liz e d by p re se n tin g th e problem s connected w ith a l t e r n a tiv e s e c to r developm ent• R o llin g n la n n in g .—Th* n e c e s s ity o f m odifying th e lo n g -te rm p lan n in g in view o f unexpected changes le d to 115 116 th e need f o r r o l li n g a d ju stm e n ts. Through t h i s method th e p la n s would be m odified th ro u g h su c c e ssiv e e v a lu a tio n s o f economic tr e n d s . The main re a so n f o r m o d ific a tio n o f lo n g term p la n s a ro se from Sw eden's dependence upon changes in th e e x p o rt and Im port m ark e t. A sudden change in e x p o rts could le a d to In c re a se d needs f o r Investm ent in I n d u s tr ie s engaged in th e fo re ig n m a rk e ts.^ Y early r e p o r t s . —The an n u al economic b u d g ets were recommended to survey th e economic s i t u a t io n from y ear to y e a r. Bach y e a r 's budget e x p e n d itu re s could th u s be r e la te d to e x p e n d itu re s In th e p r iv a te s e c to r . Purpose The p r in c ip a l o b je c tiv e s were f u l l employmenty and a s ta b le c u rre n c y . The In c re a se d needs f o r e d u c a tio n and o th e r s o c ia l m easures were to be r e a liz e d through a growing n a tio n a l Income. S ince in v estm en t was to p la y th e c e n tr a l r o le f o r th e d e s ir e d economic g o a ls y I t was d ecided to c o n tro l consum ption. T h is r e s t r i c t i o n would ap p ly to b o th th e p u b lic and th e p r iv a te consum ption.2 ^ F in a n sd e p a rte m e n te t, g g U P M rtf.B K M M A S te l? ? ? (Stockholm ! Is a a c Marcus B o k try c k e ri-A k tle b o la g y 1957)» p p . 1 -1 9 . 2Ibld.* P* 66. 117 ~ THE 1956 NATIONAL ECONOMIC BUDGET The 1956 su rv ey and f o r e c a s t was In flu e n c e d by economic changes In 1955* The economy f o r t h a t y e a r v a s c h a r a c te r iz e d by In c re a s e d p ro d u c tio n and h ig h em ploym ent. P ric e s t a b i l i t y f o r th e p re v io u s y e a rs was underm ined d u rin g 1955* F i s c a l and m onetary m easures p la y e d a more Im p o rtan t r o le th a n had been th e case in e a r l i e r y e a r s .3 T o m Plan l? r 1956 The N a tio n a l R esearch I n s t i t u t e (K b n ju n k tu rin s ti t u t e t ) p r e d ic te d no g r e a t p r ic e r i s e in 1956. C ontinued c r e d i t r e s t r i c t i o n s were ex p e cted t o p u t a b rak e on p r iv a te In v e stm e n t. In T able 11, th e In v estm en t change o f 2 p e r c e n t I s shown to be th e same a s th e r a t e f o r e x p o r ts • The Committee p o in te d o u t t h a t I t would be n e c e s s a ry to w atch f o r changes In In v estm en t w hich m ight have s e rio u s consequences In consum ption and p r i c e s . R^aka in v o lv e d , —The r i s k s In v o lv ed i n th e contem p la te d program were s t a te d to be a s fo llo w s t 1 . The a g g re g a te demand w ould be g r e a te r th a n th e f o r e c a s t . 2 . T h is change In demand would make I t d i f f i c u l t ^KonJ t m k t u r l n a t l t u t e t , t t . t i Q n .ih .v U « t tor Ir ( Stockholm t Is a a c Marcus B o k try ck er 1 -A k tle b o la g , 1956) , p . 118. 118 TABI£ 11 BALANCE OF RESOURCES FOR 1956 (M illio n s o f K ronor in 1955 P ric e s ) 1955 1956 Change Nominal 1955-1956 P ercen tag e Srnrolv G ross n a tio n a l p ro d u c t **8,2*40 **9,690 1,**50 3 Im ports 10,300 10,**00 100 1 T o ta l 58,5**0 60,090 1,550 Demand P r iv a te in v e s t . 8 , **80 8,670 190 2 P u b lic in v e s t . 6 ,2 5 0 6,360 110 2 E x p o rts 9,980 10,180 200 2 P riv a te consum ption 27,810 28,610 800 3 P u b lic consum ption 6 ,0 2 0 6 ,2 7 0 250 * * T o ta l 58,5**0 60,090 1,550 , _ *KonJunkturinstitutet, fotioiqlbttflllgt Igr.fa.1956 (Stockholm! Isaac Marcus Boktryckeri-Aktiebolag• 1950). p . 113. 119 to o b ta in a fa v o ra b le b a la n c e o f tra d e * 3* P r ic e s w ould change* if* Employment d i f f i c u l t i e s would o ccu r* 1 4 . In T ab le 11, no f ig u r e i s shown f o r I n v e n to r ie s w hich w ere ex p e cted t o rem ain a t th e same l e v e l a s i n 1956* The e x p e c te d g ro s s n a ti o n a l p ro d u c t grow th r a t e o f 3 p e r c e n t was b ase d upon a n o v e r a ll s t a b i l i t y o f p ric e s * Outcome o f th e p la n The outcome o f th e s h o r t- te r m p la n I s shown in T ab le 12* A n o tic e a b le change o c c u rre d in e x p o r ts , w hich In c re a s e d by 9 p e r c e n t, a s compared w ith a n assum ed 3 p e r cen t* P r iv a te and p u b lic in v e stm e n t r e a l iz e d th e p r e d ic te d g row th r a t e o f 2 p e r cen t* P u b lic consum ption exceeded b u d g et f ig u r e s by 1 p e r c e n t, w hereas p r iv a te consum ption d e c re a se d by th e same p e rc e n ta g e * B alan ea o f t r a d e , —The b a la n c e o f tr a d e Im proved i n 1956, r e s u l t i n g i n an u n fa v o ra b le b a la n c e o f 175 m illio n k ro n o r, as com pared w ith a d e f i c i t b a la n c e o f blk m illio n k ro n o r i n 1955, e l l e x p re sse d i n c u r r e n t p ric e s * When com parison I s made I n 195*+ p r i c e s , th e changes I n e x p o r ts and Im p o rts o f 9 and 6 p e r c e n t r e s p e c t i v e l y , e x p re s s volume changes* * »Ibld** pp. 108-115 120 TAB IE 12 BALANCE OF TRADE 1955-1956 (M illio n s o f K ronor) 1955 1956 (P relim * ) P e rc e n ta g e Change C u rre n t P r ic e s E x p o rts 8 ,9 3 3 10,050 13 Im p o rts 1 0,337 11,HOO 10 B alan ce - lj^O^f - 1 ,3 5 0 F r e ig h t 1 ,0 2 5 1 ,2 0 0 17 O th er i n v i s i b l e ite m s 35 25 B alan ce o f T rade - hlh - 175 J-95*t P risfrg E x p o rts 8 ,6 8 1 9 ,^8 0 9 Im p o rts 10,l8M- 1 0 ,7 9 5 6 B alance - 1 ,5 0 3 - 1 ,3 1 5 F r e ig h t 890 910 O th er i n v i s i b l e ite m s 31 * 25 B alan ce o f T rade 64-7 1*30 a K o n ju n k tu r in s titu te * , ifafciom iibnriget f o r I t 1957 ( Stockholm t Is a a c Marcus B o k try c k e ri-A k tie b o la g , 1957)* p . 11* 121 P r ic e s . —The o th e r s i g n i f i c a n t change i n 1956 was t h a t th e 1955 tre n d o f in c re a s in g w h o le sa le , r e t a i l , and im port p r ic e s was re v e rs e d d u rin g th e f i r s t th r e e q u a r te r s o f 1956, a s i s shown i n T able 13* I t sh o u ld be n o te d t h a t a g r e a te r s t a b i l i t y o f w h o lesa le and r e t a i l p r ic e s o c c u rre d in 1956 when e x p o rt and im port p r ic e s w ere low er th a n in th e 1955 p e r io d .5 THE 1957 NATIONAL ECONOMIC BUDGET The W estern E u ropean econom ies d u rin g 1956 had been c h a ra c te r iz e d by r i s i n g p r ic e s and w ages. M easures ta k e n to c o n tr o l th e s e in c re a s e s were n o t s u c c e s s f u l u n t i l l a t e i n 1956. In th e U n ited S ta te s , th e g ro s s n a tio n a l p ro d u c t had been In c re a se d by 2 .7 p e r c e n t from 1955 to 1956. H igh b u ild in g c o n s tru c tio n was s i g n i f i c a n t in th e econom ic developm ent. The In flu e n c e o f th e s e fo re ig n c o u n tr ie s ' econom ies was ex p e cted to fa v o ra b ly a f f e c t Swedish tr a d e in th e y e a r 1957.^ g g lftg g ljpff re s o u rc e s T able 1U-, The B alance o f R eso u rc es, in d ic a te s t h a t ^Kbnjunkturlnstltutet. Natlonalbudize (Stockholmt Isaac Marcus Boktryckeri-Aktiebolag, 1957), p. 17. . . ^ f g n ?gi!lr t!g i ? a t “ u t e t , .-R*T ld*£*lLH *t i L -°nf 1W f a t for Ar 1957 (Stockholm! Isaac Marcus Boktryckeri-Aktie- bolag, K5/), pp. 20-25. T A B U S 13 PRICE C H A R G ES 1955-1956 (In Percentage) 1 9 5 5 1 9 5 6 SB • • 1 A pr.- Ju ly Ju ly - Oct. O ct.- Jan . J a n .- A p ril A p rll- Jo ly Ju ly - O ct. W holesale p ric e s 1.7 2.6 0 2 .9 1.6 -0 .6 -0 .3 R e ta il p ric e s 1.2 1.8 1 .8 1.3 0 .9 o.k 0 .1 Import p ric e s 0 0.6 2.1 2.7 -0 .3 0 .9 1.7 Export p ric e s 0,6 0 .9 1 .2 2.0 0.3 0 0 * K b n ju n k to rin stitu te t, M ktionalhudget f5 r Ar 1957 (Stockholm* Isaac Marcus B o k tryckerl-A ktiebolag), p . 1 / . 122 123 TAB IE IM BALANCE OF RESOURCES 1957 (M illio n s o f Kronor I n 1956 P r ic e s ) 1956 1957 Change 1956-57 M illio n Kr • P e r c e n t Supply . P ro d u c tio n 52,700 5M,100 +1,M )0 +3 Im p o rts H ,M 50 11,750 + 300 +3 T o ta l 6^,1 5 0 65,850 + 1,700 P r iv a te In v estm en t 9,050 9 ,3 0 0 + 250 +3 S ta te In v estm en t 3 ,8 0 0 3 ,9 0 0 + 100 +2 Community In v estm en t 2,750 3 ,0 5 0 + 300 +12 Change In I n v e n to r ie s 750 250 - 5oo E x p o rts 11,250 11,950 + 700 +6 P r iv a te consum ption 30,150 30,650 + 5oo +2 S ta te consum ption 2 ,6 0 0 2 ,7 0 0 + 100 + M - Community consum ption 3 ,8 0 0 M,O50 + 250 +7 T o ta l 6M-,150 65,850 + 1,700 +3 * K o n J u n k tiu rln s titu te t, R a v id » r ^ N ftt i 0n«iv>iij?« t ( Stockholm t Is a a c M arcus B o k try c k e rl-A k tie - ) , P . 76* 12b th e m ajor change was e x p e c te d in th e p u b lic s e c to r . M u n icip al in v e stm e n t and consum ption w ere e x p e c te d to in c re a s e 12 and 7 p e r c e n t r e s p e c ti v e l y in 1957» com pared t o a m oderate in c re a s e o f 2 t o 3 p e r c e n t in th e o th e r s e c t o r s • Palanse of trade The u n fa v o ra b le b a la n c e o f tr a d e had been re d u ced sin c e th e m iddle o f 1955* A more fa v o ra b le b a la n c e o f tr a d e was e x p e c te d th ro u g h in c re a s e d e x p o r ts . T h is d e v e l opment co u ld be u p se t th ro u g h changes i n e x p o rt and Im port p r i c e s . Prices W hile th e b a la n c e o f tr a d e had a fa v o ra b le d i r e c t i o n , p r i c e s had n o t b e e n s t a b l e . From 1955 to 1957* co n su m ers' p r ic e s in c re a s e d 11 to 12 p e r c e n t. The b a la n c e o f re s o u rc e s (T ab le 1*0 d id n o t ta k e in to c o n s id e r a ti o n changes i n th e p r ic e l e v e l . In c re a s e d r e t a i l p r ic e s o f 2 p e r c e n t c o u ld be th e r e s u l t o f th e fo llo w in g d e v e l opm ents s 1 . In c re a s e d r e n t s b ro u g h t a b o u t th ro u g h new r e n t r e g u la ti o n s ; 2 . new i n d i r e c t ta x e s ; 3 . I n f l a ti o n a r y te n d e n c ie s b ecau se o f In c re a s e d demand. Outcome f o r th e y e a r 1957 The b a la n c e o f r e s o u r c e s (T a b le l 1 *) com pared econom ic d ev elo p m en ts from y e a r to y e a r and n o t f o r th e c o u rse o f th e y ear* S t a t i s t i c a l s e r i e s f o r th e y e a r i n d i c a te d a m od erate In c re a s e i n econom ic a c t i v i t y i n 1957 w ith a b e t t e r o v e r a l l b a la n c e d economy*? THE 1958 NATIONAL ECONOMIC BUDGET L over econom ic a c t i v i t y i n th e la r g e im p o rtin g c o u n tr ie s in d ic a te d a sm a ll In c re a s e in Sw edish e x p o rts * In c r e a s e s w ere e x p e c te d i n th e e n g in e e rin g in d u s tr y , b u t sh ip m en ts o f ir o n and s t e e l w ere e x p e c te d to d e c re a se * BraflasUftn P ro d u c tio n i n 1958 was e x p e c te d to in c r e a s e a b o u t 2 p e r c e n t* T h is g ro w th w ould be s u p p o rte d b y two f a c t o r s s 1* in c r e a s e In p o p u la tio n , and 2* a v a i l a b i l i t y o f I n d u s t r i a l c a p a c ity and raw m a te r ia ls * P o p u la tio n . —D uring 1958, th e g ro w th o f p o p u la tio n i n th e 15 t o 6U - age b r a c k e t was e x p e c te d t o In c re a s e b y a p p ro x im a te ly 3 8 ,0 0 0 p erso n s* W ith th e same im m ig ra tio n a s i n 1956, th e t o t a l s u p p ly o f la b o r w ould In c re a s e by / « . ^ K o n J a n k to r ln s tlta ty t, ■ p t l o n f l b n d f t flh . U i q <b ( Stockholm t Is a a c M arcus B o k try c k e ri A k tie b o la g , 1 9 5 8 ), P* 1**3* 126 M-8,000 persons. Rav a a t a r l a l a and I n d u s tr i a l c a p a c ity .— -S hortages in th e I n d u s t r i a l c a p a c ity and raw m a te r ia ls d id n o t seem l i k e l y to r e s t r a i n e x p a n sio n . In c re a se d p ro d u c tio n was ex p ected In th e p u lp and p ap er I n d u s t r i e s . fo a g u n w r prises P ric e s In 1958 were ex p ected to r i s e l e s s th a n In th e p ro ced ln g y e a r, w ith ap p ro x im ately a 2 p e r c e n t r i s e p r e d ic te d . The In c re a se In p r ic e s d u rin g th e p reced in g y e a r was caused m ainly by th e In tro d u c tio n o f I n d ir e c t ta x a tio n and a r i s e In p o s ta l r a t e s , te le p h o n e »nd t e l e grap h c h a rg e s. No change In th e s e f a c to r s was ex p ected In 1958. Outcome f o r th e y ea r 1958 A fa v o ra b le grow th In th e economy o c c u rre d In s p ite o f ex p ected low er e x p o r ts , w hich a c tu a lly o c c u rre d d u rin g 1958. A com parison betw een p re d ic te d a c tu a l b a la n c e o f re s o u rc e s c a lc u la tio n h a s been made In T able 1 5 . As may be n o te d In T able 15, p ro d u c tio n In c re a se d by if p e r c e n t ov er th e planned 1 p e r c e n t grow th. T h is grow th can be a t t r i b u t e d m ainly to th e h ig h p r iv a te In v estm en t and h ig h e r th a n a n tic ip a te d p u b lic and p r iv a te consum ption. 127 TABIE 15 BALANCE OF RESOURCES 1958 P ercen tag e Changes from P rev io u s T ear Su ppI v P ro d u c tio n +1 +** Im ports 0 -3 fififlUDd P riv a te In v estm en t * (* 7 +9 P u b lic In v estm en t +5 + * + Change In In v e n to rie s — — E x p o rts , goods and s e r v ic e s -1 - l+ P riv a te consum ption +6 +6 P u b lic consum ption +3 +7 * K o n J u n k tu rin s titu te t, (Stockholm ! Is a a c Marcus B o k try c k e ri A k tle b o la g , 195&J, p« 152. • f ^ F ln a n sd e p a rte m e n te t, jta jflttid -N fttto n a lb B flM t f o r Ar 1958 (Stockholm ! Isa a c Marcus B o k try c k e ri K feteB oC gT 1 9 5 8 ), p . 1 2^ . 128 The expansion o ccu rred w ith a n unchanged v alu e o f th e c u rre n c y sin c e A p ril o f 1958* E x p o rts and im p o rts, which b o th d e c re a se d , d id n o t e x e rc is e p re ss u re on p r ic e s and i t co u ld j»e concluded t h a t th e Commission succeeded o i n b a la n c in g a s w e ll a s expanding th e economy*0 THE 1959 NATIONAL ECONOM IC BUDGET In th e economic f o r e c a s t f o r 1959* th e budget d e le g a tio n ex p ected th a t e x p o rts co u ld n o t be re v iv e d to show a fa v o ra b le balance* To com pensate f o r d e c lin in g e x p o r ts , th e Commission d ecid ed th a t p u b lic in v estm en t and consum ption would be th e m ost s ig n i f i c a n t fa c to rs * T able 1 6 , B alance o f R eso u rces, in d ic a te s th e d if f e r e n c e s betw een budgeted and a tta in e d changes In th e economy f o r th e y e a r 1958-1959* Comparison o f outcome and budgeted am ounts shows an In c re a s e in a l l segm ents in th e b alan c e o f re so u rc e c a lc u la tio n s * The grow th was s u s ta in e d th ro u g h In c re a se d c r e d i ts by th e banking system* I t i s d i f f i c u l t to tr a c e th e In flu e n c e o f e a s ie r m onetary p o lic y , b u t a v a ila b le s t a t i s t i c s f o r th e p e rio d in d ic a te d a p ric e In c re a s e o f „ # B p in an sd ep artem en tet, R evlderad M atloneibnflgat f o r l r 1959 ( Stockholms Isa a c Marcus ttok try ck m rl A kcle- b o la g , 1 9 5 9 ), p . 97* 129 TABUS 16 BALANCE OF RESOURCES 1958-59 (P e rc e n ta g e Changes from P re v io u s Y ear) P rg fllstafl A tta in e d Supply P ro d u c tio n 2 5 Im ports 2 5 P»H u»n<l Private Investment 3 6.5 State Investment 12 11 Community Investment 6 8 Exports 0 6.5 Private consumption 2 k - State consumption 3 7 Community consumption * 6 M f * F ln a n sd e p a rte m e n te t, f o r Ar 1960 ( Stockholm t Is a a c Marcus B o k try c k e rl A k tie - b S la g ; I ? 0 ) , p . 7 5 . 130 1 + p e r c e n t, v e r s u s a 5 p e r c e n t change I n p ro d u c tio n * 9 THE I9 6 0 NATIONAL ECONOMIC BUDGET A su rv e y o f th e Sw edish economy in d ic a te d a c o n tin u e d u n fa v o ra b le b a la n c e o f tra d e * The p la n n e d e x p a n sio n o f p r iv a t e in v e stm e n t am ounting to 8 p e r c e n t was u n d e rta k e n under c o n d itio n s o f a lm o st f u l l employment* I t was f e a r e d t h a t th e f i n a n c i a l e x p a n sio n i n th e p u b lic s e c to r w ould r e le a s e la r g e fu n d s w hich w ould weaken th e e f f e c t s of. a s t r i n g e n t m o n etary p o lic y * The b a la n c e o f re s o u r c e c a lc u la ti o n s f o r changes b etw een 1959 and I9 6 0 shown i n T ab le 17 i n d i c a t e s th e p la n n e d developm ent i n 1959 p ric e s * « * The grow th o f th e economy under f u l l employment and e x c e s s demand was n o t I n f l a t i o n a r y d u rin g th e f i r s t p a r t o f I960* D elay I n th e c o n s tr u c tio n o f p u b lic b u ild in g s and h o ld in g b a c k th e r e le a s e o f In v e stm e n t fu n d s d id n o t p re v e n t some p r ic e In c re a s e s * ^ ° W hile w h o le sa le p r i c e s In c re a s e d * * ■ p e r c e n t from 1959 to I9 6 0 , th e consum er p r i c e in d e x r o s e by 6 p e r c e n t f o r th e same p e r i o d * ^ • „ 9 p in a n s d e p a rte m e n te t, R a v ld fra d rSr- Ar I9 6 0 (S to c k h o lm Is a a c M arcus B o k try c k e ri A k tle b o la g , RbOjf P* 66. lO jfe jA ., p p . 81-83* ^ S t a t i s t i s k a C e n tra lb y ra n , A Unfin HftPftflfl No* 6 (J u n e , 196*0, p p . M-17-^20* 131 TAB IE 17 BALANCE OF RESOURCES 1959 M illio n K ronor P e rc e n ta g e P ro d u c tio n 2 ,9 0 0 **.5 Im p o rts 1 ,0 0 0 8 D ecrease I n I n v e n to r ie s 200 ------ T o ta l 3 ,7 0 0 P r iv a te in v e stm e n t 900 8 S ta te In v e stm e n t 200 if Community In v e stm e n t 200 5.*f In c re a s e In I n v e n to r ie s 500 — E x p o rts 900 7 P r iv a te consum ption 900 2 .5 S ta te consum ption 150 5 Community consum ption 250 5 T o ta l 000 I n f l a t i o n a r y gap 300 a F ln a n s d e p a rte m e n te t, R e v id e ra d M atlon a lb u d g c t f S r 6Q ( Stockholm s Is a a c M arcus B o k try ck m ri A k tle b o la g , ” • P# 76m SU M M A R Y The P la n n in g Commission t h a t d ev elo p ed th e g u id e l i n e s and p o l i c i e s f o r th e t h i r d f i v e y e a r p la n gave a p ro m in en t r o l e t o in v estm en t* T h is Commission r e a l iz e d t h a t th e r e w ere c e r t a i n l i m i t a t i o n s I n p r e d ic tin g econom ic dev elopm ents o v er a f i v e y e a r p e rio d * F l e x i b i l i t y i n p la n n in g sh o u ld be o b ta in e d th ro u g h " r o l l i n g p la n n in g " o r s u c c e s s iv e e v a lu a tio n s o f econom ic tr e n d s and th e m o d ific a tio n o f p la n s* The m ajor re a s o n f o r a d o p tio n o f a more f l e x i b l e program was th e p o s s i b i l i t y o f sudden changes in Sw edish e x p o rts* Through th e p r e s e n ta tio n o f n a ti o n a l econom ic b u d g e ts , o r s h o r t- te r m f o r e c a s t s , recom m endations w ere made t o th e P a rlia m e n t a s to d e s ir a b le f e d e r a l b u d g et e x p e n d itu re s * Trior y e a r s ' developm ents w ere rev iew ed b y th e N a tio n a l Economic B udget D e le g a tio n and changes w ere recommended i n view o f th e p r i o r y e a r 's outcome and f o r e c a s t s f o r th e en su in g year* T h u s, th e 1956 f o r e c a s t and s h o rt-te r m p la n was In flu e n c e d by econom ic changes w hich had o c c u rre d In 1955* P r ic e i n s t a b i l i t y i n 1955 was c o u n te ra c te d d u rin g 1956 th ro u g h f i s c a l and c r e d i t m easures* The c r e d i t r e s t r i c t i o n s on In v e stm e n t acco m p lish ed th e pu rp o se o f re v e rs in g th e 1955 tr e n d o f w h o le sa le and r e t a i l p r ic e in c re a s e s * M u n icip al in v e s tm e n t, c o n tr o lle d by th e Sw edish S t a t e , c o n s ti t u te d th e m ajor f a c t o r i n th e 1957 n a tio n a l econom ic b u d g e t. D uring th e l a s t th r e e y e a rs o f th e lo n g term p la n , g r e a t e r w e ig h t was g iv e n to p r i v a t e in v e stm e n t r e s u l t i n g i n some p r ic e in c r e a s e s an d a g ro w th i n th e g ro s s n a t i o n a l p ro d u c t o f b t o if. 5 p e r c e n t. CHAPTER V III THE FOURTH FIVE TEAR PLAN 1961-1965 On May 2 8 , 1959, th e King' o f Sweden a p p o in te d a P la n n in g Commission o f sev en members, w ith P ro fe s s o r In g v a r S v e n n llso n a s Chairman* The Commission was a s s i s t e d by an A d v iso ry Com mittee o f tw elv e members w ith r e p r e s e n ta tio n from th e Sw edish governm ent, b a n k s, and u n i v e r s it ie s * T h ree u n i v e r s it y p r o f e s s o r s w ere In c lu d e d on th e Com m ission, w h ile fo u r se rv e d on th e A d v iso ry C om m ittee• DEVELOPMENT OF THE PLAN A p r o p o s itio n to th e P a rlia m e n t In 1957 c o n ta in e d a recom m endation to f u tu r e p la n n in g com m issions* The m ain d i r e c t i v e In t h i s p r o p o s itio n was t h a t In th e f u t u r e , In v e stm e n t sh o u ld be g r e a t l y In c re a s e d w ith a co rresp o n d in g c u r ta ilm e n t o f consum ption e x p e n d itu re * O b je c tiv e s The Commission d e c id e d to In c re a s e th e In v e stm en t q u o tie n t o r th e r e l a t i o n s h i p betw een t o t a l In v e stm e n t and g ro s s n a t io n a l p ro d u c t* In v e stm en t e x p e n d itu re s w hich c o u ld b e a c ti v a t e d I n a s h o rt p e rio d w ould have p r i o r i t y o v e r lo n g -te rm p r o j e c t s , and w ith in e a c h group p r i o r i t i e s w ould be s e t up* E x p e n d itu re s f o r r e s e a r c h and e d u c a tio n 13k 135 sh o u ld a ls o re c e iv e a t t e n t i o n b ecau se o f t h e i r In flu e n c e on p ro d u c tio n * I t was r e a l i s e d t h a t slo w er econom ic grow th was e x p e c te d In th e W estern E uropean c o u n tr ie s w hich c o u ld a f f e c t Sw eden's e x p o r ts and term s o f tra d e * Any sudden change In th e e x p o rt tr a d e would have to be accommodated th ro u g h r o l l i n g a d ju s tm e n ts r e f e r r e d to in th e p re v io u s c h a p te r* C o n su m p tio n w hich was ex p e cted to grow a t a slo w er r a t e th a n In v e stm e n ty w ould have t o be j u s t la r g e enough to a t t a i n th e p r e d ic te d g ro s s grow th o f n a tio n a l p ro d u ct* M ethods The Sw edish p la n n in g m ethods d if f e r e d from th o s e In some o th e r E uropean c o u n trie s * The lo n g -te rm p la n n in g I n th e o th e r c o u n tr ie s , e x e m p lifie d by F ra n c e , a tte m p te d to d i r e c t th e econom ic developm ent th ro u g h S ta te d i r e c tiv e s * In Sweden, th e p la n n in g h a s been d e c e n t r a l i s e d , and th e econom ic developm ents have b een b a se d upon p la n s o f p r iv a t e p e rs o n s , p r iv a te b u s in e s s , com m unity, and governm ent p lan s* The Commission h a s a c te d a s a c o o rd i n a tin g agency to fo rm a lis e lo n g -te rm p e r s p e c tiv e s o f th e econom ic developm ent* S e c to r p la n s a r e m o d ified and I n te g r a te d w ith th e 136 o v e r a l l p la n n e d o b je c tiv e o f th e economy* Sector de v e lo p m e n t*—The pl a n n in g was b ase d on th e g ro v th o f th e g r o s s n a t i o n a l p ro d u c t* The change I n th e g r o s s n a t i o n a l p ro d u c t was b u i l t up from e s tim a te s o b ta in e d from d i f f e r e n t s e c to r s * The In fo rm a tio n o b ta in e d from th e gov ern m en t, p r i v a t e b u s in e s s , and I n d iv id u a ls become th e b a s i s f o r e s tim a tin g e a c h s e c t o r 's developm ent* C om parison was th e n made betw een th e e s tim a te d developm ent I n e a c h s e c to r and th e a c t u a l outcom e i n p r i o r y e a rs* The tr e n d e s t a b l i s h e d from a c t u a l developm ent In p re v io u s y e a rs was u sed to m odify e a c h s e c t o r 's developm ent and to g iv e a n I n d ic a tio n o f th e r e l a t i o n s h i p betw een d i f f e r e n t f a c t o r s I n th e g ro s s n a t i o n a l p ro d u c t g y a la a tig n g f...g g m st ■atffrld3L»— one o f th e d i f f i c u l t i e s c o n n e c te d w ith th e so u rc e m a te r i a l I s t h a t In th e p u b lic s e c to r th e econom ic developm ent h a s b e e n o v e r e s tim a te d , w h ereas In th e p r i v a t e s e c to r th e econom ic g ro w th h a s b e e n u n d e re stim a te d * C o r r e c tio n s a r e made I n th e p la n s I n re sp o n s e t o th e developm ent o f th e econom ic t r e n d , and th e s e m o d if ic a tio n s a r e d is c u s s e d w ith r e p r e s e n t a t i v e s o f th e v a r io u s s e c to r s * ^ F ln a n s d e p a rte m e n te t, Svg ( Stockholm t Id u n s T ry c k e rla k tle b o p . 18* Changes In e x p o rts have g r e a t in flu e n c e on th e Swedish economy and th u s on lo n g -te rm p la n n in g . To some e x te n t, th e Im pact o f e x p o rts may be l e s s sev ere I f r e a l i s t i c e v a lu a tio n s have been made o f I n te r n a tio n a l economic co n d itio n s* The la b o r fo rc e h as been one o f th e m ajor lim itin g f a c to r s f o r economic grow th and s t a b i l i t y . Because o f co n tin u ed la b o r s h o rta g e , Investm ent In m achinery h a s been used to s u b s t i tu t e c a p i t a l f o r la b o r . Raw m a te r ia l I s a n o th e r l i m i t a t i o n , p a r t i c u l a r l y when Im p o rted . D uring th e fo u r th f iv e y e a r p la n , th e Commission h a s recommended In c re a se d e x p o rts o f f a b r ic a te d goods f o r w hich dom estic raw m a te ria l was a v a ila b le . SECTOR PLANS In th e e v a lu a tio n o f s e c to r p la n s , a t te n ti o n was p a id to th e e s tim a te d developm ent in v a rio u s I n d u s tr ie s , a s w e ll a s th e m o d ific a tio n o f s e c to r p la n s , acco rd in g to th e f o r e c a s t f o r th e whole economy. The a c tu a l f ig u r e s f o r th e p ro je c te d g ro ss n a tio n a l p ro d u c t w i l l be d is c u s s e d under a s e p a ra te h e a d in g . The P lan n in g Commission r e l i e d upon In fo rm atio n re c e iv e d from th e E m ployers9 R esearch O rg a n isa tio n (A rb e tsg lv a re fo re n ln g e n ) when th e lo n g -te rm p la n s w ere 138 u nder c o n s id e r a tio n f o r t h i s s e c to r* Most p r i v a t e i n d u s t r i e s i n Sweden engage i n lo n g te rm pl a n n in g* I n 1959 9 a q u e s tio n n a ir e was s e n t t o 600 com panies i n o rd e r t o o b ta in a summary o f f u t u r e in te n tio n s * The p o s s i b i l i t y o f m aking r e l i a b l e f o r e c a s t s by firm s f o r su ch a lo n g tim e i s o f c o u rse v e r y lim ite d * The Com m ission t h e r e f o r e d e c id e d t o t e s t e a c h I n d u s t r y 's p la n s th ro u g h a n a l y s i s , a s i s shown i n T a b le 18* In th e c o n s tr u c tio n o f th e t a b l e , consum ption o f raw m a te r ia ls was c a lc u la te d th ro u g h in p u t- o u tp u t a n a ly s is * E x p o rts and in v e stm e n t f o r e a c h in d u s tr y w ere b a s e d on q u e s tio n n a ir e s r e c e iv e d from e a c h firm * P r iv a te and p u b lic co n su m p tio n was e s tim a te d and Im p o rts w ere c o n s id e re d a s r e s id u a l* A few o f th e m ost Im p o rta n t i n d u s t r i e s a r e d i s c u sse d i n p a ra g ra p h s t o fo llo w from th e p o in t o f view o f in v e s tm e n t and la b o r re q u ire m e n ts w ith t h e i r r e l a t i o n s h i p t o e x p o r ts and im p o rts* A grlffttlftlgg and ¥99fl added v a lu e i n a g r i c u l t u r e was e x p e c te d t o I n c re a s e o n ly 1 p e r c e n t « f o r th e p e r io d 1960-1965* The d ro p i n em ploym ent i n a g r i c u l t u r e was e x p e c te d to c o n tin u e i n v iew o f in c re a s e d m e ch a n iz atio n * In v e stm e n t i n a g r i c u l t u r e was e x p e c te d to re a c h U-70 m i ll io n k ro n o r i n 1965 a s com pared w ith ¥ * 0 139 TABUS 18 BALANCE OF RESOURCES FOR O N E BRANCH OF INDUSTRY ( l a M illio n K ronor) Supply Demand P ro d u c tio n Im p o rts l e s s In c re a s e In I n v e n to r ie s T o ta l 2 ,5 2 6 D om estic consum ptions 1 ,1 ^ 9 3 ,6 7 5 Raw m a te r ia ls and s e m l-fa b rlc a te d Item s 1,516 End p ro d u c ts ! P riv a te consump tio n 732 P u b lic consump tio n $ In v estm en ts E x p o rts 678 T o ta l M-,3^7 L east T ra n s p o rt and d i s t r i b u t i o n c o s ts - 672 T o ta l 3 ,6 7 5 n t e t ( Stockholm s Iduns P« 3 2 . Iho m illio n k ro n o r I n I960*2 The wood in d u s tr y t r a d i t i o n a l l y h a s been v e ry im p o rta n t b ecau se o f la r g e e x p o rts o f wood p ro d u cts* M echanization had co n tin u e d i n t h i s I n d u s tr y y r e s u l t i n g In In c re a se d p r o d u c tiv ity and th e r e le a s e o f la b o r a t th e r a t e o f 2 to 3 p e r c e n t sin c e 1950* Iro n o re in d u s tr y *—The ir o n o re In d u s try v a s ex p ected to in c re a s e p ro d u c tio n by *t2 p e r c e n t f o r th e p e rio d 1959-65* The developm ent o f t h i s In d u s try i s im p o rta n t to th e Swedish economy s in c e In 1959* 81 p e r c e n t o f th e p ro d u c tio n was s o ld to f o r e ig n c o u n trie s* E xpansion o f th e In d u s try was b ased on la r g e In v estm en t e x p e n d itu re s In m achinery* Ivon and s t e e l *—The ir o n and s t e e l In d u s tr y , w hich a ls o p la y s a prom inent r o le i n th e e x p o rt m ark e t, was ex p e cted to show a n In c re a s e o f 73 p e r c e n t d u rin g th e p erio d * M achinery. —The p ro d u c tio n o f m achinery, w hich c o n s titu te d 15 p e r c e n t o f th e added v a lu e in th e g ro s s n a tio n a l p ro d u c t, was e x p e c te d t o In c re a s e Mt p e r c e n t, ac co rd in g to th e in fo rm a tio n g a in e d from th e in d u s tr y q u e s tio n n a ire * E x p o rts o f m achinery w ere doubled d u rin g 2JQl££*, p* 26 I b l 19509 and t h i s developm ent was e x p e c te d t o c o n tin u e d u rin g th e f o u r th p la n n in g stag e* ghln construction«—The c o n s tr u c tio n o f s h ip s , w hich had In c re a s e d a t a r a p id pace s in c e 1930 9 was p r e d ic te d t o show an In c re a s e o f 20 p e r c e n t f o r th e p e rio d * S in ce a b o u t 50 p e r c e n t o f th e o u tp u t I s e x p o r te d y th e s h ip b u ild in g In d u s try w ould be much In flu e n c e d by econom ic c o n d itio n s In o th e r c o u n trie s * R e s id e n tia l c o n s tr u c tio n , —The h o u sin g s h o rta g e was s t i l l a c u te In I960* The Commission e s tim a te d t h a t a y e a r ly In c re a s e o f 7 6 9*tO O r e s i d e n t i a l u n it s , r e p r e s e n tin g a 15 p e r c e n t in c r e a s e i n In v e stm e n t, w ould b e n e c e s s a ry t o a l l e v i a t e th e s h o rta g e In some m easure* THE PROGRAM In th e l a s t s e c tio n , a n a n a ly s is was made o f th e m ajor s e c to r developm ent* In fo rm a liz in g th e lo n g -te rm p la n , th e Commission had to c o n s id e r th e r e l a t i o n s h i p betw een d i f f e r e n t s e c to r p la n s and th e l i m i t s t o w hich ea c h s e c t o r 's p ro d u c tio n sh o u ld be In c re a s e d i n o rd e r to f i t th e o b je c tiv e s o f th e f o u r th p lan * A b a la n c e o f re s o u rc e c a lc u la ti o n p r o je c tin g th e e x p e c te d o v e r a l l econom ic developm ent I s shown i n T ab le 19* K m low M nt An e s tim a te was made re g a rd in g th e number o f 1 . 1 * 2 TAB IB 19 ESTIMATED D EVELO PM ENT DURING 1960-1965 1960-1965 I960 M ill* Kir* P ric e s 1960-1965 P er "cent Mi 11. Kir* p e r y ear SuddI y P ro d u ctio n 68,700 83,700 +15,000 + i*.o Gross in v estm en t ex cluding d efense exp* 20,200 21*,850 + 1*,650 + 1**2 Change In In v e n to rie s + I t ^ O + 900 - 550 Trade b alan ce - 600 + 200 + 8 0 0 P u b lic consump t io n ex cluding d efense exp* 7,1*00 9,300 + 1,900 + 1**6 D efense expend i t u r e s 3,050 3,^50 + 1*00 + 2 .5 P riv a te consump tio n 37,200 1*5,000 + 7,800 + 3 .9 T o ta l Demand 68,700 83,700 aFlnansdei>artem entet (Stockholm* Iduns T ry c k e rla k tle b o la g E s s e lte AB, 1962}, p . 85. 1 ^ 3 w o rk ers t h a t would be r e q u ir e d f o r each s e c to r com prising th e g ro s s n a t io n a l p ro d u c t. The t o t a l number o f w o rk ers was c a lc u la te d a s *t8,000 f o r th e p ro d u c tio n o f g o o d s* and 129*000 in tr a n s p o r ta tio n * d i s t r i b u t i o n o f goods* p u b lic employment* and o th e r s e rv ic e s * The t o t a l o f 177*000 exceeded th e 1^0,000 f ig u r e t h a t had b een e s tim a te d by th e Commission from f ig u r e s b ased on th e p o p u la tio n tren d * T h is would p r e s e n t a problem a s t o th e r e a l i z a t i o n o f th e g o a l w ith a minimum o f p r ic e f l u c t u a t i o n . 3 In v estm en t q u o t ie n t , — In o rd e r to com pensate f o r p o s s ib le la b o r s h o rta g e and a ls o t o m a in ta in a grow th r a t e o f p e r c e n t p e r annum* th e Commission a d v o c ated __ t h a t th e In v e stm en t q u o tie n t be In c re a s e d o v er th e I9 6 0 fig u re * I t had b een th e e x p e rie n c e in w e ste rn c o u n tr ie s t h a t p ro d u c tio n was h ig h e r when th e in v e stm e n t q u o tie n t in c re a se d * In o rd e r to m a in ta in th e grow th* i t was c a lc u la te d t h a t th e m a rg in a l in v e stm e n t q u o tie n t sh o u ld be 5 .5 .lf T h is re a so n in g i s in l i n e w ith th e Domar a n a ly s is f o r econom ic growth* No a tte m p t was made to r e l a t e th e in cre m e n t in grow th to th e m a rg in a l p ro p e n s ity to save and to th e p o t e n t i a l av e rag e p r o d u c tiv ity o f in v estm e n t* ^ 3^]2ld*, p p . 87-89* p . 1 09. ^W allace C. P e te rs o n , lacPBW * fiflTClPyiM lrt* Wfl THE O U TCO M E The a c t u a l econom ic developm ent f o r th e f i r s t fo u r y e a rs c a n now b e com pared w ith th e P la n n in g C om m ission's f o r e c a s t* The f o u r y e a rs w ere c h a r a c te r iz e d b y econom ic f lu c tu a tio n s * The boom I n 1961 was fo llo w e d b y a m ild r e c e s s io n i n 1962* A re c o v e ry w hich d ev e lo p e d I n 1963 c o n tin u e d I n 196*** P ro s p e c ts seem good f o r p r o s p e r ity I n 1965. S e c to r developm ent In o rd e r to com pare econom ic developm ent w ith th e lo n g -te rm p la n , a n a n a ly s is w i l l f i r s t be made o f s e c to r d ev e lo p m en t, a s com puted b y th e tr e n d o f th e g ro s s n a t i o n a l Income* F i n a l l y , m ajo r com ponents i n th e g ro s s n a t i o n a l p r o d u c t, su ch a s In v e stm e n t, p u b lic and p r iv a te co n su m p tio n w i l l be c o n sid e re d * I n s t a b i l i t y , a s r e f l e c t e d i n p r ic e and wage f l u c t u a t i o n , w i l l c o n s t i t u t e a t e s t o f th e s u c c e s s o r f a i l u r e o f th e econom ic I n te r v e n tio n * A g r ic u ltu r e *— In T a b le 2 0 , a c t u a l and p la n n e d p ro d u c tio n f o r a g r i c u l t u r e h a s b een shown i n r e l a t i o n to ch an g es i n la b o r In p u t and In v estm en t* As can b e se e n i n th e t a b l e , o u tp u t h a s b e e n h ig h e r th a n p r e d ic te d , w ith th e e x c e p tio n o f y e a r 1963, when a p o o r h a r v e s t ca u sed a nomlc Growth (Hew Yorks W. V* H o rto n Co*, 1 9 6 2 ), p TABU 20 AGRICULTURE, PRODUCTION. EM PLO Y M EN T, A N D IN V ESTM EN T 1960-196*f (Fixed P rices s Index i960 = 100) A ctual Development 1961 1962 1961 196*f F orecast o f Planning Comm. 1961 1962 1961 196W 1 Production 10*t.7 105.8 9 8 .8 102.0 100.2 lOO.lf 100.6 100.8 Labor Input 95 89 85 96.7 93A t 90.1 86.8 Gross Investm ent 116 115 116 117 102 10*t 107 109 *5sten Johansson, "Economic Development In Sweden During the 1960'ss How Far Has th e long-Ter* PU n Been F u lfille d ? " « r » n a in .» i« in . Benlnm o n e rte rly Review. O c t., 19& , p . 117. I*t6 d e c li n e . I t sh o u ld be n o te d t h a t when la b o r in p u t d e c re a s e d 9 s u b s t i t u t i o n o f c a p i t a l f o r la b o r th ro u g h In v e stm e n t e x p e n d itu re s co n firm ed th e C om m ission's c o n c lu s io n s re g a rd in g In c re a s e d m e ch a n iz atio n * F o r e s tr y . —M o t a b l e i s shown f o r f o r e s t r y ) d a ta i s la c k in g f o r in v e s tm e n t i n 1962 and 1963* The r e c e s s io n i n th o s e y e a rs w eakened th e e x p o rt m ark et f o r f o r e s t p ro d u c ts and h e n c e , in flu e n c e d p ro d u c tio n , h ow ever, I n 196M-, p ro d u c tio n h ad In c re a s e d more th a n t h a t w hich had b een p re d ic te d * I n d u s tr y . —The P la n n in g C om m ission's e s tim a te o f p ro d u c tio n , em ploym ent, and in v e stm e n t was b a se d on d a ta s u p p lie d b y p r i v a t e firm s* The f o r e c a s t f o r th e p e r io d 1960-196*4- i s com pared t o a c t u a l developm ent i n T a b le 21* I t sh o u ld b e n o te d from T ab le 21 t h a t p ro d u c tio n I n 196*4- had ex ceed ed th e t a r g e t f i g u r e i n s p i t e o f th e le v e li n g o f f o f g r o s s in v e s tm e n t e x p e n d itu re s a f t e r 1962* One e x p la n a tio n m ig h t be t h a t th e h ig h e r th a n p la n n e d i n v e n to r ie s d u rin g 1961 and 1962 h ad in c r e a s e d th e p ro d u c tiv e c a p a c ity to a l e v e l h ig h enough to make t h i s g r e a t e r o u tp u t p o s s ib le * T ab le 21 r e l a t e s to th e a g g re g a te developm ent o f in d u s try * A breakdow n o f th e f i g u r e s f o r d i f f e r e n t b ra n c h e s shows g r e a t v a r ia tio n s * The ir o n and s t e e l i n d u s tr y , w hich s u p p lie d a la r g e p r o p o r tio n o f th e e x p o rt IABIE 21 INDUSTRY FR0H5R PRODUCTION. EM PLO Y M EN T, A N D IN V ESTM EN T 1960-196^ (Fixed P ric e s t Index i 9 6 0 = 100) A ctual Development F orecast o f Planning Commission 1961 1962 1961 196*t 1961 1962 1963 196*f Production 106 109 1 1 5 123 105 111 116 122 Employment 103 102 100 101 102 103 105 106 Gross investm ent 122 123 122 120 1 0 8 115 123 131 ^ s t e n Johansson, "Economic Development in Sweden During the 1960'ss How Far Has th e Long-Term P lan Been F u lfille d ? " Bk»naiwnH«toi B«ni«n Q u arterly Review. O c t., 1 9 0 t, p . 119* Mrkitt fae«d thi problem of orer-eapaelty dam to invest ment expenditures In I960 mad 1961* Xrodaotloa In thm timber Industry vii mlao mffmetmd by thm demand for format products* All other major Induetriea producing for thm homo market maintained produotion according to thm planned development • Tft+ril A compariaon between the planned dmrelopment for the economy and the outcome can be made by obaerring changes in the balance of resources (Table 22) in comparison with estimated dmrelopment aa shown in Table 19 on page 1^2* Percentage changes in the first three years are actual, while the percentage change for the year 1963-6*t was prepared according to thm rerised national budget* The actual dmrelopment for the first four years of the forecast indicates that total gross inrestment, prirate and public consumption hare been in line with the Commission's prediction* The planned annual increase for the gross national product of per cent was exceeded despite slight stagnation tendencies in the prirate business sector* T n w t — n». Prirate lnrestnent demand in Suedenf as in m any TIBI* 22 BAttlCl O P H B 8 0 U B & 8 1960-196k (Flxad Prleast Iniax I960 8 100) icta a l Daralopnent Fora cast of Planning O m ission 1961 1962 1963 196k 1961 1962 1963 196k P rin t* coniaaption 105.0 108.9 113.8 117.8 10*.2 108.* 112.6 116.8 Poblic o m ia ftlM 105.6 111.5 118.9 126.7 10*.6 109.2 113.8 118.* Total eoniaaptlon 105.1 109.* U *.8 119.8 10*.3 108.6 112.9 117.2 Qrois lnvastaant 106.3 111.7 116.0 122.3 10*.5 109.0 113.5 118.0 b p o rts, fob (ln o l. M t sarvlc* rwr.) 10*.5 111.2 118.8 127.7 107.* 11*.8 122.2 129.6 Minos lnports 100.6 106.9 113.9 123.0 106.1 112.2 118.2 12*.3 Oross national product 105.6 109.3 113.* 119.6 10*.* 108.8 113.2 117.6 150 other countries, li thi strategic factor In ttaa economy. Total public and prlrata inrestaent incroasad by 5*8 and 6.3 por oont In tho years 1961 and 1962 respeotlrely.6 Howerer, according to a a array condoetad In March, 1962, prlrata luraatnant expenditures In machinery Incraaaad only 2 par cant. Thna, tha orerall growth In lnraataant axpandltaraa was doa to big Incraaaaa In gorarnnant axpandltnraa, particularly by looal authorItlaa daring 1 9 6 2 .7 Tha optom in tha aconoay daring tha latter part of 1963 waa oanaad nalnly by prlrata Inraatnant, partic ularly in building construction. Tha denand for capital goods fron Induatry, which had boon ona of tha weakest points In tha Swedish aconoay, was aotlratad by a stasp Increase In exports. With this ohange In tha eeonoale oliaate, public lnraataant waa reduced In tha Interest of eeonoale policy. Tha prlrata lnraataant expenditure continued Into a 196** and la expected to Increase daaand In 1965* (Stockholm Isaac Marcus p. 7* 7”The Soonoalc Situation,” QMgfflT BOT1.W. Oot., 1962, p. ®"*oono»le ta p rjr." BtXldtt, Oet., 1963, p. 128. V 151 Krnorti Exports lod the vay In the economic recovery toward tha and of 1963* Tha value of lnoraasa In exports waa 8*5 par cant In 1962-63, aa oompared with 5*5 par eant In 1961-62. Tha op awing In 1963 came fro* foraat product a, whlls ahlpnanta of papar and pulp daollnad In 196U-. Shipments of staal and Iron roaa during this parlod Raising tha ganaral turnover tax from *f.2 to 6 A par eant at tha beginning of 1962 contributed to the 2.1 par eant rise In tha eonaunar price Index In January, according to estimates made by tha Planning Commission. Tha consumer price level had Increased b par eant in° one year and was 8 par cant higher than In December, 1959* Tha balance of tha price Increases not attributed to tha turnover tax was related to wage Increases and greater effective demand.10 The monetary policy undertaken In .the beginning of 1963 to give business stimulation at a time when the economy was expanding was not effeotlve In restraining ^Flnansdeparteme .stroms 'Svenska Handelsbanken, lodtt, Ho. 1, 1962, p. 3. 152 price l&erMNi. Ih« official discount rate was loviNd In Mar oh of 1963 from 5 to 3*5 P*r ooat and there were praotlcally no credit ro strict Ions •u However* In just three months, tho Rlksbank rate was again ralaod from 3*5 to par eant In Jane of 1963* She deelalon to ralaa tha official dlaeoont rate waa brought about by atrong Inflationary tendencies* Rapid increases In wages had contributed to Inflation* Vages for Industrial workers were 8 per cent higher In May, 1963 than they had been In the sane month of 1962*12 A restricted nonetary policy was Instigated in mld-1963 In Tlew of the predloted budget deficit of 1,000 million kronor for 1963-6*f, and the very low unemployment level of *5 per c e n t*13 The offlolal discount rate was again raised from * f to k . f per cent In January of 196M-* This restriction of credit was aade to restrain Inflationary tendencies* The wholesale prices had risen 5 per cent In one year and a budget deficit of 900 nllllon kronor had been expected a3* 1 * On the sixth of Vorember, the official discount rate was further lnereased to 5 per cent* The strength- x, 1962, p. 3. u aiA., XI, 1963, p. 3. T-TI, p . 3 . X X -X , p . 3 . 153 enlng of tha monetary policy Indicated that the government was worried over Inflation caused by the rapid Increase In demand* The shortage of labor In a period of Increased demand made Inflation a serious threat* In September of 196*f, 62 per oent of Industrial companies reported a Shortage of manpower* Wages were expected to Increase 7*5 per cent during the year 196*t*^£ SUMMARY The Planning Commission estimate for the Increase In the gross national product had been exoeeded during the first year of the period* The growth in the private sector in 196I was not so great as antlelpated9 but slackening In the private sphere was compensated by expansion In the public sector* The years of reee8slon9 1962 and 19639 did not cause significant decreases In private Investment* This was partly due to the release of Investment funds during the winter of 1962-63* The high aggregate demand realised through large investment expenditures In the public sector also gompensated for declining tendencies In the private sector* Now that the fourth long-term plan has been completed 9 it appears that the overall development 1$O U ., V II, 196*tt p . 3 15^ has been In line with the Commlsslon*s prediction. The favorable expansion during the reeesslon years Indicated that planning In Sweden can succeed through a flexible fiscal policy when an economic down turn Is threatening. One dilemma facing Sweden during this period9 as well as during the prior long-term programs9 has been the Inability to control Inflation. In Sweden9 as In many other European countries 9 the conflict between growth and a stable currency has become a problem of major magnitude. C H A P T E R IX EMPLOIER-SMPLOIEE ORGAWTZATIOES AMD THE LABOR MARKET BOARD Ih 0nid«ni as in many other countries, full •■plojMnt and stable priess Tors an integral part or the government * s economic policy. To achieve these goals and also sustain economic growth, an active employment policy becomes very important. Employment policy alone cannot achieve these objectives. It most be coordinated with fiscal and monetary policies and have the support of workers and employers. Employer and labor organisations will therefore first be dlsecmsed In relation to the operations of the Labor Market Board. SMFLOIER-EMFLOIEE RELATI0E8 In the Ideology of planning 9 as conceived in Sweden, the free market should be preserved not only for goods 9 bat also for labor. Two large ins tit at ions have evolved in Swedent the Swedish Employers9 Confederation, and the Confederation of Swedish Trade Ikiions. Both of these organisations have settled labor dispates and made contract agreements without involvement of the State. The Swedish Employers9 Confederation was formed 155 156 In 1902 In response to formation of the confederation of - the labor unions four years earlier* Both trade unionists and employers were not able to meet on even terns. The power struggle between the two organisations evolved gradually Into responsibility and labor peaoe which made govemnent Intervention In industrial relations unnecessary. Located at the harbor In Stockholm, across from the King's palace, the Swedish Employers' Organisation maintains an Information center for Mt employers' organi sations with approximately 1,600 employers as members. Because of Its central location and adequate quarters, contract negotiations with labor organisations are held In the headquarters building. This organisation Is In full aooord with the government's objective of full employment and wage stability which can best be served through peaceful labor relations. Support by both unions and employers has promoted the economic policy of the Swedish government, but there has been no attempt on the part of the govern ment to Interfere In wage matters. One of the reasons for the amicable relationship between labor and management may be attributed to dlreot oontaot between Industry and worker representatives at 157 Saltsjobaden, located at an lsolatsd rssort sons nllss fpon Stockholm. Preliminary discussion of Industrial problsns has paved tbs vay for ths solution of labor- wnifftnt Issoss In eontraet negotiations. f m a t l n n . . f fchi fl— «-r>1 C w M m . * t Ion.— Tha confederation assists affllintod associations In thslr negotiations with employers, furnishing wage statistics, and In giving legal advice• Members are offered counseling In wage-fixing techniques, job evalua tion, and nerlt rating. Management training Is nade available for business executives at Ixtaholm near Stock holm. Courses varying In length from one to six weeks are given Company Management, Personnel Management, Finance, and Wage Policies. ▲ major undertaking of this organisation Is the Industrial Institute for Economic and Social Besearch (Utrednlngslnstltut) • According to Economist Lars Vine 11, many of the Industrial problems Investigated at the institute have served as doctoral dissertations for the authors. Research work concentrates on long-term changes in the structure of industry and In changes In production methods.1 1Interview with Economist Lars 0. Vine11 at the Swedish bqplo jars' Organisation In Stookholn, July 23, 19o*fr. 158 Vorkara» Sin CenftdintlMi of flwidiih Trada A i m vti fom&dod In 1898. Nor* than 90 par eant of tha Industrial vorkars in Svadan ara organlsad* This association rapraaanta ^3 unions organlsad on an lndoatrlal basis ao that all vorkars in an industry balong to tha m m union ragardlaaa of thalr trado* Whits oollar anplopsss ara rapraaantad bp tha Control Organisation of Salarlsd Knployaas vlth *f20,000 maabars. Thara la alao a profaaalonal organisation eonprlslng of ^5*000 matosra, aanp of vhoa ara eollaga graduatas.2 lndoatrlal dlapotaa batvaan 1929 and 1931 * lad to a goraranant appolntad coaaiaaion to study labor nanags- nant relations with a Tlav toward laglalatlon In thaaa ■at tar a. Tha eoaolaalon aoggaatad that agraananta batvaan aaployars and vorkara to aattla dlapotaa vlth a nlnlnuM labor and aaployars9 organlsatlona eoold pravant lagla latlon* •Tha fraadon of Bvadlah 2Landaorganlsatlonsn 1 Srarlga • XahonragdVSoolal (dtoekholnt Tllhalnaaona Boktryekarl, a governm ent in te r f e r e n c e can be a t t r i b u t e d to th e so - c a lle d l a i l e Agreement" ad o p ted i n 1938 end amended i n 19**7 and 1958* T h is c o l le c tiv e agreem ent betw een em p lo y ers1 o rg a n is a tio n s and la b o r u n io n s e s ta b lis h e d a perm anent o rg an f o r n e g o tia tio n s betw een th e two c e n tr a l o r g a n is a tio n s , p ro h ib ite d c e r t a i n form s o f d i r e c t a c t l o n 9 and e s ta b lis h e d a system o f n e g o tia tio n s .8 Leber l e e l e l a t l o n Labor l e g i s l a t i o n i n Sweden h a s been k e p t a t a minimum* T here i s no c lo se d shop o r union ahop9 no com pulsory l e g i s l a t i o n o r minimum wages* Qhder th e Labor C o lle c tiv e C o n tra c ts Act o f 1928, c o l le c tiv e agreem ents were d efin ed * The p ro v is io n s o f t h i s a c t p r o h ib it d i r e c t a c tio n to s e t t l e d is p u te s o v er th e i n t e r p r e t a t i o n o f th e c o n tra c ts * The la b o r c o u rt fu n c tio n s i n th e s e d is p u te s , c a lle d M c o n f llc t s o f rig h ts ," and makes th e f i n a l d e c isio n s* In d is p u te s a r is in g p r i n c i p a l l y o v er ren ew al o f ag reem en ts, c a lle d " c o n f lic ts o f i n t e r e s t s , " d i r e c t a c tio n can be ta k e n o n ly a f t e r a governm ent m ed iato r h a s f a i l e d to p e rsu a d in g th e p a r t i e s to re a c h a n agreem ent* O lder th e M ed iatio n A ct o f 1920, a governm ent m e d ia to r must summon th e p a r t i e s to a m eetin g , b u t he h a s no power to a r b i t r a t e th e d i s p u t e .1 * 160 THE NATIONAL LABOR M A RK ET BOARD The unique p o s itio n o f th e N a tio n a l L abor M arket B oard can b e s t be e x p la in e d a s an In te rm e d ia ry i n s t i t u t i o n betw een th e Sw edish governm ent and th e two o rg a n iz a tio n s r e p r e s e n tin g em ployers and l a b o r . When th e S ta te w ith drew from d i r e c t I n te r f e r e n c e w ith la b o r and em p lo y ers, i t became c o g n iz a n t o f th e n e c e s s ity f o r some i n s t i t u t i o n f o r im plem enting th e econom ic p o l i c i e s . T hrough th e m ach in ery o f th e B o ard , a c lo s e c o o p e ra tio n was a c h ie v e d betw een governm ent, th e e m p lo y ers, and th e tr a d e u n io n s . What i s th e r e l a ti o n s h i p betw een th e Labor M arket B oard and th e em ployer and la b o r o rg a n iz a tio n s ? D ir e c to r Gunnar O lsson o f th e B oard in fo rm a tio n s e r v ic e p o in te d o u t t h a t th e p r i n c i p a l f u n c tio n o f th e B oard i s , a s th e name im p lie s , a n a t io n a l d ep a rtm e n t f o r th e d e te rm in a tio n o f m ark et p o lic y . ^ F u ll employment i s th e common g o a l o f th e th r e e o r g a n iz a tio n s . The B oard w orks f o r th e r e a l i z a t i o n o f t h i s o b je c tiv e th ro u g h tim e ly f o r e c a s t s o f th e su p p ly and demand f o r l a b o r . The B oard h a s a t i t s d is p o s a l a v a s t a r s e n a l o f s t e j t a ( w o £ ° & ; ’ : i r t v t ^ In te rv ie w w ith D ir e c to r Gunnar O lsso n a t th e N a tio n a l L abor M arket B oard i n Stockholm , J u ly 2*f, 196*f. 161 m easures f o r sh ap in g th e demand and su p p ly f o r la b o r* Through th e s e s e r v ic e s I t a s s i s t s w orkers and em ployers a s v e i l a s th e governm ent In Im plem enting s p e c if ic m easures w hich supplem ent th e g e n e ra l f i s c a l and m onetary p o l i c i e s o f th e governm ent* grgftBlgatlgn pf tb fiflatlg p al fto rtw t BMurfl The N a tio n a l Labor M arket B oard c o n s is t s o f a D ir e c to r G e n e ra l, a D eputy D ir e c to r , a C h ie f E n g in e e r, and 8 members a p p o in te d by th e Sw edish governm ent* Two o f th e members r e p r e s e n t th e Sw edish E m p lo y ers1 C on fed era t i o n , and two r e p r e s e n t th e C o n fe d e ra tio n o f Sw edish T rade U nions* Hie C e n tra l O rg a n is a tio n o f S a la r ie d Em ployees and th e Sw edish C o n fe d e ra tio n o f P r o f e s s io n a l A s s o c ia tio n s a r e r e p re s e n te d v l t h one member each* An a d d i ti o n a l member i s chosen from a g r i c u l t u r e , and one from fem ale la b o r* The B o a rd 's p o l i c i e s a r e c a r r ie d o u t r e g io n a lly by 25 co u n ty la b o r b o a rd s w hich a r e r e s p o n s ib le f o r p iib llc employment s e r v ic e In e a c h county* The g o v ern o r o f th e p ro v in c e u s u a lly s e rv e s a s chairm an and I s a s s i s t e d by f o u r members r e p r e s e n tin g la b o r and management* L o c a lly , th e N a tio n a l Labor B oard f u n c tio n s th ro u g h a p p ro x im a te ly 2 3 5 employment o f f ic e s * To e n a b le th e B oard to have o u rre n t In fo rm a tio n a b o u t th e la b o r m a rk e t, th e n a t io n a l and l o c a l o f f lo e s 162 m a in ta in c o n tin u o u s c o n ta c ts w ith e n p lo y s r and la b o r o r g a n ls a tio n s •6 Employment p o lic ie s S p e c if ic m easu res f o r employment s t a b i l i z a t i o n ca n b e s t b e e v a lu a te d i n th e l i g h t o f th e Sw edish em ploy m ent p o lic y * Theoretical basis for th e em ploym ent p o lic y * — In Sweden, a s i n o th e r c o u n t r i e s , th e em ploym ent p o l i c i e s p u rsu e d depend upon m ark et c o n d itio n s * W ith a g g re g a te demand g r e a t e r th a n a v a il a b le r e s o u r c e s , th e m easures u t i l i z e d t o s to p i n f l a t i o n a r y f o r c e s a r e b o th g e n e r a l and s p e c if ic * The s o - c a lle d a c ti v e em ploym ent p o lic y a tte m p ts to d e c re a s e e x c e s s demand th ro u g h g e n e r a l m easu res su ch a s c r e d i t c o n tr o l and l i m i t a t i o n o f p u b lic e x p e n d itu re s * A t i g h t econom ic p o li c y , how ever, m ight le a d to unem ploy ment* To c o u n te r a c t t h i s te n d e n c y , s e l e c t i v e m easu res a r e c a ll e d upon t o I n c re a s e o r u t i l i z e th e a v a ila b le la b o r supply* T hese m easures In v o lv e in c r e a s e d m o b ility th ro u g h p u b lic a s s i s t a n c e , t r a i n i n g , and r e - t r a i n i n g o f w orkers* ^ N a tio n a l L abour M arket B o a rd , " O rg a n iz a tio n o f th e Labour M arket B oard and th e Employment S e r v ic e , P e rs o n n e l, e t c . " Batlpnsl U bgjg-H irki t .Bggrfl j a ^Annual W & l i M W . ' g a a a r c c 163 In a re c e ssio n , the f is c a l and Monetary p o lic ie s are re v e rse d , and v ario u s d ire c t Methods are employed to stlM ulate p riv a te Investm ent. S ele ctiv e Measures would be continued as in the former case, v lth added emphasis to In crease employment In lo c a lit ie s se rio u sly a ffe c te d by unemploymentJ E ffe c ts of te c h n ic a l development op —m»Q w»r---- A utom ation I t s e f f e c t s a re n o t fe a re d in Sweden, sin c e I t I s r e a liz e d t h a t th e e f f e c t o f m ech an izatio n can be c o n tr o lle d th ro u g h an a c tiv e employment p o lic y * T h is concept o f au to m atio n h a s a b e t t e r e x p la n a tio n i n th e co n tin u ed sh o rta g e o f la b o r t h a t h as e x is te d sin c e W orld War I I . D ire c to r G eneral B e r t l l O lsson o f th e N a tio n a l Employment Board h a s s ta te d t h a t te c h n ic a l developm ent o n ly ap p e a rs to c r e a te unemployment. Auto m atio n , ac co rd in g to Mr. O lsson, does n o t c r e a te unemploy m ent; i t a r i s e s because some c o u n trie s do n o t pursue m easures to a d a p t th e w orking fo rc e to th e ra p id tech n o lo g ic a l change. The au to m atio n i n Sweden I s fo rc e d on th e c o u n try In o rd e r to m a in ta in I t s c o m p etitiv e p o s itio n in th e w orld m ark ets and I s n o t r e s i s t e d by la b o r o rg a n i z a tio n s . ^ B e r tl l O lsso n , "Employment P o lic y In Sweden." Hay, 1 9 6 3 , p . 12. (R e p rin t.) 16M- S t r u c t u r a l ehanM « I n th a Tha In c re a s e d m e c h a n is a tio n o r r a t i o n a l i s a t i o n o f in d u s tr y h a s le d t o d e c re a s e d demand i n p rim a ry p ro d u c in g s e c t o r s 9 su ch a s a g r l c u l t u r e 9 f o r e s tr y * and fis h in g * Some o f th e s u r p lu s la b o r i n th e s e s e c to r s h a s b e e n t r a n s f e r r e d to in d u s try * b u t i t i s e x p e c te d t h a t s e r v ic e i n d u s t r i e s w i l l shov th e g r e a t e s t g ro w th . The l e i s u r e tim e r e s u l t i n g from m ech a n iz atio n * assum ing t h a t em ployment i s m ain tain ed * sh o u ld le a d to in c r e a s e d demand f o r s e r v ic e i n d u s t r i e s . ^ GENERAL MEASURES FOR STABILIZING EM PLOYM ENT One im p o rta n t a s p e c t o f Sw edish em ploym ent p o lic y i s to c r e a te a b a la n c e b etw een manpower demand and s u p p ly . G e n e ra l m easu res t o in c r e a s e em ploym ent h av e b ee n s u p p le m ented b y s e l e c t i v e means to In c r e a s e la b o r su p p ly i n c e r t a i n g e o g ra p h ic a l a re a s * a s w e ll a s to a d a p t th e la b o r s u p p ly t o th e t e c h n ic a l re q u ire m e n ts o f i n d u s t r y . w n r k g A s h e lf o f em ergency w orks i s m a in ta in e d to b e s t a r t e d q u ic k ly t o even o u t manpower f lu c tu a tio n s * s e a s o n a l a s w e ll a s c y c l i c a l . C ounty em ploym ent s e r v ic e s r e q u e s t fu n d s from th e N a tio n a l Employment S e r v ic e . T h is b u re a u o f th e N a tio n a l L abor M arket B oard h a s fu n d s SlfclA.* pp. 5-8. 165 a v a il a b l e f o r s t a b i l i z a t i o n p u rp o ses* Homing eonrtfiietlon B u ild in g o f homes I s used b o th to In c r e a s e demand And to e x e r c is e a s e l e c t i v e In flu e n c e on employment* H ousing I n Sweden I s fin a n c e d 95 p e r c e n t w ith S ta te lo a n s And ca n t h e r e f o r e b e c o n tr o lle d e f f e c t i v e l y b y th e 8 ta te * E ach y e a r th e P a rlia m e n t d e te rm in e s th e lo a n s f o r b u ild in g c o n s tr u c tio n b u t d e le g a te s to th e governm ent th e I n c re a s e o f b u ild in g a c t i v i t y a s w a rra n te d by th e em ploym ent s i tu a t io n * In v e stm e n t fu n d s In v e stm e n t e x p e n d itu re s by p r i v a t e I n d u s tr y a r e In flu e n c e d b y Sw edish t a x law s w hich p e rm it firm s to fu n d a c e r t a i n p o r tio n o f th e p r o f i t s f o r t h e i r t a x - f r e e f u t u r e In v e stm e n t e x p e n d itu re s * A t l e a s t **6 p e r c e n t o f th e In v e stm e n t a l l o c a t i o n m ust be d e p o s ite d i n th e C e n tr a l % Bank* A f te r f iv e y e a r s , th e d e p o s ito r s may use 30 p e r c e n t o f th e r e s e r v e s f o r any In v e stm e n t p u rp o se b u t th e r e l e a s e o f th e b a la n c e m ust have governm ent ap p ro v al* Such a u th o r iz e d e x p e n d itu re s e n t i t l e th e f irm s t o a r e b a te on th e Income ta x am ounting t o 10 p e r c e n t o f th e fu n d s w ithdraw n* D uring th e 1958-59 r e c e s s io n , one b i l l i o n k ro n o r-w e re r e le a s e d f o r c o n s tr u c tio n o f h o u s e s , r o a d s , m a c h in e ry ,a n d e q u ip m e n t.9 166 P u b lic c o n tr a c ts The governm ent d i r e c t l y s tim u la te s th e economy th ro u g h s p e c ia l governm ent p u rc h a s e s from i n d u s tr y when j u s t i f i e d f o r em ploym ent p u rp o s e s . H ost o f th e p u rc h a se o r d e r s com prise d e fe n s e eq u ip m en t, te le p h o n e eq u ip m en t, ra ilw a y m a t e r i a l s , and some consum ption goods f o r th e arm ed s e r v ic e s have b e e n in c lu d e d .10 M easures t » v m A n n m A a m a rxA R e s t r i c t i v e f i s c a l and c r e d i t p o l i c i e s a r e o f fu n d a m e n ta l Im portance i n re d u c in g demand, b u t th e s e c o u n te r - c y c lic a l m easu res a r e slow t o a c t and m ust be su p p lem en ted by o th e r p o l i c i e s . D uring 1 9 6 0 -6 1 , a d d i t i o n a l t a x c o n c e s s io n s w ere g ra n te d t o firm s t h a t d e p o s ite d fu n d s w ith th e C e n tr a l B ank. A n o th er e f f e c t i v e b ra k e on e x p a n sio n was th e r e s t r i c t i o n o f b u ild in g p e r m its . The p u rp o se o f th e r e d u c tio n o f th e demand i n th e p r i v a t e s e c to r was to c o u n te r a c t I n f l a t i o n a r y te n d e n c ie s d u rin g a p e r io d when em ploym ent had re a c h e d a h ig h l e v e l . PP* 1 9 -2 2 . 10B e r t i l 0 1 sso n . "Employment P o lic y D uring th e A p r i i85! ^ " Binfaa O uM rttrlY faylivt 167 Bapl9ia«rt. InfgrmtlqB In fo rm atio n on changes in th e la b o r m arket i s o f param ount Im portance f o r employment s ta b iliz a tio n * The N a tio n a l Employment S erv ice in s t ig a te s la b o r fo rc e su rveys fo u r tim es a y ear and m onthly r e p o r ts a re p re p ared by th e employment o ffic e s * F o re c a sts re g a rd in g employment tre n d s a re made a t l e a s t tw ice a y ear and have proved v e ry r e lia b le * The Swedish em ployers1 o rg a n iz a tio n s a re comm itted to g iv e th e county employment s e rv ic e s n o tic e s a t l e a s t two months in advance o f contem plated m ajor la y -o ffs * In o rd e r to keep em ployees Inform ed about th e employment s i t u a tio n , th e employment o f f ic e s d a ily supply new spapers and ra d io s ta tio n s w ith d a ta re g a rd in g employ ment o p p o r tu n itie s * ^ UTILIZATION OF M A N P O W E R RESOURCES S p e c ific m easures to ad a p t th e la b o r fo rc e to changing economic c o n d itio n s a re used durin g b o th booms and re c e s s io n s , alth o u g h th e p rim ary o b je c tiv e i s th e d ec rease o f unemployment* One c h a r a c t e r is ti c o f th e program s h e re d isc u sse d i s t h a t th e y a re concerned d i r e c t l y w ith in d iv id u a ls in th e la b o r fo rce* ^ O ls s o n , "Employment P o lic y In Sweden," o p. e l t . . p p. 2b-27* 168 G eo g rap h ical n o b i l i t y The f r e e p u b lic placem ent o f f ic e s s tim u la te t r a n s f e r from la b o r - d is tr e s s e d a re a s to p la c e s where la b o r sh o rta g e s e x is t* I f a w orker I s tr a n s f e r r e d and cannot Im m ediately ta k e h is fa m ily w ith him , he re c e iv e s a housing Indem nity f o r a maximum o f n in e months to cover e x tr a liv in g c o s ts th u s In cu rred * A s p e c ia l m onthly allow ance o f lUO k ro n o r I s g iv en to th e w ife , and W 5 kro n o r I s a l l o t t e d each c h ild under 16 y e a rs o f age* A pproxim ately 10,000 people have been tr a n s f e r r e d each y ear w ith th e h e lp o f th e s e fa m ily allo w an ces *^2 V o fjn t.ln n n l W i n i n g V o c a tio n a l tr a in in g In Sweden h as undergone ra p id developm ent I n o rd e r to m eet la b o r a d ju stm e n ts to th e s w ift te c h n ic a l changes* The te c h n ic a l and economic developm ent, c a llin g f o r s p e c ia l o c c u p a tio n a l s k i l l s , h as le d to s t r u c t u r a l changes In th e employment o f lab o r* A c c e le ra te d tr a in in g c o u rse s a re g iv e n to employed w orkers and s p e c ia l r e - tr a l n l n g i s p ro v id ed f o r th e unem ployed* A 19*+5 o rd in an ce by th e Labor M arket B oard s e t up th e fo llo w in g method f o r tr a in in g a t sch o o ls and o rg a n iz a tio n s t (a ) C ourses f o r v o c a tio n a l tr a in in g s p e c ia lly 12Ibld.. pp. l h - 1 6 169 a rra n g e d by th e Board* (b ) The r e g u la r e d u c a tio n a l sy stem , i . e . , a t s t a t e and l o c a l v o c a tio n a l tr a in in g s c h o o ls , and o th e r sch o o ls f o r v o c a tio n a l tr a in in g * (c ) V o c a tio n a l tr a i n in g a rra n g e d e i t h e r b y o th e r governm ent b o d ie s th a n th e B oard f o r Voca» t l o n a l E d u c a tio n o r by o rg a n iz a tio n s o r firm s* B efo re c o u rse s a re g iv e n , c lo s e c o o p e ra tio n i s e s ta b lis h e d w ith em ployer and employee o rg a n iz a tio n s * The Labor M arket B oard c o o rd in a te s and ap p ro v es th e s e c o u rse s su g g e ste d by th e c o u n tie s* The em phasis i s on r e - t r a i n i n g and advanced t r a i n i n g cou rses* B eginners* c o u rse s have b een g iv e n o n ly in s p e c ia l circu m stan ces* D uring th e r e c e s s io n o f 1958-59) young peo p le w ere a d m itte d to th e v o c a tio n a l t r a in in g schools* G ra n ts - —P erso n a a c c e p te d f o r v o c a tio n a l tr a in i n g re c e iv e a b a s ic a llo w a n c e , r e n t a llo w a n c e , fa m ily a llo w a n c e , and o th e r s p e c ia l allow ances* The b a s ic allo w an ce amounts to blO k ro n o r p e r m onth, w h ile th e r e n t allo w an ce f o r a p e rso n w ith d ependents e q u a ls th e a c tu a l re n t* A s in g le p e rso n r e c e iv e s l e s s th a n th e amount o f th e a c tu a l r e n t paid* A fa m ily allo w an ce i s 55 k ro n o r p e r m onth, w ith a bonus o f k ro n o r p e r month g iv e n f o r each c h ild 13Hakan E* Hakanson* "Vocational Training of Uhemployed Persons," (Stockholm: National Labour Market B o ard , 1 9 6 2 ), p* 3* (M imeographed*) 170 under 16 y e a rs o f a g e . S p e c ia l g r a n ts co v er such item s a s t r a v e l to a new job and work c lo th e s . C ourses f o r women.— S p e c ia l c o u rse s a re g iv e n to housew ives who have been o u t o f c o n ta c t w ith th e la b o r m arket f o r a number o f y e a rs and now need r e f r e s h e r c o u rse s to e n a b le them to q u a lif y f o r em ploym ent. The le n g th o f th e c o u rse s v a r ie s from s e v e r a l weeks to s e v e ra l m onths. In 1962, th e r e w ere 5^1 such c o u rse s in p ro g re s s th ro u g h o u t th e c o u n t r y .^ HAnriieiMiW p e r s o n s .— In o rd e r to a s s i s t d is a b le d p e rs o n s , th e fo llo w in g a id i s p ro v id e d ! v o c a tio n a l g u id a n c e , v o c a tio n a l t r a i n i n g , s h e lte r e d o r s e m i-s h e lte re d em ploym ent. Cash allo w an c es a r e g iv e n to th o s e I n n ee d .^ 5 O lder w o rk e rs. —The p ro p o rtio n o f o ld e r w orkers in th e la b o r fo rc e h a s r i s e n . B ecause o f re lu c ta n c e on th e p a r t o f em ployers to h ir e o ld e r w o rk e rs, th e fo llo w in g program h a s b een d ev elo p ed ! 1 . Employment o f f i c e s m a in ta in an in v e n to ry o f jo b s s u ita b le f o r o ld e r w orkers i n c lo s e c o n s u lta t i o n w ith th e em p lo y ers. Exchanges of* e x p e rie n c e i n t h i s f i e l d a r e o rg a n iz e d . 2 . The p e rso n n e l d ep artm en ts o f u n d e rta k in g s ll* Ib id . - p p . 6 -8 . ^ O ls s o n , "The Unemployment P o lic y i n Sweden," o p . c i t .» p . 6 . 171 a r e en co u rag ed to b e a r i n m ind th e p o s s i b i l i t y o f em ploying o ld e r w orkers* 3* O lder w o rk ers a r e g iv e n th e o p p o rtu n ity o f employment on a t r i a l b a s is * th e c o s t o f th e p ro b a tio n a r y p e rio d b ein g b o rn e i n w hole o r i n p a r t by so c ie ty * *+ • Employment o f f i c e s a r e r e s p o n s ib le f o r I n v e s tig a tin g th e p o s s i b i l i t i e s o f p a r t- tim e work f o r o ld e r w orkers* 5* T r a in in g , r e - t r a i n i n g and f u r t h e r t r a i n i n g f o r o ld e r w o rk ers a r e b ein g expanded, and t r a i n i n g c o u rse s s p e c ia ll y a d a p te d t o t h e i r a b i l i t y t o l e a r n a r e b e in g pro v id ed * 6* A ll age l i m i t s f o r w ork and t r a i n i n g have b een a b o lish e d * 7* The e n t i r e employment o f f ic e o r g a n iz a tio n h a s b ee n m o b iliz e d f o r a s o lu tio n o f th e problem o f o ld e r w orkers* The l a r g e r employment o f f i c e s have o f f i c i a l s s p e c i a l l y r e s p o n s ib le f o r th e c o - o r d in a tlo n o f m easures i n fa v o r o f o ld e r w o rk e rs. Unemployment In s u ra n c e When t r a i n i n g ca n n o t be p ro v id e d f o r an unemployed w o rk e r, unemployment In su ra n c e o r a s s is ta n c e becomes th e l a s t r e s o r t* Labor u n io n s o r i g i n a l l y e s ta b lis h e d th e fu n d s , how ever, unemployment in s u ra n c e I s now In d ep en d en t o f th e u n io n s and c o v e rs n o n -u n io n w o rk ers a s w ell* The governm ent now p ro v id e s a b o u t **0 p e r c e n t o f th e funds* Unemployed w o rk ers n o t e l i g i b l e f o r unemployment In su ra n c e can o b ta in c a sh a s s is ta n c e I f th e y a r e needy* Such a s s i s t ance I s g iv e n th ro u g h th e community unemployment b o a rd and p. 10. 172 I s s u b s id iz e d by th e g o v ern m en t.1? V pgaU gflttl amltonsa V o c a tio n a l g u id an ce I s p ro v id e d In th e sec o n d ary sc h o o ls and In placem en t o f f i c e s w here s e r v ic e I s a v a ila b le t o anyone, r e g a r d le s s o f a g e . The V o c a tio n a l G uidance B ureau p ro v id e s pam p h lets on v a r io u s o c c u p a tio n s and m a in ta in s p a r t- tim e l i a i s o n o f f i c e s to m a in ta in c o n ta c t w ith th e s c h o o ls . SU M M A R Y The Labor M arket B oard aim s t o c r e a te a b a la n c e betw een manpower and a g g re g a te demand th ro u g h a p ro p e r employment p o lic y . T h is p o lic y g e n e r a lly r e c e iv e s su p p o rt from re s p o n s ib le la b o r and management o r g a n iz a tio n s . The ty p e o f m easures em ployed by th e M arket B oard depends upon econom ic c o n d itio n s . In c a s e s o f w id esp re ad unem ploym ent, g e n e ra l program s a r e c a r r ie d o u t to In c re a s e demand f o r la b o r th ro u g h p u b lic w orks and to r e le a s e In v e stm en t r e s e r v e s In c o n ju n c tio n w ith an a p p r o p ria te m onetary p o lic y . The B oard a ls o r e l i e s upon s p e c if ic m easures to u t i l i z e th e la b o r s u p p ly , such a s g e o g ra p h ic a l and v o c a tio n a l m o b ility , and v o c a tio n a l t r a i n i n g . D uring r e c e s s io n s , In v e stm en t and f i s c a l expend i t u r e s a r e h e ld b ack and s p e c if ic m easures f o r u t i l i z a t i o n p. 28. 173 a re c o n tin u e d th ro u g h an a c ti v e employment p o lic y * The su c c e ss o r f a i l u r e o f th e M arket B o a rd 's p o l i c i e s depends t o a la r g e e x te n t upon th e f o r e c a s tin g done by th e Long-Term P la n n in g Commission* However, th e M arket B oard I s i n th e p o s i t i o n to make I t s own s h o r t term f o r e c a s ts I n o rd e r to a p p ly th e p ro p e r employment p o lic ie s * The Labor M arket B oard I n Sweden h a s engaged I n an employment p o lic y w hich I s more a c tiv e and com prehensive th a n th o s e o f many o th e r c o u n tr ie s , and h a s become th e c o rn e rs to n e f o r th e a tta in m e n t o f th e more g e n e ra l g o a ls o f econom ic grow th and p r ic e s t a b i l i t y under f u l l em ploy ment* CHAPTER X INVESTMENT FOR ECONOM IC G R O W T H A N D STABILIZATION Investm ent e x p e n d itu re s a r e o f s t r a t e g i c Im portance fo r In flu e n c in g g ro v th and s t a b i l i z a t i o n . These ex p en d i tu r e s a re s ig n if ic a n t, f i r s t , because Investm ent ex p en d i tu r e I s a la r g e p a r t o f th e a g g re g a te demand, and second, In c re a s e s In In v estm en t p la y a v i t a l r o le In economic grow th. Investm ent e x p e n d itu re s , depending la r g e ly upon e x p e c ta tio n , f lu c tu a te g r e a tly and p re s e n t d i f f i c u l t problem s o f s t a b i l i z a t i o n . T h is c h a p te r d e a ls w ith d i r e c t and I n d ir e c t c o n tr o l o f p r iv a te In v estm en t and th e sh a re o f p u b lic to t o t a l In v estm en t e x p e n d itu re s . CONCEPTS, DEFINITIONS, A N D CONTROLS G eneral co n cen ts Investm ent e x p e n d itu re In I t s g e n e ra l concept p e r ta in s to d u ra b le equipm ent, r e s i d e n t i a l and b u s in e s s c o n s tru c tio n , and change In I n v e n to r ie s . Net Investm ent I s th e a d d itio n to th e econom y's p ro d u c tiv e c a p a c ity , w hereas g ro ss In v estm en t In c lu d e s new and rep lacem en t c a p i t a l . 17M- S p e c i f i c Sw edish c o n c e p ts In c o n t r a s t t o many o th e r c o u n t r ie s , th e I n v e s t m ent e x p e n d itu re s i n Sweden a r e d e fin e d a s e x p e n d itu re s f o r new eq u ip m en t, m a in te n a n c e , and r e p a ir * M ilita r y e x p e n d itu re s a r e a ls o c l a s s i f i e d in a d i f f e r e n t m anner, some b e in g l i s t e d a s In v e stm e n t and o th e r s a s p u b lic consum ption e x p e n d itu re s * In v e stm e n t q u o tie n t The r a t i o o f In v e stm e n t e x p e n d itu re s t o th e g ro s s n a t i o n a l p ro d u c t h a s shown an In c re a s in g t r e n d , ch an g in g from 26 p e r c e n t I n 19^6 to 31*6 p e r c e n t In 1959 a s n o te d In T a b le 23* The g ro s s In v e stm en t In c lu d e s n e t a d d itio n s t o p ro d u c tiv e c a p a c ity , re p la c e m e n t, r e p a i r , and m aintenance* F o r com parison w ith d a ta o f o th e r c o u n t r i e s , m i l i t a r y e x p e n d itu re s have b een e x c lu d e d In th e l a s t g ro u p o f p e rc e n ta g e s* M arg in a l c a p i t a l c o e f f i c i e n t The m a rg in a l c a p i t a l c o e f f i c i e n t i s th e r a t i o o f added c a p i t a l to th e In c rem en t In th e g r o s s n a t i o n a l p ro d u c t* The a d d itio n s t o r e a l c a p i t a l f o r th e p e r io d 19*+6-1959 am ounted t o 51 1275 k ro n o r, a s com pared t o a n e t I n c re a s e o f l lf , l lf5 k ro n o r In th e g r o s s n a t i o n a l p ro d u c t* The c a p i t a l c o e f f i c i e n t i s 3 *6, w hich c o rre sp o n d s t o th e f in d in g s o f i n v e s t i g a t io n s made in th e U n ited S ta t e s and Norway* The s iz e o f th e c o e f f i c i e n t means t h a t TABLE 23 GROSS IN V ESTM EN T AS A PER C EN TA G E O F THE GROSS NATIONAL PR O D U C T 19*40-1959 Gross Investm ent 19*46 19*»7 19**8 19^9 1950 1951 1952 1953 195*4- 1955 1956 1957 1958 1959 I960 Including m ilita ry expendi tu re s 26.0 28.6 26.5 26.0 27.7 27 A 28.5 30.5 30.8 29.9 30.0 30.0 30.9 31.6 31.8 Excluding m ilita ry expendi tu re s 2*t.2 27.0 25.2 2*t.5 26.0 25*6 26A 28.0 28.1 27.3 27.*f 27A 28.2 29.1 29*3 *Finansdepartem entet, mfo of»h model 1 S ta b ilis e r ingnnoH tiican (Stockholm Iduns T ryckerlaktiebolag E s se lte AB, 1961), p . 106. 17 7 y e a r ly in c r e a s e s I n In v e stm e n t m ust b e t h r e e to f o u r tim e s g r e a t e r th a n th e in c r e a s e In th e g r o s s n a t i o n a l p ro d u c t* ^ The r a t i o o b ta in e d i s , a t b e s t , a ro u g h approxim a t i o n o f th e g ro w th r e l a t e d to o u tla y s f o r p l a n t and e q u ip ment* The r a t i o ca n be changed b y f l u c t u a t i o n s i n e x p o r ts , p r o p e n s ity to consum e, and o th e r f a c t o r s conqprislng th e a g g re g a te demand* F u rth e rm o re , th e a d d itio n s t o i n v e s t m ent e x p e n d itu re s may re a c h a p ea k much l a t e r th a n when com m itted* I t i s f o r t h i s re a s o n t h a t th e c o n ju n c tu re i n d i c a t o r i s a more r e l i a b l e r a t i o * The conjunct™ ** indicator E x p o rts c o n s t i t u t e a l a r g e p a r t o f th e a g g re g a te demand and a r e com bined w ith In v e stm e n t th ro u g h th e co n c ep t o f th e c o n ju n c tu re in d ic a to r * T h is i n d i c a t o r i s d e f in e d a s a p e rc e n ta g e s h a re o f e x p o r ts and In v e stm e n t e x p e n d i t u r e s t o th e g r o s s n a t i o n a l p ro d u c t* The h ig h e r th e r a t i o , th e b e t t e r th e g e n e r a l econom ic c o n d itio n * I n th e c a lc u la t i o n o f th e i n d i c a t o r , e x p o r ts an d in v e s tm e n t a re c o r r e c te d f o r t h e i r s h a re o f Im ports* The g ro s s i n v e s t m ent e x p e n d itu re s and e x p o r ts , a s shown I n T ab le 2tf, w ere h ig h d u rin g th e p o s t-w a r y e a rs* I t sh o u ld be n o te d t h a t f o r th e y e a rs 1950 and 1951 w ith h ig h r a t i o s , th e f l u c t u a - M il och ■ » d fl A S t * b l l l —r (S to ck h o lm i Id u n s T r y e k e r la k tle b o la g E s s e l t e IB , 1 9 6 1 ), p . 107* T A B L E 2k THE "CO N JU N CTU RE INDICATOR," 1922-1953 Year Gross Investm ent* Exports Gross Investm ent plus exports Net b a l ance on fo re ig n account Percentage change In w holesale p ric e s during the year Trade union unemploy ment (p er centage) 1922 12.9 15.8 28.7 +1.6 -13 22.9 1929 17.5 20.*f 37.9 +3.2 - 8 10.2 1932 l»f.8 12.2 27.0 +1.1 - 3 22.lt 1937 23.8 17.9 h l.7 +1.7 + 8 10.8 1939 2 5.7 lif.4 39.9 -2 .0 +20 9.2 19**7 28.2 13.1 M .3 -5 .8 + 7 2.8 1 * 9 25.8 1 * k 3 W0.3 +1.7 + 1 2.7 1950 27.3 18.6 ^5.6 +0.5 +16 2 .2 1951 27.1 2*f.O 51.1 +2.k +26 1 .8 1952 28.1 1 9 .k k? .5 +0.*f - if a * m 1953 30.0 17.6 >*7.6 +0.8 - 3 78 C O . C M TABUS 2k (continued) ♦Hot Including changes In stock-holding and n e t balance of cu rren t payments* “E rik Lundberg. B usiness Qyd«« And Economic P olicy (London: George A llen and Unwin, L td ., 1957), p. 59. 180 t l o n I n w h o lesale p r ic e s changed by 16 and 26 p e r cent* As may he e x p e c te d , unemployment f o r th e two y e a rs was r e l a t i v e l y low*2 C o n tro ls P r iv a te In v estm en t e x p e n d itu re s a re more d i f f i c u l t to c o n tr o l th a n p u b lic In v estm en t w hich I s s u b je c t to governm ent b u d g et p o lic y * I t I s f o r t h i s re a so n t h a t a f l e x i b l e f i s c a l p o lic y a tte m p ts to supplem ent c a p it a l e x p e n d itu re s in th e p r iv a te sphere i n o rd e r to a t t a i n th e t o t a l o f p lan n ed Investm ent* B ecause o f th e e f f e c t o f f i s c a l p o l i c i e s on bank c r e d i t , f i s c a l and m onetary p o l i c i e s m ust be c o o rd in a te d I n o rd e r to ac h ie v e th e d e s ir e d In v estm en t e f f e c t* The I n te g r a tio n o f f i s c a l and m onetary p o l i c i e s w ith p r iv a te In v estm en t I s r e a liz e d th ro u g h lo n g -te rm and s h o rt-te rm p la n n in g d is c u s s e d in p r i o r ch a p te rs* In p la n n in g th e e f f e c t s o f p u b lic and p r iv a te In v e stm e n t, e x p e n d itu re s a re c o n sid e re d In r e l a t i o n to (1 ) th e m ost e f f i c i e n t a ll o c a t i o n o f r e s o u r c e s , (2) a v a ila b le m a te r ia l re s o u r c e s , and (3 ) th e s iz e o f th e la b o r fo rc e * P u b lic In v estm en t e x p e n d itu re s a re budgeted and ^ E r i k lu n d b e rg , B u g in tg a S Y g lti and IgPDMrift P o lic y (Londons George A lle n and Unwin, L td * , 1 9 5 7 ), pp* 181 tim ed to supplem ent p r iv a te p la n s a s re v e a le d by th e q u e s tio n n a ir e s s e n t a n n u a lly to em ployers* W hereas t h i s a s p e e t o f th e In v estm en t program can be d i r e c t l y I n f l u enced by th e governm ent9 c o n tr o l o f p r iv a te In v estm en t I s more d i f f i c u l t . R e g u la tio n s can p u t a b ra k e on I n v e s t ment e x p e n d itu re s , b u t o n ly I n d ir e c t m easures such a s c r e d i t c o n tr o l and th e c r e a tio n o f In v e stm en t r e s e r v e s may be em ployed to Induce em ployers to In c re a s e I n v e s t m ent. The b a la n c e o f t h i s c h a p te r d e a ls v l t h p r iv a te In v estm en t In b u ild in g and In v estm en t fu n d s y to be fo llo w ed by I n t e r e s t and c r e d i t , and f i n a l l y th e o v e r a ll developm ent o f p u b lic and p r iv a te In v e stm e n t. BUILDING CONSTRUCTION P r iv a te b u ild in g c o n s tr u c tio n i s a m ajor elem ent in Sw edish p r iv a te In v estm en t a c t i v i t y . F i r s t 9 b ecau se house c o n s tr u c tio n c o n s t it u te s a la r g e p o r tio n o f p r iv a te In v e stm e n t, and se c o n d ly , th e lo c a tio n , tim in g and amount o f c o n s tr u c tio n I s c o n tr o lle d th ro u g h governm ent r e g u la t i o n . S ta te r e g u la tio n o f h o u sin g , b ro u g h t ab o u t In o rd e r to com bat c y c li c a l f l u c t u a t i o n s , le d to a se v e re housing s h o rta g e so a c u te t h a t In some l a r g e r c i t i e s th e Swedish p eo p le must w a it e ig h t to tw elv e y e a rs to o b ta in 182 t h e i r a p a rtm e n ts .3 C o n tro ls on c o n s tr u c tio n The Sw edish governm ent c o n tr o ls b u ild in g a c t i v i t y th ro u g h b u ild in g p e rm its and lo a n s . D uring th e I n f l a tio n a r y p e r io d In 19*+7 and 19*t8» house c o n s tr u c tio n was d r a s t i c a l l y r e s t r i c t e d . S ince 19*+8, th e governm ent h a s drawn up p la n s f o r b u ild in g s . B u ild in g p e rm its have b een L. g ra n te d a c c o rd in g to th e p lan n ed dev elo p m en t. The h o u sin g program 9s p la n to c o u n te r a c t econom ic f l u c t u a t i o n s h a s shown up one n e g a tiv e a d m in is tr a tiv e e f f e c t . The w eakness In th e program I s due to th e d e la y , o r th e tim e I n t e r v a l , o f a p p ro x im a te ly one y e a r e x p irin g betw een th e Issu a n c e o f a b u ild in g p e rm it and th e f i n a l g ra n tin g o f a l o a n . 5 BrolgyttMrt in ~hn11 f lin g in d m r t y v D uring th e 19509s , c o n tr o l o f b u ild in g came under th e d i r e c t i o n o f th e Labor M arket B o ard . T h is B oard was p r im a r ily co n cern ed w ith th e e f f e c t on th e la b o r fo rc e o f b u ild in g c o n s tr u c tio n . The p o lic y o f th e B oard was to c o n tr o l b u ild in g In such a way t h a t th e fo llo w in g th r e e Angfl+ft Xiatgf sept. 6, 196**. S a n d b e r g , o p . c l t . , p . 195. ? 0 1 f B aeck stro m , " F in a n c ie rin g av B o s ta d s h u s ," tk_fiSXX» F e b ., 196>t, p . 10 8 . 183 p u rp o se s w ould be se rv e d s 1* To r e s t r i c t In v e stm e n ts I n c o n s tr u c tio n In o rd e r t o a d a p t them to a v a ila b le p ro d u c tio n re s o u rc e s * The b u ild in g c o n tr o l h a s th u s u n t i l r e c e n t y e a rs b ee n u sed f o r s e le c ti n g th e b u ild in g p r o j e c t s o f s u f f i c i e n t p r i o r i t y t o be In c lu d e d I n th e In v e stm e n t volume* 2* The b u ild in g c o n tr o l h a s b e e n u sed f o r l o c a t i o n p u rp o ses* The p ro c e d u re a d o p te d h a s b ee n t o t r y to come to an ag reem en t - on a v o lu n ta r y b a s i s - w ith th e I n v e s to r c o n c e rn in g a s u i t a b l e S la c e o f l o c a t i o n , s u g g e ste d b y th e L abor M arket oard* T h is h a s b e e n done In c o n n e c tio n w ith th e p r i o r i t y t e s t p re c e d in g th e g r a n tin g o f p e rm its* 3* An Im p o rta n t t a s k h a s f i n a l l y b e e n t o a r r i v e a t such a d i s t r i b u t i o n o f th e b u ild in g s t a r t s o v e r th e y e a r t h a t th e h ig h e s t p o s s ib le w in te r em ploym ent I s a tta in e d * 0 The r e v is e d r u l e s o f J a n u a ry 1 , 1951 rem ed ied p r i o r d e f e c ts o f tim in g by c o n tr o l li n g th e s t a r t i n g d a te s o f b u ild in g p r o j e c t s , and a u th o r iz e d th e c o n s tr u c tio n s e a s o n a lly so a s t o s t a b i l i z e em ploym ent d u rin g th e w in te r m onths* E a r ly I n 1959, I t was d e c id e d t o d e c e n tr a l iz e th e c o n tr o l o f th e b u ild in g m ark et th ro u g h v o lu n ta r y c o o p e ra tio n betw een l o c a l a u t h o r i t i e s , em ploym ent e x c h a n g e s, and b u ild e r s * L o c a l co m m ittees w ere s e t up w ith no c e n t r a l d i r e c t i v e s from th e L abor M arket B oard* A t r i a l p e r io d o f two y e a rs was a l l o t t e d I n o rd e r to t e s t th e r e s u l t * I t sh o u ld be n o te d t h a t c o n t r o l o f s t a r t i n g ^B engt F rS berg* "Employment P la n n in g I n Sw edish B u ild in g A c t i v i t y ," ( Stockholm s Employment S e rv ic e D iv i s io n , A*M*S*, May, 1 9 ^ ) , P* 1* (M im eographed*) 181* d a te s —on a v o lu n ta ry b a s is In o rd e r to p re se rv e th e d e c e n tra liz e d c h a ra c te r o f Swedish p la n n in g —has stre n g th e n e d th e p lan n in g p ro c ed u res p re v io u s ly weakened by th e e a r ly b u ild in g p o licy * The c o lle c tio n o f b u ild in g d a ta and th e p re p a ra t io n o f f o r e c a s ts became th e r e s p o n s i b i l i t y o f th e county la b o r b o a rd s . N a tio n a l Labor B oard D ire c tiv e Number F ive charged lo c a l b o ard s w ith th e r e s p o n s i b i l i ty o f o b ta in in g d a ta re g a rd in g employment and Investm ent f o r e c a s ts fo r th e v a rio u s d i s t r i c t s * B oth s h o rt and lo n g -te rm (fiv e y ea r) f o r e c a s ts were made*? INVESTMENT RESERVE FUNDS Changes In Investm ent te n d to In flu e n c e economic flu c tu a tio n s * G re a te r economic s t a b i l i t y would be ach iev ed i f v a r ia tio n s in Investm ent e x p e n d itu re s could be le v e le d out* One a p p lic a tio n o f f i s c a l p o lic y In Sweden d u rin g th e t h i r t i e s was th e use o f in v estm en t re s e rv e fu n d s. Through th e use o f s p e c ia l ta x conces s io n s , p r iv a te com panies were Induced to r e le a s e In v e s t ment funds d u rin g s p e c if ie d p h ases o f th e b u s in e s s cycle* M m toYagfrflgirt Investm ent l e g i s l a t i o n p assed In 1961 p ro v id ed ?Ih lll*9 PP. 2-3* 185 f o r ta x - f r e e company a llo c a tio n s f o r Investm ent funds* To be e l ig i b le f o r th e ta x c o n c e ssio n s, a company must d e p o s it U6 p e r cen t o f th e in v estm en t a llo c a tio n in th e Rlksbank* The d e p o s it could be u t i l i z e d o n ly when re le a s e d by th e Labor Market Board* When a firm was a u th o riz e d t o u t i l i z e th e d e p o s it, i t re c e iv e d a s p e c ia l allow ance o f 10 p er c e n t on th e u t i l i z e d amount* A fte r fiv e y e a rs , a company could use 30 p e r c e n t o f th e fund w ith o u t ask in g perm ission* I f th e funds were u t i l i z e d w ith o u t p erm issio n o f th e Labor M arket B oard, 110 p e r c e n t o f t h i s amount was s u b je c t to th e r e g u la r c o rp o ra te tax*® When funds were r e le a s e d , a company co u ld w rite o f f th e a c q u ire d a s s e t a t once and re c e iv e an a d d itio n a l 10 p e r cent ta x a b le d ed u c tio n f o r th e amount u sed . P erm issio n f o r th e -use o f funds was g ra n te d f o r d e p re c ia tio n o f new b u ild in g s , new m achines, and f o r c o s ts of f o r e s t c o n se rv a tio n . Vm-j9i InyggtawRt r««nrc fun&a The l a r g e s t amounts o f in v estm en t funds were re le a s e d d u rin g th e 1958-59 r e c e s s io n . P erm its were ®Curt C anarp. "Investm ent Funds - and How They Can Be Used to Combat R ecessio n and Unemployment," g » g |^ " * « la k a Banken Q u a rte rly Review, XLIVsII (1 9 6 3 ), 186 g ra n te d to more th a n 600 firm s f o r th e re le a s e o f 750 m illio n kronor* T h is amount was app ro x im ately o n e - f if th o f one y e a r 's t o t a l p r iv a te investm ent* More th a n 90 p e r ce n t was used f o r I n d u s tr ia l b u ild in g , th e b alan ce being used m o stly f o r machinery* In th e sp rin g o f 1962, th e re were f e a r s o f a g e n e ra l re c e ssio n * The Labor M arket B oard, in c o n s u lta tio n w ith th e M in istry o f F in an ce, re le a s e d funds f o r p r o je c ts w hich could be c a r r ie d o u t d u rin g th e p e rio d from J u ly , 1962 to A p r il, 1963* About 600 e n te r p r is e s used re s e rv e s a t a t o t a l c o s t o f 1*1 b i l l i o n kronor* T h is tim e th e r e le a s e s were made a t an e a r ly sta g e o f th e re c e s s io n , and d e f in ite tim e l i m it s were s e t f o r com pletion o f th e p r o je c ts *9 T able 25 r e v e a ls t h a t in 1962, a s d u rin g 1958-59, a la rg e p a r t o f th e funds were re le a s e d f o r b u ild in g p ro je c ts * I t should a ls o be n o te d t h a t th e e f f e c t on employment was accom plished by November, 1962, when fu n d - fin a n c e d employment c o n s titu te d ap p ro x im ately 25 p e r c e n t o f th e la b o r fo rc e in p riv a te employment p ro je c ts * 10 ^ K ris te r Wlckman, "The Swedish Investm ent R eserve System , an In stru m en t o f C o n tra e y c llc a l P o lic y ," (Stockholm ! M in istry o f F in an ce, March 25, 1962)* (Mimeographed*) lO can arp , o p * c i t ** p* 38* T A B U S 25 INVESTKNT FO N D FINANCED BUILDING PROJECTS IN PROGRESS A ll P ro je c ts A bsolute F igures Costs In No* o f M ill. Kr. Workers Percentage Share of P riv ate Investment* C osts Per centage Percentage of Workers 1962 Aug. 13 1962 Nov. 15 1963 Feb. 15 280 860 860 1,600 8,500 10,100 7.0 18.6 18.9 5.6 2k.k 30.9 ♦In th e C o n tro lle d 1 1 b u ild in g s e c to r; excluding homes. ®Curt Canarp, "Investm ent Funds - and How They Can Be Used to Combat R ecession and Itaemployment," Bnntam Q uarterly Review. XXXXIViII (1963), 33-3^. P r o f i t a b i l i t y o f u sin g In v estm en t re s e rv e funds A firm w hich h as an in v estm en t re s e rv e a t i t s d is p o s a l can im m ediately w rite o f f th e a s s e t and ta k e an e x tr a 10 p e r c e n t ta x d e d u c tio n . W ithout t h i s r e s e r v e , th e same company would be a b le o n ly to make an n u al d e p re c i a t i o n d ed u c tio n s in th e f u tu r e so a s to co m p letely am o rtize th e a s s e t . The p re s e n t v a lu e o f th e Im m ediate w r it e - o f f , a s compared to th e p re s e n t v a lu e o f th e l o s t d e p r e c ia tio n , should in d ic a te th e ad v antage o f u t i l i z i n g in v estm en t fu n d s. In th e example w hich fo llo w s , com parison i s made betw een d isc o u n te d v a lu e s f o r an n u a l d e p r e c ia tio n o f an a s s e t p ric e d a t one m illio n k ro n o r, and th e p re s e n t v a lu e o f th e d e p o s it p lu s th e e x tr a 10 p e r c e n t ta x d e d u c tio n . An I n t e r e s t r a t e o f 4 - p e r c e n t i s assum ed. The b e n e f its o f th e in v estm en t ac cru ed to a firm u t i l i z i n g th e re s e rv e c o n s is ts o f repaym ent o f 460,000 k ro n o r (46 p e r c e n t o f 1 m illio n k ro n o r), and a ta x g a in th ro u g h th e e x tr a 10 p e r c e n t am ounting to 4-9,000 kro n o r (4-9 p e r c e n t tim es 10 p e r c e n t tim e s 1 m illio n k ro n o r). The e x tr a ta x c r e d i t i s d isc o u n te d f o r one y e a r, i t i s assumed t h a t cash w i l l n o t be re c e iv e d u n t i l th e f i r m 's ta x assessm en t h as been f i l e d . The p re s e n t v a lu e o f th e ta x c r e d it i s th e n 4-9,000 d iv id e d by 1.04- o r 1*79115 k ro n o r. T o ta l p re s e n t v a lu e o f th e d e p o s it and th e e x tr a 189 ta x c r e d i t I s th e n 507»115 k ro n o r. I f th e same firm d id n o t have an In v estm en t r e s e r v e , th e d isc o u n te d *+90,00 k ro n o r ta x g a in sh o u ld be compared to th e p o s itio n o f th e firm when I t u t i l i z e s r e s e r v e s and h a s no f u tu r e w r i t e - o f f s . The p r e s e n t v a lu e o f th e f iv e am o rtized amounts ( c a lc u la te d by th e p r e s e n t v a lu e o f "1" ta b le ) i s 89,993 k ro n o r, o r a p p ro x im a te ly 90 p e r c e n t. T h is amount I s m u ltip lie d by *+90,000 k ro n o r, r e s u l t i n g In a p re s e n t v a lu e ta x c r e d i t o f M+0,867 k ro n o r. The n e t g a in to th e firm th ro u g h th e use o f In v estm en t r e s e rv e fu n d s would th e n be 66,2*+8 k ro n o r. A summary p r e s e n ta tio n o f p r o f i t a b i l i t y o f u sin g In v estm en t r e s e r v e s i s shown I n T able 26. The s tim u la tin g e f f e c t to th e firm In t h i s case was th e n ab o u t 7 p e r c e n t o f th e In v estm en t e x p e n d itu re . The com parative adv an tag e f o r a firm w ith a re s e rv e v a r ie s I n v e r s e ly w ith th e r a t e o f I n t e r e s t and th e number o f y e a rs a n a s s e t I s d e p r e d a t e d . F or b u ild in g s d e p re c ia te d f o r 33 y e a r s , th e g a in w ould be g r e a te r th a n th e amount shown I n th e fo llo w in g T able ^ E r w in M ildner and I r a S c o tt, "An In n o v a tio n in F is c a l P o lic y t The Swedish In v estm en t R eserve S ystem ," N a tio n a l Tax J o u r n a l. X V *III ( S e p t ., 1 9 6 2 ), 276-280. 190 TAB IE 26 SU M M A R Y PRESENTATION OF PROFITABILITY OF USING INVESTMENT RESERVES D ep o sit re tu r n e d by R lksbank *+60,000 k r . P re s e n t v a lu e o f ta x re d u c tio n *+7)115 k r . 507,115 P re s e n t v a lu e o f ta x c r e d i t th ro u g h f u tu r e d e p r e c ia tio n allo w an ces ¥+0,867 Net g a in to th e firm th ro u g h th e use o f In v estm en t re s e rv e (K r.) 66,2*+8 191 THE INVESTMENT RESERVE FUND AS A N INSTRUMENT FOR ECONOMIC STABILIZATION The p rim a ry o b je c tiv e o f In v e stm e n t r e s e r v e l e g i s l a t i o n I s to g iv e th e L abor M arket B oard a n In flu e n c e In th e tim in g o f In v e stm e n t e x p e n d itu re s d u rin g a re c e s s io n * D e p o s its , made to th e R lk sb an k , have a n e u t r a l e f f e c t on econom ic developm ent s in c e th e d e p o s its w ould o th e rw ise be p a id in ta x e s * I n o rd e r t o re d u c e th e l i q u i d i t y o f com panies, th e governm ent h a s o f f e r e d a n e x tr a 10 p e r c e n t f o r firm s who d e p o s it th e e n t i r e I n v e s t m ent a l l o c a t i o n In th e R lksbank* One b i l l i o n k ro n o r was d e p o s ite d a t th e R lksbank i n I9 6 0 , t h i s made I t e a s i e r f o r th e C e n tr a l Bank t o t i g h t e n th e c r e d i t p o lic y * In o rd e r to In flu e n c e tHe economy In th e d e s ir e d d i r e c t i o n , th e tim in g o f In v e stm e n t e x p e n d itu re s becomes g r e a t l y s ig n if ic a n t* The dilem ma o f econom ic p o lic y I s th e s h o r t tim e a v a ila b le f o r making r e l i a b l e f o r e c a s t s , th e le n g th o f tim e e la p s in g betw een d e c is io n t o I n v e s t , and th e a c t u a l e x p e n d itu re o f th e funds* In r e c e n t y e a r s , g r e a t e r a t t e n t i o n h a s b een p a id to lo n g -te rm p la n n in g a s a means o f re d u c in g th e I n t e r v a l betw een th e d e c is io n and e x e c u tio n o f In v e stm en t e x p e n d i tu re s * The Sw edish L abor M arket B oard h a s made g r e a t s t r i d e s tow ard more r e l i a b l e em ploym ent f o r e c a s t s , b u t s t i l l assum es th e r i s k I n d e c is io n s on w h eth er o r n o t to p ro c e e d w ith c e r t a i n m easures* 192 One m ethod used to m inim ise th e r i s k s In v o lv ed h as b een th e developm ent o f a " d e c is io n te c h n iq u e " : The n e x t s te p i s to d ev elo p such a " d e c is io n te c h n iq u e " t h a t th e r i s k s i n b o th d i r e c ti o n s a re lim ite d a s much a s p o s s ib le * The u n c e r ta in ty in h e r e n t i n econom ic f o r e c a s tin g sh o u ld be i n t e g r a te d i n t o t h i s te c h n iq u e , w hich can to some e x te n t be done th ro u g h sp re a d in g th e r is k s * Through th e m a n ip u la tio n o f many d i f f e r e n t t o o l s o f econom ic and la b o u r m arket p o lic y , i t sh o u ld be p o s s ib le to l i m i t th e r i s k s o f u p s e ttin g th e b a la n c e i n th e economy a s a r e s u l t o f b o t t l e n ec k s in one s e c to r * 12 THE INFLUENCE OF PLANNING O N INVESTMENT F o llo w in g W orld War I I , in v e stm e n t e x p e n d itu re s became a m ajor econom ic f a c t o r to in flu e n c e th e grow th and s t a b i l i t y o f th e economy* L ong-term p la n n in g began in 19^7 w ith th e in a u g u ra tio n o f th e f i r s t f i v e - y e a r p la n . N a tio n a l econom ic b u d g e ts have b een p re p a re d a n n u a lly sin c e 1 9 ^8 . In b o th lo n g -te rm and s h o r t- te r m p la n n in g ( n a tio n a l b u d g e ts ), c o n tr o l o f th e g ro s s in v e stm e n t h as b een th e m ajor in stru m e n t f o r a c h ie v in g s t a b i l iz a t i o n * P u b lic in v e stm e n t and d e fe n se e x p e n d itu re s (in c lu d e d in in v e stm e n t) w ere d i r e c t l y c o n tr o lle d th ro u g h th e budget* I t was n o t p o s s ib le f o r th e governm ent to in f lu e n c e d i r e c t l y p r iv a te in v e stm e n t e x c e p t h o u sin g , w hich h a s b een d is c u s s e d in th e p re v io u s s e c tio n . How e v e r , in v e stm e n t r e s e r v e s , v o lu n ta ry c o o p e ra tio n o f 12Canarp, p* * ♦ < > . 193 e n tr e p r e n e u r s , and c r e d i t p o l i c i e s have s u c c e s s f u lly t e e n u t i l i z e d * In v e s tm e n t. 19^6-1956 The p e rc e n ta g e d i s t r i b u t i o n o f m a jo r In v e stm e n t e x p e n d itu re s and th e y e a r ly p e rc e n ta g e I n c r e a s e s o f g ro s s In v e stm e n t a r e shown I n T a b le s 27 and 28* As may be n o te d I n T a b le 2 7 , th e tr e n d o f p r i v a t e In v e stm e n t e x p e n d itu re s f o r g o o d s, d i s t r i b u t i o n , hom es, and i n some p a r t , t r a n s p o r t a t i o n , r e v e a l s t h a t more th a n h a l f o f th e In v e stm e n t e x p e n d itu re s o c c u rre d I n th e p r i v a t e s e c to r* The p e r c e n ta g e s o f p r i v a t e In v e stm e n t e x p e n d itu re s I n goods and homes was re m a rk a b ly s t a b l e , a v e ra g in g a b o u t o n e - f i f t h o f e a c h y e a r 's t o t a l g ro s s In v e stm e n t f ig u r e s * In T a b le 2 8 , page 1 9 5 , I s shown th e change In In v e stm e n t from y e a r t o y e a r , w hich I n d ic a te s econom ic f l u c t u a t i o n from one y e a r to th e n e x t w ith th e h ig h e s t p e rc e n ta g e ch an g es f o r th e y e a rs 1 9 ^7 , 1950, and 1953* F u r th e r a n a ly s i s w i l l be r e q u ir e d I n o rd e r to e v a lu a te th e In flu e n c e o f p la n n in g and m o n etary p o l i c i e s d u rin g th e p e rio d * P la n n in g and tw a g ta M n t.-J T h « f i r s t f iv e - y e a r p la n , w hich o r i g i n a l l y encom passed th e y e a rs 19^+7-1952, e n v is io n e d a d e c re a s e o f p r i v a t e In v e stm e n t and a m oderate I n c r e a s e (118 m i ll io n k ro n o r) I n p u b lic In v e stm en t* The TA B IE 27 PERCEN TA G E DISTRIBUTION OF M A JO R IN V ESTM EN T G RO U PS 19^-1955 1 9 ^ 6 1 * 7 ISM 1 * 9 1950 1951 1952 1953 1 9 * 1955 P roduction of goods 32.5 3^.7 38.7 39.9 39.2 38.7 38.0 33.2 3^.3 33.3 D is trib u tio n o f goods 1 .2 1.3 1.3 1.2 1 .1 1 .1 1.0 1 .5 2 .1 2.2 T ransportation* 22.9 22.5 2»f .5 21.6 22.8 2*f.6 25.6 27.7 * . 3 25.5 M ater and flo o d c o n tro l 1 * 1 .7 1.7 1.8 1 .9 1 .8 1.7 2.1 2 * 2.7 Home co n stru c tio n 29.8 28.9 22.3 23.1 22.5 20.9 19.8 20.3 20.8 2 0 * 8chools 2 .2 2.2 2 .8 3.1 2.9 2 .9 3 .5 3.3 3.3 3.2 S ocial measures 2 .9 3 .1 3.8 3.6 3 .5 3 .2 3.7 3.7 b .l b.2 Defense 7 .1 5.6 *♦.9 5.7 6 .1 6 .8 7.7 8.2 8.7 8 .5 T o tal g ross Investm ent 100 100 100 100 100 100 100 100 100 100 ♦Includes s tr e e t and road construction* *Flnansdepartem entet, iE n gfclri autrodnlng (Stockholm! AFlnansdepartem entet, Expansion. BptgnkAnd« Ayglyet ay 1955 Ars Isaac Marcos B oktryckeri A ktiebolag, 19571, p* 151 * -. 195 TABUS 28 G RO SS IN V E ST M E N T V O L U M E 1945-1956 (19*4-7 Index = 100) . Index S e rie s 19*46 90 19*4-7 100 19*4-8 101 19*4-9 100 1950 i n 1951 110 1952 112 1953 126 195*4- 135 1955 135 1956 138 *T able c o n s tru c te d from d a ta s u p p lie d in r e p o r t p u b lish e d by F in a n sd e p a rte m e n te t, |gfttjLpnt 1VMdget f Cr ** 1957 (Stockholm * Is a a c Marcus B o k try c k e ri-A k tie b o la g , 1 9 5 7 ), P . 92. 196 main g o a l d u rin g t h i s p e rio d was to In c re a s e Sw eden's sh a re o f e x p o rts The f i r s t P lan n in g Commission r e a liz e d th e l i m i t a t i o n s o f a p la n n in g agency In f o r e c a s tin g and d ir e c tin g th e economic developm ents* In a n t ic i p a ti o n o f t h i s problem , th e Commission p re s e n te d th r e e a l t e r n a t i v e p rogram si (1) th e m ost fa v o ra b le o r a 2*3 p e r c e n t an n u a l grow th in th e g ro s s n a tio n a l p ro d u c t; (2) a m oderate grow th; and (3 ) a l e a s t fa v o ra b le grow th o f 1*1 p e r c e n t p e r annum* The a c tu a l grow th exceeded th e m ost fa v o ra b le e x p e c ta tio n s , sin c e th e 19^9 g ro s s n a tio n a l Income was In e x c e ss o f th e 1951 p lan n ed l e v e l , th e p e rc e n ta g e In c re a s e s b ein g 2*1, 6*6, and M -*6 p e r c e n t f o r th e y e a rs 19^7, 19^8, and 19^9 r e s p e c t i v e l y * ^ In th e second f iv e - y e a r p la n (1 9 5 1-1955), an In c re a s e in g ro s s In v estm en t from 5 ,6 7 5 m illio n k ro n o r to 7 ,2 2 6 m illio n k ro n o r, o r 27 p e r c e n t, had been expected* The change in In v estm en t a c tu a ll y was 2k p e r c e n t (T able 2 8 ). The m ajor em phasis d u rin g t h i s p e rio d was p la c e d on p r iv a te c a p i t a l e x p e n d itu re s , p a r t i c u l a r l y in home c o n s tru c tio n * In o rd e r to com plete th e a n a ly s is , I t becomes n e c e ssa ry to examine to what e x te n t th e R lk sb a n k 's p o lic ie s a re c o o rd in a te d v l t h th e planned developm ent* The p o lic y o f th e R lksbank. 1 9 ^6 -1 9 5 ?.—The ex p an sio n o f th e economy proceeded along two l i n e s : p u b lic In v estm en t, and p r iv a te investm ent* The fin a n c in g o f th e f e d e r a l e x p e n d itu re s by th e Swedish banking system In c re a se d th e l i q u i d i t y a f t e r th e war* The R lksbank s ta b i liz e d lo n g -te rm bonds a t th e 3 p e r c e n t l e v e l , r e s u ltin g In t h e m o n e tiz a tio n o f th e debt* The R lksbank s t a b il iz e d I n t e r e s t r a t e s by open m arket o p e ra tio n s* The low I n t e r e s t r a te s and th e ea sy c r e d i t m arket f o s te r e d In c re a se d p r iv a te Investm ent and I n f la tio n a r y p re ssu re s* The bank a t t h i s tim e d id n o t f e e l t h a t I t was I t s d u ty to combat I n f l a t i o n , and th u s d id n o t u t i l i z e m onetary p o lic ie s to m odify th e ex p an sio n sta g e d by th e P lanning Commission* In J u ly , 19*+6» th e R lksbank a p p re c ia te d th e krona by 17 p e r ce n t (from **.20 to 3*60 k ro n o r p e r d o l l a r ) . T his p o lic y was I n s tig a te d by th e bank In view o f I t s ap p reh en sio n ab o u t p o s s ib le I n te r n a l e f f e c t s o f a booming e x p o rt tra d e * The e f f e c t o f th e p o lic y was a " s e l l e r s s tr ik e " o n th e p a r t o f th e i m p o r t e r s .^ 15Lundberg, on, c l t *. pp. 138-1^3* In v e stm en t. 1956-196** D uring th e p e rio d 1956-196*+* th e t h i r d f iv e - y e a r p la n was com pleted and th e c u rre n t f o u r th p la n alm o st ended. W ith th e s t a r t o f th e t h i r d p la n , g r e a te r em phasis was p la c e d on th e c r e d i t m arket and i t s e f f e c t on r e a l i z a t io n o f Investm ent o b je c tiv e s . In fa c t* th e In c lu s io n o f s t a t i s t i c s d e a lin g w ith th e c r e d i t m arket when n a tio n a l income c a lc u la tio n s were p re p a re d was su g g ested hy th e P lanning Commission. T able 29 p re s e n ts th e a c tu a l Investm ent e x p e n d itu re s f o r th e p e rio d 1951-1960* alo n g w ith e s tim a te d Investm ent f o r 1961-1965* The a c tu a l in v estm en t s e rv ic e s f o r 1956-1960 exceeded th e t h i r d f iv e - y e a r p l a n 's e stim a te d e x p e n d itu re s by ap p ro x im ately fo u r b i l l i o n k ro n o r, v l t h th e in c re a s e a t t r i b u t e d to housing c o n s tru c tio n and m an u fa ctu rin g . The P lanning C om m ission's o b je c tiv e s f o r in v e s t ment and g ro s s n a tio n a l p ro d u c t were r e a liz e d f o r th e f i r s t fo u r y e a rs o f th e 1961-196*+ p e r io d . The p r iv a te and p u b lic s e c t o r s ' in c re a s e s were In l i n e w ith p ro je c te d t a r g e t s ; th e g ro s s n a tio n a l p ro d u ct in c re a s e d 1 3 .2 p e r c e n t a s compared w ith an e stim a te d 1 3 .8 p e r c e n t . ^ "» * k e t p o lic y .—Large governm ent ex p en d l- ^ f is t e n Johansson* "Economic Development in Sweden D uring th e I9 6 0 's i How F a r Has th e Long-Term P la n r u i m i e d ? " aam flinsY iflto Bwiton QiMurtwrly fa Y lo v t No. *+, 196*+* p . 116. 199 TAB IE 29 GROSS INVESTMENT 1951-1965 (M illio n s o f Kronor i n I960 P ric e s ) A c tu a l 1951-1955 A c tu a l 1956-1960 E stim a te d 1961-1965 A g ric u ltu re 3 ,0 A 2 ,5 3 1 2,800 P r iv a te In d u s try 14,625 18,371 25,300 Housing 11,565 15,271 19,000 T ra n s p o rta tIo n 11,552 14,894 17,900 D is tr ib u tio n o f goods 1 ,2 2 7 2 ,6 5 5 If, 000 PU bllc s e r v ic e s (ln c l* d e fe n se ) 11,277 1 5 ^ 3 2 19,600 T o ta l 53,270 69,15»f 88,600 C o n stru c te d from d a ta su p p lie d in r e p o r t p u b lish e d by F ln a n sd e p a rte m e n te t, Svenak Ekannmi 1960-65 ( Stockholm t Iduns T ry c k e ria k tie b o la g E s s e lte AB, 1 9 6 2 ), p . 8 8 . 2 0 0 tu r e s r e s u l t i n g In b u d g et d e f i c i t s in c re a s e d l i q u i d i t y , w hich i n tu r n In c re a s e d p r iv a te inv estm en t* In th e n a tio n a l econom ic b u d g et r e le a s e d s in c e th e b eg in n in g o f th e t h i r d f iv e - y e a r p la n (1 9 5 6 -1 9 6 0 ), th e c r e d i t m arket h a s re c e iv e d g r e a t a tte n tio n * The N a tio n a l Economic B udget i n 1956 gave s p e c ia l c o n s id e r a tio n to th e c r e d i t m arket* I t was r e a l iz e d t h a t one p a r t o f p r iv a te in v e s tm e n t, h o u sin g , co u ld s u c c e s s f u l l y be c o n tr o lle d th ro u g h b u ild in g p e rm its and g overn ment lo an s* A r e s t r i c t i o n on c r e d i t a s a b ra k e a g a in s t h ig h in v e stm e n t was a d v o c a te d *^7 D uring 1957» th e governm ent In c re a s e d borrow ing from banks by 908 m illio n k ro n o r, o f w hich amount th e com m ercial banks s u p p lie d 64-2 m illio n kronor* P r iv a te b u s in e s s ex p a n sio n , e x c e p t home b u ild in g , f o r th e same y e a r d e c re a se d by 67 m illio n k ro n o r, a s compared w ith 1956 fig u re s * The m ajor fu n d s f o r in v e stm e n t e x p e n d itu re s w ere re c e iv e d from th e s a le o f s to c k s and bonds* The r e c e s s io n t h a t s t a r t e d In 1957 acco u n ted f o r d e c re a se d borrow ing in th e p r iv a te sector***-® D uring th e second h a l f o f 1958, th e c u r re n t 1 7 K o n J u o k tu rln s titu ta t, K tttlon»lbuiig«t f S r f e 10<>6 (S tockholm i Is a a c Marcus B o k try c k e rl A k tle b o la g , 1 9 5 6 ), p . 7 8 . i , j w k t o ^ t i t o t e t , BflYlflgrad. ffatlP M lfradgflt f o r Ar 1956 (Stockholm ! Is a a c Marcus B o k try c k e rl A k tle b o la g , 1 9 5 6 ), p p . 100-104-. * 2 0 1 b u d g et d e f i c i t in c re a s e d t o 1 ,3 8 1 mi l l i o n k ro n o r, and th e c a p i t a l b u d g et to 8 3 3 m illio n kronor* A ccording t o th e B a n k e rs9 A s s o c i a ti o n th e d e f i c i t s c r e a te d a l i q u i d i t y i n th e b an k in g system w hich e n a b le d in d u s tr y , b u s in e s s , and t r a n s p o r t a t i o n I n t e r e s t s to in c re a s e borrow ing by M O O m illio n k r o n o r * ^ A r e s t r i c t i v e c r e d i t p o lic y was I n s ti g a te d in 1959 when th e R lk sb an k r a is e d th e d is c o u n t t o 5 p e r c e n t, and in c re a s e d th e l a r g e s t banks* r e s e r v e s from 33 to M O p e r c e n t* 20 The c o n s id e r a tio n o f th e c r e d i t m ark et i n s h o r t term p la n n in g i s shown i n T ab le 30* T h is i s b a se d on governm ent n e t borrow ing re q u ire m e n ts , h o u sin g p e r m its , and p la n n e d developm ent o f l o c a l governm ent and th e b u s in e s s s e c to r* The b u s in e s s s e c to r In c lu d e s p r iv a te c o o p e ra tiv e s and u t i l i t y com panies, and th e demand i n t h i s s e c to r r e p r e s e n ts re q u ire m e n ts f o r c a p i t a l and in v e n to rie s * The a c tu a l demand, o r 1961 re q u ire m e n ts , am ounted to M-,350 m illio n k ro n o r, fin a n c e d l a r g e ly b y o th e r c r e d i t i n s t i t u t i o n s , in c lu d in g fu n d s from th e 750 m illio n k ro n o r t , i X ^ s d e p a r t e m e n t e t , P ro llB ln g r jToj^Ar (S tockholm 1 Is a a c M arcus B o k try c k e rl A k tie -^ - * „ ^ F in a n s d e p a r te m e n te t, R g y jfo rtd H qU p n alb u d g g t goy^Ar (S tockholm ! Is a a c M arcus B o K try c k e rl-A k tie - 2 0 2 T A B IE 30 THE CREDIT M A RK ET 1961 A M D 1962 (E stim a te d F ig u re s I n M illio n s o f K ronor) 1961 1962 Demand C e n tra l governm ent 1 ,0 0 0 250 L o cal governm ent 500 500 H ousing 2 ,0 0 0 2 ,5 0 0 B u sin e ss s e c to r 2 ,5 0 0 1 ,5 0 0 T o ta l 6 ,0 0 0 ^ ,7 5 0 Supply R lksbank 500 250 Com m ercial banks 2 ,0 0 0 500 O ther c r e d i t I n s t i t u t i o n s 3 ,2 5 0 3 ,5 0 0 The M arket 250 500 T o ta l 6 ,0 0 0 if ,750 C o n s tr u c te d from d a ta s u p p lie d In a r t i c l e by L ars T h. H e lis tr8 m . M The C r e d it M arket C a lc u la tio n s o f th e N a tio n a l B u d g e t," Skandl^avlakft Bankan Om m Hmm.1v No. 2 , 196lf, p p . 53-51 *-. 2 0 3 p e n sio n fu n d . The a c tu a l demand f ig u r e s f o r 1962 ex ceed ed th e e s tim a te d t o t a l s by 2 ,2 5 0 m illio n k ro n o r, s u p p lie d by th e com m ercial b a n k s .21 The c r e d i t m ark et a n a ly s is i n th e n a ti o n a l b u d g e ts h a s b een lim ite d t o e s tim a te s o f th e c r e d i t m a rk e t. In c o r p o ra tio n o f th e c r e d i t m ark et In n a t io n a l p la n n in g I s a s te p In th e r i g h t d i r e c t i o n w hich may v e i l le a d to f u r t h e r a n a ly s is o f th e d i r e c t i o n o f v a r io u s com ponents o f c r e d i t p o lic y , such a s d is c o u n t r a t e s , bond m a rk e t, th e n a t io n a l d e b t, and th e l i q u i d i t y o f th e b an k in g sy stem . The Im pact o f e x p a n siv e h o u sin g and b u d g et p o l i c i e s le d to in c re a s e d l i q u i d i t y . The fin a n c in g o f th e n a ti o n a l d e b t a t th e "lo n g end" o f th e m ark et h a s lim ite d th e e x p a n siv e e f f o r t o f th e b u d g e t. The d i s t r i b u tio n o f th e n a tio n a l d e b t I s shown I n T ab le 3 1 . The need f o r in v e stm e n t r e s u l t e d In a squeeze on th e c r e d i t m a rk e ts , a s may be n o te d by th e In c re a s e In com m ercial banks* ad v an ces w hich In c re a s e d b y 7 p e r c e n t d u rin g 196M-.22 I f th e c r e d i t and c a p i t a l m ark e ts sh o u ld f u n c tio n re a s o n a b ly w e ll i n th e f u t u r e , f i s c a l p o lic y sh o u ld r e c e iv e p a r t i c u l a r a t t e n t i o n . ^ L a r s T h . H e lls trS m , "The C r e d it M arket C a lc u la t i o n s o f th e N a tio n a l B u d g e t," fflMwfllnay* Q u a r te rly R eview . No. 2 , 196M-, p p . 5 2 -5 7 . 22"The Economic S i t u a t i o n ," gvim «lr» 2BdftS, No. 196h-, p . 3* 2 0 * + TABIE 31 CH A N GES IN THE NATIONAL DEBT BY IENH5R (In M illio n s o f K ronor) Septem ber- August 1961/62 1962/63 1963/6*+ R lksbank -1,1 5 8 *+02 - 270 Commercial banks 1,038 - 656 - 629 O thers - 790 - 236 1,300 T o ta l change - 910 - *+90 *+03 a "Economic S urvey." gkaniiinAviak* Bankan Q u a rte rly Review, No. *+ , 196m -, p . 130. 20'5 Investm ent and s t a b i l i t y Hov e f f e c tiv e h as In v estm en t been f o r th e Swedish s t a b i l i z a t i o n p o lic y ? T o ta l Investm ent s in c e W orld War I I h as In c re a se d g ra d u a lly a s a r e s u l t o f th e g o v ern m en t's committment to f u l l employment• A s t e a d i ly r i s i n g grow th in th e g ro ss n a tio n a l p ro d u c t h as been one r e s u l t o f th e economic p o lic y sin c e changes In demand a f f e c t p r im a r ily p ro d u c tio n . Has In v estm en t a ls o p lay ed a s t r a t e g i c p a r t In th e s t a b i l i z a t i o n o f employm ent, p r i c e s , and p ro d u c tio n ? To make t h i s a p p r a is a l more f r u i t f u l , e f f e c t s and p o lic ie s o f In v estm en t In th e p r iv a te sph ere should be se g re g a te d from p u b lic e x p e n d itu re s , and e f f e c t s o f c a p i t a l exp endi tu r e s ov er a com plete cy c le should be c o n s id e re d . The grow th o f p u b lic Investm ent h a s In c re a se d f a s t e r th a n p r iv a te Investm ent e x p e n d itu re s a s a r e s u l t o f th e s o c i a l i s t i c g o v ern m en t's committment to f u l l employ ment and la r g e w e lfa re b e n e f i t s . T h is p o lic y h a s been s u c c e s s fu l d u rin g re c e s s io n s b u t h a s le d t o I n s t a b i l i t y d u rin g th e re c o v e ry phase b ecause I t has b een d i f f i c u l t and uneconom ical to sto p b u ild in g s In p ro g re s s , and a r e v iv a l o f p r iv a te Investm ent d u rin g th e upswing h as added to i n f la t io n a r y p r e s s u r e s . In g e n e ra l, I t i s n o t p o s s ib le to i s o l a t e a c t i v i t i e s In th e p u b lic s e c to r from th o se o f th e p r iv a te s e c to r , v h ere th e e n tre p re n e u r I s m o tiv ated by th e p ro sp e c t o f p r o f i t s . C ost I n f l a t i o n w ith th e e x p e c ta tio n o f g r e a te r p r o f i t s m ight be a f a c to r 2 0 6 i n th e s t e a d i l y In c re a s in g demand which h a s c h a ra c te r iz e d th e Sw edish economy. T hus, th e r e s u l t o f th e ex p a n sio n a ry p r iv a te c a p i t a l e x p e n d itu re s h a s le d to a demand I n f l a t i o n mixed w ith a c o s t I n f l a t i o n . T h is dilemma m ight be one ex p lan a t i o n f o r th e s tr e n g th o f th e a g g re g a te demand w hich h as c h a ra c te r iz e d th e Swedish economy i n p o st-w a r y e a r s . Two a s p e c ts o f th e economy g iv e su p p o rt to t h i s h y p o th e siss (1) th e la c k o f p r ic e s t a b i l i t y , and (2) more governm ent m easures a tte m p te d t o curb p r iv a te in v estm en t th a n to encourage i t . The c y c li c a l a s p e c ts o f p r iv a te in v e stm e n t became e v id e n t d u rin g th e 1957-1959 p e r io d . A number o f r e s t r i c t i v e m easures w ere p u t in t o e f f e c t d u rin g th e 1953- 1957 phase o f th e economic upswing t h a t cu rb ed in v e stm e n t. The p e n t-u p in c e n tiv e f o r in v estm en t d u rin g th e d e p re s s io n phase was re le a s e d d u rin g th e economic upswing and was r e in f o r c e d by r e le a s e o f in v e stm e n t r e s e r v e s . T h is d e v e l opment le a d s to th e o b s e rv a tio n t h a t th e Sw edish s t a b i l i z a tio n p o lic y h a s le d to le v e lin g th e b u s in e s s c y c le . One w eakness o f th e s t a b i l i z a t i o n p o lic y has been th e u t i l i z a t i o n o f so many m easures over a s h o rt p e rio d o f tim e , so t h a t i s o l a t i o n o f th e e f f e c t s o f c r e d i t c o n tr o ls , ta x e s , and i n t e r e s t r a t e s h a s n o t been p o s s ib le . The use o f a number o f c o n tr o ls may be e f f e c tiv e i n th e s h o rt p e r io d , b u t econom ic a n a ly s is o f in d iv id u a l m easures h a s 207 been d i f f i c u l t * S econdly, th e am b itio u s employment p o lic y h a s been d ir e c te d tow ard In c re a s in g a g g re g a te demand, and th u s employment• A more m oderate employment p o lic y s t r iv i n g to e lim in a te is la n d s o f unemployment co u ld have been more s u c c e s s fu l and l e s s i n f l a t i o n a r y * 2 ^ S U M M A R Y Investm ent e x p e n d itu re s have been o f param ount im portance f o r prom otion o f economic grow th and s t a b i l i t y * In b o th th e lo n g -te rm and s h o rt-te rm p la n n in g , c a p i t a l e x p e n d itu re s have been supplem ented by n a tio n a l and lo c a l in v estm en t I n o rd e r to a t t a i n th e d e s ire d Investm ent q u o tie n t* Government e x p e n d itu re s have been c o n tr o lle d th ro u g h budget a p p ro p ria tio n s * In th e p r iv a te s e c to r , th e Swedish governm ent h a s d ir e c te d th e m agnitude o f housing c o n s tru c tio n th ro u g h f e d e r a l lo a n s and housing p erm its* O ther in v estm en t e x p e n d itu re s have been more d i f f i c u l t to re g u la te * C re d it p o li c ie s have been employed to c u r t a i l ex p a n sio n , b u t have n o t been e f f e c t iv e f o r in d u cin g expansion* Investm ent re s e rv e fu n d s , a n o v el experim ent in f i s c a l p o lic y , have been s u c c e s s fu lly u t i l i z e d to s tim u la te in v estm en t when unemployment was 23 g ric Lundberg, " S t a b i l i t y Problem s i n th e S can d in av ian C o u n trie s D uring th e P ostw ar P e rio d ," A gt£lS lB Economic Review- P ap ers and P ro c e e d in g s. 8 ev en ty -T h lrd Annual M eeting, May, 1961, V ol. L I, W o* 2 , p p . 378-389* th r e a te n in g . One dilemma co n n ected w ith th e p la n n in g and th e r e a l i z a t i o n o f In v estm en t p r o je c ts h a s b een th e e f f e c t o f la r g e s c a le f e d e r a l e x p e n d itu re s upon th e c r e d i t m ark e t. The fin a n c in g o f f e d e r a l e x p e n d itu re s h a s m onetized th e d e b t and g iv e n im petus to i n f l a t i o n a r y f o r c e s . What i s n eed ed , and h as n o t y e t been r e a l i z e d , i s b e t t e r c o o rd in a ti o n betw een f i s c a l and m onetary p o l i c i e s . The commitment to f u l l employment produced two sid e e f f e c t s w hich le d to i n f l a t i o n a r y p re s s u r e s o f e x c e s siv e demand. F i r s t , d e f i c i t spending made m onetary c r e d i t c o n tr o ls l e s s e f f e c t i v e ; se c o n d ly , c o s t i n f l a t i o n , w hich r e s u l te d from f u l l employment and e x c e ss demand, i n s t ig a te d p r o f i t e x p e c ta tio n in th e p r iv a te s p h e re . M onetary and d i r e c t c r e d i t c o n tr o ls were more e f f e c ti v e In cu rb in g th a n en co u rag in g p r iv a te c a p i t a l e x p e n d itu re s . The r e s u l t was a le v e lin g o f th e b u s in e s s c y c le by s h i f t i n g in v estm en t from th e upswing to th e downswing p h a se . CHAPTER XI M O N ETA RY POLICY A8 A TOOL FOR STABILIZATION D aring th e t h i r t i e s , th e m ain o b je c tiv e o f m onetary p o lic y in Sweden was th e s t a b i l i z a t i o n o f th e c u rre n c y . M onetary p o lic y and t o o ls a t th e d is p o s a l o f th e R lksbank have been d is c u s s e d In C hapter I I . In th e p r e s e n t c h a p te r, new a s p e c ts and g o a ls o f m onetary p o lic y sin c e W orld War I I , a s w e ll a s th e e f f e c t o f governm ent e x p e n d itu re s on bank l i q u i d i t y , a re a n a ly z e d . THE CONCEPT OF M O N ETARY POLICIES The f i r s t lo n g -te rm P lan n in g Commission p la c e d v e ry l i t t l e r e lia n c e upon m onetary p o l i c i e s . In s te a d o f c o n tr o l o f I n t e r e s t r a t e s and c r e d i t s , th e Commission ad v o cated d i r e c t m easures to be ta k e n a f t e r th e w ar. T h is a t t i t u d e r e f l e c t e d th e m onetary p o l i c i e s o f th e t h i r t i e s when I n t e r e s t r a t e s were c o n sid e re d to be o f m inor Impor ta n c e f o r th e s tim u la tio n o f t r a d e .• * ■ The S t a b i li z a t io n Committee c o n sid e re d m onetary p o l i c i e s In c o n ju n c tio n w ith f i s c a l p o l i c i e s . I t s concep ts Ip in a n s d e p a rte m e n te t, Ekonom lskt iJn g tid a e ro g ra m jj.^|j.-1955 (S tockholm ! Is a a c Marcus B o k try c k e rl-A k tle b o la g , 209 2 1 0 re g a rd in g th e Im portance o f f i s c a l and m onetary p o l i c i e s can be sum m arized a s fo llo w s t 1 . B oth f i s c a l and m o netary p o l i c i e s in flu e n c e th e econom ic developm ent* 2* I f demand i s e x c e s s iv e , f i s c a l e x p e n d itu re s sh o u ld be d e c re a s e d and th e c r e d i t sh o u ld be r e s t r i c t e d * 3* The econom ic e f f e c t o f m onetary p o lic y i s g e n e ra l and can b e p u t i n to use w ith minimum d elay * * « -• M onetary and f i s c a l p o l i c i e s a r e more e f f e c t i v e when th e y com plem ent e a c h o th e r o r a r e c o o rd in a te d * 5* M onetary p o lic y i s more e f f e c t i v e i n lim itin g In v e stm en t th a n I n s tim u la tin g in v estm en t* 6* M onetary p o lic y i s more e f f e c t i v e f o r c o n tr o llin g demand i n f l a t i o n th a n c o s t i n f l a ti o n * F i n a l ly , th e Com mission l i s t e d th e r e s u l t s o f governm ent fin a n c in g on th e l i q u i d i t y o f th e ban k in g system * B ecause Sw edish governm ent e x p e n d itu re s r e p r e s e n t a la r g e p ro p o rtio n o f th e g ro s s n a t i o n a l p ro d u c t, f i s c a l p o lic y h a s a s tro n g in flu e n c e on m o netary p o lic y * Govern m ent lo a n s and th e r e s u l t i n g l i q u i d i t y In c re a s e hav e b een g r e a t e r f a c t o r s i n econom ic e x p a n sio n th a n have I n t e r e s t r a te s * 2 2Fjj>n8d<part«M nt«t,ttfl .gob Htfltl I B t r t l l l - I s s e i t e ^ I f t i ) ^ p g^ i 7*321 m f In*ftr.gg.t. ratftg The m onetary p o lic y p u rsu ed a f t e r W orld War I I was th e m aintenance o f a low i n t e r e s t r a t e a s a means o f s t a b i l i z i n g p r ic e s and p ro d u c tio n from th e c o s t sid e* T h is co n c ep t was c o n tr a r y to th e W ic k s e llia n th e o ry t h a t low i n t e r e s t th ro u g h a cu m u lativ e p ro c e s s would in c lu d e r i s i n g p r i c e s and wages* E s s e n t i a l l y t h i s ap p ro ach assum es t h a t th e i n t e r e s t r a t e a f f e c t s th e demand f o r goods and lab o r* Arguments f o r a low i n t e r e s t r a t e * —D uring th e i n f l a t i o n a r y c o n d itio n s o f 19^5* I n t e r e s t r a t e s w ere lo w e re d , m ain ly i n o rd e r t o c o n tr o l house re n ts * In th e Sw edish c o n tr o lle d economy a f t e r th e w ar, th e e x p a n sio n a ry e f f e c t s o f low I n t e r e s t r a t e s , how ever, c o u ld be p re v e n te d th ro u g h p r ic e and r e n t c o n tr o l w ith o u t f e a r o f i n f l a t i o n a r y te n d e n c ie s* A nother argum ent f o r low I n t e r e s t r a t e s , d u rin g th e w ar, ev o lv ed from th e e x p e c te d e f f e c t o f la r g e g o v ern m ent lo a n s w hich had in c re a s e d th e l i q u i d i t y o f th e banking system * The R lk sb an k , th ro u g h open m ark et o p e ra t i o n s , s t a b i l i z e d th e bond m arket and th u s th e I n t e r e s t r a t e s , b u t th e e f f e c t o f t h i s p o lic y was a g r e a t e r e x p a n sio n o f c r e d it* Though th e c o s t o f th e n a ti o n a l d e b t was k e p t low th ro u g h low I n t e r e s t r a t e s , th e R lk sb an k , i n e f f e c t , a b d ic a te d i t s r e s p o n s i b i l i t y o f p re v e n tin g I n f l a t i o n th ro u g h m o n etary p o lic ie s * P u rsu in g I t s c o n c e p t o f I n flu e n c in g p r i c e s th ro u g h th e c o s t s l d e y th e R lk sb an k to o k a n o th e r s te p In 19*+6 by a p p r e c ia tin g th e k ro n a from U -.2 0 to 3*60 k r* p e r d o lla r * T h is s te p was ta k e n I n re s p o n s e t o e x p e c te d Im port and e x p o r t p r i c e I n c r e a s e s a f t e r p r i c e c o n tr o l was l i f t e d in th e U n ite d S ta te s * Q u g n t i t a t f g P O S t f l o f c r e d i t p o lic y C o n tro l o f consum ption and In v e stm e n t th ro u g h ch an g es I n th e money su p p ly h a s become a s t r a t e g i c f a c t o r o f th e Sw edish m o n etary p o lic y * The dilem m a o f r e s t r i c t i n g c r e d i t w ith r i s i n g te n d e n c ie s In I n t e r e s t r a t e s h a s ca u sed f o r e ig n exchange and d e b t r e f in a n c in g problem s* I n 1 9 5 0 , th e R lk sb an k p ro c e e d e d t o s to p th e e x p a n s io n o f c r e d i t th ro u g h d is c o n tin u in g open m ark et p u rc h a s e o f bonds and by In c r e a s in g r e s e r v e re q u ire m e n ts t o tw e n ty - f iv e p e r c e n t o f d e p o s its * The com m ercial b an k s w ere f u r t h e r I n s t r u c te d t o p la c e l i m i t a t i o n s on c r e d it* W ith th e o u tb re a k o f th e K orean W ar, th e c r e d i t m ark et was eased* The R lk sb an k c o n tin u e d to s u p p o rt bonds now a t th e 3*5 P«r c e n t l e v e l , and a la r g e I n c r e a s e i n f o r e ig n exchange h ad a l s o e a se d th e c r e d i t m arket* In 1952, th e q u a n t i t a t i v e a s p e c t o f th e new m o n etary p o lic y was c o n tin u e d i n th e form o f th e a l l o c a t i o n o f c r e d it* C r e d it r e s t r i c t i o n s w ere Im posed on s p e c u la tiv e 213 v e n tu re s y and th e c o n tro ls v e re ex tended to th e c a p ita l m arket th ro u g h r e s t r i c t i o n s on th e issu a n c e o f p r iv a te bo n d s.3 In 195*S th e r e was g re a t demand f o r c r e d i t by in d u stry * B ecause o f th e h ig h l i q u i d i t y i n th e banking system , nev government h p e r c e n t bonds v e re m arketed In o rd e r to a t t r a c t th e s u rp lu s liq u id ity * The R lksbank f u r th e r r e s t r i c t e d th e c r e d i t in 1965 th ro u g h r a is in g th e o f f i c i a l d is c o u n t r a t e to 3*75 p e r cent* ECONOM IC POLICY A N D LIQUIDITY The fin a n c in g o f governm ent and housing in v e stm e n t, added to o th e r governm ent e x p e n d itu re s , h as made i t d i f f i c u l t to use a n e f f e c tiv e m onetary p o licy * The m ajor « re a so n f o r t h i s developm ent i s th e p r i o r i t y g iv en to governm ent p r o je c ts over p r iv a te investm ent* G rovth o f th e c r e d it m arket D uring th e p e rio d 19*+8-196l, th e c r e d it m arket shoved a slow er tre n d o f developm ent th a n d id th e g ro ss n a tio n a l p ro d u c t (se e T able 32)* One e x p la n a tio n f o r th e d iv e rg e n t tre n d s may be tr a c e d to th e c r e d i t r e s t r i c t i o n s imposed on com m ercial banks In 1955* 1956, and 1957* The in d ex num bers re v e a l an in c re a s e in c r e d i t durin g 1958 ^ | l c v (London t Geoege , A?£ennanS Shvin* 15^7^?°PP™^ £ 2* 4 — TAB IE 32 GROSS NATIOHAL PR O D U C T A H D THE V O LU 1B OF CREDIT 19W-1961 (Indexi IShd = 100) 19*+8 1952 1956 1957 1958 1959 I960 1961 Gross n a tio n a l product (c u rre n t p ric e s) 100 1 5 0 191 205 21*t 227 2*f7 270 Outstanding c r e d its 100 136 178 193 207 229 2k O 259 Outstanding c r e d its / gross n a tio n a l product 100 91 93 * 97 101 98 96 ® Bo K a rlstro a , " S tru c tu ra l Changes on the Swedish C red it M arket," sicanflinavf.«v» R«nW»n Q u a rte rly ReviAw. XXXXIVjI (January, 1963), 5. 215 and 1959* a somewhat low er r a te f o r th e y e a rs I960 and 1961 S tr u c tu r a l changes 81nee W orld War I I y changes o c c u rre d In th e c r e d it m arket w hich a f f e c te d b o th b o rrow ers and le n d e rs* These changes were caused by two changes in th e demand and supply o f c re d it* The change in th e demand f o r funds was caused by ex p an sio n in c e r ta i n s e c to r s and d e c re a se s i n o th e rs* These changes were r e f le c t e d in c a p i t a l re q u irem en ts betw een d i f f e r e n t s e c to rs * C re d it i n s t i t u t i o n s le n d in g to th e expanding s e c to r s became store im p o rtan t th a n th o se w hich su p p lie d fu n d s f o r s ta g n a tin g in d u s trie s * The supply o f c r e d i t was I n s tig a te d by th e govern ment who c h a n n e lle d c r e d i t to c e r ta in s e c to r s th ro u g h d i r e c ti v e s and le g is la tio n * Funds su p p lie d f o r home c o n s tru c tio n i s an example o f m easures which In flu e n c e d th e s tr u c tu r e o f th e c r e d i t m arket* 81nce th e 1950 *8, th e governm ent h as su p p lie d la rg e q u a n titie s o f fu n d s f o r th e c a p i t a l m arket* F or long p e rio d s , th e demand f o r lo n g -te rm c a p i t a l h as exceeded th e supply* The req u irem en t f o r lo n g -te rm ‘•Bo K a rlstrd m . " S tr u c tu r a l Changes on th e Swedish IY ltI* (Ja n u a ry " ******* Q u a rte rly 216 c a p i t a l h a s coma from th a governm ent p o lic y o f g iv in g h ig h p r i o r i t y to home c o n s tru c tio n * The p r e v a ilin g lo v I n t e r e s t r a t e s fa v o re d by th e governm ent p re v e n te d f r e e o p e ra tio n o f th e m arket f o rc e s to In c re a s e th e su p p ly o f c a p i t a l w hich would have been a t t r a c t e d by h ig h e r I n t e r e s t ra te s * H igher I n t e r e s t r a t e s w ould have so lv e d th e p ro b lem o f e x c e ss demand f o r c a p i t a l , b u t by p e rm ittin g th e I n t e r e s t l e v e l to r i s e , th e r e would be a c o n f l i c t w ith th e g o v ern m en t's o b je c tiv e o f th e m aintenance o f low I n t e r e s t c o s ts and t h e i r e f f e c t s upon re n ts * In o rd e r to so lv e t h i s problem , th e Swedish s t a t e r e s o r te d to p r e f e r e n t i a l tre a tm e n t o f th e hou sin g s e c to r* T ab le 33 I n d ic a te s th e r a tio n in g o f bond is s u e s to borrow ing s e c to rs* The d e c re a se In th e sh are o f c e n tr a l' governm ent borrow ing was a r e s u l t o f borrow ing th ro u g h tr e a s u r y b i l l s d u rin g th e r e c e s s io n y e a rs 1958- 1959* The s h o rt-te rm borrow ing d u rin g th e s e y e a rs was m o tiv a te d by a d e s ir e to In c re a s e th e l i q u i d i t y o f th e com m ercial banks d u rin g th e 1958-1959 re c e s s io n y ears* Large b u d g et d e f i c i t s d u rin g th e s e y e a rs r e s u lte d i n an ex p an sio n o f bank c r e d i t , a s shown I n T able 3*f*^ The l i q u i d i t y o f th e com m ercial banks was r e s t r i c t e d by l i q u i d i t y r a t i o s im posed on th e s e banks by th e R lksbank* These r e s t r a i n t s e n ta ile d a t r a n s f e r o f P« 7* 217 TABUS 33 BOND ISSUE8 BROKEN D O W N INTO BORROW ING SECTORS 1950-195^ 1955*1959 Bor ro v in g S e c to r K r. m. P e r c e n t K r. m. P e r c e n t C e n tra l Government 5*562.7 6 7 .1 6 ,6 1 1 .9 5 9 .9 M ortgage hanks 1 ,5 9 3 .9 1 9.3 3 A 5 0 .6 3 1 .2 L ocal governm ents 6M-7.8 7 .8 M09A 3 .7 P r iv a te b u s in e s s s e c to r (In d u s tr y , w h o lesa le and r e t a i l t r a d e , e t c . ) *f82.5 5 .8 577.0 5 .2 T o ta l 8,286*9 1 0 0 .0 1 1 ,0 ^ 8 .9 1 0 0 .0 aBo K a rlstro m . " S tr u c tu r a l Changes on th e Sw edish iv l* i t (Ja n u a ry " y * * * 1 P an to n Quarterly Review, TIB IB 3 b NET INCREASE IN G O V ER N M EN T BORROW ING BY IENDERS 1952-1956 1957-1960 K r. m. For c e n t K r. m. P e r c e n t R lksbank 1 ,^3 9 3 3 .8 1 ,7 7 ^ 3 0 .6 Commercial hanks 1,219 2 8 .7 l 9 b02 2 ^ .1 C a p ita l m arket I n s t I t a t Io n s 72*t 1 7 .0 1 ,^2 7 2b .6 Companies and p r iv a te p e rso n s b61 1 0 .8 99 1 .7 O ther bl3 9 .7 1,102 1 9 .0 T o ta l ^,2 5 6 100.0 5,80*t 100.0 aBo K arlstrS m . " S tr u c tu r a l Changes on th e Swedish C re d it ^ k e t ^ g ^ a y i l n a v l a k a Banken Q u a rte rly Review . 219 c a p i t a l from s h o rt-te rm to lo n g -te rm bonds* In I9 6 0 , th e c r e d i t m arket was changed s i g n i f i c a n t l y th ro u g h th e e s ta b lis h m e n t o f th e G en eral P en sio n Fund* From I t s s t a r t I n I9 6 0 , th e fund grew to 2*8 billion k ro n o r In 1962 and I s e x p e c te d to amount to a p p ro x im a te ly 25 b i l l i o n k ro n o r In 1975* About h a l f o f th e f u n d 's a s s e t s w ere com prised o f lo a n s to th e h o u sin g s e c to r In 1962, b u t a la r g e p o r tio n h a s been made a v a i l a b le to th e p r iv a te b u s in e s s s e c to r* D uring th e boom y e a rs 1960-1961, th e r e was a more r e s t r i c t i v e m onetary p o lic y . The com m ercial banks w ere com pelled to red u ce t h e i r l iq u id a s s e t s and w ere ask ed to r e s t r i c t g ra n tin g o f c r e d it* P o lic ie s d u rin g th a flftlftg The p o lic y o f g ra n tin g p re fe re n c e to th e h o u sin g s e c to r , a s w e ll a s r e s t r i c t i n g c r e d i t th ro u g h r a tio n in g and in v estm en t r a t i o s , h a s b een c r i t i c i s e d by th e Sw edish B a n k e rs' A s s o c ia tio n (Svenska B a n k fS re n ln g e n )• T here a r e f e a r s now i n 1965 t h a t th e com m ercial banks w i l l c o n tin u e t o fa c e problem s in su p p ly in g c r e d i t s to s a t i s f y th e demands o f p r iv a te b u sin e ss* The fin a n c e m in is te r was c r i t i c i z e d f o r expanding th e house b u ild in g In d u s try a t th e expense o f o th e r n e c e s s a ry p r iv a te Investm ent*6 ^ L a rs -K rlk Thunholm, "B udgeten och K re d ltn a rk - n a d e n ,” ( J a n ., 1 9 6 5 ), pp* 5-7* 2 2 0 IwiitaMnt Anri 5i55EE53Sfiz In th e second f iv e - y e a r p la n , 1951-1955* in v estm en t was en v isag ed to com prise a la r g e r p a r t o f th e g ro s s n a tio n a l prod u ct* I t was d ir e c te d t h a t a sm a lle r s h a re o f in v estm en t sh o u ld be p r iv a te , w h ile a la r g e r sh a re sh o u ld go f o r housing to th e p u b lic s e c to r* M oreover, p r iv a te in v estm en t should be h e ld b ack th ro u g h m onetary p o l i c i e s i n o rd e r t o ac h ie v e th e C om m ission's s t a b i l i z a t i o n p o lic ie s * These o b je c tiv e s , s ta te d by th e Com mission, gave an I n s ig h t in to th e m onetary p o l i c i e s i n s t ig a te d a f t e r W orld War I I DECENT M O N ETA RY POLICY In th e 1960-1965 lo n g -te rm p la n , housing and p u b lic in v e stm e n ts were ex p e cted to dom inate th e In v estm en t m ark e t. The c o n tin u a tio n o f d is c rim in a tin g m onetary p o l ic i e s a f f e c tin g th e p r iv a te s e c to r foreshadow ed c o n tr o l o f t h i s s e c to r th ro u g h c r e d i t and m onetary m easures* The Commission ex p e cted t h a t in c re a s e d i n d u s t r i a l demands fo r c r e d i t c o u ld be s u p p lie d th ro u g h r e le a s e o f in v estm en t re s e rv e funds* Firm s w ith o u t In v estm en t re s e rv e fu n d s co u ld a p p ly f o r c r e d i t from th e am ounts accum ulated i n th e frliuuMd*par tMwntat t «lronoml«kt. TJngtldjprogrm 1951-1955. op. flit., p. 67. 2 2 1 G eneral P en sio n Fund* I t was a ls o th e e x p e c ta tio n o f th e Commission th a t th e 1950 c r e d i t s i t u a t i o n f o r th e com m ercial banks w ould e a s e , and t h a t more c o n s id e r a tio n would be g iv e n to th e needs o f Industry*** t h e Two c o n tr a s tin g te n d e n c ie s c h a r a c te r iz e d th e Swedish c r e d i t m arket d u rin g th e e a r l y s i x tie s * The b a la n c e betw een su p p ly and demand f o r c a p i t a l had Im proved 9 m ainly becau se o f l e s s governm ent borrow ing and th e grow th o f th e G en eral P en sio n Fund* The com m ercial b a n k sy on th e o th e r h an d , had n o t im proved t h e i r l i q u i d i t y p o s i t io n due to c o n tin u e d governm ent c r e d i t r e s t r i c t i o n s * The d is c o u n t r a t e was red u ced from 5 to *t*5 p e r c e n t I n A p r i l, 1962 in o rd e r to r e la x th e c r e d i t m arket* The o f f i c i a l d is c o u n t r a t e was now th e same a s b e fo re th e l a s t In c re a s e In J a n u a ry , I9 6 0 , when th e governm ent a n t i - I n f l a t i o n a r y p o lic y was d esig n ed to r e s t r i c t bank c r e d i t Three new law s a f f e c tin g c r e d i t were p a sse d by th e R iksdag I n May, 1962s 1* The law on l i q u i d i t y q u o ta s and ca sh r e s e r v e s B p in a n sd e p a rte m e n te t, Svenak KimnoaH 1.960-1965 (Stockholm ! Iduns T ry c k e rla k tie b o la g fc s s e lte AB, l4 o 2 j , p p . I»t2-m>3. f o r c e r t a i n c r e d i t i n s t i t u t i o n s * 2* The l a v on in v e stm e n t q u o ta s f o r c e r t a i n c r e d i t i n s t i t u t i o n s * 3* The l a v on r e g u la ti o n o f I n t e r e s t r a t e s and c o n t r o l o f bond is s u e s * 10 The n e v l i q u i d i t y q u o ta s v e re f i x e s a t 50 p e r c e n t o f c o n m e r d a l banks* l i a b i l i t i e s i n v h lc h d e p o s its on th e s a v in g s a c c o u n ts v e re in c lu d e d * The c a sh q u o ta v a s s e t a t 15 p e r c e n t o f th e banks* l i a b i l i t i e s * The in v e stm e n t q u o ta s gave th e R lk sb an k th e p o v e r t o r e s t r i c t In v e stm e n t e x p e n d itu re s o f c a p i t a l m ark e t i n s t i t u t i o n s to governm ent s e c u r i t i e s and h o u sin g c r e d it* Such f i n a n c i a l i n s t i t u t i o n s a s In s u ra n c e co m p an ies, p o s t o f f i c e , s a v in g s b a n k s , and th e G e n e ra l P e n s io n Fund v e re d i r e c te d to s e t a s id e 80 p e r c e n t o f th e t o t a l fu n d s f o r governm ent bonds and home c o n s tru c tio n * The i n t e r e s t r e g u l a t i o n l a v gave th e R lk sb an k th e p o v e r t o p r e s c r ib e maximum, a s v e i l a s minimum I n t e r e s t r a t e s f o r d e p o s its a t c r e d i t i n s t i t u t i o n s * 1 n v a n tB M n t. I n d u s t r i a l In v e stm e n t d u rin g th e f i r s t tv o y e a rs o f th e s i x t i e s v a s a f f e c t e d b y th e n e v c r e d i t r e s t r i c t i o n s and shoved s ig n s o f s ta g n a tio n * The f o u r th lo n g -te rm p la n h ad Im p lie d a n a n n u a l I n c re a s e o f *f*2 p e r c e n t f o r i n v e s t - 10Nev Em ergency la v s f o r th e C r e d it M a rk e t,* * a * * go* *f-5, 1962, p* 223 ment and a M - p e r c e n t an n u al g ro v th r a t e o f th e g ro ss n a tio n a l product* As d u rin g p re v io u s lo n g -te rm p la n n in g , p u b lic Investm ent «nd housing v e re ex p ected to be th e m ajor components f o r a tta in in g th e a n tic ip a te d g ro v th r a t e . E a rly in 1963, Investm ent funds v e re r e le a s e d in o rd e r to s tim u la te I n d u s t r i a l Investm ent* The o f f i c i a l d isc o u n t r a t e v a s a ls o lo v e re d to 3*5 p e r c e n t in Jan u ary In o rd e r to g iv e f u r th e r s tim u la tio n to in v estm en t p r o je c ts . A sm all d e f i c i t i n th e b u dget v as ex p ected to t g iv e m oderate ex pansive e f f e c t s to th e eco n o m y .il The o f f i c i a l d isc o u n t r a te vas r a is e d to *t*5 p e r c e n t In Ja n u a ry , 196U-. A more s tr in g e n t m onetary p o lic y v as ad vocated in v le v o f an a n tic ip a te d b u dget d e f i c i t o f 500 million k ro n o r In 196*+, and 900 m illio n k ro n o r In 1965* The B lksbank f u r th e r tig h te n e d th e c r e d i t r e s t r i c tio n s by re q u irin g a 9 p e r c e n t p e n a lty I n t e r e s t on com m ercial bank b o rro v in g vhen advances from th e R lksbank exceeded o n e -h a lf o f th e b a n k 's own c a p i t a l . T he.S vedlsh I n s t i t u t e o f Economic R esearch e s tim a te d a 6 p e r c e n t In c re a s e in i n d u s t r i a l Investm ent 11 "The Economic S itu a tio n ," a™n«km n»ndmiirt»nk»n Inrtox- Ho* 10, 1962, p* 3* 12Ibid., Nos* 9-10, 1963, P* 3. 2 2 k i n 196*t. H ousing and l o c a l governm ent acco u n ted f o r th e in c re a s e d -e x p e n d itu re s , w h ile i n d u s t r i a l in v estm en t was l e s s e x p a n siv e *13 Stability I t i s n o t p o s s ib le to a s s e s s th e In flu e n c e o f m onetary p o lic y on p r ic e and employment s t a b i l i t y , sin c e i t was in flu e n c e d more by f i s c a l m easures* E xam ination o f p r ic e and wage tre n d s f o r th e p e rio d 19*4-8-196^ re v e a ls s t e a d ily r i s i n g p r ic e s and a r e d i s t r i b u t i o n o f th e Income tow ard la b o r , shown by a g r e a te r change i n wages (se e T able 3 5 ). M onetary p o l ic i e s in th e s i x t i e s seem to have been more e f f e c ti v e th a n th o se o f th e e a r l i e r p e rio d when g r e a te r f lu c tu a tio n s in p r ic e s occurred* The tig h te n in g o f c r e d i t s in c e I960 h as no doubt b een a r e s tr a i n in g f a c t o r • S U M M A R Y M onetary p o lic y a f t e r W orld War I I was n o t an e f f e c tiv e in stru m e n t f o r c o n tr o llin g in f la tio n * Two f a c t o r s made i t d i f f i c u l t to c o n tro l i n f la t i o n a r y te n d e n c ie s s (1) in c re a s e d governm ent e x p e n d itu re s , and (2) m aintenance o f low I n t e r e s t r a t e s i n o rd e r to low er c o sts* 13"The Economic S itu a tio n ," f iv e n s k a H a n d a la h a n k a n indfiX, No. 8 , 196*4-, p* 3* TAB IE 35 PRICES, W AGES, U N E M PL O X M SN T , A N D INDUSTRIAL PROD U CTIO N 19^9- 196^ (P ricess 19M -9 B 199* Wages* Kr. per h r .) (In d u s tria l Production* 1935 = 100) 1 * 9 1955 I960 1961 1962 1963 196^ (May) Consumer p ric e s 100 133 159 163 170 175 180 Wages in In d u stry 2*6k k.o* 6 .3 2 6.82 7.39 7.91 7.63 Per cent unemployed in in d u stry .9 .8 .9 .7 .7 In d u s tria l production 190 226 286 305 309 316 3**8 aS ta ti8 tlc a l Supplement to fiyanaka H ^ ^ i^ b an K en Index. No. 8 , 196**, pp. 1 -2 . to t o vn 226 As a r e s u l t , a c r e d i t e x p a n sio n o c c u rre d and d i r e c t c o n tr o ls w ere u t i l i z e d to a g r e a t e r e x te n t th a n m onetary m easures* In th e c o n tr o l o f consum ption and In v e stm e n t, th e R lksbank h a s r e l i e d upon r a tio n in g o f c r e d i t to th e p r iv a te s e c to r , w ith I n t e r e s t r a t e s p la y in g a m inor r o le I n th e c r e d i t m arket* The developm ent o f th e G en e ral P en sio n Fund and g r e a te r u t i l i z a t i o n o f In v estm en t re s e rv e fu n d s d u rin g th e s i x t i e s Im proved th e c r e d i t f o r th e p r iv a te s e c to r , how ever, th e s u b o rd in a tio n o f m onetary p o lic y to f i s c a l p o lic y may s e r io u s ly a f f e c t th e grow th o f p r iv a te e n t e r p r i s e i n th e fu tu re * B ecause o f th e r a tio n in g o f c r e d i t , i t i s n o t p o s s ib le to a s s e s s th e m onetary p o lic y a s a f a c t o r f o r s t a b i l i z a t i o n and grow th* T here h a s been a ten d en c y to c o n s id e r m onetary a s p e c ts i n th e n a tio n a l b u d g e ts , b u t more s tu d ie s a re needed to a s c e r t a i n th e e f f e c t s o f m onetary p o lic ie s * CHAPTER XII TAXATION AND STABILITY In o rd e r to p ro v id e fu n d s f o r th e governm ent w ith ' I t s heav y lo a d o f s o c ia l b e n e f i t s , a s w e ll a s to e n a b le th e ta x system to o p e ra te w ith a minimum d e t e r r e n t to I n c e n tiv e s o f p r iv a t e b u s in e s s , th e governm ent h a s to p e rfo rm a " b a la n c in g a c t" I n d e te rm in in g th e ta x load* I t I s th e p u rp o se o f t h i s c h a p te r to d eterm in e how w e ll th e governm ent h a s su cceeded i n a t t a i n i n g t h i s goal* T h is * p o lic y I s s t a t e d by one w r i t e r a s fo llo w s t E s p e c ia lly Im p o rta n t • • . i s th e use o f t a x a t i o n , to g e th e r w ith o th e r f i s c a l m easures and w ith m o netary m e a su re s, a s a d e v ic e by w hich th e governm ent h a s so u g h t to In flu e n c e econom ic tr e n d s In Sweden, p a r t i c u l a r l y th e volume and c h a r a c te r o f In v estm en t* How f a r ta x a t io n I s e f f e c t i v e in t h i s a r e a i s a m a tte r o f some d is c u s s io n I n Sweden, b u t I n th e p a s t ta x a t io n h a s b een used to a con s id e r a b le e x te n t f o r t h a t p u rp o s e • W hile ta x a tio n i s j u s t one t o o l I n th e f i s c a l p o lic y , th e aim s a r e s (1 ) to prom ote g ro w th , (2 ) to prom ote s t a b i l i t y by c o u n te r a c tin g econom ic f l u c t u a t i o n s , (3 ) to com bat I n f l a t i o n , and (*f) to p ro v id e a d e q u a te re v e n u e • ^H arv ard Law S c h o o l, I n t e r n a t i o n a l Program In c o ^ i S & ^ p ^ l T flWaden (B o8tont Brown and 227 2 2 8 TAXES IN SW ED EN The ta x lo a d , c o n s id e rin g a l l ta x e s Im posed, I s com parable w ith t h a t o f m ost o th e r c o u n trie s * In th e p a s t d e c a d e , th e ta x e s in Sweden w ere ta k in g 27*3 p e r c e n t o f th e n a tio n a l Income a s compared w ith 28*8 p e r c e n t in th e U n ited Kingdom, 32*9 p e r c e n t I n F ra n c e , 2M -*6 p e r c e n t In th e U n ited S t a t e s , and 3 3 .b p e r c e n t I n W est Germany*2 The answ er t o th e ta x problem i s n o t found i n th e lig h tn e s s o f th e lo a d , b u t I n th e ta x s t r u c t u r e , f l e x i b i l i t y , a th e e f f e c t s on consum ption and p ro d u c tio n * The im p act o f th e ta x e s In Sweden i s s t a t e d by H enry H a z l l t t a s fo llo w s * The c o rp o ra te ta x r a t e I s ro u g h ly e q u iv a le n t to o u r own • • • P e rs o n a l Income ta x e s a r e e x tre m e ly heavy* A fte r exem ption o f o n ly a b o u t $*tOO f o r s in g le p e rs o n s and $800 f o r a fa m ily , in d iv id u a ls f i r s t p ay a l o c a l p r o p o r tio n a l Income ta x a v e ra g in g a b o u t 15 p e r cen t* Then th e y pay* on th e r e s t o f t h e i r incom e, n a tio n a l ta x e s ra n g in g from 10 to 65 p e r cen t* Thus th e e f f e c t i v e to p r a t e n o t o n ly can ex ceed 70 p e r c e n t, b u t a fa m ily w ith a ta x a b le Income o f o n ly $ 1 ,2 0 0 c o u ld pay 2 5 - 1 / 2 p e r c e n t, w h ile a n I n d iv id u a l w ith a ta x a b le income o f o n ly $>+,000 w ould pay a b o u t *f0 p e r c e n t. The to p r a t e s above 70 p e r c e n t a p p ly to Incomes above $ 3 0 ,0 0 0 .J V ario u s ta x e s L o ca l r e a l e s t a t e t a-ra « — A a sa a am ent« on r e a l 2M a rtin O rr, "T a x a tio n and S ta b i l i t y— G uidance from Sw eden," fturY tffl Bttgiflflgg XXXVIII (J a n u a ry , I9 6 0 ) 51. i ^H enry H a z l l t t , "T axes In Sw eden," Newsweek. O ct*, 1962, p . 7 8 . 229 e s t a t e In Sweden a re made e v e ry f i v e y e a rs and th e ta x I s th e same a s th e l o c a l Income ta x r a te * T h is r a t e I s a p p lie d to 2*5 p e r c e n t o f th e a s s e s s e d v a lu e o f th e p r o p e r ty , and th e amount so d e te rm in e d I s added to o th e r ta x a b le Income i n th e p r e p a r a tio n o f th e Income ta x r e tu r n * The fo llo w in g exam ple I l l u s t r a t e s how th e r e a l e s t a t e Income t a x I s c a lc u la te d s R e a l e s t a t e a s s e s s e d a t a v a lu e o f 100,000 k ro n o r w ould be ta x e d a t 2*5 p e r c e n t o f t h i s am ount, o r 2 ,5 0 0 k ronor* I f th e t a x r a t e s were th e 15 p e r c e n t p r e v io u s ly e s tim a te d a s th e n a t i o n a l a v e ra g e , th e a n n u a l r e a l e s t a t e ta x w ould th u s b e 375 k ro n o r S in ce th e ta x p a y e r I s a llo w e d to re d u c e h i s Income from p r o p e r ty b y 2*5 p e r c e n t o f th e a s s e s s e d v a lu a tio n , th e ta x becomes a b u rd e n o n ly to th e e x te n t t h a t th e Income from p r o p e rty I s l e s s th a n th e ta x b ase on p r o p e r ty ( g a r a n tlb e lo p p ) • L o c a l Income ta x * — L o cal Income ta x e s a r e le v ie d by c o u n tie s and communes on e a rn in g s from em ploym ent, b u s in e s s , la n d , and h ouses* The t a x I s p r o p o r tio n a l and a p p lie s to b o th I n d iv id u a ls and c o rp o ra tio n s * The r a t e s v a ry I n d i f f e r e n t co m m u n ities, a v e ra g in g a b o u t 15 p e r cen t* The ex em p tio n s a r e th e same a s f o r th e n a t i o n a l Income ta x and v a ry a c c o rd in g to c o s t - o f - l l v l n g a re a s* ( S t o e too ^ * r S S .8 d ^ i? £ f 230 A llow ances ra n g e from l,8*t0 to 2 ,0 0 0 k ro n o r f o r a s in g le p e rs o n , and from 3 ,6 8 0 to *f,000 k ro n o r f o r a fa m ily . No a d d itio n a l a llo w a n c e s a re p e rm itte d f o r depen d en t 1 c h ild r e n , h u t th e s t a t e s c o n tr ib u te a n n u a lly *+50 k ro n o r f o r each c h ild under 16 y e a rs o f a g e ,? N a tio n a l income t a x . —The n a ti o n a l income t a x h a s p ro g re s s iv e r a t e s from 10 to 65 p e r c e n t. The exem ptions a re th e same a s f o r th e l o c a l Income t a x , and th e amount p a id f o r l o c a l ta x may be d ed u cted from th e n a tio n a l ta x a b le Incom e. The r a t e s fo rm a lly approved by th e R iksdag In December, 1961, a re shown In T able 3 6 . __ W f t t l o n a l n t j n i t n l t a - g . —A ll p e rso n s w ith c a p i t a l a s s e t s in e x c e s s o f 80,000 k ro n o r a r e re q u ir e d to pay a d d itio n a l ta x e s on t h e i r n e t w o rth . T h is ta x I s r e a l l y a y e a r ly c a p i t a l le v y . In th e ta x e s d e a l t w ith up to t h i s p o i n t , we have n o t n o tic e d any te n d en c y t o M soak th e r i c h . " The S o c ia l D em ocrats i n power have fo llo w ed t r a d i t i o n a l p r i n c i p l e s In o b ta in in g rev en u e t o c a r r y on th e f u n c tio n s o f th e governm ent. The n a tio n a l Income t a x , w ith i t s p ro g re s s iv e r a t e s , shows no d e v ia tio n from t r a d i t i o n a l p r i n c i p l e s . The a d d i t io n a l re v en u es r e q u ir e d b y m u n ic ip a litie s to fin a n c e w ork p r o je c ts d u rin g d e p re s s io n p e rio d s a r e P- 21. TABIE 36 N A TIONAL IN C O M E TA X SC A LE For a Family For a Single Person On a Taxable The Tax And i s in the The Tax And i s in the Income of i s Next Level i s Next Level (kronor)* (kronor) (per cent) (kronor) (per cen t) 0 0 10 0 10 6,000 600 10 600 20 9,000 900 10 1,200 25 12,000 1,200 20 1,950 30 16,000 2,000 32 3,150 ?6 20,000 3,200 ?8 £,590 HI 30,000 7,000 H3 8,690 HO,000 11,300 k a 13,190 60,000 20,900 9 * 22,990 9 * 100,000 H2,500 59 Mf,59° 59 150,000 72,000 65 7^,090 65 ♦Taxable income does n o t, of course. Include th e amounts alre ad y deducted fo r lo c a l tax es or allow ances. A m arried man w ith a tax ab le Income o f 5,000 kronor would th u s have a (gross) income of about 11.000 kronor. A tax ab le income o f 20,000 kronor would equal a (gro ss) Income o f about 29,000 kronor. A tax ab le income of 100,000 kronor re p re se n ts a (gro ss) income o f about 1 2 3 ,0 0 0 kronor. a S k a tte b e ta la rn a s Forenlng, Taxes in Sweden (Stockholm! J . E. C a rlste d t Forlag AB, 1962), p . 17. to 2 3 2 a v a il a b l e from th e n a t i o n a l governm ent th ro u g h s u r p lu s e s b u i l t up d u rin g good tim e s . W ith th e Im p o s itio n o f th e N a tio n a l C a p ita l T ax , th e governm ent I n p o v e r h a s found a way to ta x v e a lt h v l t h a wi-tiHmtim i n j u r y to th e p ro d u c tiv e f o r c e s o f th e c o u n tr y . (S ee T ab le 37) S p e c ia l c o n s id e r a tio n I s g iv e n to ta x p a y e rs v l t h la r g e a s s e t s , b u t sm a ll inco m es. I f th e t o t a l Income i s l e s s th a n th r e e and o n e - th ir d p e r c e n t o f th e c a p i t a l , no ta x I s l e v ie d on th e amount t h a t I s more th a n t h i r t y tim e s a s la r g e a s th e Income Old age p e n s io n s . —A ll Sw edish c i t i z e n s b e tv e e n th e a g e s o f 18 and 67 m ust p ay * + p e r c e n t o f t h e i r Income when paym ents a r e made f o r th e n a t i o n a l Income t a x . As o f J u l y , 1958, a n n u a l paym ents f o r m a rrie d c o u p le s am ounted t o 2 ,^ 0 0 k ro n o r. T h is amount I s In a c c o rd a n c e v l t h th e c o s t o f l i v i n g so t h a t l a r g e r o r s m a lle r am ounts may b e r e c e iv e d . I t sh o u ld be n o te d t h a t em ploy ers do n o t c o n tr ib u te I n e q u a l am ounts to v a rd t h i s fu n d . H ere a g a in v e n o tic e th e p o lic y o f th e ta x in g a u t h o r i t i e s to fa v o r p r i v a t e b u s in e s s . A d e p a rtu re from t h i s scheme o f ta x a t i o n v a s n o te d I n Hay, 1959, vhen a n ev p e n s io n b i l l p a sse d th e p . 2 1 . 233 TAB IE 37 CAPITAL TAX RATES F o r a C a p ita l o f (k ro n o r) The C a p ita l Tax I s (k ro n o r) And I s In th e Next L ev e l (p e r c e n t 80,000 0 0 .5 100,000 100 0 .8 150,000 500 1 .0 200,000 1,000 1.3 1+00,000 3,600 1.6 1,000,000 13,200 1 .8 Exam ples F o r a s s e t s e v a lu a te d a t 1 2 0 ,0 0 0 k ro n o r th e ta x i s 100 k ro n o r on th e f i r s t 1 0 0 ,0 0 0 k ro n o r p lu s 0*8 p e r c e n t o f th e re m a in in g 2 0 ,0 0 0 k ro n o r. The t o t a l c a p i t a l ta x I s th u s 100 p lu s 160 o r 260 k ro n o r. a S k a tte b e ta la r n a s F o re n ln g . T axes i n Sweden (S tockholm s J . E . C a r ls te d t F o r la g AB, 1 9 6 2 ;, p . 2 1 . 23^ R iksdag by one v o te i n th e Second Chamber• E f f e c tiv e In 1981, supplem entary paym ents w i l l be made. At t h a t tim e th e b e n e f it paym ents a re ex p ected to be 65 p e r c e n t o f th e p re v io u s average Income o f th e p e n s io n e r. T his p en sio n w i l l be fin a n c e d e n t i r e l y by em ployers th ro u g h paym ents o f 3 p e r c e n t o f wages p a id . However, i n l i n e w ith th e p h ilo so p h y o f s p a rin g b u s in e s s , c o rp o ra te Income ta x r a t e s were reduced from 50 to U O p e r c e n t b eg in n in g w ith th e 1961 assessm en t y e a r . 7 Other taxes.— In a d d itio n to th e ta x e s m entioned, th e n a tio n a l governm ent h a s Imposed a 6 p e r c e n t g e n e ra l s a le s ta x a s w e ll a s a number o f e x c is e ta x e s . The In h e rita n c e ta x e s a re p ro g re s s iv e and s t a r t w ith 3 p e r c e n t b ased on 6,000 k ro n o r and In c re a se d to 60 p e r c e n t f o r an In h e rita n c e o f ov er 5 ,000,000 k ro n o r. To p re v e n t e v a sio n o f d e a th d u tie s th ro u g h g i f t s , g i f t ta x r a t e s have b een imposed w hich a re s im ila r to th e in h e r ita n c e ta x ra te s .® Tax r a t e — Undor * system w hich combines p ro p o rtio n a l l o c a l ta x e s w ith p ro g re s s iv e n a tio n a l Income and w e a lth ta x e s , I t m ight be p o s s ib le f o r ta x e s to exceed Income i n any one y e a r . In o rd e r to p re v e n t such an ^H arvard law S chool, o p . c l t . . p . *f5* ® 8 k a tte b e ta la rn a s F o ren ln g , o p. c l t . . p . 37. 235 o c c u rre n c e , a li m i ta t io n i s in e f f e c t w hich l i m i t s t o t a l ta x e s to 80 p e r ce n t o f th e d e c la re d incom e.9 t m g and j y ™v«nuAa — ^ example o f th e c a lc u la tio n o f th e p r in c ip a l ta x e s i s repro d u ced in T able 3 8 , w h ile T able 39 on page 237 shows ta x reven u es f o r th e budget y e a r 1961-1962. gwfliah ta* jgfgri D ire c t ta x e s p ro v id e th e m ajor p a r t o f governm ent revenue and a re exp ected to be th e p re p o n d eran t p a r t o f ta x a tio n in view o f th e g ra d u a te d ta x system and in c re a s e d incom es. However, sin c e th e f i f t i e s , I n d ir e c t ta x e s have in c re a s e d and th e im pact o f d i r e c t ta x e s h as d e c re a se d th ro u g h ad ju stm en t o f r a t e s and h ig h e r b a s ic a llo w a n c e s. Due to th e s te e p ly g ra d u ated income ta x and in c re a se d w e lfa re e x p e n d itu re s , a r e d is t r i b u t i o n o f income h as o cc u rred in fa v o r o f th e low er Income g ro u p s. From 19*+8 to 1963, th e g o v ern m en t's ta x reven u es have in c re a s e d fo u r tim e s, and c o n trib u tio n s f o r s o c ia l b e n e f its more th a n te n f o ld compared to a fo u rfo ld In c re a s e in average income In I9 6 0 , a com m ittee on ta x p o lic y was a p p o in te d f S k a tte b e ta la rn a s F o re n ln g . flflr fflflttllTM PftrifcfflM ( Stockholm t Sven Iv a r Iv a rs s o n , 1959)* P« 23. ^ " ^ d i s h Tax R eform ," la d lX , Mo. , 196*, p . 1 . 236 TABUS 38 CALCULATION OF SWEDISH TAXES r^pmuinlt v ta x T axable Income ......................................... 1**,200 k ro n o r D ed u ctio n • • • • • • • ............................ !+,000 A d ju ste d I n c o m e ...................................... 10,200 Community ta x ( l * * j » ) ............................... . . 1,1*28 national Income ta x (ll*,200 - 1,1*28 k r . ) .................... 12,772 kronor D e d u c t i o n ............................................. ..... M-,000 A d ju ste d income to n e a r e s t 100 k r . . . . . . . . . . . 8,700 Tax on 8,000 k r. . . . 880 k r. Add V ? % o f ex cess o v er 8 ,0 0 0 ....................... 119 k r . T o ta l 999 k ro n o r C a p ita l l e w B ased on 125,580 k r . v e a lth Tax on 100,000 100 k r . Add 8 % o f e x c e ss o v er 100,000 ................... 20** k r . T o ta l 30** k ro n o r P en sio n ta x h % of 12,772 k r o n o r .................... 5U kronor H e a lth Insurance fee 255 kronor ( 187 + 68 k r .) ______ T o ta l o f a l l ta x e s 3*^97 k ro n o r a S k a tte b e ta la rn a S F o re n ln g, filrattanna Banalmaa (S to c k h o lm 8ven Iv a r Iv a rs s o n , 1959)* P* 2 3 . 237 TABUS 39 TAX REVENUES FOR BUDGET TEAR 1961-1962 ( I n M illio n s o f K ronor) N a tio n a l Income and c a p i t a l ta x ( In c lu d in g o ld age p e n sio n f e e s ) • Tax on l o t t e r y p r i z e s ........................ D eath d u ty and g i f t t a x ........................ P u rch ase ta x • • • • • • • • • • • L iq u o r ta x • • • • • • • • • • • • Tobacco ta x • • • • • • • • • • • • P e t r o l ta x • • • • • • • • • • • • Customs • • • • • • • • • • • • • E nergy ta x ................................................... A nnual c a r ta x • • • • • • • • • • Luxury ta x e s • • • • ............................ T axes on b e e r and s o f t d rin k s • • • S a le s ta x on m otor v e h ic le s • • • • O th er ta x e s (m a rg a rin e , c o f f e e , e n te rta in m e n t t a x e s , e t c . ) ........................... • • • _ _ 1^,710 L ocal L o cal Income ta x ...................................... 5,000 T o ta l ta x e s 1 9 ,7 1 0 a S k a tte b e ta la r n a s F o re n ln g , T axes I n Sweden ( Stockholm s J . E . C a r ls te d t F o rla g AB, 1 9 6 2 ), p . 1 0 . 7 ,1 5 0 85 105 1,^50 9^0 900 825 si 350 ISO 195 238 r e p r e s e n tin g a l l th e p o l i t i c a l p a r t i e s and th e p r i n c i p a l la b o r and management o r g a n is a tio n s . The com m ittee v a s d ir e c te d t o stu d y and p re p a re recom m endations f o r a change In I n d i r e c t ta x e s to a v a lu e added t a x . I t o VftlM ftflflftfl ta g * —T h is I n d i r e c t ta x may be d e s c rib e d a s a n o n -c u m u latIv e tu rn o v e r t a x . The g e n e ra l s a le s ta x I n Sweden I s a ta x Im posed a t th e p o in t o f f i n a l s a le to th e consum er. In many c o u n tr ie s on th e c o n tin e n t9 tu rn o v e r ta x e s a r e a p p lie d a t d i f f e r e n t s ta g e s o f th e p ro d u c tio n p r o c e s s . In t h i s m anner| th e same p ro d u c t I s ta x e d s e v e r a l tim e s — f i r s t a s r a v m a t e r ia l , n e x t a s goods i n p r o c e s s , and f i n a l l y a s f in is h e d g o o d s. The v a lu e added ta x w ould be im posed o n ly on th e added v a lu e , and th u s be n o n -c u m u la tiv e in n a tu r e . D ed u ctio n s from th e s a le s v a lu e w ould be made f o r a l l p u rc h a se s s u b je c t to t a x . When c a p i t a l goods a r e p u rc h ased f o r p ro d u c tio n , th e com m ission a d v o c a te s th e r i g h t o f Im m ediate d e d u c tio n o f th e c a p i t a l goods from g ro s s s a l e s . T h is m ethod may th e n be re g a rd e d a s a n In v e stm en t I n c e n tiv e . I t d i f f e r s from th e F ren ch p la n w here o n ly th e " ta x p a id " on c a p i t a l goods I s d e d u c te d . A n o th er ad v a n ta g e a c c ru in g from th e a d o p tio n o f a v a lu e added ta x w ould b e th e rem oval o f th e In c e n tiv e f o r v e r t i c a l I n t e g r a t io n p r e s e n t under a c u m u lativ e tu rn o v e r t a x . The v e r t i c a l 239 I n t e g r a t io n w ould o cc u r when p ro d u c e rs o f raw m a te r ia ls w ould merge w ith firm s m an u factu rin g s e m l-f In ls h e d and f in is h e d g o o d s.11 The com m ittee p r o je c te d e s tim a te s o f Income ta x e s f o r th e y e a r 1970, b a se d on th e p ro p o sed t a x reform s* I t was e s tim a te d t h a t th e p ro p o s a l w ould re d u c e d i r e c t ta x e s by 21*5 p e r c e n t, th e l o s t rev en u e w ould be r a is e d by I n c re a s e s I n I n d i r e c t ta x e s by *+ 0 p e r c e n t, and w e lfa re c o n tr ib u tio n s o f 4-2 p e r cen t* The t o t a l In c re a s e In rev en u e w ould be o v er 6 p e r c e n t; th e com m ittee recommended t h a t t h i s In c re a s e In ta x c o l l e c t i o n sh o u ld be used f o r r a i s i n g p e n sio n s and c h i l d r e n 's allo w an ces* The com m ittee made th e fo llo w in g p ro p o s a ls ! 1* The re fo rm o f I n d ir e c t ta x a t io n so t h a t th e e x is tin g g e n e r a l tu rn o v e r t a x , th e en e rg y t a x , and a number o f e x c is e d u ti e s • • • a r e re p la c e d by a u n ifo rm consum ption ta x w ith d i s t r i b u t e d c o l l e c t i o n , w hat I s c a lle d a v a lu e -a d d e d tax * 2* The d i r e c t ta x a t io n o f p h y s ic a l p e rso n s I s refo rm ed I n such a way t h a t I t becomes more r e g u la r In I t s p r o g r e s s iv e n e s s , th e e f f e c t o f j o i n t ta x a ti o n o f m a rrie d c o u p le s I s reduced* and r e d i s t r i b u t i o n f o r th e b e n e f i t o f f a m ilie s w ith c h ild r e n I s enhanced th ro u g h h ig h e r c h i l d r e n 's allo w an ces* 3* E m p lo y ers' c o n tr ib u tio n s w i l l re p la c e th e g r e a t e r p a r t o f th e e x is tin g c o n tr ib u tio n s b y th e p e rso n s co n cern ed f o r th e r e tir e m e n t p e n sio n and n a ti o n a l s ic k n e s s In su ra n c e * 12 ^Karl-Olof Faxen, "A Programme for Tax Policy, 1966-2.970,” «BMWIlMlaltm No* 3, 19w, p* 73* 12Loc clt. 2 h O FEATURES OF TAXES WHICH INFLUENCE THE BUSINESS CYCLE From th e d is c u s s io n o f t a x e s , o th e r th a n c o r p o ra te Income ta x e s , th e fo llo w in g c o n c lu s io n s can b e draw ns 1 . The p e rs o n a l p r o g re s s iv e Income ta x e s have b een heavy* They have n o t b een co n d u civ e t o b u s in e s s a c t i v i t y , h av in g been e n a c te d w ith th e p r i n c i p a l o b je c t o f p ro v id in g rev en u es* F o r p e rso n s s t a r t i n g a b u s in e s s , th e ta x e s have had a d e p re s s iv e e f f e c t , a s w i l l be shown l a t e r i n th e ch a p te r* 2* B u sin e ss e n t e r p r i s e s , on th e o th e r h a n d , have n o t been b u rd en ed by p a y r o ll ta x e s to p ay f o r p en sio n s* F o r h e a lth In s u ra n c e , th e f e e s have b een p a id 25 p e r c e n t by em p lo y ers, 25 p e r c e n t b y th e s t a t e , and 50 p e r c e n t by th e em ployees* Unemployment In su ra n c e h a s b een h a n d le d by th e u n io n s, w ith s t a t e c o n trib u tio n s * 3* The m ajor b e n e f i ts to b u s in e s s e x i s t I n some a s p e c ts I n th e c o rp o ra te Income ta x e s and th e c a p i t a l g a in s ta x e s w hich a p p ly b o th to b u s in e s s and t o I n d iv id u als* C o rp o ra tio n s p ay th e same l o c a l Income ta x e s r e a l e s t a t e ta x e s a s do I n d iv id u a ls b u t a r e n o t s u b je c t to th e n a t io n a l c a p i t a l ta x ( c a p i t a l le v y )* The r a t e s a r e f ix e d a t **0 p e r c e n t a f t e r d e d u c tin g l o c a l Income ta x paym ents* 2 b l The com panies pay th e l o c a l Income ta x o f 15 p e r c e n t on ta x a b le p r o f i t s . The n a ti o n a l Income ta x com bined w ith th e l o c a l Income ta x a v e ra g e s a p p ro x im a te ly M -9 p e r c e n t. In a d d l t l o n 9 th e r e I s d o u b le t a x a tio n I n th e form o f ta x e s on d iv id e n d s p a id t o s h a r e h o ld e r s . T husy th e r a t e s f o r c o r p o r a tio n s a r e a b o u t th e same a s th o se In th e U n ited S t a t e s . ^ Taxes on o th e r econom ic a s s o c ia tio n s S av in g s b a n k s9 l i f e In su ra n c e com panies, co o p e r a t i v e s , and b u ild in g and lo a n a s s o c ia tio n s a r e s u b je c t to low er n a t io n a l Income ta x r a t e s them a r e c o r p o r a tio n s . The n e t p r o f i t s o f c o o p e r a tiv e s , sa v in g s b a n k s, and b u ild in g and lo a n a s s o c ia tio n s a re ta x e d a t a Ho p e r c e n t r a t e . L ife In su ra n c e com panies pay a 10 p e r c e n t ta x , and n e t Incom es o f n o n - p r o f it o r g a n is a tio n s a r e s u b je c t to a 15 p e r c e n t ta x r a t e . L o c a l ta x r a t e s a r e th e same a s f o r c o r p o r a tio n s , b u t m ost o f th e above-m entioned o r g a n iz a tio n s pay no ta x on t h e i r c a p i t a l a s s e t s . In th o s e o r g a n iz a tio n s w here members have a c la im a g a in s t th e c a p i t a l , a 1 .5 p e r c e n t ta x I s le v ie d on a s s e t s ex ceed in g 8 ,0 0 0 k ro n o r ^ H a r v a r d Law S ch o o l, o n . c i t . . p . 8*+. 2 M - 2 S p e c ia l c o rp o ra te Income d e v ic e s The ta x e s from c o rp o ra tio n s ra n k n e x t to p e rs o n a l ta x e s i n pro d u cin g revenue* I t I s in th e a r e a o f c o rp o ra t i o n ta x e s t h a t Sweden h a s d ev elo p ed n o v e l and I n te r e s tin g ta x d e v ic e s i n a n e f f o r t to red u ce economic f lu c tu a tio n s * In a d d itio n to norm al c o s ts and e x p e n se s, Sw edish la v s p ro v id e f o r s p e c ia l d e v ic e s w hich a re allo w ed f o r f i s c a l and econom ic reaso n s* The p r i n c i p a l d e v ic e s are* (1) d e p r e c ia tio n a llo w a n c e s; (2 ) I n v e n to r / v a lu a tio n s ; (3) In v estm en t r e s e r v e s ; Of) c a p i t a l g a in s and lo s s e s ; and (5 ) c a rry backw ard and fo rw ard o f lo s s e s * D e n re e la tio n allo w an c es . —The e n tre p re n e u r h as much l a t i t u d e In w r itin g o f f m achinery and th u s v a ry in g Income s u b je c t t o ta x a tio n * The 1938 ta x la v p e rm itte d e l i g i b l e ta x p a y e rs to w rite o f f m achinery a t t h e i r own d is c r e tio n * Glider th e p ro v is io n s o f th e ta x la v , th e ta x p a y e r c o u ld w r ite o f f th e e n t i r e amount o f a m achine In one y e a r, th u s d e c re a s in g th e ta x a b le Income* He a ls o had th e o p tio n o f w ritin g o f f l a r g e r am ounts in good y e a rs o r n o t a t a l l I n bad y e a r s * ^ The o n ly r e s t r i c t i o n was t h a t th e amount ch arged o f f each y e a r f o r ta x p u rp o ses sh o u ld co rresp o n d v i t h th e amount w r itte n o f f in th e ta x p a y e r 's books f o r p r o f i t and ^ ^ a r v a r d la v S ch o o l, o p* d t *. p* 85* 2*t3 lo s s p u rp o ses* The m ethod o f f r e e d e p r e c ia tio n had b een recom mended by a ta x com m ittee In 1936* The su b seq u en t ta x i n 1938 was b a se d on th e p rem ise t h a t I f b u sin essm en had some l a t i t u d e on d e p r e c ia tio n a llo w a n c e s , th e e f f e c t s o f th e b u s in e s s c y c le m ight be l e s s sev ere* H igh d e p r e c ia tio n i n good y e a rs and low d e p re c i a t i o n I n bad y e a rs w ould te n d to s t a b i l i z e c o rp o ra te p r o f i t s , w ith th e s tr e n g th b u i l t up in goods a v a ila b le a s a re s e r v e i n tim e s o f d e p re ssio n * M oreover. I t was f e l t t h a t f r e e d e p r e c ia tio n c o m p le te ly a t m anagem ent's d i s c r e t i o n w ould red u ce o r e lim in a te c o n f l i c t s betw een ta x p a y e rs and re v en u e a d m in is tr a tio n F re e d e p r e c ia tio n a p p lie d o n ly to m ach in ery and eq u ip m en t, n o t to b u ild in g s * B u ild in g s w ere d e p r e c ia te d a t v a r io u s r a t e s , a v e ra g in g 2 o r 3 p e r c e n t, depending on th e e s tim a te d l i f e o f th e b u ild in g s * I t sh o u ld be n o te d t h a t f r e e d e p r e c ia tio n was n o t ex ten d e d t o I n d iv id u a l p r o p r ie to r s h ip s o r p a r tn e r s h ip s . These co n c ern s had to r e l y on s t r a i g h t l i n e d e p r e c ia tio n by w hich a s s e t s w ere w r it te n o f f p e r i o d i c a l l y o v er th e e x p e c te d l i f e o f th e equipm ent o r m ach in ery a c q u ir e d **7 T here w ere some c r i t i c i s m s a g a in s t f r e e d e p r e c ia t i o n a s I t was p u t in t o p r a c tic e * I t was f e l t t h a t l 6 lh l& * , P* 86* 1?K* g « A S andstrom , A S urvev o fS w e d ia h T axes on (S tockholm ! P . A. N o rs te d t and S ons, 2 M + e x te n s iv e w r i t e - o f f s in goods w ith l e s s ta x l i a b i l i t i e s c o n tr ib u te d t o i n f l a t i o n by p ro v id in g e x te n s iv e ta x c r e d its * F re e d e p r e c ia tio n i n p e r io d s o f h ig h Incom es and h ig h ta x e s Induced b u sin essm en to make a d d it io n a l In v e stm e n t a t a tim e when th e p o lic y sh o u ld have b e e n to l i m i t in v e s tm e n t.1* * The r e s u l t was abandonm ent o f f r e e d e p r e d a t i o n i n 1955 and th e s u b s t i t u t i o n o f th e d e c lin in g b a la n c e m ethod w ith su p p le m e n ta ry r e g u la ti o n s . T here w ere two m ain p r o v is io n s f o r d e p r e d a t i o n o f equipm ent and m ach in ery w ith a n e x p e c te d l i f e o f more th a n th r e e y e a r s . A s s e ts w ith a l i f e e x p e c ta n c y o f l e s s th a n th r e e y e a rs m ig h t b e c o n tin u e d t o be w r i t t e n o f f i n th e y e a r o f t h e i r a c q u i s i t i o n . M achinery and p la n t may b e d e p r e c ia te d w ith a maximum o f 30 p e r c e n t o f th e t o t a l b a la n c e i n an y one y e a r . When t h i s m ethod i s u se d , th e w r i t e - o f f s w ould be s u c c e s s iv e ly s m a lle r e a c h y e a r; how ever, th e ta x p a y e r may e l e c t t o fo re g o d e p r e c ia tio n i n some y e a rs w ith l a r g e r w r i t e - o f f s i n l a t e r y e a r s . In e i t h e r c a s e , th e m achine under t h i s p ro c e d u re w ould n e v e r be e n t i r e l y w r i t t e n o f f . F o r t h i s r e a s o n 9 a com plem entary r u l e was In c lu d e d in th e 1955 ta x am endm ent. U nder th e com plem entary r u l e , a m achine may be ^^Harvard law School, on. clt., p. 86. 2 1 + 5 w r itte n o f f a t th e r a t e o f 20 p e r p en t p e r y e a r, w hich r a te would co m p letely d e p re c ia te th e a s s e t a t th e end o f f iv e years* T able *+ 0 in d ic a te s w r ite - o f f s under b o th methods* E ith e r method may be u sed , o r th e 20 p e r c e n t r u le a p p lie d to th e b alan c e under th e main r u le o f d e p r e c ia tio n *^9 In v e n to ry v a l u a ti o n .—A s p e c ia l r u le a p p lie s to v a lu a tio n o f in v e n to rie s a t th e end o f th e year* I t should be u n d ersto o d t h a t th e low er th e In v e n to ry fig u re f o r th e y e a r-e n d in v e n to ry , th e g r e a te r th e c o s t o f goods s o ld , and th e s m a lle r th e s ta te d p r o f its * In v e n to rie s may be v alu ed a t 1 + 0 p e r c e n t o f c o s t o r m arket v a lu e , w hichever i s lo w e r. T h is p ro v is io n should be c o n tra s te d w ith th e p o lic y in e f f e c t in th e U nited S ta te s which g iv e s e n te r p r is e s p e rm issio n to o b ta in some ta x advantage by e v a lu a tin g in v e n to ry a t c o s t o r m ark et, w h ich e v eris lower* The 1+ 0 p e r c e n t r u le a p p lie s o n ly to in v e n to rie s under th e f i r s t - l n - f l r s t - o u t method by w hich o n ly th e l a s t a c q u is itio n s a re in c lu d e d i n th e in v en to ry * A nother supplem entary r u le s t a t e s t h a t th e in v e n to rie s o f raw m a te r ia ls may be p ric e d a t th e lo w est m arket p r ic e f o r th e p re ced in g n in e years* T h is v a lu e may be f u r th e r w r itte n 19S t a t l s t l s k S e n tra lb y ra , Qg t a gging (Oslo* H a tio n a ltr y k k e r ie t, 195b), p . 5b* TABIE b O EXAM PIE OF M A IN A N D C O M P H S M E H T A R Y RUIE DEPRECIATION Year Main Role (30 per cent) Complementary Rule (20 p er cent) Both Methods D ep red a tio n Book Value D ep red a tio n Book Value D ep red a tio n Book Value 0 ' — 100 — 100 — 100 1 30 70 20 8 0 30 70 2 21 ^9 20 60 21 * *9 3 lb.7 3^.3 20 bO l*f.7 3^.3 if 10.3 2 M - 20 20 l*f.3 20 5 7 .2 16.8 20 0 20.0 0 aS t a tis t l s k S en tralb y ra , Avskrivnlng ng fiteattiapging (O slo: N a tio n a lk k e rie t, 1956), p . 58. 2 k 7 down by 30 p e r cent* There I s one e x c e p tio n to t h i s r u le s I f th e f i n a l Inventory. I s l e s s th a n th e av erag e Inven t o r i e s o f th e p reced in g two y e a rs , th e in v e n to ry may be w r itte n down 60 p e r c e n t*2° The f l e x i b i l i t y g iv en to businessm en to w rite down In v e n to rie s was In ten d e d to In c re a se th e l i q u i d i t y o f th e ta x p a y e rs to reduce u n r e a l is t i c p r o f i t s unw arranted by m arket c o n d itio n s* In view o f th e Im portance o f e x p o rts In th e demand f o r Swedish goods, th e p ro v is io n s m entioned h elp ed th e e x p o rt I n d u s tr ie s to m a in ta in compet i t i v e e x p o rt p ric e s* The p ro v is io n I s p a r t i c u l a r l y h e lp f u l to f o r e s t I n d u s tr ie s s u b je c t to la rg e I n v e n to r ie s , low r a t e s o f tu rn o v e r, and m arket p r ic e f l u c t u a t i o n s * ^ The r u le s f o r In v e n to ry v a lu a tio n above s ta te d were l i s t e d In th e 1 9 5 5 Income ta x amendment* fcrior to t h a t tim e , generous w rite-dow ns had been r e s t r i c t e d because o f t h e i r c o n trib u tio n to I n f l a t i o n d u rin g th e 1 950* 8 . In vestm en t r e s e r v e s . — Investm ent re s e rv e s a re n o v el ex p erim en ts to s t a b i l i z e in v estm en t and th u s l e v e l I t s e f f e c t on th e b u s in e s s cycle* I t should be n o ted t h a t th e accu m u latio n o f ta x - f r e e r e s e r v e s , w ith th e 20S k a tte b e ta la r a a s F o ren in g , Taxes In Sweden* fip. £ l& ., p p . 25-26* 21H arvard Law S ch o o l, fifi* p* 8 9 * m ajor p o r tio n th e r e o f s u b je c t to governm ent r e l e a s e , h a s g iv e n th e governm ent th e power to In flu e n c e th e In v e stm en t e x p e n d itu re s and th e b u s in e s s c y c le . In th e s p rin g o f 1959» th e t o t a l In v e stm en t r e s e r v e s am ounted t o 3 5 0 ,0 0 0 ,0 0 0 k ro n o r. B ecause o f th e l i b e r a l d e p r e c ia tio n f e a tu r e s f o r m ach in ery , v e ry sm a ll p o r tio n s o f th e In v e stm en t r e s e r v e s w ere s p e n t f o r t h i s p u rp o s e • In th e l i g h t o f th e r i g i d r u l e s r e s t r i c t i n g d e p r e c ia tio n o f b u ild in g s f o r r e l a t i v e l y lo n g p e r io d s , r e s u l t i n g I n low p e rc e n ta g e w r i t e - o f f s , m ost company a p p lic a tio n s w ere g ra n te d f o r b u ild in g c o n s tr u c tio n . The Labor M arket B oard made I t a p r a c tic e to g r a n t r e le a s e o f In v e stm en t r e s e r v e s d u rin g th e w in te r m onths in o rd e r t o In c re a s e jo b o p p o r tu n itie s f o r w o rk ers d u rin g th e s la c k s e a s o n . ^ * * Cawj-fcal g a in a - —G ains from s a le s o f s e c u r i t i e s and o th e r a s s e t s a r e ta x e d a c c o rd in g to th e le n g th o f tim e h e l d . I f a s s e t s a r e h e ld f o r t L ess th a n 2 y e a r s , 100 p e r c e n t o f th e g a in I s ta x a b le ; 2 b u t l e s s th a n 3 y e a r s , 75 p e r c e n t o f th e g a in I s ta x a b le ; 3 b u t l e s s th a n b y e a r s , 50 p e r c e n t o f th e g a in I s ta x a b le ; b u t l e s s th a n 5 y e a r s , 2$ p e r c e n t o f th e g a in I s ta x a b le ; o v e r 5 y e a r s , no ta x I s a s s e s s e d . 22I P P . 9 1 -9 2 . 23skattebetalarnas Forenlng, T axes In Sweden. 2 * + 9 G ains r e s u l t i n g from th e s a le o f r e a l e s t a t e a r e ta x e d a t 100 p e r c e n t up to 7 y e a r s , th e r a t e s d e c re a s in g to 25 p e r c e n t I f h e ld betw een 9 end 10 y e a r s , and no ta x I s a s s e s s e d I f h e ld lo n g e r th a n 10 y e a r s . C a p ita l l o s s e s may be used to o f f s e t g a in s , b u t n o t t o o f f s e t o th e r Income • The r e s u l t s o f th e c a p i t a l g a in s a s t a x - f r e e Income have b een tw o fo ld t (1 ) s p e c u la tio n i n s e c u r i t i e s h a s d e c re a s e d , and (2) in c e n tiv e s f o r lo n g -te rm In v e stm en t have I n c re a s e d . C a rry b ack and fo rw ard o f l o s s e s . —The g en ero u s d e p r e c ia tio n w r i t e - o f f gave com panies c o n s id e ra b le c o n tr o l o f p r o f i t s . T h is p r a c t i c e , i n e f f e c t , to o k th e p la c e o f c a r r y b a c k and fo rw ard o f lo s s e s a s e x e r c is e d in o th e r c o u n tr ie s . I t was n o t u n t i l I960 t h a t th e governm ent gave com panies th e r i g h t t o b a la n c e lo s s e s a g a in s t g a in s d u rin g th e en su in g s ix y e a rs In some p ro sp e ro u s y e a rs I t h a s become governm ent p o lic y t o l i m i t In v e stm e n t. T hus, d u rin g th e y e a rs 1956- 1957« th e governm ent Im posed a 12 p e r c e n t ta x on th e c o s t o f th e fo llo w in g g ro u p s o f in v e stm e n ts (1) p u rc h a se o f a b u ild in g , (2 ) rem o d elin g o f a b u ild in g , and (3 ) , P* 2 6 . 250 r e p a i r o f a b u ild in g . The 12 p e r c e n t t a x a p p lie d o n ly t o am ounts i n e x c e ss o f 2 0,000 k r o n o r .2^ THE IMPACT OF TAXES The heav y b u rd e n o f w e lfa re e x p e n d itu re s i s c a r r i e d by th e income c la s s e s t h a t p r i n c i p a l l y b e n e f i t from s o c i a l w e lfa re m e a su re s. C o rp o ra te ta x e s a r e a p p ro x i m a te ly th e same a s I n th e U n ited S t a t e s , b u t th e r e a re many ta x i n c e n tiv e s , d e s c rib e d i n t h i s c h a p te r , t h a t a r e n o t a v a ila b le to th e c o r p o ra tio n s i n th e U h lted S t a t e s . & F 5 o n J & r S M , g The s te e p ly p ro g re s s iv e ta x e s i n Sweden have n o t d i s t r i b u t e d th e b u rd en to h ig h e r Income e a r n e r s . Tax p a y e rs i n th e h ig h e r b r a c k e ts , **5-60 p e r c e n t, c o n tr ib u te o n ly 1 p e r c e n t o f th e n a t i o n a l income t a x . A ccording to th e Sw edish T a x p a y e rs1 A s s o c ia tio n , a p p ro x im a te ly 90 p e r c e n t o f n a ti o n a l Income ta x re v e n u e s c o u ld be o b ta in e d w ith a 25 p e r c e n t maximum b r a c k e t .2^ Sw edish Income ta x on a c h i l d l e s s cou p le i n th e 1 0 ,0 0 0 k ro n o r Income b ra c k e t w ould amount to a p p ro x im a te ly 35 p e r c e n t o f t h a t Incom e, a s compared t o h a l f t h a t r a t e 2 * S t a t l s t i s k S e n t r a l b y r l , B f f l r t f t g f t o t t t r 1 Danmark. H orae, oa S v e rig e (O slo* J . C h r. G underson, 19 58J« PP. 3 9 -ho. 2^ H a x l i t t , o n . c l t . . p . 7 8 . 251 f o r such a co u p le i n th e U n ite d S t a t e s . 2? I t i s d i f f i c u l t to m easure th e inspect o f th e income ta x e s on c o n su m ers' w illin g n e s s t o w ork, s a v e , and consume* The r e lia n c e upon i n d i r e c t ta x e s Im posed upon i n d iv id u a ls and p r i v a t e e n t e r p r i s e s g iv e s a n in d i c a t io n t h a t new re v e n u e s m ust he o b ta in e d th ro u g h i n d i r e c t ta x e s* The Tax Com m ission t h a t a d v o c a te d th e new t a x re fo rm d e a l t a lm o st e x c lu s iv e ly w ith f u t u r e i n d i r e c t ta x e s * I t m ight th e n be co n clu d ed t h a t ta x e s up t o th e p r e s e n t tim e have n o t b e e n to o r e s t r a i n i n g upon th e consum ers* More r e l i a b l e d a ta can be o b ta in e d from th e e f f e c t s o f ta x e s upon sav in g s* The N a tio n a l R e se a rc h I n s t i t u t e h a s p re s e n te d a s tu d y o f Incom es and s a v in g s o f consum ers f o r th e y e a rs 19^6-1953* T ab le *tl i l l u s t r a t e s th e fin d in g s * The d e c lin e I n s a v in g s I n 19**7 may be a t t r i b u t e d t o th e b lo ck ad e d u rin g th e w ar y e a rs* S av in g s in c re a s e d a f t e r 19M -7 and d id n o t seem s e r io u s ly a f f e c t e d b y th e In c re a s e i n t a x a t io n f o r th e p e rio d * S av in g s a l s o showed an in c r e a s in g tr e n d a f t e r im p o s itio n o f th e n a t i o n a l s a le s ta x i n I960* S av in g s f o r 1 9 6 2 , 1963, and 196M - am ounted to *f*9» 5*3, and 5*7 b i l l i o n k ro n o r* 2® ^ " T h i r t y Y ears W ith o u t R e c e ssio n - How Sweden Does i t , « y, fit Jawa ind ¥ grid Btpprt» * o v « , 2 3 , 1 9 6 V, p . 102* 28K o n ju n k t u r l n s tlt u t e t, B fy llffl H lttf f P ll TABIE h i IN CO M ES A N D SAYINGS OF CONSOISRS 1946-1953 (1,000 M illio n Kronor) 19*^6 1947 1948 1949 1950 1951 1952 1953 Consumption expenditure 14.8 16.0 17.5 17.8 19.2 21.7 23.9 2 t.7 l e t Insurance premiums 0 .4 0 .5 0 .5 0 .5 0 .5 0.7 0 .9 1 .0 D irect ta x a tio n 1 .9 2.9 3 .1 3.2 3 .1 4 .4 5.4 5.8 Savings -0 .4 0 .8 1.3 1 .0 1.6 2.7 2 .5 T o tal incomes ( s t o t a l expenditure) 17.1 19.0 21.9 22.8 2 3 .8 28.4 32.9 3*».0 "K rlk Lmabarg Bnainaaa Cveiaa Economic P olicy (Londont George A llen and Untrln, L td ., 1957), p . 69. Im pact on p r i v a t e e n t e r p r i s e In v e stm e n t h a s b een re m a rk a b ly s t a b l e d u rin g th e p o s t-w a r p e r io d and h a s , to g e th e r w ith governm ent e x p e n d i t u r e s , b e e n th e p r i n c i p a l means o f c o n t r o l li n g e x p a n s io n . I n th e p r i o r c h a p te r , th e e f f e c t o f th e c r e d i t m ark e t on In v e stm e n t was I n v e s ti g a te d ; In t h i s c h a p te r v a r io u s ta x I n c e n tiv e s have b ee n d isc u sse d * I t re m a in s now t o exam ine t o w hat e x te n t s e l f fin a n c in g h a s b ee n p o s s ib le a f t e r th e im p o s itio n o f ta x e s* Xoiiifcv f in a n c in g — The a s a i l e r firm s have h ad more d i f f i c u l t i e s I n s e l f - f in a n c in g th a n th e l a r g e r firm s* T h is I s due to h ig h p e r s o n a l Income t a x e s , w hich a p p ly to s in g le p r o p r i e to r s h ip s and p a r tn e r s h ip s , a s w e ll a s l e s s g e n e ro u s d e p r e d a t i o n a llo w a n c e s a v a il a b l e f o r th e s e firm s* E q u ity c a p i t a l , a s shown i n T ab le *t2, In c lu d e s s h a re c a p i t a l , l e g a l r e s e r v e s , p r o f i t s r e ta in e d I n b u s in e s s , and In v e stm e n t re s e rv e s * T h is t a b l e h a s b een co m p leted from a q u e s tio n n a ir e s e n t to 125 firm s* The p e rc e n ta g e o f e q u ity c a p i t a l t o b a la n c e s h e e t t o t a l s ( t o t a l a s s e t s ) r e v e a ls t h a t th e r e I s l e s s e q u ity fin a n c in g by s m a lle r com panies th a n f o r l a r g e r com panies*2^ 196*f ( Stockholm s E m il K lh lstro m s T r y c k e r l, 196*0, p* 7*+* 29 lr n e O gren, " E q u ity C a p ita l and th e F in a n c in g of ^Business, n fta flnnton Quarterly R o y Iw . TABIE k 2 EQUITY CAPITAL (In M illions of Kronor) B alance- sheet T o tals E quity C ap ital E quity C ap ital as a Percentage o f Balance Sheet T o tal ♦Number of Firms 1951 I960 1951 I960 1951 I960 E n te rp rise s fflth s E quity c a p ita l le s s than Kr. 0 .1 m ill. In 1951 11.7 18.5 1 .5 2 .1 13 11 27 E quity c a p ita l Kr. 0 .1 m ill. In 1951 101.0 193.5 2^.6 36.7 2 M - 19 65 E quity c a p ita l exceeding 1 ■111. In 1951 2fc 9 .0 379.0 81.8 121.6 33 32 33 125 *125 companies, o f which 70 were In d u s tria l and 55 w holesale and r e t a i l e n te rp ris e s . ^ aAme Ogren. "Equity C a p ita l and th e Financing o f B u sin ess." fflMHditiwiefca ^ BAnkun Q nnrterly Beviev. XLIIIxLXXXI (O c t., 1962). 2 55 One re a so n f o r th e d i f f i c u l t i e s fa c e d by sm all firm s i n e q u ity fin a n c in g h a s been subnorm al p r o f its * The s tro n g la b o r u n io n s, combined w ith s c a r c ity o f la b o r , have b o th been f a c to r s in th e in c re a s e d wage c o s ts in l a t e r y ears* L arger firm s have been a b le t o overcome th e s e c o s ts th ro u g h in v estm en t in autom ation* The fo llo w in g i s a n o th e r f a c to r in th e p r o f i t f a c to r a s d is c u s s e d by Arne Ogren t The s tr u c tu r e o f company ta x a tio n i s c le a r ly o f d e c is iv e Im portance f o r th e a ll o c a t i o n o f p r o f i t s by companies* T his c a p it a l fo rm a tio n w ith in b u s in e s s firm s i s undoubtedly p ro te c te d by th e double ta x a tio n In Sweden o f d iv id e n d s , f i r s t a t th e company l e v e l , and th e n a t th e l e v e l o f th e sh a re h o ld e rs* I t becomes to o ex p en siv e to w ithdraw p r o f i t s in t h i s way i f th r e e - q u a r te r s th e r e o f , o r m ore, d is a p p e a rs in ta x . e s p e c ia lly a s a c o n s id e ra b le p a r t o f th e p r o f i t s can b e r e ta in e d in th e form o f h id d en re s e rv e s W ithout h a v in g , te m p o ra rily a t l e a s t , to pay any ta x a t a ll* ™ Company p r o f i t s — G ross p r o f i t s betw een 1955 and I960 have In c re a se d betw een 7 and 10 p e r c e n t p e r year* There was a d e c lin e in 1961 r e s u ltin g from In c re a se d wage and s a la r y co sts* The c a lc u la tio n o f g ro s s p r o f i t s i s shown in T able *+3* As h as been e x p la in e d , com panies were a b le to d e p re c ia te in v e n to rie s to ko p e r c e n t below c o s t o r m arket v a lu e , or even lo v e r (1955 ta x law )* I t sh o u ld be 3°£lld*, p. 83 256 TAB IE 1+ 3 CALCULATION OF GROSS PROFITS P r o f it s (K r. M illio n ) 1959 I960 1961 P r o f i ts shown . . . ....................... Taxes • • • • • ................................ 8 U A llo c a tio n s i P ension funds ................................ o f w hich t known a llo c a tio n s to PR! funds • • # • « • • • Investm ent funds • • • •• •• . 26 7 76 - 1+6 622 90 " 7l 235 D ep re c ia tio n s M achinery and equipm ent . . . P r o p e r t y ............................................. Charged to Investm ent funds • . 637 . (209) w (283) 8 3 8 288 (129) A llo c a tio n s to v a rio u s open re s e rv e s (n e t) • • • • • • • • 72 -l*+6 D ividends s From s u b s id ia r ie s . ................... From o th e r com panies ................... -122 - 50 -155 - 51 To be added Known n o n -re c u rrin g c o s ts • • . ' • i S 2,688 60 2- m To be deducted Known n o n -re c u rrin g income • • . -29^ -208 -202 E stim a te d g ro ss p r o f i t s • • • • 2,30*+ 2,5*+0 2,319 Changes from p re v io u s y e a r • • 10* 10* - 9 % a "Company R ep o rts fo r 1961." fflanfllPfiYlahfl PnnKftn Q u a rte rly Review. XLIIIiXC (O c t., 1 9 6 2 ). 257 n o te d t h a t a l l o c a t i o n t o In v estm en t fu n d s In c re a s e d sub s t a n t i a l l y d u rin g I960* As may be see n from T able **3* th e co m p an ies' g ro s s sa v in g s d e c re a se d by 286 m illio n k ro n o r d u rin g 1961, w ith a r e s u l t a n t d e c re a s e in I n v e s t ment from co m p an ies' own funds* The fo llo w in g comments w ere made by th e com m ission t h a t a n a ly z e d th e r e p o r t s o f 100 com panies* T hese r e g u la tio n s w ere a ls o I n fo rc e i n th e 1961 f i n a n c i a l y e a r b u t th e y w ere n o t a t a l l ta k e n ad v a n ta g e o f t o th e same d eg ree , t h i s p o s s ib ly b e in g due to th e d e te r io r a te d p r o f i t s i t u a t i o n and a lo w er l e v e l o f l i q u i d i t y I n th e economy (th e e x tr a d e d u c tio n c o u ld o n ly be u t i l i z e d if * on to p o f th e "norm al" *t6 p e r c e n t o f th e a l l o c a t i o n , th e com panies d e p o s ite d a f u r t h e r 51 * p e r c e n t on s p e c ia l n o n - in te r e s t- b e a r in g , a c c o u n ts In th e R lk s - ban k f o r a c e r t a i n p e rio d ) *3-L F u rth e r a n a ly s is by th e same com m ission re g a rd in g d e p r e c ia tio n and In v e n to ry w rite-d o w n was a s fo llo w s s I f I t I s assum ed t h a t th e com panies t h i s y e a r to o k f u l l ad v antage o f th e d e p r e c ia tio n p o s s i b i l i t i e s , and t h a t th e In d ic a te d f ig u r e f o r changes In s to c k r e s e r v e s I s r e p r e s e n ta tiv e o f a l l th e com panies under re v ie w , th e n s to c k s m ust have been booked a t 36 p e r c e n t o f t h e i r g ro s s v a lu e In 1959 and a t ifl p e r c e n t I n 1961, w hich I s q u ite re a s o n a b le • The p r ic e l e v e l . —The d o m estic p r ic e l e v e l h as r i s e n by 71 p e r c e n t s in c e 19*+9« The in d ex ro s e b y 25 ^"C om pany R e p o rts f o r 1 9 6 1 ," g h in d lP lY lg la m a s t e r l y R eview , X LIIIsXCI ( O c t., 1 9 6 2 ). p . 90* 258 p e r c e n t d u rin g th e K orean i n f l a t i o n a r y p e r io d I n 1951* T here v aa s t a b i l i t y o f p r i c e s d u rin g th e 1953 r e c e s s io n , how ever, b eg in n in g w ith 1955* p r ic e s ro s e f o r th e fo llo w in g th r e e y ears* P r ic e s t a b i l i z a t i o n was c h a r a c te r i s t i c f o r th e 1958-1959 r e c e s s io n p e r io d I n Sweden. The In c re a s e d p r ic e s s t a r t i n g I n I9 6 0 have b ee n a t t r i b u t e d t o th e 6 p e r c e n t g e n e ra l s a le s ta x w hich h a s b een in fo rc e s in c e I960* S U M M A R Y T a x a tio n I s j u s t one a s p e c t o f th e f i s c a l p o lic y th ro u g h w hich th e Sw edish governm ent a tte m p ts to In flu e n c e econom ic grow th and s t a b i l i t y * T here a r e no e m p iric a l s tu d ie s a v a ila b le t o a s c e r t a i n how s u c c e s s f u l th e ta x p o lic y h a s b een i n a c h ie v in g th e o b je c tiv e s s e t f o r th e economy* T hus, ta x e f f e c t s can n o t be s tu d ie d in a vacuum; th e y m ust be exam ined in r e l a t i o n to o th e r econom ic f a c t o r s su ch a s governm ent e x p e n d itu re s , f o r e ig n t r a d e , and consum ption e x p e n d itu re s* A ll t h a t can be done i n t h i s ty p e o f a n a ly s is I s to n o te s i g n i f i c a n t t r e n d s , one o f w hich I s th e grow th o f th e g ro s s n a ti o n a l p ro d u c t* The R oyal P la n n in g Commission h a s b een a b le t o r e a l i z e an a n n u a l In c re a s e o f k r p e r c e n t p e r annum* T h is r a t e I s n o t a s h ig h a s t h a t o f some E uropean c o u n tr i e s , b u t one o b je c tiv e o f th e Sw edish p la n n e r i s to g a in a s ta b le 259 g ro w th r a t e , a r a t e w hich h a s n o t h e e n a t t a i n e d w ith o u t I n f l a ti o n * One p o in t b ro u g h t o u t i n t h i s s tu d y I s th e f a c t t h a t th e ta x b u rd e n I n Sweden I s com parable t o t h a t I n o th e r c o u n tr ie s w hich have a n advanced s t a t e o f econom ic developm ent* The p e r s o n a l Income ta x e s a r e h e a v y , th e r e I s no s i g n i f i c a n t r e d i s t r i b u t i o n o f Income b y t a x a t i o n s in c e m ost o f th e ta x e s have b ee n o b ta in e d from th e lo w er and m id d le b r a c k e ts o f Income* The c o r p o r a tio n Income ta x r a t e s a r e a b o u t th e same a s th o s e I n th e U n ited S ta te s * Irihlle th e c o r p o ra te t a x r a t e I s h ig h , th e r e a r e c e r t a i n a s p e c ts o f th e c o r p o ra te ta x e s w hich have m o d ifie d th e im p act o f th e o v e r - a l l ta x r a te s * T hese f a v o ra b le a s p e c ts o f th e ta x s t r u c t u r e In c lu d e th e l i b e r a l d e p r e c ia tio n a llo w a n c e s , th e w rite -d o w n o f I n v e n to r ie s , and th e In v e stm e n t r e s e rv e s * Sw edish m a n u fa c tu re rs have u sed a l l o f th e s e d e v ic e s t o m a n ip u la te p r o f i t s a n d , h e n c e , ta x e s p aid * Som etim es th e r e h a s b e e n e x c e s s iv e In v e stm e n t when th e governm ent p o lic y c a ll e d f o r a d e c re a se * I t i s p o s s ib le t o m easure th e Im pact o f th e l i b e r a l d e p r e c ia tio n p o l i c i e s th ro u g h th e I n c re a s e I n in v e stm e n t w hich h a s shown a c o n s is t e n t g ro w th r a te * The Im p o rtan ce o f In v e stm e n t t o th e Sw edish economy can b e u n d e rsto o d i n r e l a t i o n t o r e s t r a i n i n g f a c t o r s In th e p ro d u c tio n o f goods* The m ain r e s t r a i n t s 2 6 0 have b een In c re a s in g la b o r c o s ts caused by g r e a t un ion s tr e n g th , and a d e c re a s in g su p p ly o f la b o r* The n e c e s s ity o f m a in ta in in g c o m p e titiv e p r ic e s f o r e x p o rts h as been a n o th e r re a s o n f o r s u s ta in in g grow th w ith o u t In c re a s in g c o sts* B oth o f th e s e r e s t r a i n in g In flu e n c e s h a v e , In p a r t , been overcome th ro u g h In c re a s e d p r o d u c tiv ity g ain ed by In v estm en t e x p e n d itu re s* A nother lo a d on th e ta x p a y e rs h a s been th e e x te n s iv e w e lfa re program* These b e n e f its a r e n o t fre e * The m ain Im pact h a s been on th o se who re c e iv e th e s e r v ic e s , t h e i r paym ents b ein g made th ro u g h Income ta x e s and th e 6 p e r c e n t n a tio n a l s a le s tax * The stu d y r e v e a ls t h a t th e s e w e lfa re m easures have e x e rte d a minimum lo a d on p r iv a te b u sin e s s* T hus, th e p e n sio n s a r e la r g e ly fin a n c e d by th e r e c i p ie n t s w ith minimum b u s in e s s c o n trib u tio n s * When p e n sio n r a t e s were In c re a s e d to In c lu d e new su p p le m entary b e n e f i t s , th e e m p lo y e rs' c o n tr ib u tio n s w ere o f f s e t by low er c o rp o ra te ta x r a te s * The c a p i t a l g a in s ta x e s , w ith th e r a t e s d e c re a sin g to z e ro f o r a s s e t s h e ld lo n g e r th a n te n y e a r s , have g iv e n ta x p a y e rs a n In c e n tiv e to r i s k v e n tu re c a p ita l* A r e s t r a i n t on s p e c u la tio n h a s a ls o r e s u l te d b ecau se o f d e c re a se d ta x e s when a s s e t s a re h e ld f o r a lo n g e r p erio d * In summary, I t can be s ta te d t h a t th e s i g n i f i c a n t f e a tu r e o f th e Sw edish ta x s i t u a t i o n h a s b een a d e f i n i t e p o lic y to make th e c o rp o ra te ta x s t r u c t u r e a minimum d e te r r e n t to th e grow th o f th e b u s in e s s s e c to r o f th e economy* CHAPTER XIII FISCAL POLICY SINCE W O RLD W A R I I The p o s t-w a r econom ic c o n d itio n s i n Sweden p a r a l l e l e d th o s e o f th e o th e r W estern E uropean c o u n trie s * G re a te r e x p o rt tr a d e in c re a s e d d a n g e rs o f I n f l a t i o n in c o u n tr ie s w hich e x p e rie n c e d h ig h o r f u l l employment* In th e p r i v a t e s e c t o r , in v e stm e n t was e x p e c te d to be in c re a s e d f o r th e p e r io d , w h ile no c o n tr a c tio n was f o r c a s t f o r th e p u b lic s e c t o r . W ith r e l a t i v e l y f u l l em ploym ent, and p o s s ib le wage I n c r e a s e s , i t was f e a re d by th e governm ent t h a t a c o s t-p u s h i n f l a t i o n w ould en d an g er th e c o u n tr y 's e x p o r ts • OBJECTIVES AND LIMITATIONS OF THE FISCAL POLICY Prlflslplgg.af flggftl m lU i F i s c a l p o lic y i s a d e l i b e r a te a tte m p t by a g o v ern m ent to a d j u s t re v e n u e s and e x p e n d itu re s i n such a way a s t o o b ta in econom ic s t a b i l i t y d u rin g th e econom ic c y c le and grow th* The econom ic e f f e c t s o f e x p e n d itu re s a r e expan s io n a ry and a r e m o d ifie d b y means o f th e so u rc e s o f th e re v e n u e s a s w e ll a s by th e d i r e c t i o n o f th e e x p e n d itu re s* T a x a tio n , on th e o th e r h an d , i s c o n tr a c tio n a r y and th e e f f e c t s o f e x tr a c tin g rev en u e depend upon th e ty p e s o f 262 2 6 3 ta x e s em ployed and th e tim in g o f th e im p o s itio n o f ta x e s* W ith th e new c o n c e p t o f f i s c a l p o lic y d ev e lo p e d s in c e W orld War I I , e x p e n d itu re s do n o t have t o be m atched w ith re v e n u e s e a c h y ear* The e x p e n d itu re s d u rin g th e d e p r e s s io n p h ase o f th e c y c le become b a la n c e d t o some e x te n t th ro u g h I n c r e a s e s I n t a x a t i o n d u rin g th e re c o v e ry p h ase o f th e b u s in e s s cy c le * The c o n c e n t o f f i s c a l p o lic y T a x a tio n I s o n ly one p h ase o f f i s c a l p o li c y , th e o th e r com ponents b e in g b u d g e tin g , e x p e n d itu r e , borro w in g and d e b t management p o lic y * F u rth e rm o re , In o rd e r f o r f i s c a l p o lic y t o be r e a l l y e f f e c t i v e , i t sh o u ld be co o r d in a te d w ith m o n etary p o lic y The o v e r - a l l co n c e p t o f f i s c a l p o lic y c l e a r l y shows t h a t th e e x e c u tio n o f th e p o lic y a f f e c t s th e c r e d i t sy ste m , h e n c e , th e m o n etary p o lic y * Where sh o u ld th e l i n e be draw n betw een f i s c a l and m o n etary p o lic y ? One Sw edish eco n o m ist h a s used th e m ark et c r i t e r i o n f o r d is tin g u is h in g b etw een f i s c a l and m o n etary p o lic y * U sing t h i s c r i t e r i o n , m o netary p o lic y sh o u ld c o n s is t o f a l l governm ent t r a n s a c t io n s i n th e c r e d i t m ark et and f i s c a l p o lic y w ould r e l a t e to a l l o th e r g o v e rn - ^W illiam H. A n d erso n , T a in t I Oil An? r i g Economy (New T o rk t P r e n t ic e - H a l l, In c * , 1 9 5 1 ), p p . 556- 26** m ental m easures*2 The changing em phasis o f f i s c a l p o lic y a f t e r V orld War I I v as a r e s u l t o f shortcom ings o f m onetary p o lic y c a r r ie d to g r e a t h e ig h ts d u rin g th e tw e n tie s and e a r ly t h i r t i e s * I t became e v id e n t t h a t th e ea sy money p o lic y d u rin g th e d e p re s s io n In th e t h i r t i e s d id n o t a t t a i n th e d e s ire d s tim u la tin g e f f e c t upon Investm ent* D e f ic it sp en d in g , d u rin g th e d e p re s s io n , was a n a tte m p t to I n t e r j e c t governm ent e x p e n d itu re s In to th e economy a s a means o f s tim u la tin g In v e stm en t. F i s c a l p o lic y th u s developed from th e re c o g n itio n t h a t low I n t e r e s t r a t e s would n o t re v iv e Investm ent d u rin g a d ep ressio n * Keynes, In h is book G eneral T heory, s tr e s s e d th e f a c t t h a t b ecause I n t e r e s t r a t e s , a f f e c te d by th e l i q u i d i t y p re fe re n c e , could n o t be reduced to a minimum, d e f i c i t spending sh o u ld f i l l th e gap betw een sav in g s and In v e stm e n t*3 % e n t H ansen, The Economic Thao rv o f F i s c a l P o lic y (C am bridge, H a s s .t H arvard U h lv e rs lty P r e s s , 1958}, pp* 30-31. ^A rth u r S m ith ies and J* K eith B u tte rs* in F is c a l P o licy* V o l. V II o f Am erican Economic A s s o c ia tio n S e rie s o r R epu b lish ed A r tic le s on Economics (Homewood, I U . t R ich ard D* Irw in , I n c ., 1955)* PP. 185-193. 265 The g o a ls f o r Sw edish economic developm ent w ere s ta te d a s fo llo w s t (1) a h ig h e r s ta n d a rd o f l i v i n g , (2 ) L . s t a b i l i s e d em ploym ent, and (3 ) soundness o f th e c u rre n c y .^ These o b je c tiv e s changed th e d i r e c ti o n o f f i s c a l p o li c ie s from m easures to a l l e v i a t e unemployment to a n In te r v e n t i o n i s t o r governm ent program to s tim u la te g ro w th , th u s u t i l i z i n g a l l re s o u rc e s w ith a minimum o f p r ic e d is to r tio n * A c o n tin u e d h ig h l e v e l o f In v estm en t was e x p e c te d , n o t o n ly a s a f a c t o r to s u s ta in demand, b u t a ls o a s a means o f In c re a s in g p r o d u c tiv ity , th u s m itig a tin g th e d an ger o f th e l o s s o f e x p o rts due to h ig h la b o r c o sts* l i m i t i n g f a f t t o y a Should e x p o rts f a l l below th e ex p e cted l e v e l , th e low er g ro s s n a tio n a l p ro d u c t would make th e r e a l i z a t i o n o f f u l l employment a t s ta b le p r ic e s more d i f f i c u l t * In p e a c e -tim e , I t I s p s y c h o lo g ic a lly more d i f f i c u l t to engage in a c o u n te r - c y c lic a l ta x and f i s c a l p o lic y s in c e p eo p le a re l e s s w illin g to make s a c r i f i c e s th a n would be th e ca se In w ar-tim e *5 A nother m ajor f a c to r would be th e lim itin g e f f e c t o f th e la b o r f o r c e , p a r t i c u l a r l y s in c e 1951 when th e **71nansdepartem entet, M & l och Msdel 1 S ta b A iise y - (Stockholm * Iduns T ry c k e ria k tle b o la g E s s e lte 33 • ^Anderson, on* clt*. p. 5MJ. 266 Riksdag passed a la v extending a l l v acatio n s to th re e weeks* - Rav m a te ria ls , p a r tic u la r ly Im ports o f c o a l, o i l , and g a so lin e , played an Im portant p a rt in t o t a l in d u stry energy req u irem en ts. These needs had been s a tis f ie d to some e x te n t through e le c tr ic pover p ro d u ctio n , b u t e le c tr ic consumption has Increased 6 .5 par cent p er y ear and In v e st ment In power p la n ts has n o t kept pace w ith consum ption.^ B U D G ET EXPENDITURES For proper understanding o f Swedish f i s c a l p o lic y , I t should be borne In mind th a t th e budget I s d iv id ed In to two p a r tsi th e c u rre n t budget, and the c a p ita l budget. For most of th e y ears since th e l a s t w ar, th e t o t a l budget has shown a d e f i c i t . C urrent budget ex penditures have been financed through ta x a tio n , b u t c a p ita l budget appro p r ia tio n s , defrayed to some e x te n t by lo a n s, have been expansionary on the c re d it system . A ssets th u s c reated have been In th e form of power works, railw ay equipm ent, and p tibllc b u ild in g s . The re la tio n s h ip of government expenditures to those In o th e r s e c to rs I s shown In Table M t. The t o t a l c e n tra l and lo c a l government expendl- 1551)7 p. 26. 267 TA B IE IM BA LA N CE O F RESOURCES FOR 1961+ (M illio n s o f K ronor In 1963 f o lc e s ) ChBngft 106^-614- 1963 M illio n Kr . M illio n K r. P e r c e n t Supply — G ross n a ti o n a l p ro d u c t 87,0»tO i+,729 5 .5 Im p o rts 17»5^2 1,1+12 8___ T o ta l su p p ly 10l+,582 6 ,ll+ l 6 n«nuinrt P r iv a te g ro s s in v e stm e n t 1 6 ,3 1 8 693 * + C e n tr a l governm ent g ro s s In v e stm en t 6 ,1 3 1 303 5 L o ca l governm ent g ro s s In v e stm en t 5 ,9 ^9 596 10 In c re a s e I n s to c k s - 261 826 P r iv a te consum ption 1+6,879 1,61+3 3 .5 C e n tr a l governm ent consum ption 5*126 38*+ 7*5 L o c a l governm ent consum ption . E x p o rts 17»2t+8 1,261+ 7 .5 consum ption 7*192 1+32 6 _ ,2 g i + T o ta l demand loM-,582 6 ,ll+ l _ * F in a n s d e p a rte m e n te t, R g y ld f P f r i n s n g P lA P i . (S to ck h o lm i Is a a c M arcus B o k try c k e rl A k tle b o la g , 196*+;, A ppendix C, p . !+• 268 t u r e s , am ounting to 2^,3 9 8 m illio n k ro n o r In 1963, com p rised 23 p e r c e n t o f th e g ro s s n a t io n a l Incom e. The p r e s e n ta tio n o f governm ent e x p e n d itu re s I n t h i s fo rm a t o f n a t i o n a l Income c a lc u la tio n I s made I n Sweden t o a s c e r t a i n th e e f f e c t s on th e a g g re g a te demand when s t a t e d is b u r s e m ents a r e added to demand In th e p r i v a t e s e c to r . The f u n c tio n o f th e t o t a l b u d g et a s a b a la n c in g f a c t o r In th e economy h as th e n become more Im p o rta n t th a n c u r r e n t b u d g et c o n s id e r a tio n s . R eal econom ic f a c t o r s , such a s t o t a l em ploym ent, g ro w th , and p r ic e s t a b i l i t y , have b een g iv e n h ig h e r p r i o r i t y th a n w ould be th e c a se w ith a more c o n v e n tio n a l b u d g et p r e s e n ta tio n . Pfllwrcanff ^ 9 f r v r t p r e t The p r in c ip le o f b a la n c in g th e b u d g et o v er th e c y c le , a s was th e c a se I n th e t h i r t i e s , h a s g iv e n way to th e a tte m p t to show a s u rp lu s In th e c u r r e n t b u d g e t. The p o lic y h a s b een due to th e p o st-w a r i n f l a t i o n a r y p r e s s u r e s from I n t e r n a l and e x te r n a l f o r c e s . The governm ent h a s b e e n c r i t i c i s e d f o r i t s b u d g et s u r p lu s e s , la b e le d " fo rc e d s a v in g s •" The fo rm a l r u l e s , o f te n m is le a d in g , have come i n t o c o n f l i c t w ith d e s ir e d g o a ls o f f u l l employment and g ro w th . F i s c a l p o lic y h a s b een l e s s e f f e c t i v e when a n t l - e y c l l c a l m easures have r e q u ir e d p ro p e r f o r e c a s tin g and tim in g . F u rth e rm o re , th e la g betw een d e c is io n and ta k in g 269 h a s , to some e x te n t, been o f f s e t by Investm ent r e s e r v e s , au to m atic s t a b i l i z e r s , and p u b lic works re s e rv e s . For a number o f y e a rs th e c u rre n t budget h a s shown a s u rp lu s , b u t th e t o t a l budget (c u rre n t p lu s c a p ita l) h as had a d e f i c i t b a la n c e . The c a p ita l a s s e t s , fin a n c e d th ro u g h government lo a n s , have fu rth e re d th e economic grow th and have a ls o p ro v id ed th e c r e d i t m arket w ith low - r l s k , r e a d ily s a le a b le a s s e ts N a tio n a l and f i s c a l b u d g ets The name, "N atio n a l B u d g et," I s o f Norwegian and Dutch o r ig in . I t i s an In stru m en t f o r sh o rt-te rm f o r e c a s tin g , c o n ta in in g recom m endations f o r p u b lic expendi tu r e s d e s ire d p r iv a te Investm ent n e c e ssa ry to o b ta in s h o rt-te rm economic g o a ls . The recom m endations f o r government e x p e n d itu re s a re g e n e ra lly follo w ed by th e R iksdag when I t approves th e annual f i s c a l o r f e d e r a l b u d g et. E x p en d itu res a re n o t made In a vacuum, sin c e in c re a s e s o r d e c re a se s a f f e c t n a tio n a l Income, employment, and p r ic e s . An o v e r a ll view to a s c e r ta in th e e f f e c t s o f e x p e n d itu re s I s p ro v id ed th ro u g h th e p re p a ra tio n o f th e n a tio n a l b u d g e t. The e s tim a tio n o f demand p re se n te d In ^ F ln an sd ep artem en tet, "A Note o f Swedish F is c a l P o lic y ," (Stockholm t F ln a n sd e p a rte m e n te t, 1962), p . 6 . ( Mimeographed•) 2 7 0 n a tio n a l income format in d icate s ex-ante the balance or equilibrium fo r the economy* Table Mf p resen ts a plan form alized as the N ational Budget* I f a l l the demand fa c to rs exceed the supply as a r e s u lt of observed tendencies, l*e*, g re a te r ex p o rts, stock liq u id a tio n , or p rice in c re a se s, the disequilibrium may be r e c tif ie d through f is c a l measures* Assume th a t the Research Council has calcu lated an in fla tio n a ry gap* The M inistry of Finance can nov ask the Riksdag fo r a boost in sa le s ta x e s, stop govern ment investm ent, or tig h te n c re d it re s tric tio n s * One d if f ic u lty v lth the use of the N ational Budget as a technique fo r closing the gap has been caused by margins of e rro r in the fo recasts* These m istakes are usually found in the p riv a te se c to r, p a rtic u la rly re la tin g to increases in sto ck s, ex p o rts, and investm ent. Some discrepancies are also the r e s u lt of In co rrect s t a t i s t i c a l presentation* In order to minimize the r e s u lts of these e rro rs , the government is nov considering the p resen tatio n o f fo re c a sts fo r q u a rte rly periods*^ The margins of e rro r in the N ational Budget have le d to discussions fo r using the f is c a l budget as a &G6sta Rehn, "The N ational Budget and Economic QqMrtagly R avlav- XLIII* 271 s ta r tin g p o in t f o r f i s c a l p o lic y d ecisio n s* T his tendency has been c r i t ic i z e d by Gdsta Rehn, C hief of th e Economic D iv isio n o f the Finance Department* T his i s in d e fe n sib le fo r two reasons* The one i s th a t the m argins o f e r r o r a re o f approxim ately th e same s iz e in th e F is c a l Budget a s In th e N atio n al Budget* The Income e stim a te s in the form er are based on p r a c tic a lly th e same fo re c a s ts as to th e development o f (ta x a b le ) Incomes as th o se embodied in th e l a t t e r —i . e . , on one end th e same a p p ra is a l o f th e tre n d o f employment* wages* and p r o f its * W ith re s p e c t to th e ex p en d itu re s id e , th e N atio n al Budget fig u re s a r e , in p r in c ip le , b e tte r* In ste a d o f th e form al amounts o f th e sub s id ie s g ra n te d , th e re i s shown th e a c tu a l expendi tu re s th a t th e se su b sid ie s can cause* Moreover, an attem p t i s made to e stim a te th e r e a l e f f e c t on demand th a t can be expected b o th from government expenditure (c o rre c te d In t h i s way) and from taxes* The o th e r reaso n i s more fundam entals i f th e balance on th e F is c a l Budget i s to serve a s a "balancing" f a c to r in th e n a tio n 's economy as a w hole, i t must be p o s s ib le —by means o f p o lic y d e c isio n s—to In c re a se i t o r d ecrease i t having re g a rd to th e o v e ra ll eq u ilib riu m In the- economy i l l u s t r a t e d In th e N atio n al Budget—and n o t ju s t on th e b a s is of i t s own siz e and development tendencies* Unfor tu n a te ly , d isc u ssio n s a re f a r too o fte n conducted on th e l a t t e r b a sis* ° ANTI-CTCLICJLL M EA SU RES I t has been acknowledged In Sweden th a t f i s c a l p o lic y has n o t been v ery e f f e c tiv e in checking c o st in fla tio n * In creases in p ric e s and wages have re s u lte d from th e commitment to f u l l employment, and c r e d it p o lic ie s have n o t been adequate to c o u n te ra c t th e ensuing c o s t in fla tio n * Because f i s c a l and m onetary p o lic ie s a re p . * * 6 2 ? 2 I n s u f f i c i e n t to combat i n f l a t i o n , su p p lem en tary p o l i c i e s have b een c a ll e d in to a c tio n ; some a u to m a tic s t a b i l i z a t i o n h a s b een a c h ie v e d th ro u g h b u i l t - i n f l e x i b i l i t y . The g e n e r a l e f f e c t s o f p u b lic e x p e n d itu re s and ta x a t i o n a r e n o t e f f e c t i v e i n iro n in g o u t s e c tio n a l and s t r u c t u r a l unem ploym ent. F or t h i s re a s o n , a grow ing em phasis h a s b een p la c e d upon la b o r m ark et p o lic y , w hich i s r e a l l y a n e x te n s io n o f f i s c a l p o lic y . The Labor M arket B oard a c t s p r i n c i p a l l y to shape th e la b o r m arket by m easu res to in c re a s e th e demand and su p p ly o f l a b o r . R e lo c a tio n o f p la n ts and la b o r f o r th e p u rp o se o f a d ju s tin g su p p ly t o th e demand o f la b o r come u nder th e d i r e c t i o n o f th e B o ard . S t r u c t u r a l unemployment i s r e lie v e d b y t r a i n i n g and r e f r e s h e r c o u r s e s . I n a d d it i o n , th e B oard d i r e c t l y r e l i e v e s unemployment by r e la x in g house c o n s tr u c tio n , th e in a u g u ra tio n o f re s e r v e p r o j e c t s , o r th e r e le a s e o f in v e stm e n t re s e r v e fu n d s w hich a r e s u p e rv is e d by th e B o a rd .10 A utom atic s t a b i l i z e r s I n Sweden, a s in many o th e r c o u n tr ie s , b u i l t - i n s t a b i l i z e r s have b een e f f e c t i v e in m od ify in g th e swing o f th e b u s in e s s c y c le s . The p ro g re s s iv e income t a x , pp. 39-^7. 273 unemployment and o ld age p e n sio n s, o f c o u rse , have had t h e i r tem pering e f f e c t upon th e b u sin e ss c y c le . However, i t has n o t been p o s s ib le to e s tim a te th e e f f e c t o f th e au to m atic s t a b i l i z e r s when n a tio n a l Income s tu d ie s have been p re p a re d . Direct 9«rtr.ala From th e beginning o f World War I I u n t i l 1956, p ric e c o n tro ls were in e f f e c t in Sweden. The f e a r o f p o st-w ar I n f l a ti o n , which m o tiv ated p r ic e c o n tr o ls , was re p la c e d by th e ap p reh en sio n t h a t co n tin u ed re g u la tio n s would g r e a tly d is tu r b a llo c a tio n o f re so u rc e s and th u s s e rio u s ly a f f e c t economic developm ent. R ent c o n tr o l, s ta r te d during th e w ar, has been co n tin u ed to th e p re s e n t tim e and h as been blam ed fo r th e housing s h o rta g e . The supply o f new b u ild in g s , c o n tro lle d th ro u g h government p e rm its , has n o t k ep t pace w ith th e growing p o p u la t io n .^ FISCAL POLICY DEVELOPM ENTS 19^-6-1965 In Sweden, a s In many o th e r c o u n tr ie s , th e re was a f e a r t h a t a d e p re ssio n would occur d u rin g th e p e rio d fo llo w in g W orld War I I . The a n ti-d e p r e s s io n program , fo rm u lated by th e f i r s t F ive Year P lanning Com m ission, iiF ln a n s d e p a rte m e n te t, ] 1951-1955. on. c l t . . pp. 28-2$. 27** p re se n te d an a n tl-d e p r e s s lo n program w ith th e m ajor em phasis on e x p o rts and I n d u s tr ie s w hich produced goods f o r shipm ent to o th e r c o u n tr ie s . The e x p o rts were e stim a te d to In c re a se 25 p e r c e n t and th e g ro ss n a tio n a l p ro d u ct by 7 p e r c e n t based on r e a l i s a t i o n o f th e e x p o rt g o a ls . The C osm lssion was n o t p re p a re d f o r th e upswing I n b u sin e ss w hich o c c u rre d , r e s u ltin g i n th e r e a l i s a t i o n o f th e g o a ls th re e y e a rs a f t e r th e beginning o f th e program , and a sharp In c re a se In p r ic e s by 2*t p e r c e n t from 19**7 to 1951.12 As th e Swedish governm ent 's sh are grew s te a d ily from 1 2 .6 p e r c e n t o f th e g ro ss n a tio n a l p ro d u ct In 1938- 1939 to 19*** p e r c e n t In 1950, d e f i c i t fin a n c in g o c c u rre d - In a l l o f th e budget y e a rs ex cep t f o r a sm all su rp lu s In 19**7.13 F is c a l p o lic y and I n f la ti o n In c re a sin g s t a t e e x p e n d itu re s d u rin g th e p o st-w ar p e rio d gave added w eig h t to I n f la tio n a r y te n d e n c ie s . D uring th e y e a rs 19**0-1953, government e x p e n d itu re s In c re a se d 3 p e r c e n t f a s t e r th a n th e g ro ss n a tio n a l Income. T axes, a s a r a t i o o f consum ers' Income, ro s e from 8 p e r ^L udw ig M uihaupt, Strutt arvanflluMtn u n fl W a s h k ria g s p ro b le jy d a r W irtschaftB chw adynB (K ia li Druck v Schmidt and K lau n lg , 1952}, p p . 2B-H1. ^ ib id .. pp. 92.93. 275 c e n t In 1938-39 to 17 p e r c e n t in 1952-53*lif Government Income and e x p e n d itu re s n o t o n ly in flu e n c e d th e economy in a d i r e c t way, b u t a ls o a f f e c te d i t s liq u id ity * The ex cess o f e x p e n d itu re s o v er income c r e a te d li q u id a s s e ts in th e banks* D ebt management— s h o rt term v e rsu s lo n g term —and th e d i s t r i b u t i o n o f th e d e b t co u ld m itig a te th e i n f l a t i o n a r y im pact o f th e d e b t, b u t in Sweden a f t e r th e w ar, governm ent fin a n c in g was l a r g e ly s h o rt-te r m , r e s u l ti n g in m o n e tiz a tio n o f th e d e b t and p r ic e in c re a s e s * The th e o ry o f modern f i s c a l p o lic y c a l l s f o r d e f i c i t fin a n c in g d u rin g a d e p re s s io n and s u rp lu s e s d u rin g th e re c o v e ry p erio d * T h is p r in c ip le was v io la te d in Sweden d u rin g th e Im m ediate p o st-w a r y e a r s , a s may be seen in T able * 4 -5 * The b u d g e ta ry p o lic y , n o ted from changes i n t o t a l b u d g et e x p e n d itu re s shown in T able M -5, p la y e d a p a r t in th e In c re a se d i n f l a t i o n a r y p re ssu re * The b u d g et s u rp lu s in 1950-51 can be a t t r i b u t e d to th e s h a rp ly p ro g re s s iv e income ta x e s w hich serv e d a s b u i l t - i n s t a b i l i z e r s * In o rd e r to combat i n f l a t i o n b e fo re th e Korean W ar, b o th d i r e c t and i n d i r e c t m easures were used by th e Sw edish government* In December, 1951* i n d i r e c t ta x e s 1S iirik L undberg. B u sin e ss C ycle a and Economic P o lic y ( Londont George A lle n and Unwin, 1957J» P* 223* TAB IE 1*5 CAPITAL A N D C U R R E N T B U D G ET (In M illions o f Kronor) l9k6A 7 19**7A8 19i*8A9 191*9/50 1950/51 1951/52 1952/53 1953/51 * Working budget + 1*51 ♦ 1*67 + 311 - 163 + 372 +1581* + 1*11 - i*5 C ap ital expenditure - 661 3 A 1*70 261* 568 77 6 1020 1033 T o tal budget - 210 + 93 - 159 - 1*27 - 197 + 8 0 9 - 609 +1078 ftErik Londberg, B nslness cY?l9 g ftpd Economic P o licy (London: George A llen and Unwin, 1957), p . 213. 277 w ere r a i s e d and t i g h t e r c r e d i t r e s t r i c t i o n s w ere Im posed on p r i v a t e e n t e r p r i s e s . In o rd e r t o c u r t a i l a g g re g a te demand, a ta x o f 10 p e r c e n t was Im posed on In v e stm e n t In J u l y , 1 9 5 1 .1? Placal policy for growth and atapiiit? of ftmriloyment A f te r th e K orean c o n f l i c t , th e I n f l a ti o n a r y te n d e n c ie s su b sid e d somewhat and th e Sw edish f i s c a l p o lic y changed w ith re fe r e n c e to th e f u n c tio n o f th e b u d g e t. A new co n cep t now em erged, I . e . , t h a t th e la r g e g o v ern m en tal sh a re o f th e g ro s s n a t io n a l Income sh o u ld be u t i l i z e d a s a " b a la n c in g f a c t o r . " I n l i n e w ith t h i s c o n c e p t, th e b u d g et* s f u n c tio n sh o u ld be to In c re a s e r e a l econom ic f a c t o r s such a s g ro w th , p r ic e s t a b i l i t y and em ploym ent, i r r e s p e c t i v e o f w hat h as happened t o th e b a la n c in g o f th e b u d g et o v er th e c y c le . H owever, i n i t s e f f o r t to a t t a i n th e s e g o a ls , th e governm ent h a s g iv e n p r i o r i t y to g row th and employment o v er th e a tta in m e n t o f p r ic e s t a b i l i t y . The g o a ls o f f u l l employment and grow th have n o t b een c o m p le te ly a t t a i n e d b ec au se o f e r r o r s In s t a t i s t i c a l In fo rm a tio n and th e d i f f i c u l t y o f f o r e c a s tin g and tim in g econom ic m e a su re s. The s o - c a lle d In v e stm en t r e s e r v e I s a ty p e o f f i s c a l «nd m o netary p o lic y o r an In stru m e n t to a d ju s t th e economy to 1?Mfilhaupt, o p . cit.. p. 96. 2 7 8 changing econom ic c o n d itio n s -which w ere n o t a n t ic i p a te d when th e b u d g e ts w ere p rep ared * Anti-Inflationary maaauraa.— .Poring th e 195^-57 p e r io d , a tte m p ts w ere made to combat i n f l a t i o n th ro u g h in c r e a s e s in I n d i r e c t t a x e s , In c re a s e s i n c o r p o r a tio n ta x e s and an in tr o d u c tio n o f th e In v e stm e n t tax * I n v e s t ment r e s e r v e s w ere n o t r e le a s e d and th e r e was a tig h te n in g o f l ic e n s e s f o r new b u ild in g p r o je c ts * Ant 1 - r e c e s s io n a ry m e a s u re s .—W ith th e a d v e n t o f r e c e s s io n te n d e n c ie s In 1957» th e econom ic p o l i c i e s o f th e fo rm er p e r io d w ere re v e rs e d and th e governm ent in c re a s e d o rd e rs w ith in d u s tr y . One im p o rta n t a s p e c t o f f i s c a l p o lic y d u rin g th e m ild r e c e s s io n o f 1957-58 was g r e a t e r em phasis on la b o r-m a rk e t p o lic y * S te p s w ere ta k e n to s tim u la te g e o g ra p h ic a l and v o c a tio n a l m o b ility , r e l i e f w orks w ere in c re a s e d * In 1959, a s a r e s u l t o f m easu res ta k e n , th e econom ic c o n d itio n s im proved* In v e stm e n t r e s e r v e s w ere h e ld b ac k to curb c a p i t a l e x p e n d itu re s and a b p e r c e n t s a le s ta x was In tro d u c e d i n I960 t o r e s t r a i n consum ption e x p e n d lt u r e s • ^ T h is p o lic y was c o n tin u e d d u rin g I960 and 1961 ^ F ln a n s d e p a r te m e n te t, "A Mote on Sw edish F is c a l P o lic y ." o n . c i t *. p . 7 . 279 up to th e sp rin g o f 1962 vhen a re d u c tio n o f In d iv id u a l Income ta x e s r e f l e c t e d a p o lic y to s h i f t from d i r e c t to I n d ir e c t ta x a tio n . T ab les **6 and **7 I n d ic a te th e f o r e c a s ts and o u t come o f f i s c a l b u d g ets f o r th e p e rio d 195*+ to 1962-63* A ccording to th e t a b l e , changes in th e budget v ere r e s t r i c t i v e In 1955-56 and th e n s tim u la tin g up to 1959- 6 0 . The s tim u la tin g e f f e c t s vo u ld be d e riv e d from demand e f f e c ts o f th e budget and I t s e f f e c t s on l i q u i d i t y . S U M M A R Y I f one c o n s id e rs th e grow th r a t e o f th e g ro ss n a tio n a l p ro d u c t w hich h a s av erag ed ap p ro x im ately * + p e r c e n t p e r annum, th e an n u al r a t e h a s been l e s s th a n t h a t o f Germany and some o f th e o th e r E uropean c o u n tr ie s . P r ic e s , c o n tr o lle d u n t i l 1956, have n o t shown th e ex p ected s t a b i l i t y , and employment f o r th e p e rio d h as been r e l a t i v e l y h ig h . The d i f f i c u l t y o f f o r e c a s tin g th e changes in economic f a c t o r s , r e s u l ti n g from th e m argins o f e r r o r , h as caused b u dget f ig u r e s b ased upon su b m itted p la n s to d i f f e r to some e x te n t from th e re v is e d budget am ounts. Good fo r e c a s tin g h a s been d i f f i c u l t } th e a p p lic a tio n o f f i s c a l p o lic y h a s su b se q u e n tly s u ffe re d from e r r o r s in tim in g . A nother c r it ic i s m h a s been th e grow th o f th e TABUS k 6 F O R E C A S T S A N D O U T C O M E S O F C E N T R A L G O V E R N M E N T C U R R E N T A N D T O T A L B U D G E T S 195^-1955 - 1958-1959 (In M illions of Kronor) 195^-55 1955-56 1956-57 1957-58 1958-59 F O F O F O F O F O C urrent budget - 36»f + 2 8 8 + 25 + 381 +l,0<fc - 287 + 781 - 101 + 119 - 139 T o tal budget -1,690 -1,085 - 895 - 598 + 1*93 - 762 - *f32 -1,135 -1,5**0 -1,**28 Change In o u t- cone from previous budget year + 1 3 + > + 8 7 - 16** - 373 - 293 D e fic it or su rp lu s as a p er centage of G N P a t 1 ■ arket p ric e s - 2*k - 1.2 - l.lf - 2.0 - 2.*f 280 TABIE *t6 (continaed) g B e e f3 B B 3 a B 3 c g g 3 g i i1 . i 1 a g B g r r . . . i j ^ s s s s s s s s s s s s s s s s s s s s s s s ^ = s s s s s s s s a s s s s s s s s s s s s ^ ^ s a » 195^-55 1955-56 1956-57 1957-58 1958-59 F O F O F O F O F O Change in outcome as a per centage of G M P a t market p ric e s 0 + 1*0 - 0.3 - 0.7 - 0 .5 Legends F = fo re c a s t 0 = Outcome + = surplus - = d e f ic it & F lnansdepartem entet, ttA Note on Swedish F isc a l P o lic y ," (Stockholm: Flnans departem entet, 1962), p . 11. (Mimeographed.) 281 TABIE **7 FORECASTS A N D OUTCOKS OF CEN TRA L G O V E R N M E N T C U R R E N T A N D TOTAL BU DG ETS 1959-1960 - 1962-1963 (In M illions o f Kronor) 1959-60 F 0 1960-61 F 0 P relim inary 1961-62 1962-63 F 0 F Average 195^55 1961-62 0 C urrent budget T o tal budget Change in out come from previous budget year D e fic it or su rp lu s as a percentage of GNP a t market p ric e s Change in outcome as a percentage o f GNP a t market p ric e s . 975 - ifl + 252 +1,812 +1,078 +1,800 + 850 + i*6i* •2,815 -1,632 -1,555 + 381 - **62 + **00 - 700 - 732 - 20** +2,013 + 20 - 1,100 2.6 + 0.6 + 0 .5 - 0 .9 - 1.2 0 .3 + 2 .9 1.* * aFinansdepartem entet, "A Note on Swedish F isc a l P o lic y ," (Stockholm! F lnans- departem entet, 1962), p . 11. (Mimeographed.) 282 283 p u b lic s e c to r a t th e expense o f th e p r iv a te se c to r* T h is d ir e c tio n o f th e b u dget e x p e n d itu re h a s , no d o u b t, been m o tiv ated by th e p u b lic p re ss u re to co n tin u e h ig h employ ment and w e lfa re m easures* The t r i a l and e r r o r method o f encouraging th e grow th o f c e r ta in s e c to r s , w ith o u t c o n sid e rin g th e p o s s ib le d is lo c a tio n e f f e c t s on th e economy a s a w hole, h a s been a n o th e r w eakness o f th e f i s c a l m easures* T h is weakness h as to d a y b een c o u n te ra c te d by th e o p e ra tio n o f th e Labor M arket B oard w hich ex ten d s f i s c a l p o lic y In th e la b o r m arket* D ire c t m easures o f c o n tr o l have become l e s s im p o rtan t a s economic s t a b i l i z e r s and have g iv e n way to au to m atic s t a b i l i z e r s w ith l e s s d is tu rb a n c e to re so u rc e a llo c a tio n * In s p ite o f some shortcom ings o f th e f i s c a l p o lic y , a s a r e s u l t o f i t s I n f l e x i b i l i t y in coping w ith m oderate swings in th e b u s in e s s c y c le , f i s c a l p o lic y and Investm ent have prom oted th e s u s ta in e d economic grow th In Sweden* The new fu n c tio n o f b u d g etin g a s a "b a la n cin g f a c to r " in th e economy should be view ed a s an a tte m p t to e n a c t e x p e n d itu re s j u s t s u f f i c i e n t enough to a t t a i n th e t a r g e t f ig u re f o r economic growth* I n te r r u p tio n s , o r unswlngs and dow nturns In Swedish economic developm ent, a re c o u n te ra c te d th ro u g h supplem entary m eans, p r in c ip a lly (1) r o l l i n g a d ju stm e n ts; (2) In v estm en t re s e rv e funds under th e s u p e rv is io n o f th e Labor M arket B oard; (3 ) d i r e c t c o n tr o ls ; and (*0 au to m atic s t a b i l i z e r s . A ll o f th e s e a re nov a p a r t o f a s tro n g e r o v e r a ll f i s c a l p o lic y . CHAPTER XIV THE OVERALL STABILIZATION OF THE BUSINESS CYC IE The Swedish w ord, " k o n ju n k tu re r," In I t s n arro w er sen se sim ply means b u s in e s s c y c le s , b u t I t has a w id er d e f in i t i o n In I t s a p p lic a tio n a s a b u s in e s s c y c le s t a b i l i z a t i o n to o l when th e f u l l te rm " k o n ju n k tu rp o lltlk " I s u sed . The co n cep t o f a n t l - c y c l i c a l p o l i c i e s and th e s p e c ia l f i s c a l fu n c tio n o f th e Labor M arket B oard a r e d e a lt w ith In th e f i r s t p a r t o f t h i s c h a p te r . S p e c ific s t a b i l i z a t i o n to o ls and t h e i r a p p lic a tio n under d i f f e r e n t economic c o n d itio n s com prise th e l a t t e r p a r t o f t h i s c h a p te r • THE CONCEPT OF ANTI-CYCLICAL POLICY The absence o f economic d e p re s s io n s In Sweden f o r some t h i r t y y e a rs I s an I n d ic a tio n o f th e su c c e ss o f b u s in e s s c y c le s t a b i l i z a t i o n . Not o n ly have econom ic sw ings been m o d ifie d , b u t d u rin g th e span o f th o se y e a rs a rem ark ab ly h ig h sta n d a rd o f liv in g h a s been a t t a in e d w ith a h ig h l e v e l o f em ploym ent. B id th e modern V ikings d is c o v e r a m agic form ula t h a t w ould a t once cu re a l l econom ic I l l s ? Should th e U nited S ta te s ad o p t Swedish econom ic p o l i c ie s ? The answ er 28 5 2 8 6 to th e s e q u e s tio n s can be found more I n th e c o o p e ra tio n betw een governm ent, b u s in e s s , and la b o r th a n I n th e a p p l i c a tio n o f any s t a r t l i n g new econom ic th e o rie s * T here h as a ls o b een a w illin g n e s s to ex p e rim e n t and to u t i l i z e new er te c h n iq u e s In m a n u fa c tu rin g and d i s t r i b u t i o n w hich had ev o lv ed p r i n c i p a l l y In th e U n ited S ta te s * C r i t i c s have claim ed t h a t th e p r ic e th e p e o p le have p a id f o r th e en actm en t o f governm ent p o l i c i e s h a s been th e n a t i o n a l i z a t i o n o f In d u s try t o p ro v id e s o c ia l b e n e f its * T h is c r i t i c i s m ca n n o t be s u s ta in e d . The S o c ia l D em ocratic P a rty w hich came In to power In 1932 h a s long sin c e abandoned th e id e a o f s o c i a l i z a t i o n o f I n d u s tr y . The governm ent ow nership o f re s o u rc e s and m an u fa ctu rin g i s l a r g e l y c o n fin e d to u t i l i t i e s , w hich a re a ls o s u b je c t to governm ent c o n tr o ls In many o th e r c o u n trie s * Today more th a n 90 p e r c e n t o f I n d u s tr y In Sweden i s In p r i v a te hands and th e r e i s no I n d ic a tio n t h a t th e g o v e rn m e n t's sh are w i l l be In c re a se d * The l a b e l "W elfare S ta te " i s a term t h a t h a s b een used by f o r e ig n o b se rv e rs* A s tu d y o f th e ta x system r e v e a ls t h a t th e p e r s o n a l Income ta x e s a r e h ig h ly p r o g r e s s iv e ; how ever, th e p r i n c i p a l b u rd en o f w e lfa re c o s ts r e s t s upon th e r e c i p i e n t s o f s o c ia l b e n e f its * Taxes on c o r p o r a tio n s , on th e o th e r h an d , have been conducive to p r iv a te Investm en t* 2 8 7 lafrQ K caU Q ii gf. Xlaaal p o lic y and p la n n in g P lan n in g In Sweden, a s c o n tr a s te d w ith th e d e v e l opment in F ra n c e , i s l a r g e l y d e c e n tr a liz e d . T h is does n o t im ply t h a t f i s c a l p o l i c i e s a re In d ep en d en t o f o v e r a l l p la n n in g . For a p ro p e r p e r s p e c tiv e o f th e i n t e g r a t i o n o f f i s c a l p o lic y , a t t e n t i o n sh o u ld be p a id to th e th r e e s ta g e s o f p la n n in g , nam ely, f o r e c a s ti n g , p o lic y m aking, and e x e c u tio n o f th e p la n s . A d e a r c o n c e p tio n o f g o v ern ment a d m in is tr a tiv e and p o lic y making a g e n c ie s sh o u ld r e v e a l th e c o o rd in a tio n betw een governm ent p o l i c i e s and p la n n in g , a lth o u g h th e d eg ree o f i n t e g r a t i o n o f f i s c a l p o lic y and p la n n in g depends in p a r t on th e p a r t i c i p a t i o n o f b a n k s, p re s s u re g ro u p s, and th e p r iv a t e b u s in e s s s e c t o r . F o r e c a s tin g .—Economic f o r e c a s ts a r e p re s e n te d in p u b lis h e d n a tio n a l econom ic b u d g e ts and lo n g te rm p la n s . The p a r t i c i p a t i o n o f p r iv a te f ir m s , la b o r g ro u p s , and e d u c a tio n a l i n s t i t u t i o n s a t th e o u ts e t o f th e p la n n in g sta g e h a s r e s u l t e d in th e c o o p e ra tio n o f I n t e r e s t e d g ro u p s and h a s made com pliance in th e e x e c u tio n o f p la n s more f e a s i b l e . T h is v o lu n ta ry c o o p e ra tio n in p la n n in g by d i f f e r e n t segm ents o f th e p o p u la tio n h a s p re s e rv e d in d iv id u a l freedom w ith o u t th e re g im e n ta tio n p r e s e n t under a f u l l y c e n tr a liz e d p la n n in g sy stem . 2 8 8 Poiiev making.— The R iksdag p la y s a m inor r o l e in th e fo rm u la tio n o f o v e r a l l p o lic y , a lth o u g h th e f i n a l b u d g et p ro p o s a ls m ust be p a sse d by t h i s body* Most a p p r o p r ia tio n s a r e c o n sid e re d by th e Committee on S upply, w h ile th e Ways and Means Committee i s co ncerned w ith q u e s tio n s p e r ta in in g to ta x a tio n * In th e e x e c u tiv e b ra n c h o f th e governm ent, th e r e e x i s t s a system o f a d m in is tr a tiv e dualism * The Sw edish c a b in e t o f s ix te e n members i s e n tr u s te d w ith p o lic y making and b u d g e ts , w h ile th e C e n tra l A d m in is tra tiv e B oards e x e c u te r o u tin e ad m in is t r a tio n * The M in is try o f F in an ce i s th e p r i n c i p a l agency f o r d e te rm in in g f i s c a l and m onetary p o lic y , th e b u d g e t, and g e n e ra l a d m in is tr a tio n o f p u b lic funds* One n e c e s s a ry p r e r e q u i s i te f o r th e i n t e g r a t i o n o f f i s c a l p o lic y and p la n n in g i s t h a t governm ent b u d g et e x p e n d itu re s and in d u ced p r iv a te In v e stm en t sh o u ld be so c o o rd in a te d a s to a c h ie v e th e lo n g -te rm econom ic o b je c tiv e s * The N a tio n a l B udget B ureau i s n o t c o m p le te ly i n t e g r a te d w ith th e M in is try o f F in a n c e , b u t th e r e e x i s t s a h ig h d e g re e o f c o o p e ra tio n betw een th e two a g e n c ie s* The F in an ce M in is te r does n o t n e c e s s a r i l y have to fo llo w p o l i c i e s p ro p o sed i n th e n a tio n a l income b u d g ets* I t i s a t t h i s p o in t t h a t i t m ight be s a id t h a t n a tio n a l econom ic b u d g e ts a r e n o t in s tru m e n ts f o r f ix e d econom ic p o lic y a s 289 i s th e case in th e N etherlands and Norway.1 T his d e c e n tr a liz a tio n o f p lan n in g has p rev en ted f u l l in te g r a tio n o f f i s c a l p o lic y , alth o u g h i t h as been an elem ent o f s tre n g th when changing economic c o n d itio n s have re q u ire d a f le x ib le a d a p ta tio n to p o lic ie s n o t f o r e seen in th e n a tio n a l economic b u d g e ts. — Admin 1 a tr a t Ion. —The C e n tra l A d m in istra tiv e Boards a re re sp o n s ib le f o r d ay -to -d ay enforcem ent o f s t a t u t e s and work in d ep en d en tly o f th e m in is te r s . They a re n o t su b se rv ie n t to th e S o c ia l D em ocratic P arty * S e c u rity o f te n u re acco u n ts f o r th e f a c t t h a t th e m a jo rity o f members do n o t belong to t h a t p a r ty . The Labor M arket Board i s e n tru s te d w ith v a s t f i s c a l powers a s a su p e rv iso ry agency over Investm ent re s e rv e funds and house c o n s tru c tio n p e rm its. Because o f t h e i r independence, th e C e n tra l A d m in istra tiv e B oards have been r e f e r r e d to a s th e fo u rth branch o f th e governm ent. In a d d itio n to a d m in is tra tiv e fu n c tio n s , th e B oards a re a ls o engaged in p la n n in g . The Roads and V atervays A d m in istra tio n p re p a re s program s on highway c o n s tru c tio n and th e Labor M arket Board p re p a re s lo n g -term plan n in g p r o je c ts fo r housing c o n s tru c tio n . The in te g r a tio n of planning w ith f i s c a l p o lic y 1Hans B. T h o r e lli, Orai»»ll Planning and in Sweden ( P a r i s * U nited N a tio n a l E d u c a tio n a l, S c i e n t i f i c , and C u ltu ra l O rg a n iz a tio n , 1956), p p . 10-16. 290 would be "hamstrung" w ithout a coordinated monetary p o lic y . The Bank of Sweden (Rlksbank) Is c o n tro lle d by the Riksdag. Six members of the board of governors are e le c te d by the . le g is la tu re and th e chairman Is appointed by the Swedish government. The Rlksbank Is In theory Independent of the government, but monetary p o licy has, as a ru le , supplemented f is c a l p o licy In Sweden. This tre n d I s s ta te d as fo llo w s: The long-term tre n d has been fo r "the r e a l Influence on th e p o lic y of th e Rlksbank to be placed to an Increasing degree In the hands of the government, as Rlksbank p o lic y has become . _ _ more firm ly in te g ra te d In g en eral economic p o lic y ."* One of the guiding p rin c ip le s of good budget p o licy Is th a t a l l of th e p a rtic ip a n ts In th e budget s h a ll cooperate In fin a n c ia l p la n s. I t Is In th is asp ect th a t the fin a n c ia l plans should be judged. The planning and the execution of th e plans have re s u lte d in an unusually high degree of cooperation between government, la b o r, and in d u stry . B9onoiftc ptanntaK The concept of planning In I t s usual sense Involves the form ulation of economic p o lic y . Planning in Sweden, as co n tra sted w ith the Soviet Gosplan, does not r e s u lt In a d e fin ite government p o lic y . The d e c e n tra liz e d long-term 2lbid*j P* 18 291 planning p rim a rily serv es as an Instrum ent f o r the r e a l i z a tio n of long-term o b je c tiv e s and guide lin e s fo r th e p o lic ie s enunciated by th e n a tio n a l economic b u d g ets. N atio n al economic budgets In flu en ce economic p o lic ie s , b u t th e m ajor s ig n ific a n c e Is a c o o rd in a tio n of p o lic ie s fo r th e attain m en t o f economic growth and s t a b i l i t y . D r. Ingvar Ohlsson views th e n a tio n a l economic budget a s a co o rd in atin g to o l fo r Swedish economic policy.3 As a s ta b iliz a tio n to o l, th e n a tio n a l economic budget becomes an Instrum ent fo r estim atin g and proposing the magnitude of Investm ent, e x p o rts, and consumption. The advantage of s ta b iliz a tio n by economic budgets I s th a t th e more r e lia b le th e economic fo r e c a s ts , the le s s th e n e c e s s ity f o r guiding economic development by monetary and Labor Market Board p o lic ie s . In c o rre c t tim in g , which has c h a ra c te riz e d monetary and p u b lic works p o lic ie s , might th en be m itig a te d or become le s s o f a d is tu rb in g f a c to r fo r th e economy. Planning i s ju s t one o f th e new instrum ents in th e tw e n tie th cen tu ry which was Inaugurated in o rd er to guide th e economy to a s ta b le development and growth w ithout re c u rrin g booms and d e p re ssio n s. P lanning, w hether c e n tra liz e d as in France or d e c e n tra liz e d as in Sweden, P* 17. 292 would n o t have been v ery e f f e c tiv e w ith o u t th e new concept and Im portance o f th e scien ce of p u b lic fin an c e as I t emerged a f t e r th e two w orld w ars. Long-term and sh o rt-te rm planning make up th e p r in c ip a l p a r ts of Swedish c y c lic a l p o li c ie s . The concep tio n of th e term nk o n ju n k tu rerN r e la t e s to b o th th e lo n g term and th e s h o rt-te rm a sp e c ts o f th e economy. S h o rt term planning through n a tio n a l economic budgets could most p ro p e rly be d e sc rib e d as th e p r in c ip a l means o f fo re c a s tin g economic tre n d s and recommending m easures fo r s ta b iliz in g th e economy. Long-term p la n n in g , on th e o th e r hand, p e rta in s to th e o th e r a sp e c t of c y c lic a l p o lic y —th e c o o rd in a tio n o f f i s c a l and m onetary p o lic ie s w ith th e expected development in th e p riv a te sp h ere. The p r in c ip a l means of c o u n te ra c tin g and m oderating flu c tu a tio n s i n th e economy Is th e re fo re p la n n in g . Because of th e tim e la g between d e c isio n s and e x ecu tio n of p o lic ie s , success of c o u n te ra c tin g c y c lic a l swings through a p p ro p ria te m easures I s o fte n lim ite d . The b e tte r th e p la n , th e g r e a te r th e po s s l b l l l t y o f m odifying c y c lic a l swings through th e use o f a v a ila b le to o ls . PYBttffilg flgP99tfl S ta b iliz a tio n m easures in Sweden a re a p p lie d to a planned dynamic economy. The dynamic a s p e c t, a co n tin u o u sly expanding c a p a c ity f o r p ro d u ctio n , I s d e lib e r a te ly 293 p lan n ed th ro u g h in c re a s e d In v e stm e n t• The S t a b i l i s a t i o n Com m ittee a p p o in te d i n 1955 made grow th th ro u g h in v e stm e n t a p r e r e q u i s i te f o r a s u c c e s s f u l s t a b i l i z a t i o n p o lic y . The economy may be com pared to th e r id in g o f a b ic y c le ; i t i s e a s i e r to b a la n c e w h ile I n m otion th a n when s ta n d in g s t i l l . S t a b i l i z a t i o n m easures a r e o f te n r e f e r r e d to a s b a la n c in g and s te e r in g m easures w hich a re more e f f e c t i v e when th e economy i s e x p a n d in g .3 P o litic a l a ttitu d e s P l a n n in g and p u b lic fin an ce have both in creased in magnitude because o f th e changing p o l i t i c a l a t ti t u d e s . P ro g ressiv e ta x a tio n and s o c ia l s e c u rity have been accepted w ithout g re a t disagreem ent. C onservative p a r tie s have had to perm it continuance o f reform s In o rd er to rem ain in power. Sweden has long ago abandoned p la n s to n a tio n a liz e in d u s try . A pproxim ately 90 p er cen t o f mining and manu fa c tu rin g In d u s trie s a re p riv a te ly owned. The government owns a la rg e share o f the f o r e s ts and m ines, th e r a ilr o a d s , th e telephone system , and ra d io and te le v is io n media In th e communications f i e l d . The r a ti o o f p u b lic to p riv a te ownership has rem ained p r a c tic a lly unchanged since the end o f V orld War I I . ^ F in a n s d e p a rte iM n te t, Mil 9Cb Mpfltl 1 B U blli- o l i t i k en I Stockholm I Id u n s T r y c k e r la k tle b o la g , 29*f The commitment by we s te r n c o u n trie s to f u l l employ ment c h a ra c te ris e s th e governm ents' a t titu d e s tow ard t h e i r c itiz e n s . The d e lib e ra te In te rv e n tio n In th e economic l i f e o f a n a tio n , I s an In d ic a tio n o f th e second o r new stag e In I n d u s tr ia l re v o lu tio n through which th e f r u i t s o f I n d u s tr ia l p ro d u ctio n become a v a ila b le to a l l c la s s e s w ithout Imposing a s o c i a l i s t i c o r t o t a l i t a r i a n governm ent. The a tta in m e n t o f th e g o a ls depends la rg e ly upon th e p u b lic acceptance o f p la n s and governm ental guidance and ex ecu tio n o f th o se p la n s . THE LA B O R M A R K E T B O A R D AS A N A G EN T OF FISCAL POLICY B usiness cy cles have gained such a prom inent s ta tu s In Sweden th a t th e N atio n al R esearch I n s t i t u t e (K onjunktur- I n s t l t u t e t ) has been e s ta b lis h e d to analyze and I n te r p r e t economic tr e n d s . In a d is c u s s io n o f cy cle p o lic y s tu d ie s w ith Mr. G. D anielson o f th e I n s t i t u t e , i t was b rought o u t th a t s h o rt-te rm economic changes and sh o rt-te rm planning a re th e p r in c ip a l fu n c tio n s o f th i s agency. In o rd er to g a th e r d a ta reg ard in g lo n g -term p la n n in g , t h i s a u th o r was r e f e r r e d to K r. Rein Hlnno o f th e Economic D iv isio n o f th e Finance D epartm ent. Both s h o rt-te rm and lo n g -term economic f lu c tu a tio n s have become th e p ro p er fu n c tio n s o f cy cle s tu d ie s . I t i s through s h o rt and lo n g -term planning th a t th e Swedish government a tte m p ts to m odify th e swings o f 295 the business cycle* Hr* D anielson a lso made an appointment fo r the author to Interview Mr* Gunnar 0 1sson a t th e Labor Market Board* This board Is lo c ated acro ss the c ity from the other agencies th a t are In the c e n tra l p a rt of Stockholm* The Labor Market Board i s a lso lo cated a t a considerable d istan ce from the em ployers' and w orkers' o rg an izatio n s but m aintains close co n tact w ith the l a t t e r two* The Labor Market Board Is a unique agency w ith no p a r a lle l in o ther c o u n trie s. I t s power as an Interm ediary between the Swedish s ta te and productive agencies is Immense* I t m aintains employment o ffic e s , tra in in g c e n te rs, and re g u la te s Investm ent expenditures through su pervision of investm ent reserv es and housing permits* In Chapters I and IX a re found d e sc rip tio n s of th e o rg an izatio n of the th re e p rin c ip a l agencies; however, the b o a rd s' p o lic ie s and Influence on th e lab o r market w arrant fu rth e r c l a r i f i catio n In th is chapter* Labor Market Board p o lic ie s The N ational Labor Market Board p lay s a s ig n ific a n t ro le toward m aintaining employment on a high le v e l a t sta b le prices* The purpose of the Board has been sta te d by Mr* Gunnar Olsson, as fo llo w st In Sweden, as in many o th er countries* an in te g ra l p a rt of the governm ent's p o lic y i s f u l l employment and sta b le prices* In o rd er to c reate 296 the necessary balance on the labour market and so to c o n trib u te to the maintenance of a balanced economic l i f e an a c tiv e employment p o lic y Is needed* And th a t p o licy must In ex cep tio n al conditions be combined v lth measures of f i s c a l and monetary p o licy The Labor Market Board bases I t s employment premise on the maintenance of a high aggregate demand fo r goods and serv ices which in tu rn w ill re q u ire more workers* This demand does not n e c e ssa rily generate f u l l employment, since In some se c to rs the demand fo r lab o r may be g re a te r than the supply, whereas in o th er s e c to rs , th e re may be pockets of unemployment• The fu n ctio n o f the Board then becomes the m odification of th e lab o r supply through tra in in g and lab o r m o b ility measures* Labor tra in in g and m o b ility measures may n o t be s u ffic ie n t to a d ju st the lab o r fo rce to th e le v e l of demand necessary to reduce unemployment* The Board has considerable f is c a l powers to stim u late demand fo r labor* These powers en tru sted to th e Board ares (1) re le a se of Investm ent reserv e funds, ( 2 ) perm its fo r house construc tio n , and ( 3 ) re le a se of goverment orders fo r Industry* I t should be noted th a t two of th e th re e measures p e rta in to Investm ent, since growth as w ell as s ta b i lity Is one of th e o b je ctiv e s of the Labor Market Board* ^Gunnar O lsson, N Kmployment P olicy in Sweden," ( Stockholmt N ational Labour Market Board, May 20, 1 9 o l), p* 1* (Mimeographed*) 297 Investm ent p ro je c ts thus provide fo r h ig h e r standards of liv in g In the fu tu re as w ell as the Immediate r e l i e f of unemployment • S p e c ific , ra th e r th an g en eral m easures, are another c r ite r io n fo r th e B o ard 's p o lic ie s . The essence of the a n tl- c y c llc a l p o lic y Is to In s tig a te p ro je c ts a t th e r ig h t p lace and a t th e r ig h t tim e. The a n tl- c y c llc a l p ro je c ts can be s ta r te d and term inated more q u ick ly th an g en eral economic m easures, and th e stim u la tin g e f f e c t of launching p ro je c ts in geographical areas o f unemployment Is p o ssib le to varying degrees. P r io r itie s are given to those measures which can be s ta rte d quickly and have the g r e a te s t stim ulus on employment, since p ro je c ts of lo n g er d u ra tio n could have adverse e f f e c ts on the economy in the upward phase. The c o n flic t between f u l l employment and p ric e s t a b i l i t y Is d i f f i c u l t to re s o lv e . For the r e a liz a tio n of these two g o a ls, the Board attem p ts to keep the la b o r market as n e a rly in balance as p o ssib le w ith demand fo r manpower. The Board attem pts to make th is adjustm ent of the lab o r fo rce to supply through g en eral p o lic ie s and s e le c tiv e p o lic ie s d iscu ssed in C hapter IX. ^ ^N ils Strom. "Labour C ontrol on the B uilding Market in Sweden." ( Stockholm> N ational Labour Market Board, February 3 , 196*0, p . 1 . (Mimeographed.) W ags PrtLisigg In th e d isc u ssio n of th e N ational Labor Market Board wage p o lic ie s , I t was assumed th a t the wage was the p ric e of la b o r as determ ined by demand and supply* and th a t wages paid were to some e x te n t based on th e m arginal p ro d u c tiv ity of la b o r. This assum ption w ill now be relax ed in o rd er to form ulate a more r e a l i s t i c approach. gPllflMTlgtlg .Vftgg P9llg y « ~ C o n d itio n s have r is e n in th e Swedish lab o r market which have caused the wage s tru c tu re to develop independently of market fo rc e s , thus causing the wage s tru c tu re to become an independent f a c to r . Because of d iffe re n c e s in p ro d u c tiv ity which e x is t in the vario u s se c to rs in -in d u s try , th e re have r is e n a number of problems which a f f e c t wage s ta b iliz a tio n p o lic y . In expanding in d u s trie s w ith high p ro d u c tiv ity , strong demands fo r wages have forced th e wages up. Because the strong lab o r unions have demanded wage p a r ity on an in d u s tr ia l and o ccu p atio n al b a s is , wages in in d u s trie s w ith low p r o f its and p ro d u c tiv ity have been in c re a se d . The wage p o lic y has been expressed as fo llo w st The " s o lid a r is tic wage p o lic y * 1 of th e Trade Unions accounts fo r a co n sid erab le p a rt o f the income lin k s . The in te n tio n i s n o t to reach ab so lu te e q u a lity of incomes, b u t the aim i s a r a tio n a l wage s tru c tu re in which th e wage i s in a reasonable re la tio n s h ip to such th in g s a s the n atu re o f th e jo b , th e q u a lific a tio n s re q u ire d , 299 and th e c o n d itio n s o f work.^ Labor o rg a n iz a tio n s have agreed to p a r tic ip a te in th e governm ent's s ta b i liz a tio n p o lic y . Recommendations fo r wages by th e c e n tr a l la b o r o rg a n iz a tio n s to lo c a l branches have o fte n been in flu en ced by market fo rc e s and demands of in d iv id u a l members. C e n tra liz e d n e g o tia tio n s.--D u rin g th e post-w ar p e rio d , c e n tra liz e d wage n e g o tia tio n s have been more pronounced. C e n tra l wage agreem ents, reached between la b o r unions and em ployers' a s s o c ia tio n s in d if f e r e n t in d u s tr ie s , have become the b a s is o f comparison fo r o th e r pending agreem ents. Thus, c o n tra c ts reached w ith in the engineering In d u stry have s e t preced en ts fo r o th e r in d u stry agreem ents. C e n tra l n e g o tia tio n s , however, may in te r f e r e w ith s ta b iliz a tio n . I t o fte n becomes d i f f i c u l t to heed th e r e la tiv e wage le v e ls o f th e v a rio u s groups, and to adapt wages to th e la b o r m arket s itu a tio n w ith in d if f e r e n t s e c to rs o f in d u s try . T his u n ifo rm ity o f wages has c o n trib uted to wage d r i f t . Wage d r i f t . —Wage d r i f t i s a term which a p p lie s to 6 L a r s W ohlin, " S y s s e ls a ttn in g , Pennlngvarde och P ran atsk rld a n d e," J m p i o ~ n t - .n a Development (Stockholm : I n d u s tr ia l R esearch I n s t i t u t e , 1 9 6 2}, p . 1 . (Mimeographed.) 300 the wages paid In excess of c o n tra ctu al agreements* Wage d r i f t contributed to the major in creases in money wages during the 1950's* In a d d itio n to the in s titu tio n a l fa c to rs mentioned above, wage d r i f t is also a r e s u lt of b u ilt- in fa c to rs in the tr a n s itio n from time to piece rates* The existence of wage d r i f t makes i t d if f ic u lt to s ta b iliz e prices* Demands fo r e q u a lity of wages not w arranted by labor p ro d u c tiv ity cause d is to rtio n in the wage s tru c tu re , a causal fa c to r in cost In fla tio n which is very d if f ic u lt to co n tro l by f is c a l s ta b iliz a tio n measures* Since wage d r i f t v a rie s w ith the m arket, wage le v e ls obtained during boom periods may be continued in e ffe c t when the market has entered a re c e ssio n .'7 TOO LS FO R STABILIZATION S ta b iliz a tio n measures can be divided in to general measures, d ire c t c o n tro ls, and regulations* Monetary, f is c a l , and debt management p o lic ie s are in d ire c t co n tro ls, and as such, are more Impersonal than the d ire c t c o n tro ls. There are two advantages of the in d ire c t p o licies* F ir s t, these to o ls d eal w ith aggregates, such as a v a ila b ility of money and the to ta l lncome-expendlture flow* In th is re sp e c t, they are compatible w ith in d iv id u al ?Ihld*, pp. 3-5* 301 freedom o f c h o ice. There Is a lso le s s In te rfe re n c e w ith th e m arket mechanism to r e f l e c t changes in supply and demand and to d ir e c t p ro d u ctio n to th e consum ers' w ish es. Second, in d ir e c t m easures have th e advantage of in flu e n c in g th e sources o f in f l a tio n by changing ex cessiv e demand. D ire c t c o n tro ls may, fo r a tim e , hold back p ric e s bu t th e economic e f f e c ts a re fo r a sh o rt term and the causes o f th e economic d istu rb a n c e a re n o t removed. In d ire c t c o n tro ls Monetary and f i s c a l p o lic ie s a re th e p rin c ip a l in d ir e c t, or g e n e ra l, c o n tro llin g m easures. F is c a l p o lic y came to th e fo re fro n t a f t e r th e d e p re ssio n in th e t h i r t i e s and i s to d ay th e p r in c ip a l to o l, co o rd in ated w ith m onetary p o lic y , f o r reach in g economic o b je c tiv e s . F isc a l n o llc v . —For a proper understanding of Swedish f i s c a l p o lic y , i t should be understood th at c e n tr a l government ex p en d itu res fo r investm ent and % consumption c o n s titu te a la rg e and growing p ro p o rtio n o f th e g ro ss n a tio n a l p ro d u c t. I t fo llo w s th a t th e Impact of f i s c a l p o lic y upon economic growth and s t a b i l i t y i s fo rm id ab le• The concept o f f i s c a l p o lic y as a s t a b i li s a t io n to o l has changed sin c e th e 1 9 3 0 's. W ith th e new in n o v a tio n s a t th a t tim e , i t was reco g n ized th a t b alan cin g 302 th e budget ev ery y ear could n o t r e s u l t in economic s t a b i l i t y . The t o t a l b u d g et, fo r most y ears sin c e W orld War I I , h as shown a d e f i c i t w hile th e c u rre n t budget fo r p r a c tic a lly a l l o f th e y ears has shown a s u rp lu s . The m u ltip ly in g e f f e c ts of p u b lic Investm ent e x p e n d itu re s, which have n o t been o f f s e t by n e g a tiv e Investm ent, have r e s u lte d in some grow th and p ric e i n s t a b i l i t y n o t su c c e ss f u lly c o u n te ra c te d by m onetary p o lic y . A new concept o f f i s c a l p o lic y has re p la c e d the p rin c ip le o f b alan cin g th e budget over th e cy cle w ith th e budget fu n c tio n a s a b alan cin g f a c to r fo r th e r e a liz a tio n o f a su sta in e d growth over th e b u sin e ss c y c le . The f i s c a l p o lic y , v ery a c tiv e durin g re c e s s io n s , has been stren g th en ed through th e la b o r m arket p o lic y . T his p o lic y i s e s p e c ia lly Im portant sin ce I t I s extrem ely resp o n siv e to changes in th e economy; I t h as fu rth e re d th e m o b ility and th e a d a p ta b ility o f th e la b o r force.® Monetary p o lic y . —The m onetary p o lic y has n o t been as e f f e c tiv e a to o l fo r s ta b i liz a tio n a s th e f i s c a l p o lic y . The expansionary e f f e c ts o f con tin u ed budget d e f i c i t s have n o t been co u n teracted e f f e c tiv e ly by th e tr a d i tio n a l weapons of open m arket o p e ra tio n s . Changes in ^F in an sd ep artem en tet. "A Note on F is c a l P o lic y ," ( Stockholm! F ln an sd ep artem en tet, 1962), pp. 1-9* 303 d isco u n t r a te s and re se rv e req u irem en ts a re considered th e tr a d i t io n a l weapons o f open m arket o p e ra tio n s . This weakness has been rem edied to some e x te n t by c r e d it ra tio n in g and c r e d it p r i o r i t i e s fo r p riv a te Investm ent. S e lf-fin a n c in g o f p riv a te Investm ent I s an o th er c o n trib u to ry f a c to r th a t has r e s t r i c t e d th e o p e ra tio n o f m onetary weapons• D ire c t c o n tro ls P ric e c o n tr o l. —P ric e c o n tro l, in co n ju n ctio n w ith r a tio n in g , was one o f th e p r in c ip a l weapons used to c o u n te ra c t I n f la tio n during World War I I . A fte r th e w ar, p ric e re g u la tio n s were continued u n ti l 1 9 5 6 , In view of th e ex cess demand experienced a f t e r se c e ssio n o f h o s t i l i t i e s . A law was passed on June 1 , 1956 w ith p ro v isio n s to e s ta b lis h a p ric e committee to in v e s tig a te monopoly p ric in g and to give th e p u b lic d e f in ite In form ation re g a rd in g consumer p r ic e s . T his committee was d ire c te d to e x e rc is e only s e le c tiv e p ric e c o n tro l o f goods and to keep a d m in is tra tiv e c o s ts o f th e program a t a minimum. Rent c o n tro l. —Rent c o n tro l was enacted In 19^2 fo r two p r in c ip a l reaso n s i ( 1 ) s o c ia l—to keep r e n ts low f o r th e wage e a rn e rs and to h elp th o se In th e su b -stan d ard Income group to Improve t h e i r stan d ard o f liv in g ; and ( 2 ) 30*+ economic—to hold back in fla tio n a ry p ressu res which would r e s u lt from higher rents* Wien changes in re n ts were no longer su b ject to market fo rc e s, i t became necessary fo r the Swedish government to a lle v ia te the housing shortage through lo a n s•? Though re n t co n tro ls must be judged as s ig n ific a n t means of s ta b iliz a tio n , continuance of c o n tro ls i s forced mainly because of p o litic a l co n sid eratio n fo r the lower income groups. The continuance of co n tro ls has reta rd e d increased co n stru ctio n of homes and has required re g u la tio n of home co n stru ctio n . Building c o n tro ls. —F isc a l powers of the Labor Market Board have been exercised through co n tro l of building from World War I I to the presen t tim e. Housing perm its and loans are granted fo r the purpose of d ire c tin g p riv a te investm ent. The Labor Market Board Issues the perm its and through th is power can d ire c t Investment to lo c a litie s which experience unemployment. I t is also p o ssib le fo r the Board to d ire c t co n stru ctio n during the w inter months when employment is g en erally low. A g ric u ltu ra l c o n tro ls. —A g ric u ltu ra l co n tro ls were in s tig a te d during the t h i r t i e s in order th a t p ric e s of 9m & 1 och Model 1 S ta b llls e rln g sp o litlk e n , op. c i t . , pp. 2^-1- 2^ + 6 . 305 farm products could be In creased , thus preserving the p a r ity of farmers* Incomes w ith o th er Income groups. One drawback of th is p o licy was th a t Increased food p ric e s re s u lte d In claim s by o th e r groups fo r compensating wage In c re a se s. During the f o r ti e s , a g ric u ltu ra l c o n tro ls were continued as a means of p ric e c o n tro l, but since 1 9 5 0, the purpose of the c o n tro ls has been the same as In the t h i r t i e s . A g ric u ltu ra l co n tro ls have been continued as a form of s ta b iliz a tio n measure In order to m aintain the farmers* purchasing power. A g ric u ltu ra l c o n tro ls have also been d e sira b le so as to prevent flu c tu a tio n in a g r ic u ltu r a l p ric e s In the World Market from being tra n sm itte d to p ric e s In Sweden M EA SU R IN G THE BUSINESS C Y C IE The broad economic goals s e t fo rth In Chapter X III can, w ith some m o d ificatio n s, be conceived as re q u irin g measurement of the business c y c le . The objec tiv e s w eret (1 ) a higher standard of liv in g , ( 2 ) s ta b iliz e d employment, and (3) soundness of currency. As the economy moved toward the achievement o f the g o als, the measurements of the cycle would then c a ll fo r (1 ) changes In production, (2 ) maintenance of a high le v e l of employment, and (3 ) the maintenance of purchasing power. 10IWd*t P* 2i+6. 306 I t I s In te re s tin g to note th a t the th re e measurements (g o als) of the Swedish "konjunkturer" are the same as the United S ta te s Government* a commitment in the 19*+6 Employ ment Act fo r using " a l l p r a c tic a l means fo r economic s t a b i l i t y , " or more s p e c if ic a lly , to promote maximum employment and purchasing power. 11 C hanfigg In tag C T P gg national prpfln<rt The gross n a tio n a l product in Sweden has shown a r e a l average growth r a te of 3 .M - p er cent from the period 19*+7 to 196k. The la rg e s t flu c tu a tio n from the mean occurred in 19^8, w ith a 5*8 per cent g a in . The tren d was rem arkably sta b le fo r th e p e rio d . Measures which were taken to modify the am plitude of th e c y c lic a l swings are discussed in th e follow ing s e c tio n . 12 A high le v e l o f employment is im portant fo r the f u l l u tiliz a tio n of th e la b o r force and o th e r productive re so u rc e s. Percentage changes in th e number.of unemployed give a rough in d ic a tio n of economic flu c tu a tio n s . Since s ta b iliz a tio n measures might have a dampening e f f e c t on ^ F e d e r a l Reserve Bank, The Quest fo r S ta b ility (P h ilad elp h ias F ederal Reserve Bank, 195*t), p . 11. 12Mal och Model 1 S ta b llls e rin g s p o lltlk e n , op. c i t . , p . 9 * + « 307 cy clical swings, analysis of economic trends w ill be required In order to assess the success or fa ilu re of government policy* The average percentage of unemployed trade union members for the period 19^-6-1953 was 2*6 per cent* The la rg e st percentages 3*2 and 2*9 were recorded fo r the years 19^6 and 1953 respectively.1^ Total unemployment percentages fo r the period 1955-1963 averaged 1*8, the la rg e st figure being 2*5 per cent for 1958* The percentages for trade union unemployment may be expected to be larg er than the figures for to ta l unemployment, since the m ajority of the members employed In Industry would be more sen sitiv e to cy clical flu ctu a tio ns *llf The re la tiv e ly low unemployment figures Indicate a high lev el of employment but a high aggregate demand during a period of f u ll employment may c o n flict with the other objective, namely, price sta b ility * The problem fo r the government then becomes the necessity of balancing demand for labor against available supply* A high demand might mean In fla tio n , while suppression of the demand can _ _. J ^ E rik L undberg. B jiflJjw ggffyclgg and.EgPIWBLU P o lic y (Londons George A lle n and Unwin, 1 9 5 7 ), p* 64-. ^ I n t e r n a t i o n a l Labour Review , S t a t i s t i c a l Supplem ent, Nay, 1963* p* 104-. 308 cau se unem ploym ent. gwrmar The s t a b i l i t y o f th e economy, o r th e absence o f g r e a t c y c l i c a l f l u c t u a t i o n s , h a s to a g r e a t m easure been s a t i s f i e d s in c e th e end o f W orld War I * . The same s t a t e ment can n o t be made ab o u t p u rc h a sin g pow er. From 19*+5 to 1961, p r i c e s in c re a s e d by 72 p e r c e n t. In c re a s e d e x p o rt tr a d e a t h ig h e r p r ic e s In flu e n c e d p r ic e s to a d eg ree t h a t was d i f f i c u l t to c o u n te ra c t w ith f i s c a l and m onetary m e a s u re s .1^ C y c lic a l s t a b i l i t y o f th e g ro s s n a tio n a l p ro d u c t and employment h a s th e r e f o r e b een a c h ie v e d a t th e expense o f a d e p r e c ia te d c u rre n c y . I n f l a t i o n p r e s s u r e s have some tim e s b een so g r e a t t h a t th e Sw edish governm ent h a s p e rm itte d m oderate p r ic e f l u c t u a t i o n in o rd e r to b rin g f o r t h s t a b i l i z a t i o n m easures a t a h ig h e r p r ic e l e v e l . The in c re a s in g tr e n d o f p r i c e s in Sweden a p p e a rs to be a r e s u l t o f th r e e c o n d itio n s : 1 . P r i o r i t i e s have b een g iv e n to in c re a s e d p ro d u c tio n and em ploym ent, n o t c o m p atib le w ith s ta b le p r i c e s . 2 . T here a p p e a rs to be a t a c i t assu m p tio n t h a t p r ic e In c re a s e s s tim u la te b u s in e s s p r o f i t s and in v e s tm e n t. l^ M a l och medel 1 S t a b i l l s e r l n g s p o l i t l k e n , o p . P. 9^-. 309 3 . The m arket mechanism h a s n o t b een f r e e to a d ju s t th e su p p ly to th e demand f o r goods* ECONOMIC FLUCTUATIONS SINCE W O R LD W A R I I In p r i o r c h a p te rs th e o p e ra tio n o f th e v a rio u s s t a b i l i z a t i o n p o l ic i e s h as been d e s c r ib e d . E x p e rie n c e s a f t e r th e war have re v e a le d t h a t no one m ethod In I t s e l f was s u f f i c i e n t to m odify th e economic c y c le s . The tim in g and c o o rd in a tio n o f d i f f e r e n t p o li c ie s depended upon econom ic c o n d itio n s w hich e x is te d d u rin g th e p e r io d . S e v e ra l d i s t i n c t c y c le s can be I d e n t i f i e d to w hich v a ry in g d e g re e s o f c o u n te r - c y c lic a l m easu res, o f n e c e s s ity , a p p lie d . D uring th e f iv e y e a rs fo llo w in g th e end o f W orld War I I , sh o rta g e s o f goods had r e s u l t e d In a p e n t-u p demand t h a t had to be s a t i s f i e d by dom estic p ro d u c tio n and im p o rts . T h is was a p e rio d d u rin g w hich d i r e c t c o n tr o ls became more Im p o rtan t th a n f i s c a l and m onetary p o l i c i e s . C o n tra c tio n o f fu n d s , ev id en ced by b u d g et s u r p lu s e s , and l i m i t a t i o n o f le n d in g by com m ercial banks were th e p r in c i p a l f i s c a l and m onetary p o l i c i e s p u rsu e d . The a n t l - c y c l l c a l c o n tr o ls d u rin g t h i s p e rio d were d ir e c te d m ain ly a g a in s t I n f l a ti o n a r y te n d e n c ie s and were s u c c e s s fu l I n lim itin g 7 p e r c e n t consumer p r ic e In c re a s e s 310 d u rin g th e 19^7-19^8 p e rio d to 2 p e r c e n t In 19^8-19^9*^ The Korean War r e s u lte d In In c re a s e s In e x p o rt p r ic e s w hich fo rc e d r e t a i l p r ic e s up by lb p e r c e n t In Sweden In 1950. As In th e p r io r p e r io d , f i s c a l and mone t a r y p o l ic i e s were r e l a t i v e l y p a s s iv e , b u t th e main re a so n fo r th e b re ak th ro u g h o f p r ic e s was an announced p o lic y by th e S ta b i li z a tio n Committee th a t th e m arket be p e rm itte d ~~ to d eterm in e p r ic e s and to seek s t a b i l iz e d p r ic e s a t h ig h e r le v e ls * T his move was undoubtedly w is e , f o r th e co n tin u an ce o f d i r e c t c o n tro ls could have had an ad v e rse e f f e c t on f a c to r s o f p ro d u c tio n .■ * • ? The re a so n f i s c a l p o lic ie s f a i l e d to c o n tro l th e Korean E xpansion phase was th e b u d g etary m easures were a p p lie d to o l a t e , and when budget s u rp lu s e s became a r e a l i t y d u rin g th e 1951-52 p e rio d , d ec rease d government e x p e n d itu re s became a f a c to r in th e r e c e s s io n which s ta r te d in 1952 and co n tin u ed In to 1953* The p r in c ip a l f i s c a l m easure a p p lie d d u rin g t h i s p e rio d was th e In c re a se o f housing p e rm its by th e Labor M arket Board* D ecreased e x p o rts d u rin g 1952 and 1953 caused some sta g n a tio n * The Swedish governm ent was unable to a n tic ip a te d ec rease d fo re ig n tr a d e , b u t should be charged w ith f u l l re s p o n s i b i l i t y f o r Im posing a 10 p e r c e n t ta x on c a p i t a l exp en d i tu re s * C re d it r a tio n in g by com m ercial banks f u r th e r ^ I b ld *. p p . 370-380. 17I f c id ., p p . 381-383. 311 a g g rav ated th e economic dow ntrend. I t would seem to have been a w ise r p o lic y had no s t a b i l i z a t i o n m easures been t r i e d d u rin g t h i s p e rio d s in c e s t a b i l i z a t i o n m easures had a re v e rs e e f f e c t . The p e rio d from 1953 to . 1957 h as been c a lle d th e f i r s t p ea ce-tim e c y c le s in c e W orld War I I . P ric e I n c re a s e s , w hich had averaged 1 p e r c e n t d u rin g 1953 and 195*+, rem ained unchanged u n t i l l a t e in 1955, th e n ro se by •5 p e r c e n t d u rin g 1956 and 1957* P r ic e s had In c re a se d g ra d u a lly w ith th e r e la x a tio n o f p r ic e c o n tro ls I n 1953* The g ro ss n a tio n a l p ro d u ct In c re a se d g ra d u a lly w ith th e r e la x a tio n o f p r ic e c o n tro ls In 1953* The g ro ss n a tio n a l p ro d u c t In c re a se d by an average o f b p e r c e n t a n n u a lly d u rin g th e p e rio d from 1953 to 1957* F is c a l and m onetary s t a b i l i z a t i o n m easures d u rin g t h i s p e rio d were d ir e c te d a g a in s t to o g r e a t an In c re a se in in v e stm e n t. In v estm en t ta x e s were Imposed and th e d isc o u n t r a t e was r a is e d from 3*75 p e r c e n t i n A p ril o f 1955 to 5 p e r c e n t In J u ly o f 1957* The Labor M arket B o a rd 's p r i n c i p a l ta s k d u rin g t h i s p e rio d was to p ersu ad e la b o r and management to show r e s t r a i n t In wage ag reem en ts. The Swedish C o n fe d e ra tio n o f Trade Unions responded t o t h i s re q u e s t by recommending minimum wage in c r e a s e s .1* * The re c e s s io n In th e U nited S ta te s , w hich re ach ed l8Jfcia., pp. 395-^-22. 312 i t s lo v e s t p o in t d u rin g th e Sumner o f 19589 had I t s c o u n te r p a r t I n W estern Europe* I t I s n o te w o rth y t h a t d u rin g t h i s p e r io d m o n etary and L abor M arket B oard p o l i c i e s i n Sweden became more e f f e c t i v e th a n a t an y o th e r p e rio d * The downward tr e n d o f e x p o r ts d u rin g th e l a s t p a r t o f 1957 r e s u l t e d In d e c re a s e d i n d u s t r i a l em ploym ent d u rin g 1958* An u p tu rn was n o te d i n 1959 w hich c o n tin u e d i n t o I9 6 0 , f tr ic e s d u rin g t h i s p e r io d w ere re m a rk a b ly s ta b le * The c y c l i c a l tr e n d was c o u n te r a c te d by s t a b i l i z i n g m easu res r e s u l t i n g In a slo w e r In c re a s e i n th e g ro s s n a t i o n a l p ro d u c t th a n had b ee n th e c a se In th e p r i o r p e rio d * The r e l a t i v e l y m ild econom ic dow nturn a t th e b e g in n in g o f th e c y c le was r e v e r s e d I n th e f a l l o f 1959* The number o f unem ployed d u rin g th e w in te r o f 1958-59 re a c h e d 60,000* The L abor M arket B oard s te p p e d In a t once w ith I t s a r s e n a l o f c o r r e c ti v e m easures* R eserv e w orks w ere la u n c h e d a n d 'th e b u ild in g I n d u s tr y was s tim u la te d . R e le a se o f In v e stm e n t r e s e r v e s and r e t r a i n i n g o f th e w ork f o r c e w ere th e p r i n c i p a l f a c t o r s f o r r e l i e v i n g unemployment* R eserv e In v e stm e n t fu n d s am ounting to 750 m illio n k ro n o r h ad b ee n r e le a s e d by Septem ber o f 1959* The l a r g e r p a r t o f th e fu n d s w ere g ra n te d t o th e b u ild in g i n d u s tr y *^9 pp. ^23-^36. 313 The r e v i v a l o f th e m o n etary p o lic y was a n o th e r Im p o rta n t f a c t o r f o r s t a b i l i z a t i o n . B udget d e f i c i t s o f 1*3 and 1 .5 b i l l i o n k ro n o r had a n e x p a n s io n a ry e f f e c t on « th e econom y. The h p e r c e n t s a le s t a x , In tro d u c e d i n I9 6 0 , had a dam pening e f f e c t b u t l i m i t a t i o n o f p r i v a t e In v e stm e n t th ro u g h a r e s t r i c t i v e c r e d i t p o lic y was a l s o th e p r i n c i p a l w eapon. The o f f i c i a l d is c o u n t r a t e , w hich had b een lo w ered In 1958 from 5 t o *+.5 p e r c e n t, was r e s to r e d t o I t s fo rm er l e v e l In I9 6 0 . C om m ercial b a n k s 1 r e s e r v e re q u ire m e n ts w ere r a i s e d and l i q u i d i t y was f u r t h e r d e c re a s e d by: In d u cin g firm s t o In c re a s e th e In v e stm e n t r e s e r v e fu n d s by 770 m illio n k ro n o r In I9 6 0 . The 1957-58 tw o -y e a r wage ag reem en t was succeed ed b y a 2 .5 p e r c e n t a v e ra g e wage In c re a s e In 1959 1 and a 5 p e r c e n t In c re a s e f o r th e y e a rs I9 6 0 and 1 9 6 1 . The consum er p r ic e Index In c re a s e d b y 1 .5 p e r c e n t from th e s p rin g o f 1958 to th e b e g in n in g o f I9 6 0 . The In d ex r o s e b y 2 p e r c e n t d u rin g th e f i r s t f o u r m onths o f 1961 p r i n c i p a l l y a s a r e s u l t o f h ig h e r fo o d p r i c e s and s a l a r y I n c r e a s e s . The e x p a n sio n o f th e Sw edish economy w hich beg an In 1959 c o n tin u e d I n to I9 6 0 and le v e le d o f f to w ard th e end o f 1961. The e x p e c ta tio n o f slo w e r g row th d u rin g 1962 was c o u n te ra c te d by th e fo llo w in g m e a su re st 1 . R e le a se o f 1 .2 b i l l i o n k ro n o r o f In v e stm e n t 32h re se rv e s* 2* In c re a se d governm ent lo a n s f o r home b u ild in g * 3* A c c e le ra te d o rd e rs f o r governm ent equipm ent* b. L arg er p u b lic Investm ent ex p e n d itu re s* 5* Less r e s t r i c t i v e governm ent budget* 6* R eduction o f th e d is c o u n t r a te * 20 The c o u n te r - c y c lic a l m easures were b e t t e r tim ed th a n was th e case in 1958-1959* C a re fu l p lan n in g o f Investm ent p r o je c ts d u rin g th e 1962 p e rio d en ab led a u t h o r it i e s to s t a r t p r o je c ts on s h o rt n o tic e * SUMMARY S t a b i li z a tio n o f th e economy i s one o f th e most Im p o rtan t f e a tu r e s o f Swedish f i s c a l , m onetary, and d e b t management p o licy * The c y c le c o n tro l I n s t i t u t e (Konjunk- t u r l n s t l t u t e t ) was e s ta b lis h e d to do re s e a rc h on b u s in e s s cy c le s ta b iliz a tio n * A n ti- c y c llc a l m easures a re b o th g e n e ra l and d ire c t* These to o ls were employed to c o r r e c t d e v ia tio n from planned o b je c tiv e s * T hus, p lan n in g I s th e c e n tr a l and p r in c ip a l f a c to r f o r s ta b iliz a tio n * The b e t t e r th e p la n n in g , th e l e s s m o d ific a tio n o f th e c y c le I s n ecessary * I t should be u n d ersto o d t h a t p lan n in g i s th e f i r s t 200 rg a n iz a tio n f o r Economic C o o p eratio n and pp t j**7 Q B & D ~",flvad<>n (P * rls s 315 stage in the sta b iliz a tio n policy. Budget expenditures, which are subject to control, are based on estimated private Investment, exports, and consumption. Labor Market Board policy has become an important sta b iliz a tio n too l in recent years because i t has timed economic measures well without amplifying the cycles during upward phases. Direct controls were used a fte r World War I I , however, during recent years more weight has been given to fis c a l, monetary, and labor board policy. A dominant feature of Swedish planning has been to employ a number of sta b iliz a tio n measures a t the same tim e. This policy has been recommended by the Planning . Commission in order th at the strongest influence may be exercised upon a l l sectors of the economy, but th is has made analysis of isolated measures d if f ic u lt. One unifying aspect and common denominator of sta b iliz a tio n policies has been the emphasis on Investment for growth and cycle m odification. The dominant feature in the Swedish economy is i t s dynamic aspect. The Stabi liz a tio n Committee has taken the position th at i t becomes easier to promote s ta b ility in a growing economy when the main task becomes the maintenance of the economic growth ra te . An adverse consequence of the Investment program has been the m ultiplier effe c t on the economy which has resulted in in flatio n ary tendencies. 316 M onetary p o lic y d id n o t s u c c e s s fu lly cope w ith p r ic e f lu c tu a tio n s w hich have o cc u rred sin c e W orld War I I . Economic grow th and employment was a tta in e d a t th e expense o f g r e a t p ric e f lu c t u a t i o n s . A f a i r assessm en t o f th e r o le o f th e m onetary p o lic y d u rin g th e p e rio d should ta k e in to acco u n t th re e f a c to r s which o p e ra te d c o n tra ry to cu rren cy s t a b i l iz a t i o n s (1 ) p r i o r i t y to grow th by em phasis on In v e stm en t; (2 ) th e In flu e n c e o f e x p o rt and Im port p r ic e s on th e economy; and (3) a t a c i t assum ption t h a t p r ic e In c re a s e s s tim u la te p r o f i t and In v e stm en t. CHAPTER XV S U M M A R Y A M D C O N C L U SIO N S This study is concerned with the problem of economic growth and s ta b ility In a country with a mixed economy* The development of the economy in d ifferen t time periods is summarized in the f i r s t part of th is chapter. The la s t part is devoted to an evaluation of sta b iliz a tio n measures and the re la tiv e effectiveness of the various policies employed* S U M M A R Y The Social Democratic Party th a t came into power in 1932 had a mandate to decrease unemployment and to promote the welfare of the citizens* From th is period to the present time, the goals of high economic growth, high employment, and price s ta b ility have been unchanged* The methods for achieving the goals, however, have become more sophisticated and comprehensive as a re su lt of the experiments with cy clical budget balancing and price sta b iliz a tio n which took place in the 1930's* Sweden is endowed with ric h natural resources and an economic structure which has been advanced by the economists of the Stockholm School. P o litic a lly , the s o c ia lis t government has been concerned with the laborers 317 and farm ers, but the enlightened government has realized th a t the g reatest progress can be achieved through balancing p riv ate en terp rise with government ownership and co n tro l. The Swedish government owns a larg er share of resources and en terp rises than does the government of the United S tates. The la rg e st portion of the fo re s ts , mines, and water power Is state-owned and a l l channels of communication are owned by the government. The ownership of radio and of telev isio n statio n s presents the g reatest dianger to the maintenance of the d elicate balance between private and government ownership In the mixed economy. A le ss democratic and more d ic ta to ria l government could seriously jeopardize the freedom of the Swedish people. F iscal policy In the th ir tie s became the p rin cip al means of influencing the economic cycle toward planned o bjectives. Monetary policy played a minor role though c red it controls were available fo r the Riksbank. During the depression, the government rig h tly conceived th a t d e fic it spending, p a rity of a g ric u ltu ra l p ric e s, and high wages were necessary to o ffse t a d e fic it I f i t were to demand Increased employment • Finance M inister Ernst Wlgfors embarked upon the novel idea of balancing the budget over the phases of the business cycle through the Ingenious presentation of a c a p ita l and current budget. The current budget was balanced annually but the c a p ita l 319 budget was balanced over the cycle. In a mixed economy such as e x ists In Sweden, the allo catio n o f resources between the p riv ate and the public sector presented a problem. The S o c ia listic government had committed I ts e lf fo r a number of w elfare measures, but attainm ent of so cial objectives a t the expense of the tra d itio n a l freedom of business en terp rise could lead to a to ta lita r ia n government. However, i t has become a fundamental theory of the Social Democrats th a t decisions In the p riv ate sphere should more properly be l e f t to p riv ate business than to d e ta ile d , r ig id , cen tralized planning• The preservation of freedom in p riv ate business and the re a liz a tio n of maximum so cial b e n e fits became the guide posts fo r decentralized planning in Sweden. Planning became the Instrument and the most e ffic ie n t allo catio n o f resources serving as the guiding p rin c ip le . The d iv isio n of goods and services was determined by n atio n al economic budgets which were ex-ante surveys Integrating budget expenditures w ith p riv ate Investment and consumption expenditures. The fin a l composition of the portions of public and private expenditures was arriv ed a t through the d ire c t, or t r i a l and e rro r, approach. This method re lie d upon "gap analysis" estim ated from the balance of resource calcu latio n . Long-term planning, as a means of modifying 320 th e b u sin e ss cy cle tow ard p redeterm ined g o a ls, p ro je c te d th e economic tre n d which gave th e d ir e c tio n f o r s h o rt term p lan n in g through n a tio n a l economic budgets* P lan n in g , in i t s sim p le st form , i s a program fo r fu tu re a c tio n * I t may be h ig h ly c e n tr a liz e d as In F ra n c e , o r d e c e n tra liz e d a s In Sweden. D e c e n tra liz e d p lanning h as c e r ta in ad v an tag es! 1* I t I s more econom ical, sin ce p la n s by p riv a te firm s a re u tiliz e d * 2* I t I s com patible to economic freedom . 3* The su ccess o f p la n s i s In su red by th e c o o p e ra tio n o f a l l segm ents o f th e s o c ie ty —governm ent, la b o r u n io n s, and employers* The g o a ls s e t f o r th in th e p la n s were based on s t a t i s t i c a l d a ta o f p r io r p e rio d s and fo re c a s tin g * Com pliance, o r th e means o f p la n n in g , was sought through b o th d ir e c t and g e n e ra l c o n tro ls* Since W orld War I I , le s s r e lia n c e has been p lace d on d ir e c t re g u la tio n s and more em phasis p lace d on g e n e ra l m easures, o r Inducem ents, to m anipulate economic b e h a v io r. The te c h n iq u e s f o r p lan n in g a re N gap a n a ly s is 1 1 and " r o llin g a d ju stm e n ts•" Gap a n a ly s is i s a p re s e n ta tio n o f th e e x -a n te e x p e c ta tio n o f th e d iffe re n c e betw een a g g reg ate supply and ag g reg ate demand* B oth th e French and th e Swedish lo n g -term p lan n in g 321 sy stem s use a m ethod r e f e r r e d to a s " p la n n in g in s t a g e s ." The p la n w hich em erges th ro u g h t h i s p ro c e d u re may l a t e r be m o d ifie d th ro u g h r o l l i n g a d ju stm e n ts* The P la n n in g Com mission h a s th e r e s p o n s i b i l i t y o f p re p a rin g th e lo n g -te rm p la n s* The C om m ission, composed o f r e p r e s e n t a t i v e s from governm ent a g e n c ie s , em ployer and em ployee o r g a n iz a tio n s , i s a p p o in te d by th e King o f Sweden* P r iv a te f ir m s , u n i v e r s i t y p r o f e s s o r s , and p r i v a t e i n d u s t r i a l a s s o c i a ti o n s a r e en co u rag ed t o a s s i s t i n th e p r e s e n t a t io n and e v a lu a tio n o f th e p la n s* S h o rt-te rm p la n n in g I s a c o o p e ra tiv e e f f o r t by th e econom ic d i v i s i o n o f th e Sw edish F in an ce D epartm ent and th e N a tio n a l I n s t i t u t e o f Econom ic R esearch* The s h o r t- te r m p la n s a r e p re s e n te d a n n u a lly in th e n a t io n a l econom ic b u d g e ts , w hich g e n e r a lly conform to th e econom ic o b je c tiv e s o f th e lo n g -te rm p la n s* The f i r s t f i v e - y e a r p la n was la u n c h e d I n 19**7 when a com m ission o f f i v e members was a p p o in te d b y th e King* The m ajo r o b je c tiv e was th e r e s t o r a t i o n o f e x p o r ts i n o rd e r t o a t t a i n a more f a v o ra b le b a la n c e o f tra d e * In view o f th e s h o rta g e o f la b o r , a m odest in c r e a s e i n t o t a l In v e stm e n t was proposed* The Com mission c o n s id e re d th e fo llo w in g program sh o u ld r e s u l t i n a more fa v o ra b le b a la n c e o f tr a d e s 1* R e s t r i c t i o n o f Im p o rts* 322 2* D i f f e r e n t i a t i o n o f wood p ro d u c ts s o ld on th e e x p o r t m a rk e t. 3 . In c re a s e In la b o r p r o d u c tiv ity th ro u g h I n v e s t m ent I n m ach in ery n e c e s s a ry f o r th e p ro d u c tio n o f goods In th e e x p o rt m a rk e t. S in ce th e d e s ir e d g o a l o f a 25 p e r c e n t In c re a s e In e x p o r ts had b een re a c h e d In 1950, th e p la n was te r m i n a te d in t h a t y e a r . T o ta l In v e stm e n t In c re a s e d a s a r e s u l t o f l a r g e r e x p e n d itu re s i n th e p u b lic s e c t o r , conform ing to th e p la n n e d o b j e c t i v e s . E xcess demand and s h o rta g e o f la b o r b ro u g h t a b o u t a g ra d u a l In c re a s e In p r i c e s d u rin g th e p e r io d , a s com pared t o th e g r e a t e r p r ic e f l u c t u a t i o n d u rin g th e 1918-1925 p e r io d . The second f iv e - y e a r p la n was d ev elo p ed in 1950, two y e a rs b e f o re th e e x p i r a ti o n o f th e f i r s t p la n . P a r t i c u l a r em phasis was now p la c e d on s t a b i l i t y o f p r ic e s w hich w ere e x p e c te d t o re sp o n d to th e r e la x a t io n o f c o n tr o ls and t o th e I n f l a t i o n a r y p r i c e te n d e n c ie s I n th e W estern. W orld. In v e stm e n t e x p e n d itu re s r e p la c e d e x p o r ts a s th e c e n t r a l f a c t o r I n g e n e ra tin g demand o f s u f f i c i e n t s tr e n g th t o m a in ta in a 3 p e r c e n t a n n u a l grow th r a t e . In v e s tm e n t, how ever, sh o u ld a ls o b e c o n s id e re d w ith r e f e r e n c e to I t s e f f e c t s on Incom e, em ploym ent, and s t a b i l i t y . The Commission s u g g e ste d t h a t d i r e c t c o n tr o ls 323 should be used to m a in ta in th e p ro je c te d volume o f In v e s t ment ex p en d itu res* During th e 19*+9 to 1952 p e rio d , w hich In clu d ed th e Korean boom, w holesale p r ic e s ro s e * + 7 p e r c e n t, I n d u s tr ia l wages *+ 5 to 50 p er c e n t, and th e c o s t o f liv in g 27 p e r c e n t * - Expansion d u rin g th e l a s t fo u r y e a rs o f th e second program p ro g ressed a t a more even tren d * The planned grow th r a te o f 3 p e r ce n t p e r annum was exceeded by 1 p ercen tag e p o in t, b u t th e economic developm ent had o ccu rred d u rin g a p e rio d o f g re a t p ric e flu c tu a tio n * The p ric e I n s t a b i l i t y m ight have been g r e a te r had n o t th e Labor M arket Board become a more a c tiv e fo rc e f o r th e u t i l i z a t i o n o f th e la b o r supply* « The t h i r d fiv e - y e a r p la n , developed fo r th e y e a rs 1956-1960, was c a lle d "B alanced E x p an sio n .N To th e Swedish P lanning Commission, th e name was th e keynote fo r th e economic o b je c tiv e s o f s ta b le cu rren cy and f u l l employment* The outcome o f p r io r p la n s had re v e a le d th e c o n f lic t betw een p ric e s t a b i l i t y and grow th during p e rio d s o f h ig h employment* A lte rn a te p la n s f o r 2*8 and 3*7 p e r c e n t e stim a te d annual grow th r a t e s were p ro je c te d * In a d d itio n to th e o b je c tiv e o f a modest grow th r a t e , th e Commission su ggested t h a t g r e a te r f l e x i b i l i t y o f plan n in g would be a ssu re d b y t 32b 1 . G re a te r em phasis on o n e-y ear 9 s h o rt-te rm p la n s com plying w ith th e lo n g -te rm g o a ls . 2 . M o d ific a tio n o f b o th s h o rt-te rm and lo n g -te rm p lan n in g th ro u g h " r o llin g ad ju stm en ts.* 1 S h o rt-te rm p la n s were p re se n te d th ro u g h n a tio n a l economic b u d g ets w hich were re v is e d a f t e r th re e months o f o p e ra tio n . R o llin g p lan n in g in v o lv ed th e ad ju stm en t o f p la n s th ro u g h su c c e ssiv e m o d ific a tio n o f economic tr e n d s . For th e 1956 n a tio n a l economic budget th e P lanning Commission e n v isio n e d a c o n tro l o f i n f l a t i o n th ro u g h th e im p o sitio n o f in v e s tm e n t-c re d it c o n tr o ls . A t a r g e t grow th r a t e o f 3 p e r c e n t was ex p ected f o r th e y e a r . The tre n d o f p r ic e in c re a s e s was re v e rs e d d u rin g th e y e a r, b u t t h i s change m ight have been caused by th e f a l l in im port and e x p o rt p r ic e s r a th e r th a n by th e m onetary p o lic y p u rsu e d . P ric e s t a b i l i t y co n tin u ed to be th e p r in c ip a l aim s e t f o r t h in th e 1957 n a tio n a l economic b u d g e t. I n f l a tio n a r y p re s s u re s from new r e n t in c re a s e s were s u c c e s s fu lly c o u n te ra c te d th ro u g h a r e l a t i v e l y m odest in c re a s e in a g g re g a te demand p r in c ip a lly from th e in v estm en t s id e . P ric e s t a b i l i t y was a tta in e d in 1958, a s w e ll a s a b p e r c e n t in c re a s e in p ro d u c tio n . The in c re a s e in p ro d u c tio n was in flu e n c e d by a p o p u la tio n in c re a s e o f 38,000 p erso n s in th e l?-6*f age b r a c k e t, and a 10,00 in c re a s e in im m ig ratio n . 325 D uring th e y e a rs 1959 and I9 6 0 , m onetary p o lic y was th e p r in c ip a l f a c to r in In c re a s in g p ro d u c tio n , h u t th e grow th was accom panied by and 5 p e r c e n t consumer p ric e In c re a s e s d u rin g th e two y e a rs . The P lanning Commission, t h a t was a p p o in te d to p re p a re f o r th e 1961-1965 lo n g -te rm p la n , com plied w ith a d ir e c tiv e by th e Riksdag to In c re a se in v estm en t and to c u r t a i l consum ption e x p e n d itu re s . The Commission d ecid ed to in c re a s e in v estm en t e x p e n d itu re s i n o rd e r to com pensate f o r ex p ected d e c lin e in e x p o r ts . An ex p ected la b o r sh o rtag e and th e d e s ir e to m a in ta in an an n u al grow th r a te o f k p e r c e n t a ls o e n te re d in to th e d e c is io n to in c re a s e th e Investm ent f ig u r e over th e I960 am ount. The Labor M arket B oard had an Im p o rtan t to o l f o r Inducem ent o f Investm ent in th e p r iv a te s e c to r , nam ely Investm ent re s e rv e fu n d s. These funds a re accum ulated ta x - f r e e re s e rv e fund s u b je c t to r e le a s e a t th e most a p p ro p ria te phase o f th e b u sin e s s c y c le . P r i o r i t i e s were g iv en to th o se Investm ent e x p e n d itu re s w hich could be a c tiv a te d in a s h o rt tim e o r abso rb la b o r in a r e a s o f unemployment • T o ta l Investm ent f o r th e y e a rs 1961 th ro u g h 196M - was in l i n e w ith th e e s tim a te s , a s was th e p e r c e n t expected grow th r a t e . R elease o f in v estm en t re s e rv e funds d u rin g th e re c e s s io n in 1962 p re v en ted a d r a s t i c d ec rease 326 in p r iv a te c a p i t a l e x p e n d itu re s* The t o t a l In v estm en t q u o tie n t was m a in ta in e d th ro u g h com pensating governm ent Investm ent* Im p o sitio n o f a tu rn o v e r ta x o f 6.M- p e r c e n t, and wage In c re a s e s , r e s u lte d i n a r i s e in th e consumer Index t h a t was n o t s u c c e s s f u lly c o u n te ra c te d by th e m onetary p o licy * Thus, p ric e s t a b i l i t y was s a c r i f i c e d f o r th e a tta in m e n t o f grow th and em ploym ent. One dilemma t h a t fa c e d Sweden d u rin g t h i s p e r io d , a s w e ll a s d u rin g th e f i r s t th r e e p la n n in g p e r io d s , was th e i n a b i l i t y to c o n tr o l I n f la tio n * In Sweden, a s In many o th e r E uropean c o u n tr ie s , th e c o n f l i c t betw een grow th and s ta b le p r ic e s became a problem o f m ajor m agnitude* One o f th e m ost unique and Im p o rta n t a g e n c ie s In Sweden i s th e Labor M arket Board* I t m ight be d e s c rib e d a s a c o o rd in a tin g I n s t i t u t i o n betw een th e p o l i c i e s o f governm ent, la b o r , and management* T h is B oard a c ts a s a f i s c a l a g e n t f o r th e Swedish governm ent to prom ote th e most e f f i c i e n t p ro d u c tio n and a l l o c a t i o n o f econom ic and human re so u rc e s* F is c a l and m onetary m easu res, I n te g r a te d in th e p la n n in g p ro c e s s , a r e th e n shaped by th e B oard in o rd e r to prom ote th e most e f f i c i e n t p ro d u c tio n and a ll o c a t i o n o f economic and human re so u rc e s* The fu n c tio n o f th e B oard i s to c r e a te a h ig h d eg ree o f a d a p ta b i l i t y betw een th e su p p ly and demand f o r la b o r* One o f th e econom ic g o a ls in Sweden, f u l l em ploy- 327 m ent, I s th e p r in c ip a l r e s p o n s i b i l i t y o f th e B oard, b u t I t h a s become th e avowed ta s k o f th e B oard to m a in ta in f u l l employment w ith o u t I n f l a t i o n . D uring i n f l a ti o n a r y p re s s u re s caused by e x c e ss demand, I t became a d v is a b le t o u t i l i z e a l l a v a ila b le la b o r r e s o u r c e s , i . e . , women, o ld e r w o rk e rs, and h a n d i capped p e rs o n s . When th e t o t a l la b o r su p p ly cannot be In c re a s e d th ro u g h th e s e m easu res, I t m ight be n e c e s s a ry to r e t r a i n o r r e lo c a te w o rk e rs. I f th e s te p s ta k e n do n o t m eet th e demand, I t m ight be n e c e s s a ry to c u t th e e x c e ss demand. In t h i s s i t u a t i o n , th e Board can h o ld back hou sin g p e rm its and in v estm en t re s e rv e fu n d s . O ther g e n e ra l m ethods f o r lim itin g demand th ro u g h f i s c a l and m onetary p o l ic i e s a re o u ts id e th e scope o f th e B o a rd 's f u n c tio n . However, e f f o r t s can be made to Induce l o c a l a u t h o r i t i e s and p r iv a te e n te r p r is e s to l i m i t t h e i r In v estm en t e x p e n d itu re s . In case o f unemployment, a s e r i e s o f s te p s m ust be ta k e n sim u lta n e o u s ly . Emergency w orks and p u b lic b u ild in g a r e I n t e n s i f i e d by th e B oard to in c re a s e th e demand f o r la b o r . In th e p r iv a te s p h e re , In v estm en t funds a re r e le a s e d and p e rm its f o r home c o n s tr u c tio n a re g ra n te d . G re a te r u t i l i z a t i o n o f la b o r I s accom plished th ro u g h v o c a tio n a l tr a in in g and employment In fo rm a tio n In th e l o c a l employment exch an g es. 328 The Labor M arket B oard s u p p lie s r e l i a b l e inform a t io n to th e governm ent. L ong-term and s h o rt-te r m p lan n in g i s b ased on In fo rm a tio n s u p p lie d by th e B oard. Through c lo s e c o n ta c ts w ith em ployers and la b o r , r e l i a b l e d a ta a re se c u re d and p ro c e sse d by th e B oard.- -Em ployers' o rg a n iz a tio n s a re re q u ir e d to f u r n is h in fo rm a tio n to th e B oard ab o u t im pending c u rta ilm e n ts o f la b o r . Labor and management In Sweden a r e a b le to o p e ra te ~ w ith o u t governm ent I n te r f e r e n c e . The B a sic A greem ent, ad o p ted in 1938 betw een em ployers and la b o r o r g a n iz a tio n s , e s ta b lis h e d a perm anent o rg an f o r n e g o tia tio n s . The B oard f u n c tio n s a s an in te rm e d ia ry betw een th e Swedish governm ent and th e o rg a n iz a tio n s o f la b o r and management. I t does n o t I n t e r f e r e w ith e i t h e r , b u t w orks to b rin g o rd e r i n th e la b o r m arket th ro u g h m easures w hich co u ld n o t be u n d erta k en by la b o r o r by m anagement. Economic grow th and f l u c tu a tio n s a re b o th In flu e n c e d by changes in In v estm en t e x p e n d itu re s . The r a t i o o f In v estm en t to th e g ro s s n a tio n a l p ro d u c t In c re a s e d from 26 p e r c e n t in 19*+6 to 3 1 .6 p e r c e n t in 1959* A nother s i g n i f i c a n t f a c to r on th e demand s id e i s e x p o r ts , w hich a re added to t o t a l In v estm en t in c a lc u la tin g th e c o n ju n c tu re in d i c a t o r . The prom otion o f grow th th ro u g h in v estm en t i s n o t r e a d i ly r e a liz e d sin c e b o th e x p o rts and p r iv a te in v estm en t do n o t le n d th em selv es to m a n ip u la tio n th ro u g h d i r e c t m easu res. * • Inducem ent o f p r iv a te In v estm en t p ro v id e d g r e a te r o p p o r tu n itie s th ro u g h governm ent I n te r v e n tio n . The two m ajor m easures In flu e n c in g p r iv a te In v estm en t e x p e n d itu re s were r e le a s e o f In v estm en t re s e rv e fu n d s and m onetary p o lic y . C urbing In v estm en t was e a s i e r , s in c e m onetary p o lic y became more e f f e c ti v e d u rin g boom p e r io d s . The o v e r a ll e f f e c t o f e x p o r ts , p r iv a te and p u b lic In v estm en t w ere c o n sid e re d in th e lo n g -te rm p la n n in g . The volume o f e x p o rts and p r iv a te In v estm en t e x p e n d itu re s were e s tim a te d th ro u g h m arket s u rv e y s . Once t h i s f ig u r e had been d e te rm in e d , p u b lic e x p e n d itu re s , w hich were more r e a d i ly c o n tr o lle d , were added to e x p o rts and p r iv a te In v estm en t In o rd e r to a r r iv e a t th e p re d eterm in ed amount f o r th e r e a l i z a t i o n o f th e g iv e n grow th r a t e . CONCLUSIONS Most o f th e economic o b je c tiv e s s e t f o r t h by th e Swedish governm ent have been a t t a in e d s in c e s t a t e I n t e r v e n tio n became a f a c t o r in th e developm ent o f th e economy In th e 1 9 3 0 's . The S o c ia l D em ocratic P a r ty , In power s in c e 1932, h a s e s ta b lis h e d s o c ia l w e lfa re m easures w hich now b e n e f it e v e ry Sw edish p e rso n from th e c ra d le to th e g ra v e . The p a r ty , a t th e In c e p tio n o f th e program , came to th e con c lu s io n t h a t th e su c c e ss o f th e s o c ia l w e lfa re p o lic ie s 330 c o u ld be a s s u re d w ith f u l l c o o p e ra tio n and p a r t i c i p a t i o n on th e p a r t o f le a d e r s i n th e f i e l d s o f b u s in e s s , l a b o r , and a g r i c u l t u r e . I t I s n o t u n u su a l t o f in d la b o r le a d e r s p a r t i c i p a t i n g w ith c o r p o ra tio n e x e c u tiv e s i n p la n n in g com m ission c o n fe re n c e s d e a lin g w ith p ro p o sed governm ent p o l i c i e s . F u rth e rm o re , th e r e la t i o n s h i p betw een th e g o v ern ment and b u s in e s s h a s ev o lv ed In to a p a r tn e r s h ip , b rin g in g In to r e a l i z a t i o n A lv in H a n se n 's Id e a s on econom ic d e v e lo p m ent w hich w ould n o t n a t io n a l iz e I n d u s tr y , b u t w ould I n s te a d prom ote p r iv a te I n c e n tiv e s and freed o m . W a lte r H e lle r h a s d e s c rib e d th e econom ic p o lic y In th e U n ite d S ta te s In th e m ld - s lx tie s a s na w inning co m b in atio n o f good p u b lic and p r i v a t e p o l i c y . N A c r i t i c a l e x a m in a tio n o f econom ic developm ents I n th e U n ited S ta te s and i n Sweden from 1960-65 seems t o I n d ic a te t h a t more s i m i l a r i t y h a s d ev elo p ed th a n a t any o th e r tim e i n th e h i s t o r y o f th e two c o u n tr ie s . In v e stm e n t, b o th p u b lic and p r i v a t e , h a s b een one o f th e dom inant a s p e c ts I n th e a tta in m e n t o f grow th w h ich , In t u r n , i s n e c e s s a ry f o r th e r e a l i z a t i o n o f th e w e lfa re p ro g ram s. T hus, th e r e h a s b een no a tte m p t to k i l l th e goose t h a t l a i d th e g o ld en e g g , b u t, p e rh a p s , an a tte m p t t o n u r tu r e and tame I t . Labor h a s p la y e d a s i g n i f i c a n t p a r t In th e program 331 f o r grow th and s t a b i l i z a t i o n . E n lig h te n e d u n io n le a d e r s h ip h a s b ro u g h t a p e rio d o f p e a c e fu l p ro d u c tio n , w ith o n ly two m ajor s t r i k e s in t h i r t y y e a r s . P e rs o n a l i n t e r view s w ith la b o r le a d e r s i n Stockholm re v e a le d t h e i r r e s p e c t and u n d e rsta n d in g f o r p r i v a t e b u s in e s s . The S o c ia l D em o cratic P a r ty , w ith i t s la r g e la b o r u n io n r e p r e s e n t a ti o n , h a s a ls o come to th e c o n c lu s io n t h a t th e w e lfa re o f th e u n io n s i s b e s t se rv e d th ro u g h c o o p e ra tio n w ith b u s in e s s . The role of private buaineaa The g o v e rn m e n t's commitment to f u l l employment h a s fo c u se d a t t e n t i o n on in v e stm e n t a s th e s t r a t e g i c f a c t o r in g e n e ra tin g demand. The a t t i t u d e o f th e governm ent tow ard p r iv a te In v e stm en t can be sum m arized a s f o llo w s < 1 . G enerous d e p r e c ia tio n a llo w a n c e s f o r b u ild in g s and eq u ip m en t. 2 . A llo c a tio n and r e le a s e o f in v e stm e n t fu n d s . 3 . Loans and c o n s tr u c tio n - p e r m its f o r th e b u ild in g in d u s tr y . I t sh o u ld be n o te d t h a t th e a p p lic a tio n o f f i s c a l p o lic y h a s b een th e c e n t r a l elem en t i n s t a b i l i z a t i o n p o l i c i e s . The em phasis o f f i s c a l p o lic y d oes n o t o b scu re th e f a c t t h a t In v e stm en t h a s b een en co u rag ed t o prom ote a d e s ir e d r a t e o f g ro w th . A b a la n c e h a s b een s tr u c k betw een p r i v a t e and p u b lic in v e s tm e n t, w ith p u b lic c a p i t a l e x p e n d l- 332 t u r e s o f f s e t t i n g d e c lin in g p r i v a t e e x p e n d itu re s * C re d it r e s t r i c t i o n s and r a ti o n in g have t e e n a p p lie d when th e r e w ere s ig n s o f I n f l a t i o n a r y te n d e n c ie s * T hese r e s t r a i n t s h a v e , a s a r u l e , h een m ild , s in c e I t h a s become a c e n t r a l f e a t u r e I n Sw edish econom ic p o l i c i e s to s a c r i f i c e p r ic e s t a b i l i z a t i o n f o r grow th w ith th e p u rp o se o f b r in g in g In th e a r s e n a l o f s t a b i l i z a t i o n t o o l s a t a h ig h e r p r i c e l e v e l . No a tte m p ts have b een made to Im p a ir p r i v a t e b u s in e s s in c e n tiv e s to I n v e s t, th e r e s t r a i n t b e in g p r i n c i p a l l y m o n etary . C o rp o ra tio n ta x e s ra n k n e x t to p e r s o n a l ta x e s in p ro d u c in g re v e n u e . I t i s in th e t a x a t io n o f c o r p o r a tio n s t h a t Sweden h as d e v e lo p e d novel, and I n t e r e s t i n g ta x d e v ic e s i n an e f f o r t to re d u c e econom ic f l u c t u a t i o n s and to p re s e rv e p r iv a t e b u s in e s s i n c e n t i v e s . C o rp o ra te ta x e s a v e ra g e M -9 p e r c e n t, b u t th e r a p id d e p r e c ia tio n w r i t e - o f f s t and low In v e n to ry v a lu a tio n s hav e le s s e n e d th e Im pact o f t a x e s . F re e d e p r e c ia tio n , p e r m ittin g c o r p o r a tio n s t o w r i t e - o f f equipm ent a t t h e i r own d i s c r e t i o n , was a b o lis h e d b ec au se o f th e u n fa v o ra b le im p act on th e b u s in e s s c y c le . T oday, equipm ent and m ach in ery a r e d e p r e c ia te d by th e d e c lin in g b a la n c e m ethod w ith th e maximum r a t e o f 30. p e r c e n t In any one y e a r . T h is i s th e "m ain r u l e . " Under th e M com p lim en tary r u l e , " a m achine may be w r i t t e n o f f a t a r a t e o f 20 p e r c e n t, r e s u l t i n g in co m p lete a m o r tiz a tio n 333 a t th e end o f f iv e y e a r s . In v e stm en t r e s e r v e s have g iv e n c o rp o ra tio n s la r g e ta x c r e d i t s f o r th e p u rp o se o f r e le a s e o f th e fu n d s a t th e m ost a p p r o p ria te tim e o f th e b u s in e s s c y c le • Paym ent f o r w e lfa re b e n e f i t s Modern Sweden h a s been c h a r a c te r iz e d a s a s t a t e w ith a h ig h d eg ree o f s o c i a l w e lfa re m easu res i n th e form o f m e d ic a l b e n e f i ts and g en ero u s o ld age p e n s io n s . T ax es, t h e r e f o r e , w ould be e x p e c te d to c o n s t i t u t e a r e a l b u rd en f o r h ig h e r Income r e c i p i e n t s . The ta x lo a d , c o n s id e rin g a l l ta x e s Im posed, I s com parable w ith t h a t o f o th e r h ig h ly I n d u s t r i a l i z e d c o u n tr ie s . In th e p a s t d e c a d e , ta x e s in Sweden w ere 2 7 .3 p e r c e n t o f th e n a ti o n a l Income a s com pared w ith 2 ^ .6 p e r c e n t In th e U n ited S t a t e s . The answ er to th e im pact o f ta x e s i s n o t found in th e l i g h tn e s s o f th e lo a d , b u t In th e ta x s t r u c t u r e , f l e x i b i l i t y , and e f f e c t s on consum ption and p ro d u c tio n . S o c ia l b e n e f i t s a r e fin a n c e d p r i n c i p a l l y by th e r e c i p i e n t s . The p e r s o n a l Income ta x e s a r e e x tre m e ly heavy and s te e p ly p r o g r e s s iv e , ra n g in g from 10 to 65 p e r c e n t. The b u i l t - i n f l e x i b i l i t y o f th e s e ta x e s a u to m a tic a lly In flu e n c e s consum ption In th e d e s ir e d d i r e c t i o n d u rin g booms and d e p r e s s io n s . O ther m ajo r ta x e s w hich have a. heavy Im pact on lo w er and m iddle c l a s s Income g ro u p s a r e th e l o c a l p r o p o r tio n a l Income t a x e s , th e 6 p e r c e n t s a le s 33M- t a x , and th e b p e r c e n t p e n sio n c o n t r i b u t i o n s . In a d d i t i o n , i t m ig h t b e assum ed t h a t some p o r tio n o f c o rp o ra t i o n ta x e s i s s h i f t e d to th e consum er i n th e form o f h ig h e r p r i c e s . D ir e c t ta x e s p ro v id e th e m ajo r p a r t o f governm ent re v e n u e . H ow ever, s in c e th e f i f t i e s , i n d i r e c t ta x e s have in c re a s e d and th e im p act o f d i r e c t ta x e s h a s d e c re a s e d th ro u g h a d ju s tm e n ts o f r a t e s and h ig h e r b a s ic a llo w a n c e s . The i 9 6 0 ta x com m ittee e s tim a te d t h a t th e ta x re fo rm w ould re d u c e d i r e c t ta x e s by 2 1 .5 p e r c e n t and th e l o s t rev en u e w ould be r a is e d by in c r e a s in g i n d i r e c t ta x e s by 1*0 p e r c e n t. R e a l i s a ti o n o f g o a ls Sweden to d a y e n jo y s one o f th e h ig h e s t s ta n d a r d s o f l i v i n g i n E u ro p e , w ith one a u to m o b ile to e v e ry f i v e p e r s o n s . F o r th e a tta in m e n t o f t h i s s ta n d a r d , th e g o v e rn - m ent a t th e o u t s e t s p e lle d o u t t h r e e econom ic g o a ls s g ro w th , f u l l em ploym ent, and c u rre n c y s t a b i l i z a t i o n . S in ce th e f u l f i l l m e n t o f th e o b je c tiv e s m ig h t be under-*- m ined d u rin g r e c e s s i o n s , c y c le s t a b i l i z a t i o n re c e iv e d a g r e a t d e a l o f a t t e n t i o n . Economic g ro w th . —D uring th e p e r io d 1930-196*4-, econom ic g ro w th h a s b e e n s u s ta in e d , com paring fa v o ra b ly w ith th e developm ent in o th e r W e ste rn E u ro p ean c o u n tr i e s . 335 The g r o s s n a t i o n a l p ro d u c t In c re a s e d b y 5 p e r c e n t a n n u a lly d u rin g th e s i x t i e s , a s com pared w ith a n a n n u a l I n c r e a s e o f 3 t o h p e r c e n t d u rin g th e e a r l i e r p e r io d . The change was ca u sed p r i n c i p a l l y by a l a r g e r s h a re o f In v e stm e n t i n th e g ro s s n a t i o n a l p r o d u c t. Currency s t a b i l i z a t i o n . —E x p e rie n c e w ith s t a b i l i z a tio n p o l i c i e s h a s r e v e a le d t h a t I t was e a s i e r t o prom ote g ro w th th a n s t a b i l i t y . A c o n f l i c t a r o s e from th e i n f l a t i o n a r y e f f e c t o f h ig h demand and th e c o n se q u e n t h ig h l e v e l o f em ploym ent. T h is problem was a tta c k e d on two f r o n t s s (1 ) th ro u g h r e s t r i c t i o n o f c r e d i t , and (2 ) by th e L abor M arket B o a rd 's p o lic y o f f o r e c a s tin g th e s iz e and s t r u c t u r a l d i s t r i b u t i o n o f th e la b o r f o r c e . I n s p i t e o f th e s e m e a su re s, th e t h r e a t o f I n f l a t i o n h a s c o n tin u e d . Em ploym ent Sinew th e unem ploym ent I n th e t h i r t i e s , a s h o rta g e o f la b o r h a s e x i s t e d , n o t f u l l y a l l e v i a t e d by a 1 0 ,0 0 0 a n n u a l Im m ig ra tio n o f f o r e ig n l a b o r . The L abor M arket B oard h a s b e e n e f f e c t i v e in sh ap in g th e su p p ly o f la b o r t o m eet th e In c re a s e d dem and, p r i n c i p a l l y th ro u g h r e t r a i n i n g and r e l o c a t i o n o f th e la b o r f o r c e • The b i r t h r a t e p r o je c te d f o r th e n e x t d ecade I s n o t e x p e c te d t o c lo s e th e gap b etw een demand and su p p ly f o r l a b o r . I t I s f o r t h i s re a s o n t h a t a u to m a tio n In 336 in d u s tr y , a s w e ll a s w ith In v e stm en t, w i ll p ro g re s s a t a r a p id r a t e • Espapmls Pgllgiflg fgr grow th and S h i n t y S ta b i li z a tio n o f th e b u sin e s s cy c le has been one o f th e p r in c ip a l alm s o f Swedish economic p o l i c i e s . The N a tio n a l R esearch I n s t i t u t e (K o n ju n k tu rln s titu te t) was e s ta b lis h e d to an a ly z e economic tre n d s and to make recom m endations f o r m odifying c y c li c a l sw ings. One Swedish eco n o m ist, P ro fe s s o r E rik Dahmen, claim s th a t even sm all re c e s s io n s have been avoided sin c e th e 1 9 3 0 's . Economic grow th h a s n o t been su b o rd in a te d to s t a b i l i z a t i o n . Growth has been a p r e r e q u is ite f o r th e a p p lic a tio n o f s t a b i l i z a t i o n m easures which o fte n have # been r e f e r r e d to a s b a la n c in g and s te e rin g mechanisms f o r a h ig h ly dynamic economy. The s t a b il iz in g a g e n c ie s a re s 1 . The P lanning Commission 2 . The Economic D iv is io n o f th e M in is try o f F in a n c e • 3 . The Labor M arket B oard, if. The R iksbank. Long-term p lan n in g i s th e all-en co m p asslh g method f o r th e achievem ent o f a b alan c ed economy. A ll th e lo n g term p la n s in te g r a te th e v a rio u s s t a b i l i z a t i o n p ro c e d u re s. 337 Good p lan n in g o u tlin e s th e m agnitude o f th e f a c to r s com prising th e e x -a n te g ro ss n a tio n a l p ro d u c t. S h o rt-te rm p la n n in g , th ro u g h n a tio n a l economic b u d g e ts, i s fo rm u lated to conform to th e p ro je c te d lo n g -te rm tr e n d w ith some m o d ific a tio n s n e c e s s ita te d by th e economic c o n d itio n s p re v a ilin g a t th e tim e . Swedish d e c e n tra liz e d p lan n in g w ith e x te n s iv e a p p lic a tio n o f f i s c a l p o lic y h as been v e ry s u c c e s s fu l f o r th e p e rio d exam ined. The s u s ta in e d grow th o f U - to 5 p e r ce n t p e r annum was ach iev ed w ith o u t s e rio u s i n f l a t i o n . T his g o a l was r e a liz e d th ro u g h th e p a r ti c i p a t i o n o f p r i v a te b u s in e s s , w ith o u t en croaching upon th e e n tr e p r e n e u r 's in c e n tiv e to p ro d u ce. Labor has enjoyed a h ig h sta n d a rd o f liv in g and freedom , a tta in e d th ro u g h c o n tra c t n e g o tia tio n s w ith o u t government in te r f e r e n c e . A s ta b le lab o r-em p lo y e r r e l a tio n s h ip w ith v e ry few s t r i k e s h as c o n trib u te d to th e economic s t a b i l i t y and grow th. T h is grow th I s n o t a n end in i t s e l f , b u t th e means f o r th e h ig h s ta n d a r d .o f l i v i n g , e d u c a tio n , and h e a lth enjoyed by th e c i t iz e n s o f t h i s sm all n a tio n . F is c a l p o lic y in Sweden sin c e W orld War I I h a s been u t i l i z e d to a much g r e a te r e x te n t th a n m onetary p o lic y . The o v e r a ll concept o f f i s c a l p o lic y a f f e c t s th e c r e d it system , h en ce, th e m onetary system . The m onetary 338 p o lic y in Sweden, a s e x p la in e d In C h ap ter X I I I , h as developed a s a supplem ent to f i s c a l p o lic y , r a t h e r th a n a s a f u l l y c o o rd in a te d p o lic y . F or m ost o f th e y e a rs sin c e th e second W orld W ar, th e t o t a l b u d g et h a s shown a d e f i c i t , and th e c u r r e n t b u d g et h as had a s u r p lu s . C api t a l a s s e t s , fin a n c e d th ro u g h lo a n s , f u r th e r e d economic grow th and p ro v id ed th e c r e d i t m arket w ith lo w - r is k , r e a d i ly s a le a b le a s s e t s . The th e o ry o f modern f i s c a l p o lic y , w hich c a l l s f o r d e f i c i t fin a n c in g d u rin g a d e p re s s io n and s u rp lu s e s d u rin g th e re c o v e ry , was v io la te d In Sweden d u rin g th e Im m ediate p o st-w a r y e a r s . A fte r th e K orean W ar, t h i s ten d en cy c o n tin u e d and was defended by a new co n cep t re g a rd in g th e fu n c tio n o f th e b u d g e t. The b u d g et became a " b a la n c in g f a c t o r " to In c re a s e g ro w th , p r ic e s t a b l l l b y , and em ploym ent, i r r e s p e c t iv e o f w hat happened to b a la n c in g th e b u d g et o v er th e c y c le . S ince new ta x e s have had a g r e a te r im pact on consum ers th a n upon b u s in e s s , th e "new1 1 f i s c a l p o lic y h a s g iv e n g r e a te r Im petus to ex p a n sio n a ry In v estm en t te n d e n c ie s . A p a r a l l e l co n cep t o f t h i s f i s c a l p o lic y was ad v o cated In th e Iftilted S ta te s by P ro fe s s o r W alter H e lle r . E s tim a te s o f f u tu r e econom ic grow th In Sweden have ta k e n In to ac co u n t m a te r ia l and economic re s o u rc e s a s w e ll a s p o l i t i c a l s t a b i l i t y . W elfare m easures have 339 now become an a c c e p te d way o f l i f e and no governm ent co u ld lo n g rem ain in power w ith o u t y ie ld in g to th e demand f o r h e a lt h , o ld a g e , and employment p r o te c tio n . The u n s ta b le f a c t o r in th e f u tu r e i s f o r e ig n t r a d e , so im por t a n t to Sweden w ith i t s lim ite d n a t u r a l re s o u r c e s . I t i s ex p e cted t h a t grow th and employment w i l l be prom oted by th e e x p o rt o f h ig h ly p ro c e sse d s p e c ia l p ro d u c ts w hich r e q u ir e r e l a t i v e l y la r g e in v e stm e n t. S ince th e su p p ly o f la b o r in th e n e x t decade i s ex p e cted to be g e n e r a lly unchanged, r a t i o n a l i z a t i o n o f in d u s try w i l l be a n e c e s s a ry p r e r e q u is ite f o r f u tu re grow th. A b p e r c e n t an n u a l in c re a s e in th e g ro s s n a tio n a l p ro d u c t i s w e ll w ith in th e p r a c t i c a l grow th l i m i t , b u t th e re i s no re a so n f o r e x p e c tin g a d e v ia tio n from g ra d u a lly r i s i n g p r ic e s w hich have p lag u ed Sweden a s w e ll a s th e U nited S ta te s and o th e r w e ste rn c o u n tr ie s . R a th e r th a n p r ic e s t a b i l i t y , th e tre n d e n v isio n e d i s a s ta b le r a t i o o f p r ic e s in r e l a t i o n to Incomes p o s s ib le even w ith g ra d u a l p r ic e in c r e a s e s . BIBLIOGRAPHY BIBLIOGRAPHY BOOKS A n derson, W illiam H. Taxation and the Amariean Economy. New Yorks P r e n tic e - H a ll, I n c ., 1951* B e te lh e im , C h a rle s . S tu d ie s in th e T heory o f P la n n in g . New Yorks A sia P u b lis h in g H ouse, 1961. C ooper, J a c k . I n d a a t r i a l R e la tio n s s Sweden Shows th e Way. Londons The F a b ia n S o c ie ty , 1963. 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Econom ics in Modern Sweden. Wash in g to n s L ib ra ry o f C o n g ress, R eferen ce D e p t., 1957. L a n d s o rg a n ls a tlo n .n i S v . r l g o . la b o u r and S gcjU l W elfara i n Sweden. Stockholm s V ilh elm sso n s B o k try c k e ri, Lekachman, R o b e rt. A H is to ry o f Econom ic New Yorks H arper and B r o s ., 1959. 3^1 3^2 L e s te r , R ic h a rd A. M onetary E xperim ents* A f r i c a n y id R ecant S c a n d in a v ia n . P r in c e to n t P rin c e to n U n iv e r s ity P r e s s , 1939* Lundberg. E rik . B usiness Cycles and Economic P o lic y . Londons George A llen and Unwin, 1997* Montgomery, A rth u r* Hoy Sweden O ver^»™« th e D e p re s s io n * S tockholm : B o n n iers B o k try c k e r i, 193U* M tilhaupt, Ludwig* strukturwandlimgen und Naehkylflga- probleme der W lrtsc h a ft S c h w e d e n s .K ie l: Druck von Schmidt und KLaunig, 1952. O h lin , B e r t 11* The Problem o f Employment S t a b i l i z a t i o n . New Y ork: Colum bia U h lv e r s lty P r e s s , 194-9. P eterso n ^ V a lla c e ^ ^Income. gmp^Loyment^and^gnomic S andstrom , K. G* A* A S urvey o f Sw edish T axes on Income Stockholm : P . A* N o rs te d t and S ons, Schum acher, U lr ic h . N a tio n a lb u d g e t und O f f e n tlic h e r gjtilshalL* S t u t t g a r t : G ustav F is c h e r V e rla g , 1958, S k a tte b e ta la r n a s F o re n in g . si™fct.anna B aralm a a . Stockholm : Sven Iv a r Iv a rs s o n , 1959* S ta ith ie s , A rth u r and B u t t e r s , J . K e ith (ed s* )* Am ayican Economic A s s o c ia tio n , H eadings In F i s c a l P o lic y . Homewood, I l l i n o i s : R ic h a rd D. Irw in , I n c ., 1955* Thomas, B rln le y * tfo n e ta ry flnd C r is e s . London: George R o u tled g e and Sons, L td ., 1936. PUBLICATIONS OF THE G OVERNM EN T AND OTHER ORGANIZATIONS g t ^ i l i t y . P h ila d e lp h ia : F e d e ra l R eserve Bank, F in a n sd e p a rte m e n te t (S w eden). Svanakt ilngtidsprogram 19^ 7 -1 9 5 2 /5 3 . Stockholm : K. L. Beckmans B o k try c k e r i, 194-8. --------------• Ekonomiflkt L ln g tld a n rogram 1951-1955. 3*+3 S tockholm : Is a a c M arcus B o k try c k e rl-A k tle b o la g » 1951. .. Wa]«n..||ad Ex D a n a Ion. B.t.nlmnHa Avglvat av 1995 A rs I J n g tld a u tr a d n ln g . S tockholm : Is a a c M arcus B o k try c k e rl-A k tle b o la g , 195©. .• BaAftnserad BXPftnglgn - 1955 ■ S to c k h o lm : Is a a c M arcus B o k try c k e rl-A k tle b o la g , 1957* (A ppendix) N a tlo n a lb u d g e t f 5 r I r 1957. Stockholm : Is a a c *cus B o k try c k e rl-A k tle b o la g , 'Marcus B o k try ck erl-A k tleb o lag , 1957. .. R ev ld erad N a tlo n a lb u d g e t; f o r J t r , 3.956. ^ , S to c k h o lm :Isa a c Marcus B o k try ck erl-A k tleb o lag , 1958. .. tVfl|mlnar Natlonalbudget for Ir 1959. 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S tockholm : Is a a c Marcus B o k try c k e rl-A k tle b o la g , 1963. _________ > The flm d la h Economy - R evised W , t l n p « l B e g try t - 196**. S tockholm : E m il K lh lstrd m s T ry c k e rl, 1964. _________ • R ev ld era d F ln a n s n la n . 196**. Stockholm : Is a a c 3Mf M arcus B o k try c k e r l- A k tle b o la g , 196U-. • BUflgf . 1 ? ■ - 6 5 . S tockholm : Is a a c Mar c us B o k try c k e r 1-A kt le b o la g , 196m -. H a n d e lsd e p a rte m e n te t • S v en sk t I^nflfcld ap ro g ram 19*+7- 1 9 5 2 /5 3 . S tockholm : L . L . Beckmans B o k tr y c k e r i, K o n ju n k tu rin s titu te t. S v e rslk t Over d e t Ekonoml ska la g e t. 1950. S tockholm : I s a a c M arcus B o k tr y c k e r l- A k tle b o la g , 1950. _________ • O y e rs lk t Over d e t Ekonom lska L a g e t. 1951. S tockholm : Is a a c M arcus B o k try c k e r l- A k tle b o la g . 1951. _____• Oyer s lk t Over d e t Ekonomlska L aget. 1952. S tockholm : Is a a c M arcus B o k try c k e r l- A k tle b o la g • 1952. : ______ • Ayer a llc t Over d e t E tonom lska L S g e t. 1953. S tockholm : Is a a c M arcus B o k try c k e r l- A k tle b o la g . 1953. _________ • N atlonalbudget f o r I r 1955. Stockholm: Isaac Marc us B o k try c k e r l- A k tle b o la g , 1955. • N atlonalbudget f o r I r 1 9 5 6 . Stockholm: Isa a c M arcus B o k try c k e r l- A k tle b o la g , 1956. ------------- • R evlderad N a tlp n a lb u d g e tfo r Xr 1956. S tockholm : I s a a c M arcus B o k try c k e r l- A k tle b o la g . 1 956. _________ • N atinnalbudgpt f o r i r 1 957. Stockholm: Isa a c M arcus B o k try c k e r l- A k tle b o la g , 1957. -------------- . R e v ld e ra d N a tlo n a lb u d g e t f o r Xr 1 9 5 7 . S tockholm : Is a a c M arcus B o k try c k e r l- A k tle b o la g . 1 957. _________ • N a tlo n a lb u d g e t f g r i r 1 9 5 8 . S tockholm : Is a a c M arcus B o k try c k e r l- A k tle b o la g , 1958. K o n 3 u n k tu r ln » tltu te t. R |V lse d M .tlo n .1 B udget 196%. Stockholm * E m il K lhlstrO m s T r y c k e r l, 1964. 3**5 N a tio n a l Labour M arket B o a rd . " O rg a n is a tio n o f th e Labour M arket B oard and th e Employment S e r v ic e , P e rs o n n e l, e t c . " N a tio n a l Labour M arket B oard«a A nnual R e p o rt f o r 196 3 . K arlsham ns AB R agnar L a g e rb la d s B o k tr y c k e r i, 1 9 6 * + • (R e p rin t •) O rg a n is a tio n f o r Econom ic C o o p e ra tio n and D evelopm ent. ~swaaa - p“ l 8 ‘ S t a t l s t l s k a C e n tra lb y ra n . MSneds S t a t i s t l k . No. 6 . S tockholm 1 S t a t l s t l s k a C e n tra lb y ra n , J u n e , 1964-• S t a t i s t i s k S e n tr a lb y r a (N orw ay). B e d rlft? «^ka-fcter i nnnm ark. N orge, og S v e r i g e . O s l o * J . C h r. G underson, 1958- _• A y sk riv n ln g og S k a ttle g g in g . O slo* N a tio n a l- t r y k k e r i e t , 195o. Svenska A rb e ts g lv a re fo r e n ln g e n . The Bwefljfl^ ^ " " l o y e r s 1 ^ ^ g ^ e d e r a tio n . S tockholm : B ro d ern a L a g e rstro m , PERIODICALS B aec k stro m , U lf . " F in a n s ie r in g av B o s ta d s h u s ," Ekonom isk Revy (F e b ru a ry , 196*0, 1 0 8 -1 1 5 . C an arp , C u r t. "In v e stm e n t Funds and How They Can Be Used to Combat R e c e ss io n and Unemployment, " Q u a r te r ly R e v le v « X L IIs II ■Conpany^ p o r t s / or?l ^ l , ^ i M m i j la D re z e , Ja c q u e s H . "Some P o stw ar C o n tr ib u tio n s o f F ren ch E co n o m ists t o T heory and P u b lic P o l ie y ," Amerieew |c g y o m ic R eview . LIV iIV (J u n e , 196*0, S upplem ent, - T h 8 W ? f lu a r t 8 r l y "The Econom ic S i t u a t i o n ." N os. 1 and 3*f6 _________£q ^ e g s k a H andelsbanken In d e x . Nos. 2 , 5 -6 , and _________( 1 9f ^ nateft Hflndelabanken In d ex . Nos. b9 7 , and 8 «*R nnnnm i^fl»yvftv^w^Ste^ndj.^v^3^Bggken Quarterly Review. n Q uarterly Review. XLIVtIV gte^lnaYlate Banton . f t (O cto b er, 196357 1 2 7 -1 3 S ■(oj a s w e R Review. XLVlIV Faxen, K a rl-O la f • nA Programme f o r Tax P o lic y , 1966- 1 9 7 0 ,” sv en g ln ey lsk a Banken Q u a rte rly Review. X LV iIII (J u ly , 196*0, 72-79. H a z l i t t , H enry. M Taxes in Sweden,1 * Newsweek (O ctober 2 9 , 1962), 78. H e llstro m , L ars Th. **The C re d it M arket C a lc u la tio n s o f th e N a tio n a l Budgi th e N a tio n a l B u d g e t^ H ild eb ra n d , George H; "Growth and S t a b i l i t y in th e P o s t war I t a l i a n Economy," P apers and P ro ceed in g s o f th e S e v e n ty -th ird Annual M eeting. A m H m ii Economic Review. L I* II (May, 1 9 6 1 ),3 9 0 -5 5 9 . Johan sso n , O sten. "Economic Development In Sweden D uring th e 1 9 6 0 's : How F ar Has th e Long-Term P la n J u n g e n fe lt, K a rl. *|The M ethodology o f Swedish Long-Term P lan n ir XLV:IV K arlstro m , Bo. " S tr u c tu r a l Changes In th e Swedish C re d it M arket, XL IV1 3 ^ I*>a Angel e s Tim es. Septem ber 6 , 196*f. . Lundberg, E r ic . " S t a b i l i t y Problem s in th e S cand in av ian C o u n trie s D uring th e Postw ar P e rio d ," P apers and P roceed in g s o f th e S e v e n ty -th ird Annual M eeting, American Economic Review. L I i l l (May, 1 9 6 1 ), ^ r v is e tgg f f R 9 T i™ » j . " S tr u c tu r a l Changes In th e Swedl________ — — Quarterly Review. 34-7 378-389. M ild n er, E rw in, and S c o tt, I r a . " in In n o v a tio n In F is c a l P o lic y > The Swedish Investm ent D eserve System ." N a tio n a l Tax J o u rn a l. XV*III (S eptem ber, 1 9 6 2 ), 276- 2 8 0. "New Emergency Laws f o r th e C re d it M ark et." SYfnglgft flanflelafranlwn itoflra* Nos. 1 «~5 ( 1 9 6 2 ) , »t. O h lin , B e r t11 ( e d .) . " S o c ia l Problem s and P o lic ie s in 8w eden," ThA A nm ,1«nf t.ho AmaT*ift|n fgftdemv o f l e a l and S o c ia l S c ie n c e s. V ol. 197 (May. O hlsson, In g v a r. "The Swedish N a tio n a l B u d g et," BlpmHlnavl«Tca ttAnkAn OiMrtarlv Review- XXXVIII*IV (O cto b er, 1 9 5 7 ), 100-107. O lsso n , B e rt 11. "Employment P o lic y D uring th e R e c e ssio n ," Q uarterly Rgyigw» x l s ii _______ • "Employment P o lic y in Sweden," in ta m A tio n a l Labour Review (May, 196 3 ). (R e p r in t.) O rr, M a rtin . "T a x atio n and S t a b i l i t y —Guidance from (Ja n u a ry |^glB?A2-^aV.lay» XXXVIII Rehn, G o sta. "The N a tio n a l B udget and Economic P o lic y ," Q uarterly favlvw* x l i i i h i Roskamp, K arl W. "C om petition and Growth—The Lesson o f West Germany* Comment," A m erican Economic Review L*IV (December, I9 6 0 ), 1 0 1 ? -l0 l8 . S v en n llso n , In g v a r, and Beckman, Rune. "Long-term f l B f f 6 9 -7 6 . "Sw edish Tax R eform ," Bvenska Handalsbankan Index- No. b (196*0, 1 -2 . " T h irty Y ears W ithout R ecessio n —How Sweden Does I t . " U .S. News and W orld R e p o rt. LVIItXXI. 100-102. T h o r e lli, Hans B . "O v e ra ll P lan n in g and Management In S w .den," Inf rn.tlnn.1 Bocl.l flnfna. Bnll.tln. 3 > + 8 V I I I i I I (1 9 5 6 ). (R e p rin t.) Thunholm, L a rs -E rlk . "Budgeten och K reditm arknaden, " Ekonomisk Revv (Ja n u a ry , 196 5 ), 5 -7 . "Unemployment S t a t i s t i c s ," I n te r n a tio n a l Labour Review. S t a t i s t i c a l Supplem ent, LXXXVIIiIV (May, 1963), 104. "Wage N e g o tia tio n s and Wage P o lic ie s in Sweden," I n t e r - * I S B g S , ffi& Y 0 c t o b e r ' Ogren, A rne. "E q u ity C a p ita l and th e F in an cin g o f B u s i n e s s ^ " Quarterlv R evlev UNPUBLISHED MATERIAL E l l i o t t , John E . " C a p ita lism , Marxism. S ocialism s C om parative T h eo ries o f Economic S ystem s." U npublished M an u scrip t, U h i v e r s i t v o f S outhern C a lif o r n ia , 196*+• (M im eographed.) F in a n sd e p a rte m e n te t. "A Note on Swedish F is c a l P o lic y ." Stockholm s F in a n sd e p a rte m e n te t, 1962 • (M imeographed•) . "The Swedish Long-term B udget f o r th e P e rio d 1965-1968." Stockholm : F in a n sd e p a rte m e n te t, 1964• (Mimeographed•) F ro b erg , B en g t. "Employment P lanning in Swedish B u ild in g A c tiv ity ." Stockholm : Employment S erv ice D iv is io n , Labor M arket B oard, May, 1964. (Mimeographed•) H akanson, H&kan E . "V o catio n al T ra in in g o f Unemployed P e rs o n s ." Stockholm : N a tio n a l Labour M arket B oard, 1962. (M im eographed.) N a tio n a l I n s t i t u t e o f Economic R esearch . "Methods o f S h o rt-te rm Economic F o re c a stin g In Sweden." 1964 • (Mimeographed •) 0 1 sson, Ounnar. "Employment P o lic y in Sweden." Stockholm : N a tio n a l Labour M arket Board Inform a t io n S erv ice S e c tio n , 1961. (M im eographed.) 3*f9 Strom , N ils* "Labour C o n tro l on th e B u ild in g M arket In Sweden." Stockholm : N a tio n a l Labour M arket B oard, F e b ru a ry 3 , 196M-. (M imeographed*) Wickman, K ris te r* "The Sw edish In v estm en t R eserve System , an In stru m e n t o f C o n tra c y c llc a l P o lic y ." S tockholm : M in is try o f F in a n c e , March 25, 1963* W ohlin, Lars* "S y sse lsa ttn ln g Pennlngvarde och F ra n it- s k rld a n d e ." Employment, P ric e L evel and Economic Development* T r a n s la tio n o f C h ap ter IX* Stockholm : I n d u s t r i a l R esearch I n s t i t u t e , 1962* (M imeographed•) INTERVIEWS A N D IETTERS C o n fe d e ra tio n o f Swedish Labor U nions. Stockholm* P e rso n a l In te rv ie w w ith o f f i c i a l s G ustav P ersso n and L ars S tark eru d * J u ly 2 2 , 196*+. E m p lo y ers' R esearch I n s t i t u t e , Stockholm* P e rso n a l In te rv ie w w ith D ire c to r T ore S e llb e rg * J u ly 27, 196M-. Labor M arket B oard, Stockholm* P e rso n a l In te rv ie w w ith D ire c to r Gunnar 0 1 sso n . J u ly 27, 196U-* N a tio n a l I n s t i t u t e o f Economic R e se a rc h , Stockholm* P e rso n a l In te rv ie w w ith S u p e rv iso r G* Dan 16 I s so n . J u ly 20, 1961*. fftonfljnaxlgte. fo n to n Stockholm* P e rso n a l In te rv ie w w ith E d ito r T o rs te n C arlsson* J u ly 17, 196M-. S t a t i s t i c a l C e n tra l B u reau , D epartm ent o f W ages, Stockholm* P e rso n a l In te rv ie w w ith B ureau D ire c to r L e if BJork* J u ly 2 7 , 196*f* S t a t i s t i c a l C e n tra l B u reau , R esearch D epartm ent, Stockholm* P e rso n a l In te rv ie w w ith B ureau D ire c to r K las L ag e rq u ist* J u ly 23, 196M -* Svenska H andelsbanken In d ex . Stockholm . P e rso n a l i n t e r - vlew w ith E d ito r Ingem ar W idenberg. J u ly 27, 196*f. fivanaka H andelsbanken In d ex . R esearch D epartm ent, 350 Stockholm . P e rs o n a l in te rv ie w w ith D ir e c to r T ore S e llb e r g . J u ly 2 7 , 1964-. Sw edish E m p lo y ers' A s s o c ia tio n . S tockholm . P e rs o n a l In te rv ie w w ith A s s o c ia te D ir e c to r S tu re E s k lls s o n . J u ly 2 1 , 1964-. Sw edish F in an ce D ep artm en t, S tockholm . P e rs o n a l In te rv ie w w ith D ir e c to r R ein H lnno. J u ly 21, 1964-• Sw edish F in an ce D ep artm en t, S tockholm . L e t te r from D ire c to r R ein H lnno. December 1 2 , 1964-. U n iv e r s ity o f Stockholm . S tockholm . P e rs o n a l In te rv ie w w ith P ro fe s s o r A ssa r L in d b eck . J u ly 1 7 , 1964. U n iv e r s ity o f Stockholm , S tockholm . P e rs o n a l in te rv ie w w ith P ro fe s s o r Gunnar M yrdal. J u ly 1 6 , 1964.
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Creator
Andersson, Henry Fredrik
(author)
Core Title
Effects Of Swedish Fiscal Policy And Planning On Economic Growth And Stability, 1930-1964
Degree
Doctor of Philosophy
Degree Program
Economics
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University of Southern California
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University of Southern California. Libraries
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economics, general,OAI-PMH Harvest
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English
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Anderson, William H. (
committee chair
), McDonagh, Edward C. (
committee member
), Phillips, E. Bryant (
committee member
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201943
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Andersson, Henry Fredrik
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economics, general