Sweden wonders what went wrong

Press, 4 October 1977, Page 45

Sweden wonders what went wrong

NZPA-Reuter StockSweden, regarded enviously by outsiders as a model economy of fine work conditions, high pay, summer cottages, and healthy citizens, is wondering what went wrong. The sort of statement made recently by the former Prime Minister, Mr Olof Palme, would have seemed unthinkable a few years ago — “More and more families with children, single mothers, and pensioners have approached me wanting to know what to put on the dinner table. Soon it will be mostly porridge.” An article in the Stockholm newspaper, "Dagens Nyheter.” was more soothing. It said the somewhat lower living standards of 1977 “May actually give us a little shove in the

right direction,” towards eating less fats and sugar and cutting down on wastage of food. The Prime Minister (Mr Thorbjoem Faelldin) has said that beyond implementing a decision last (northern) spring to lengthen the minimum paid holiday for workers from four to five weeks, effective in January, “We cannot count on any increase in private consumption standards during 1978 and 1979.” Social welfare reforms already pending would have to be postponed, he said.

Who would have thought that the Swedes, of all people, would have to tighten their belts and start worrying about dole queues and ways of economising on their eating habits? A debate is now under way about why Sweden’s economy became so troubled that it had to take the drastic step of devaluing the krona by 10 per cent and pulling out of the “Snake,” the group of European countries, dominated by West Germany, which keep their currencies roughly level with one another in an at-

tempt to help stabilise the international currency situation. The general feeling here now is that the real wage rises since 1974 have stemmed from overseas borrowing by local and national government as well as by export firms whose goods are pricing themselves off world markets. If the Centre-Liberal Conservative Government is to reverse the negative trend in Sweden’s payments balance while maintaining the goal of full employment inherited from its Social Democratic

i predecessors, it must first convince trade unions and businesses to accept their J fair share of austerity, s The feeling now is that ; ref o r m-minded people ; heaped excessive praise on 1 the Swedes for achieving > one of the world’s highest s living standards while expanding social services. But many economists say the Conservatives I have exaggerated the t gravity of Sweden's plight : by maintaining that the crisis is an example of the “welfare State gone sour.” I The critics may have I underestimated the ability : of Sweden’s interest

groups to close ranks and reach pragmatic solutions. Most of the pressure for the latest devaluation, which followed a 6 per cent devaluation less than five months ago, came from Swedish export firms, alarmed about declining sales in traditional foreign markets. They attribute this mainly to labour costs about three times greater than those of major competitor countries. Other factors have been the gradual loss of technological advantages over low-cost countries and insufficient investment in

plant and product development. Many recent investments in Swedish factories have aimed at improving the working environment. Sweden’s withdrawal from the European “Snake” removed the steady upward pressure on the krona that particularly hurt such Swedish export industries as pulp and paper which write their contracts in dollars. Mr Faelldin, at a press conference on August 29, said his Government planned tax reforms and measures to stimulate employment and exports,

but added that before announcing details he would conduct a round of talks with trade unions and private and public employers. The unions, usually sensitive to economic realities, earlier this year accepted wage settlements in most cases lower than the 10 per cent inflation rate then prevailing, thereby resigning themselves to a decline in real living standards for 1977, after two years of large gains. But the April 1 devaluation, with subsequent increases in value-added tax and other indirect imposts, has now pushed inflation up to 13 per cent annually, with food prices climbing even faster, creating alarm among hard-pressed lower-income households.