Sweden and the Revival of the Capitalist Welfare State

Sweden and the Revival of the Capitalist Welfare State

New Thinking in Political Economy series

Andreas Bergh

This book tackles a number of controversial questions regarding Sweden’s economic and political development: • How did Sweden become rich? • How did Sweden become egalitarian? • Why has Sweden since the early 1990s grown faster than the US and most EU-countries despite its high taxes and generous welfare state? The author uses new research on institutions and economic reforms to explain the rise, the fall and the recent revival of the Swedish welfare state. The central argument is that a generous welfare state like Sweden’s can work well, provided that it is built on well-functioning capitalist institutions and economic openess.

Chapter 2: Prosperity and equality: the golden years 1870–1970

Andreas Bergh

Subjects: economics and finance, austrian economics, economic psychology, political economy, politics and public policy, european politics and policy


The period between 1870 and 1970 in Sweden was very successful. Sweden achieved not only a very high level of material well-being (as measured by real GDP per capita), but also managed to have prosperity more evenly distributed across the population than most other countries. Some would surely say that income compression in Sweden went too far. In any case, the strong economic growth that Sweden experienced between 1870 and 1970 led to Sweden becoming not only one of the richest countries in the world, but also one of the most egalitarian. In this chapter, the causes of Sweden’s prosperity and the egalitarian income distribution are discussed. After describing and summarizing research that helps us understand the evolution of prosperity and relatively high income equality in Sweden, I ask to what extent the answers are to be found in what is known as the Swedish model. The conclusion will be that while the standard description of the Swedish model captures many important aspects, it does not fully explain how Sweden became both prosperous and relatively egalitarian.

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