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Neo-Liberal Economic Policy

Critical Essays

Edited by Philip Arestis and Malcolm Sawyer

Over the past two decades there has been a prevailing shift in economic policy in many countries. This reflects the continuing rise of neo-liberalism – the doctrine that economic policy should ‘leave it to the market’ and that governments should retreat from market intervention. This book provides a balanced and comprehensive appraisal of these important policy developments. The authors examine the most notable trends in neo-liberal economic policy such as the withdrawal from the use of fiscal measures and the reliance on monetary policy. They discuss the neo-liberal view that the causes of unemployment lie in the operation of the labour market, in particular its inflexibility. They also assess the increasing inclination towards the liberalisation and deregulation of markets, most notably financial markets.
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Chapter 4: A 'third way' in economic policy: a reappraisal of the Rehn-Meidner model in the light of modern economics

Lennart Erixo


4. A ‘third way’ in economic policy: a reappraisal of the Rehn–Meidner model in the light of modern economics Lennart Erixon INTRODUCTION Since the emergence of Sweden in the mid-1930s as ‘the middle way’, the Swedish model has interested both social scientists and politicians. A strong welfare state, a powerful trade union movement, extensive equalization of pay and incomes, and priority of full employment was seen as either an example to follow or an extreme expression of European sclerosis. But adherents and critics of the model alike have shared one thing in common – an overriding interest in its practical aspects. Less attention has been paid, especially outside Sweden, to the theories behind or motivations for Swedish economic policies. In fact, it is easier to distinguish a Swedish model in theory than in practice. At the beginning of the 1950s, two economists at the LO (the Swedish Trade Union Confederation), Gösta Rehn and Rudolf Meidner,1 devised a unique model for economic policy. Their exposition questioned the Keynesian policy of full employment while rejecting the noninterventionism and one-sided emphasis on price stability of the monetarists. What came to be known as the Rehn–Meidner model (henceforth R–M model) thus represented a ‘third way’ in economic policy. A major objective of the R–M model is to obtain full employment without inflation but also to combine economic growth with equity. Rehn and Meidner recommended labour market policy measures, solidaristic wage policy and deflationary fiscal policies to simultaneously...

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