THE CATHOLIC UNIVERSITY OF AMERICA Constructing the People’s Home: The Political and Economic Origins and Early Development of the “Swedish Model” (1879-1976) A DISSERTATION Submitted to the Faculty of the Department of Politics School of Arts and Sciences Of The Catholic University of America In Partial Fulfillment of the Requirements For the Degree Doctor of Philosophy © Copyright All Rights Reserved By Josiah R. Baker Washington, DC 2011 Constructing the People’s Home: The Political and Economic Origins and Early Development of the “Swedish Model” (1879-1976) Josiah R. Baker Director: James P. O’Leary, Ph.D. When Marquis Childs published his book The Middle Way in 1936, he laid the foundation that inspired the quest for an efficient welfare state. The Folkhemmet, or “people’s home,” initiated by the Social Democrats symbolized the “Swedish Way” and resulted in a generous, redistributive welfare state system. By the early 1970s, experts marveled at Sweden’s performance because the Swedish model managed to produce the second-wealthiest economy as measured by per capita GDP with virtually no cyclical unemployment. This dissertation demonstrates that capitalist and pre-industrial cultural forces dominated Swedish economic policy development throughout the years that the Social Democrats constructed Folkhemmet. The Swedish economy operated as a variety of capitalism that infused unique traditional cultural characteristics into a “feudal capitalism.” The system was far more market-oriented, deregulated, and free from direct government ownership or control than most assumed then or now. A process of negotiation and reason, mixed with pragmatism and recognition of valuing opportunity over principles, drove Swedish modernization. Eventually, the entire society became commoditized through gender equalization efforts, resulting in greater individualism and an increased breakdown of informal communal or collective functions. Gradually, the nature of individual initiative and incentive within capitalism undermined Folkhemmet’s goals and aspirations. Modernization dismembered traditional Swedish households and values as the economy experienced increasingly higher taxes and long-term industrial decline. Post-industrial jobs financed by government taxes eventually choked the supply of foreign direct investment, as well as domestic capital investment levels. When the private sector ceased to produce enough jobs to fund the highly taxed system, Folkhemmet experienced a crisis. The creation of public sector jobs intended mainly to push more women into the workforce resulted in numerous inefficiencies and financial problems. High taxation accelerated the decomposition of traditional civic relations. Moral hazards taxed honesty and eroded the common trust that had enabled the formation of this unique method of economic policymaking. What Childs initially communicated was a process of policy development dictated by gradualism and moderation, not a political system that could be transplanted across the globe. Thus, his “middle way of politics” should have been phrased the “moderate way of policy making.” This dissertation by Josiah R. Baker fulfills the dissertation requirement for the doctoral degree in Politics approved by James P. O’Leary, Ph.D., as Director, and by John Kromkowski, Ph.D., and Claes G. Ryn, Ph.D., as Readers. ______________________________ James P. O’Leary, Ph.D., Director ______________________________ John Kromkowski, Ph.D., Reader ______________________________ Claes G. Ryn, Ph.D., Reader ii Acknowledgements I would like to show appreciation to the following: Ulf Sandstrom, Esq., Dr. Robert A. Baker, III, Dr. Håkan Wickholm, Dr. James P. O’Leary, Dr. Claes G. Ryn, Dr. John Kromkowski, , the Swedish Club of Sarasota, the Swedish-American Chamber of Commerce of Florida, Maj. Yngve Bergstrom of the Riksdag, Ulf Nilson, the Swedish Riksdag, Eva and Bengt Ebbeson, Allan Mattsson, Kjell Berglund, Tuve Barnabo, Leif and Anneli Hallstrom, Marc Hackel, Pearson Publishing Corporation, the Washington Times, Dr. Stephen Baskerville, Dr. Benjamin Arah, Sarah Ulmet, the Swedish Embassy in Washington, the Uppsala International Summer School, Claire Brantley and Kim Brugger of Pearson Education, Anders Edwardsson, Ed Truncellito, Esq., Dr. Stanley Brunn, Lt. Col. Philip Ware, Sr., Jeramie Maxwell, Peter Brown (Orlando Sentinel), Dr. Djehane Hosni, Marita Valentine, The Catholic University of America Politics Department, Dr. Hanna Marks, Dr. Stergos Kaldouis, the Office of International Studies at the University of Central Florida, Dr. Matilda Harris, Shawn Lessard, Maritha Wickholm, Jessica Warden, Hans Lindblad at the Swedish Ministry of Finance, and Annika, Mikael, and Fredrik Sandstrom. iii Table of Contents Introduction 1 The “Middle Way” and FDR 1 Promoting the “Swedish Way” 4 Historical Methodology 10 Introducing Folkhemmet 12 Background 19 A Unique Small Country 21 The Need for Trygghet 23 A Burgeoning Bureaucracy 29 Chapter One: The Origins of the Great Transformation (1879-1900) 40 The Industrial Revolution in Sweden 47 The Agrarian Revolution 48 Tenacious Traditions 50 Early Industrialization 52 Regulation, Deregulation, and Adjustment 53 Population Explosion 57 Demographic Stages and Development 61 Emergence of Capitalism 66 The Social Democratic Party’s Origins 74 The Sundsvall Strike 76 Swedish Industrialization 83 Political Parties: Emergence of Democracy 84 Swedish Social Democratic Party Program of 1897 88 Lagom: A Cultural Source of Moderation 98 Social Democratic Origins 99 Chapter 2: 1900-1920, the Progressive/Reform Movements 112 The 1917 Third Reform of Parliament 112 A Tradition of Trade 114 The Decline of Christianity in Sweden 116 The Stockholm School of Economics 125 The Folket Hus 129 Chapter 3: 1921-1932, Liberal-Social Democratic Alliance/Adaptation 133 Reaction to the Soviet Revolution 134 Branting’s Legacy: Expanding the Political Base to Include Women and Political Moderates 137 Economic Transformation after World War I 138 Social Cohesion and a Disconnect with the Soviets and Communists 142 Not Quite a Majority 146 Cassel’s Warning of Monetary Disaster 148 Hansson Assumes the Party Leadership 149 Chapter 4: 1932-1940, Changing Gears: Moderation and Consensus under International Duress 154 Rise of the Social Democrats 157 iv Pursuing Moderation in a Turbulent Climate 162 International Pressures 164 Governing with a Plurality 166 Macroeconomic Policy in the 1930s 169 The Pact of Saltsjöbaden, “The Basic Agreement” 174 The Swedish Model 181 The Unique Policymaking Process 181 Swedish Bureaucratic Culture 184 Chapter 5: The War Years: 1939-1945 200 Historical Neutrality 208 Neutrality’s Legacy 212 Post-war Neutrality 220 Chapter 6: 1946-1959, Postwar Coalition of Moderation 226 Entering the Golden Age 230 The Gradually Increased Role of Government in the Economy 233 Prime Minister Tage Erlander (1946-1969) 241 Chapter 7: 1960-1970, the Build-up 256 Public Sector Expansion 256 Workers Demanding More 256 Bureaucracy Moves from Macro to Micromanagement 266 Ethnic Homogeneity 278 Social Engineering 279 Swedish Capitalism 290 The Lack of “Creative Destruction” in the Swedish Economy 293 Chapter 8: After 1970 296 Welfare Capitalism 302 The Laffer Curve 317 The Myth of Extremely Low Unemployment 322 Corruption 323 Olof Palme 325 Global Transformations 330 English as a Tool for Success 334 Chapter 9: A Model in Crisis 338 Tax Reform and Family 339 Recession 344 Cooperation Means Less Risk and More Equality 351 Economic Policies and Issues 354 Chapter 10: Folkhemmet Crumbles 357 The Corporate Welfare State 361 How Folkhemmet “Worked” 371 American Influence 376 Independence and Security 378 Conclusion 379 Appendices 387 Bibliography 395 v List of Tables Table 1: Swedish Urban Growth in the 19th Century 85 Table 2: Major Dates and Developments of the SAP 89 Table 3: Growth of SAP in the Early Years 93 List 1: Jantelagen 97 Table 4: Swedish Migration Trends between 1856 and 1930 103 Table 5: Percentage of Population Living in Urban Areas, by Year 140 Table 6: Percentage of Population Engaged in Farming and Agriculture, by Year 141 Table 7: Percentage of Population Employed by Industry and Crafts, by Year 142 Table 8: Number of Workers Employed in Industry, Mining, and Crafts, by Year 143 Table 9: Shipments from Narvik, Norway (thousands of tons of ore) 217 Table 10: Shipments from Lulea, Sweden (thousands of tons of ore) 217 Table 11: Distribution of Iron Ore Shipments among Scandinavian Ports 219 Table 12: Iron Ore Supplies: Late 1944 to Early 1945 220 Chart 1: Swedish Government Spending from 1860 to 1990, Percentage of GNP 236 Table 13: Type of Employment of Swedish Workers, by Percentage of Workforce, 1870-1949 244 Table 14: Total Expenditures as a Percentage of Gross National Income 251 Table 15: Unemployment Rates in Denmark, Norway, and Sweden, by Percentage of Labor Force, 1951-1990 263 Table 16: Government Spending in Sweden, by Percentage of GDP, 1950-1981 268 Table 17: Total Taxation in Several Nations as a Percentage of GNP in 1969 274 Table 18: Expansion of the Role of Government in Scandinavia, 1960-1980 275 Table 19: Growth Rate of Per Capita GDP in Denmark, Norway, and Sweden vis-à-vis Western European Average by Percentage 279 Table 20: Annual Percentage Increase in Productivity in the Private Sector for Scandinavian Countries, Compared to OECD Average, 1960-1979 287 Table 21: Swedish Tax Rates, 1950-1970, as a Percentage of GNP 292 Table 22: Public Sector Expenditure in Scandinavia, as a Percentage