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The 1992-93 Swedish Crisis Debate: How Economic Consensus Overturns Tradition

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The 1992-93 Swedish Crisis Debate: How Economic Consensus Overturns Tradition Munich Personal RePEc Archive The 1992-93 Swedish Crisis Debate: How Economic Consensus Overturns Tradition. Jakee, Keith 2013 Online at https://mpra.ub.uni-muenchen.de/44790/ MPRA Paper No. 44790, posted 13 Mar 2013 04:00 UTC CHAPTER SIX THE 1992-93 SWEDISH CRISIS DEBATE: HOW ECONOMIC CONSENSUS OVERTURNS TRADITION KEITH JAKEE Introduction In a more extensive study, presented at the RATIO Conference on Knowledge and Policy Change in August of 2011, I examined the role economists played in the Swedish public debate over its financial and economic crisis of 1992 and 1993 (Jakee 2011). I argued that this Swedish experience is highly relevant for the financial crises faced by the United States and Europe, post-2007. The very survival of Sweden’s famed welfare state was fiercely debated during the 1992–93 crisis, just as the redistributive polices of Western Europe and the United States are being debated in the wake of their own crises. Ultimately, Sweden’s welfare state survived, but was fundamentally reformed nearly twenty years ago. As a result, the Swedish economic conditions of the early 1990s and the subsequent policy adjustments hold insights for current policymakers facing a very similar set of problems and economic constraints. For example, many of the same underlying conditions that gave rise to the austerity measures adopted in Greece, Ireland, and Italy between 2010 and 2012, have much in common with the 1990’s Swedish experience. The same is true of the monumental reforms contemplated (and largely ignored) with regard to Social Security or Medicare in the United States.1 1 See, for example, the budget plan, referred to as the Ryan Plan, submitted to the U.S. House of Representatives for fiscal year 2013 by US House republicans and spearheaded by House Budget Committee Chairman, Paul Ryan (House Republicans 2012). 112 Chapter Six More to the point of this chapter, however, contemporary policy analysts can gain insights into the process whereby expert, theoretical views of the economy clash with the world views of both laymen and other non-economist experts. In particular, how do non-economists understand the policies that shape their lives and how do economic experts try to persuade non-experts when it comes to the latter’s understanding of policy and “the economy?” While the RATIO paper dealt with these broad questions, this chapter focuses on the clash between different generations of economists (with different theoretical outlooks) and between economists and other social scientists. Indeed, as the title suggests, the question of how the views of one generation of economists give way to the next generation is of fundamental concern here. In terms of the form of the economic debate, the Swedish media seem to give policy issues, particularly economic ones, great emphasis. This fact is evidenced by the large number of both regular and special features in the newspapers, TV talk shows and news programs. Such programs regularly featured Sweden’s top bank, industrial and labor economists. The Swedish debate was, moreover, populated by a number of highly distinguished academicians. That well-known Swedish academicians played a key role in these debates and that they participated at all levels of policymaking is not peculiar to the 1990s’ debate either. As Jonung states, “A striking feature of the Swedish economics profession, in contrast to most other countries, is the heavy involvement of its professors in public life … a tradition going back to the founders of economics in Sweden” (1992, 39). Academic and professional economists have taken to the public forum dating back to the nineteenth century. David Davidson, Karl- Gustav Hammarskjöld, Per-Erik Bergfalk and Knut Wicksell are among the earliest to do so (Magnusson 1993, 89). This tradition also took firm root among the first generation of Swedish economists early in the twentieth century, which included Gustav Cassel, Eli Heckscher, Gösta Bagge and Sven Brisman, as well as the generation that followed, including Gunnar Myrdal, Bertil Ohlin, Erik Lindahl and Erik Lundberg. As a result of such active public involvement, the economics profession has probably been more visible in Sweden than elsewhere, if not more influential (see, for example, Carlson and Jonung 2006). Going back as far as the 1930s, a foreign visitor to Sweden took note of “the influence that the professional economists seemed to have on politicians both of right and left, on banking and business people as well as on the lay public. [Economists in Sweden] … seem, moreover as a class, to have a better public reputation than elsewhere” (Brinley Thomas, quoted in Magnusson 1993, 83). This visibility provides insights for students of The 1992-93 Swedish Crisis Debate 113 public policy because it illuminates the process whereby academicians enter the world of public persuasion. As such, Sweden may be just the kind of ideal case about which many non-Swedish economists fantasize. Krugman (1994) argues, for example, that the United States would enjoy improved economic policies if academic economists could crowd out the special interest “policy entrepreneurs” by playing a larger role in public persuasion. This study is based on unpublished interviews performed during the spring and summer of 1993. I interviewed a number of economists and other social scientists in Sweden, focusing on, among other things, the role that economists were playing during the 1992–93 economic and financial crisis. The interviewees were chosen on the basis of a variety of characteristics, the principal objective being to assemble a list of participants who could discuss the crisis from a variety of expert- participant viewpoints, in historical context. As such, several interviewees were economists involved to a greater (e.g., Calmfors, Edin, Södersten) or lesser (e.g., Jonung) extent in the 1990s national public debate; two were political scientists (e.g., Gustavsson, Petersson) and two were sociologists (e.g., Korpi, Zetterberg). Several interviewees were not involved with the 1990s debate, but were major figures in earlier Swedish debates over the advancement of the welfare state (e.g., Elvander, Faxén, Meidner, Rehn). See Table 1 for a list of interviewees and summary biographies. 114 Chapter Six Table 1: The Interviewees Economists Position at the time of the 1992-93 Crisis Lars Calmfors: Professor, Institute for International Economic Studies, Stockholm University. P.O. Edin: Chief Economist, LO (Sweden’s widely encompassing blue-collar labor union) F.O. Faxén: Former Director of Economic Research, SAF (Sweden’s Employer Federation) Lars Jonung: Professor, Stockholm School of Economics and former Economic Adviser to the Prime Minister Rudolf Meidner: Former Research Director, LO; Swedish Institute of Labor Market Studies, Stockholm University Gösta Rehn: Former LO economist Bo Södersten: Professor, Lund University and former MP Political Scientists Nils Elvander: Professor emeritus, Uppsala University Sverker Gustavsson: Docent (Assoc. Professor), Uppsala University Douglas Hibbs: Professor, Gothenberg University Olof Petersson: Docent (Assoc. Professor), Uppsala University Sociologists Walter Korpi: Professor, Stockholm University Hans Zetterberg: Former Professor and Chair, Ohio State University, Opinion analyst and Publicist Policymaker Kjell-Olof Feldt: Former Minister of Finance (and Chairman of the World Bank and Chairman of the International Monetary Fund) The 1992-93 Swedish Crisis Debate 115 The larger study argues that four themes emerge from a careful examination of hundreds of pages of interview transcripts: i) Two opposing interpretations of the crisis can be discerned: one that centered on causes of the crisis that were endogenous or “internal” to Swedish policy; another that centered on causes that were “external” to Sweden or outside of its control. ii) A strong degree of consensus emerged among the academic economists (and several of the non-economists) involved in the public debate that largely aligned with the “internal” causes narrative. iii) Claims concerning the reliability and veracity of economic arguments were exaggerated on both sides (and by participants in previous debates). iv) The “scientific” mantle of economists frequently operated like a “trump card” in policy debates. The current chapter focuses on one aspect raised in the larger study: the strong degree of consensus over Swedish economic analysis that dominated the public forums in Sweden. I discuss the implications of this phenomenon, some potential reasons for its existence, and draw some parallels and contrasts with previous policy debates in Sweden. Besides simply understanding the Swedish case better, this study attempts to add to the literature on policy formation and change. It also attempts to add to a separate literature on the “rhetoric of economics,” which has, for the most part, focused on how economists persuade one another, in other words, how they argue among themselves, how they decide what constitutes a valid argument, and what metaphors or stories they use (see, for example, McCloskey, 1983, or Klamer 1983).2 Coats (1984) pointed out some time ago that a lacuna existed in the analysis of the actual processes by which economists persuade non- economists—unlike, for example, scholarship in the history of science; this lacuna has largely remained unaddressed. Thus, we know little about 2 The seminal authority in the rhetoric of economics that uses actual interviews is Klamer’s Conversations with Economists (1983). My study of
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