Sweden's reputation as the world's richest and best managed economy has been bruised a bit lately. Incomes fell last year for the first time since the great depression and unemployment has actually climbed just above 2 percent.
But the new "bourgeois" coalition in power here after two generations of unbroken Social Democratic rule appears to have set the stage for a solid recovery. It has done so largely by following the spending and subsidy policies of its predecessors and by winning an astonishing measure of wage restraint from the staunchly Social Democratic trade unions.
"We think we're on the right track, moving at the right place in the right direction," says Andreas Adahl, the top economic adviser to Premier Thorbjorn Falldin. Adahl likes to stress the tax and technical help the coalition is giving its business constituency, but he concedes the new team has largely employed "fire brigade" techniques indistinguishable from those used in the past.
The new government has poured at least $2.5 billion into propping up the troubled steel, shipbuilding and pulp and paper industries. More important, it has spent nearly $2 billion retraining jobless workers, paying companies to keep workers they would otherwise let go and creating public works to keep men off the dole.
The coalition - Falldin's Center Party, Conservatives and Liberals - told voters they favored more private enterprise, less state control and greater decentralization of decision-making. Nevertheless, the new government has taken over every firms into a single concern that is half-owned by the state.
The gap between rhetoric and performance is common everywhere in the developed West. It reflects the limited room for ideological policy in more or less successful democratic societies.
Sweden deftly side-stepped the world slump between 1973 and 1976, actually cutting its negligible inemployment and expanding output companies to enlarge their inventories in readiness for the world boom of 1977.
The trouble was that the boom never took place and Social Democratic chickens came home to roost when farmers Falldin took power 18 months ago. To make things worse, unions demanded and employers gave huge wage increases - 44 percent in 1795 and 1976 alone - while productivity fell.
Sweden lost its share of sluggish world markets, inflation on touched 13 percent by the end of last year and huge debts were run up at home and abroad. Trade really matters here as evidenced by the fact that nearly one third of all Swedish output is sold abroad.
There has been a dramatic turnaround this year. In the first quarter, Sweden sold abroad $264 million more than it bought. A year ago, the country ran a trade deficit in the same period of about $500 million.
he Swedes did it in classical fashion. They untied themselves from the German currency bloc or "snake" and let the Swedish crown fall 17 percent. That made exports cheaper and more competitive.
Even so, they buying power of the crown, selling now at about 4.6 to the dollar, is grossly over-valued. In the United States, $10 will buy perhaps 15 percent more goods and services than 46 crowns in Sweden. That is one reason Sweden shows up statistically as the world's richest economy, with an income per person of $9,030 compared to $7,910 in the United States. It is probably accurate to say that Sweden is Europe's richest economy and about on a par with the United States.
A devalued crown, however, meant more expensive imports and threatened to make a bad inflation worse. In fact, consumer prices are rising less rapidly now - about 7 to 8 percent is expected this year - and the unions can take much of the credit for this.
They agreed to hold pay increases for 18 months to levels between 2 and 3 percent, cutting the real incomes of their members for a second straight year. They would never have done so, however, if the government had followed the orthodox book, cutting welfare and abandoning the national commitment to high employment.
Per Olof Edin is the highly regarded, left-wing economist for the huge metal worker's union and he defends the severe restraint the unions have accepted.
"Almost every person in our membership understands this means a fall in income but they understand that it is necessary for our long-term good. Yes, it is good for the government, too, but we must always choose what is good for our members."
Anyway, he says with a smile, it is easier to impose restraint when you are well off.
In practical terms, the cuts in income last year and this simply mean that a Volvo worker will run his own car longer postpone building another wing in his second longer summer house and vacation five weeks on Swedish lakes rather than the Mediterranean.
All of this enables Sweden to regain its share of exports, look forward to neither fall nor gain in total output this year but rising incomes again next year.
Abroad and in some conservative Swedish quarters, the country's full employment policy is regarded as a statistical trick. It is quite true that on top of the present 2.1 percent unemployed, 4 percent of the labor force is at work on government-subsidized tasks.
But this is no more artifical than keeping hundreds of thousands employed in Texas and California on aerospace projects of dubious military but considerable job value. It is no more unreal than imposing a cartel or price protection to keep out foreign steel, the techniques used by the common market and Washington to prop domestic steel plants and their workers.
The Swedish technique, says Gunnar Myrdal, the distinguished economist, "it not bad business." It lets industry hang onto workers, saves the state jobless benefits and keeps people on income tax rolls. A job, subsidized or not , provides "a man with dignity" that welfare cannot, Myrdal adds.
Like the rest of the West, Sweden has traditional industries that are facing increased competition from the few genuinely developing countries of the Third World - first textiles, then steel and ships and soon autos. Same 60,000 jobs in textiles have already vanished here. Ship-building capacity has been cut 30 percent and more is needed. The government-backed steel plants hope to reduce jobs from 19,000 to 14,000.
Unlike others in the West, Sweden is not trying to hang onto these industries at all cost. It simply seeks to phase them out gradually with management know it must be done although they differ over how.
The more knowledgeable economists here talk of transferring these resources to "knowledge-based industries," to the tasks that an advanced society can best perform. Swedes are showing Arabs how to build hospital and tax services, and are running large housing and public works projects. Swedes know they will soon be importing more autos and steel than they make at home and this must be paid for with new goods and services.
But no one has yet sketched out a program to achieve this end. All the Swedes can claim, as Adahl says, is that "we are aware of the problem, we are starting the discussion."
That still puts Sweden wellahead of Birmingham, Manchester and Detroit.