Sweden

In the afternoon darkness of Swedish winter, the downtown Christmas lights shine brightly, a backdrop to the bustle of buyers in the NK department store, as glittering an emporium as any in the Western world. The adjacent shopping malls on Hamngaten Street are lavish in a way that reminds the American visitor of Washington's White Flint Mall or Houston's Galleria.

Business is good. The pre-holiday sales of a depressed economy like Britain's are unnecessary here. But this year's tidings are, on the whole, less cheery than usual. Turnover is up, the experts say, only because the new year will bring even higher taxes--as high as 23.5 percent on consumer goods.

Indeed, for all the apparent prosperity of Sweden, the new Social Democratic government of Prime Minister Olof Palme has adopted a series of economic measures that will cut real spending power for workers by 4 to 5 percent in 1983.

"The next year is going to be very tough," Palme predicted in an interview, and a great deal will depend, he said, on the willingness of labor and industry to stay the course.

AS BEFITS PERHAPS the best-known example of the cradle-to-grave welfare state, Palme is committed to protect the comprehensive benefits and still low (although rising) unemployment enjoyed by Sweden's 8 million people. He also is coping with a host of serious economic problems that have developed in recent years and are endangering the country's long-term prospects.

In the past decade Sweden has lost about 25 percent of its foreign markets (mostly to West Germany and Japan), budget deficits have soared and so has borrowing from banks abroad.

Faced with similar problems, other welfare states have tried to cut back on the growth of public spending and applied other deflationary devices. The result has been widespread recession.

PALME AND THE SOCIAL Democrats have adopted a different approach, relying mainly on hopes for an "export-led" economic expansion, a gamble that will require a marked improvement in the international economic picture if it is to work.

In Sweden, the expansionary key was the new government's first official act on Oct. 8, the day it took office. It devalued the kroner by 16 percent.

The purpose was to stimulate new investment in Swedish industry by lowering prices and selling more abroad--Volvos in the United States, for instance--thereby creating new jobs and more revenue for public programs. The government needs cooperation from labor on smaller wage increases, although the cost of goods at home will certainly rise, and a pledge from business to plow back the bigger profits it can expected to earn.

"Everybody has to understand that without a stronger industry in Sweden, the whole welfare state will collapse," said Michael Sohlman, chief planner at the Finance Ministry.

As proof of its ideological commitment, the government is prepared to reverse the cuts in welfare spending imposed by the nonsocialist predecessors who were in power from 1976.

The bargain for that security is that workers accept a modest reduction in what is one of the highest standards of living, or at least no improvements for a time. Deficits will be cut and foreign debts gradually repaid, but the crucial goal is full employment. At the moment, the official unemployment figure is 4 percent, but would be twice that if job training programs and short-term make-work projects were included.

The objective is to have no more than 2 percent of the adult population out of work, Sohlman said. In all, about 120,000 jobs would be created if the effort succeeds, according to expert estimates, substantially offsetting the 160,000 jobs that have been lost during the past decade as a result of lower industrial production.

Some of those new jobs will be in public works, but the burden will fall on private enterprise because the number of nationalized industries in Sweden is fewer than in Italy or France.

However, the government will assure that the necessary investment by putting the returns from a variety of new taxes on profits back into businesses--in consultation with labor unions.

In effect, if the policy works, labor will become a significant shareholder in the private sector by buying stock, a form of partial nationalization. These so-called "wage earner funds" were a major issue in last fall's election.

ACHIEVING SO COMPLEX an undertaking requires a "social contract" among government, labor and business of the kind that is probably possible only in a smaller, homogenous country like Sweden, which is, moreover, used to Social Democratic leadership. The party has ruled continuously for almost 50 years, except for the past six in which several nonsocialist coalitions were unsuccessfully in charge.