During the 1950s and 1960s, Sweden served as a beacon to liberals in the United states--as a model that showed that the welfare state could, after all, be done right.

The achievements of the Swedish economy were indeed impressive. By the early 1970s, Sweden had become one of the richest nations on Earth. And it had accomplished this while simultaneously developing an extensive web of social welfare programs that, in turn, helped make the Swedish income distribution one of the most equal in the world. Furthermore, apparently successful applications of monetary and fiscal policy had tamed the business cycle and made Sweden a land of perpetually low unemployment.

And all this had been accomplished within a framework that was decidedly capitalist rather than socialist; public ownership of industry was, and remains, rare in Sweden. The only apparent price that the Swedes paid for all these gains was a somewhat higher rate of inflation. Swedish inflation averaged 4.4 percent between 1950 and 1970 versus only 2.4 percent in the United States.

But things started to turn sour in the 1970s. Aggressive unions pushed wages well beyond the ability of Swedish industry to pay. Profitability, investment and industrial production suffered. Unemployment was prevented from rising sharply only by a bewildering variety of subsidies, retraining programs, public employment and early retirements.

At the same time, the public sector, which was already large by 1970, expanded rapidly. Today government spending exceeds 70 percent of GNP (versus only about 35 percent in the United States). To finance all this spending, tax increases were necessary. A typical Swedish worker now pays income and payroll taxes at marginal rates that approach 80 percent, and also pays about a 20 percent national sales tax on most of his purchases. But there is a huge budget deficit anyway.

There is now general agreement among Swedes that their economy is in a state of crisis and that something has to be done. But what? There the agreement ends.

Among the most controversial issues in Swedish politics today is a proposal whose outcome could well determine whether Sweden continues its tradition of decentralized capitalism or turns toward collectivism.

During the 1982 Swedish election, the victorious Social Democrats promised to institute so-called "wage-earner funds." These funds would receive revenues from two new taxes and use the revenues to purchase stock in Swedish industry. The funds would be controlled by a few governing boards which would, in turn, most likely be controlled by the leaders of the powerful trade unions. (About 90 percent of Swedish workers are unionized.)

By this device, the Swedish government hopes to moderate wage demands, and Swedish workers hope to achieve greater control over their own economic destinies.

The most impressive aspect of these funds is their projected size. According to the current proposal, revenues into the funds would amount to about 2 to 4 billion Swedish kronor per year--about $250 to $500 million. That may sound like chicken feed. But it's not in a small economy like Sweden's.

Should the funds be established, they would own 10 percent to 20 percent of all the stock in Sweden within 10 years, enough to have an effective controlling interest in most Swedish corporations. Ironically, if enacted, this proposal would eventually establish collective ownership of industry in Sweden not the way Lenin did it in Russia (by violent revolution), nor the way the Labor Party did it in Britain (by nationalization), but rather in the most capitalist of all possible ways-- by buying shares on the stock exchange.

But why should Americans care about the wage-earner funds? The reason is that two unrelated policy proposals, each made by serious and well-intentioned people, together would bring something very similar to the United States.

The first proposal pertains to Social Security. Currently, the system promises pension benefits but, unlike private pension plans, does not accumulate reserves to make these payments. Instead, it levels taxes on workers to pay the benefits of retirees.

This "pay-as-you-go" system, it is alleged but not proved, discourages saving because workers feel less need to save for their retirement while the government does not save on their behalf. And this had led some critics of Social Security to suggest that the government "fund" the system by accumulating enough assets to make the promised benefits payments.

But think about the numbers involved. Annual payments into the Social Security trust fund are now approaching $250 billion, about one-eighth of the value of all the shares on the New York Stock Exchange. If used to purchase common stock, the trust fund would acquire a controlling interest in most American corporations quicker than you can say "Ingmar Bergman."

Can politics really be kept out of the management of a public fund this large? The question answers itself.

And the possibilities for non-political management of such a fund, remote as they are, would be even smaller if the second policy proposal--industrial policy--were to be implemented.

Industrial policy means different things to different people, but one common element is surely public (to wit, political) influence over the allocation of capital. In some versions, industrial policy means steering society's resources toward new, and, it is hoped, burgeoning, industries ("picking winners"). In others, industrial policy means shoring up aging and sometimes failing industries ("backing losers"). But in either variant, fortunes will be made or lost, and millions of jobs be created or destroyed, according to decisions made by whoever runs the industrial policy.

Now try to imagine an Industrial Policy Board, sitting in Washington, charged with the responsibility of making the U.S. economy perform better and knowing that the managers of the Social Security Trust Fund sit just a few blocks away, owning the entire New York Stock Exchange! The political pressures on the fund managers would be extraordinary. Only a saint could be expected to remain objective and apolitical.

We ought routinely to shun policies that rely on saintly behavior. It's a commodity in short supply.