When reforming their own countries, several observers, ideologues, and politicians in former socialist countries have pointed to Sweden as a blueprint. It is believed that Sweden, or the “Swedish model,” has combined the efficiency, dynamism, and flexibility of capitalist market economies with the economic security and egalitarianism so highly valued by many social liberals and socialists. So, an analysis of the Swedish experience, and its relevance to former socialist countries, may be of some general interest.

When addressing this issue, it is important to realize that basic features of the economic and social system in Sweden have changed considerably over time.Though attempts to divide history into periods are hazardous, in this chapter I will partition modern economic and social history in Sweden into three periods.The first, the century from about 1870 to 1970, may be called “the period of decentralization and small government.” During this period, the economic system in Sweden did not differ much from the ones in other countries in Western Europe, although Sweden was probably one of the least regulated economies in this part of the world. The second period, from 1970 to 1985–90, may be characterized as a “period of centralization and large government.” In this time span, Sweden acquired idiosyncratic features, though still within the framework of a capitalist market economy.