Kicking Away the Ladder. Development Strategy in Historical Perspective

This free-trade phase, however, was short-lived. From around 1880 Sweden started using tariffs as a means of protecting the agricultural sector from the newly-emerging American competition. After 1892 (until when it had been bound by many commercial treaties) it also provided tariff protection and subsidies to the industrial sector, especially the newly-emerging engineering sector.[143] As we can see from table 2.1, by 1913 its average tariff rate on manufactured products was among the highest in Europe. Indeed, according to one study conducted in the 1930s, Sweden ranked second after Russia among the 14 European countries studied, in terms of its degree of manufacturing protection.[144]

As a result of this switch to protectionism, the Swedish economy performed extremely well in the following decades. According to one calculation Sweden was, after Finland, the second fastest-growing (in terms of GDP per work-hour) of the 16 major industrial economies between 1890 and 1900, and the fastest-growing between 1900 and 1913.[145]

The tariff protection of the late nineteenth century was particularly successful because it was combined with industrial subsidies as well as supports for R&D aimed at encouraging the adoption of new technologies. Economic historians generally agree that the promotional efforts of that time provided an important impetus to the development of certain infant industries, although one negative side effect was to create the proliferation of relatively inefficient small firms.[146]

Tariff protection and subsidies were not the only tools that Sweden used to promote industrial development. More interestingly, during the late nineteenth century, Sweden developed a tradition of close public-private cooperation to an extent that is unparalleled in other countries during this period, including even Germany with its long tradition of public-private partnership (see section 2.2.3).

This cooperative relationship first developed out of state involvement in the agricultural irrigation and drainage schemes. This same pattern was then applied to the development of railways from the 1850s. In contravention of the then dominant model of private-sector-led development of railways (notably in Britain), the government built the trunk lines (completed by 1870) and allowed the private sector to construct branch lines. The construction and operation of the branch lines were subject to government approval and, after 1882, price control. In 1913, the state-owned railway company accounted for 33 per cent of the railway mileage and 60 per cent of goods transported.[147]

Similar methods of public-private cooperation were applied to the development of other infrastructures – telegraph and telephone in the 1880s and hydroelectric energy in the 1890s. It is also often argued that this long-term technical cooperation with state-owned enterprises in the infrastructural industries was instrumental in making companies like Ericsson (telephones) and ASEA (now part of the Swedish-Swiss firm ABB, which manufactures railway equipment and electrical engineering) into world-class firms.[148]

Public-private collaboration also existed outside the infrastructural sector. In 1747, a semi-autonomous Iron Office was created. Its directors were elected by the Association of Iron masters (the employers’ association), and it maintained a price cartel, disbursed subsidized loans, provided technological and geological information, gave out travel stipends for the sourcing of technology, and promoted metallurgical research. The industry was liberalized in the mid-nineteenth century, starting with the liberalization of trade in pig iron within the country (1835) and achieving the removal of most restrictions by 1858. Even after this, however, the employers’ association continued to collaborate with the government in fostering better technical standards and higher skills. It is interesting that all of these initiatives resemble the patterns of public-private collaboration for which the East Asian economies later became famous.[149]