Built-in stabilisers did exist, for instance in the form of unemployment support, but the benefits were low in order to strengthen the incentive to search for new employment. This did work – when the upturn came in February 1922 the number of persons on relief work or the dole was over 100,000; by the end of 1923 the figure had dropped to 6,000 – but the flexibility did, of course, exact a price in the form of social hardship. Stabilisation policy’s emergence In contrast to the lack of an active economic policy in the period around 1920, decision-makers in the 1930s had high ambitions, underpinned by a nascent stabilisation policy theory. The course of economic events in connection with the crisis of 1930–33 partly resembled what had happened in Sweden a decade earlier. An international boom with unduly high hopes of future profits had led to markedly inflated asset prices. The party ended in a financial crash and Wall Street’s collapse in October 1929. A number of banks had to close their doors. On top of all this, the US Federal Reserve imposed credit restrictions. In Sweden, the depression was not as deep as the one in the early 1920s, though unemployment did rise to much the same level, about 25 per cent. The major difference was that the economy was successfully piloted past a steep price fall. Sweden left the gold standard in September 1931.
Since the upturn in 1993, annual GDP growth has averaged 3–4 per cent, while inflation has stopped at 1 per cent. This is impressive, not least compared with the 1970s and 1980s, when growth averaged little more than 2 per cent and inflation over 8 per cent. Moreover, open unemployment has fallen in just four years from 9 to less than 4 per cent. Today, when Sweden again faces an economic downturn, the initial position is considerably better than earlier. Inflation is low. There is no sign of large financial imbalances. Foreign trade is generating surpluses. The government budget is also in surplus and government debt has been reduced from about 80 per cent of GDP to 50–55 per cent. An economic policy synthesis This brief review clearly illustrates the interaction of theory and practice over the years. New features in economic development raise new questions. New theories provide answers that are sometimes incorporated in practical politics. This influences developments and raises new questions. In view of this, there is every reason to be humble. We are no doubt as far from the end of history in this field as in others. Perhaps one can discern the outlines of a synthesis between the classical approaches and the ideas of Keynes. As I see it, such a synthesis can rest on three pillars: •  The basic condition for a good economic development is markets that function properly, with rules that are clear and firm.