The Great Depression and Sweden's First Social Democratic Government
The full impact of the Great Depression reached Sweden in March 1932, when the collapse of “match king” Ivar Kreuger's business empire nearly brought down the Swedish banking system. During World War I Kreuger succeeded in bringing Sweden's match production into a single firm. After the war, he tried to expand his monopoly worldwide, often using short-term credit from Swedish banks to make long-term loans to countries that were short of foreign currency in exchange for agreements giving him a monopoly. By 1928, Kreuger controlled more than half of the match production in the world. With the onset of the global depression, Kreuger's ability to juggle his debt burden failed. He killed himself on March 12, 1932.
A number of Swedish banks that loaned Kreuger money had to be bailed out by the Swedish government. Kreuger's failure affected more than the banking system. He had extensive holdings in other Swedish companies. When his shares were dumped on the market, stock prices spiraled down. Personal fortunes evaporated and export sales fell. Production dropped 34 percent in the export industries and 13 percent in domestic industries. The number of unemployed workers rose from a predepression low of 10,000 to 189,225 in 1933.
Wigforss and Hansson Tame Unemployment
In 1931, months before the collapse of Kreuger's matchstick empire, economist Ernst Wigforss (1881-1977) developed a radical program of massive government intervention to fight unemployment and stimulate economic recovery. His program rested on two basic ideas:
The systematic use of government-financed public works to provide employment and stimulate the economy
An effort to increase purchasing power using deficit government financing and redistribution of income in the form of social services and subsidies to the industrial working classes and farmers
SAP took Wigforss's program to the polls in the 1932 elections, winning more than 40 percent of the vote.
Between 1932 and 1976, the Swedish Social Democratic Labor Party ruled Sweden without interruption. Since 1976, SAP has been removed from office four times: in 1976, 1991, 2006, and 2010. The first three changes in government brought no major changes in Sweden's social welfare programs. It is too soon to tell what changes the 2010 government will bring.
Under the leadership of Per Albin Hansson (1885-1946), who served as premier four times between 1932 and 1946, SAP implemented a reform plan based on Wigforss's program. With the informal support of the Agrarian Party, the SAP government transformed an existing system of relief work into a dynamic public works program. They began work immediately on any state and municipal public works that were already on the planning board for the future: schools, hospitals, railways, roads, harbor construction, and improvements in forestry and agriculture. The old relief system paid workers 15 percent less than the minimum wage an unskilled worker could earn in the open market. Men employed on the new public works program were paid a full market wage. The government borrowed money to fund the public works projects rather than raising the money through taxes, which would have neutralized the stimulus to the economy.
At the same time, the government introduced new social security measures, which were designed both to provide an economic safety net for the poor and to increase their purchasing power: unemployment insurance, increased old-age pensions, and housing loans for large families. They also implemented guaranteed prices for agricultural goods, special grants for rebuilding farm buildings, and easier access to agricultural credit. (The same banks that were willing to lend Ivar Kreuger millions were less welcoming to small farmers.) Sweden paid for these services through a progressive income tax. All together, the Wigforss program reduced unemployment from 189,225 in 1933 to 9,600 in 1937.