AS SWEDEN PREPARES for what is likely to be the last national election of this century, most of the major issues are in one way or another related to the country's Nordic model of society, and its fate in a world that is increasingly dominated by multi-national corporations. But in order to see the connections, it is necessary to understand something about the underlying logic of that model and the problems by which it has been afflicted in recent years.

Especially during the time of Dag Hammarskjöld, Alva Myrdal and Olof Palme, Sweden has also pursued an unusually active (for a small nation) foreign policy that has emphasised disarmament, the primacy of international law and solidarity with the Third World.

That policy is the logical expression of the Nordic model's underlying values and principles, as Olof Palme once explained: "It would ring false if we were to speak ever so eloquently about the need to help the poor peoples of the world, while at the same time allowing class divisions and income disparities to increase in our own country. There has to be a clear and direct connection between our policies at home and what we stand for in the global arena."

Despite the extraordinary successes of the Swedish business community, its most powerful representatives decided some twenty years ago to opt out of the Nordic model. Since then, it has invested heavily in a systematic and aggressive campaign to "set market forces loose, cut the public sector, increase class divisions and weaken the position of the labour unions", as Palme warned in 1981.

The campaign, organized largely by the Swedish Confederation of Employers ("SAF"), has gone a long way toward meeting those objectives, assisted by events and allied forces in the outside world. The important role of the international mainstream press has been noted elsewhere (see "Disinformation Digest"). The most significant political-economic developments have been the rise of neo-liberalism, the accelerating globalisation of the economy and the growing dominance of multi-national corporations-- all of which are, of course, interwoven. It is primarily the interests of the Swedish multi-nationals that are represented by SAF and its political instrument, the Conservative ("Moderate") Party.

One political consequence has been an increasing polarisation that has greatly benefitted the Conservatives. The benefits to the "other side" are not so easy to detect. In fact, it is generally agreed that the labour movement and its political instrument, the Social Democratic Party, have been steadily losing ground in the face of global trends which pose a growing threat to the Nordic model. A series of concessions and retreats has resulted in widespread disenchantment among traditional social democrats, and many have ceased to vote or have switched their allegiance to the Left Party (the former Communist Party.

In fact, net public expenditures have been on the plus side for most of the past ten years, including the worst period of the 1990s' depression. The social insurance system has always operated at a surplus, with one exception: unemployment insurance. But the purpose of that institution is to protect citizens during hard times; it is supposed to operate at a deficit on such occasions.

The actual causes of the depression are to be found in the neo-liberal economic policy that has been gradually superimposed on the Nordic model since the mid-1980s-- at first by a Social Democratic finance minister, most diastrously by the center-right coalition government of Carl Bildt during its brief reign of error during 1991-94.

Among the most costly features of that policy have been: an under-financed tax reform that drastically reduced revenues; a stubborn crusade against largely non-existent inflation; a bizarre attempt to defend a fixed exchange rate with interest rates of up to 500 percent; and deregulation of financial markets that resulted in a speculation bubble, the near-collapse of the banking system, and enormous subsequent costs to taxpayers and depositors.

On top of all that, the Bildt government provided extensive tax cuts to its well-heeled constituency, prompting economist Peter Malmqvist to observe: "To apply such heavy cuts, at a time when we are grappling with an enormous deficit as a result of past blunders, is a display of staggering irresponsibility."

Economists Dag Rolander and Carl Hamilton summarised the total damages in their book, Leading Sweden into Depression: "Approximately 270,000 of today's unemployed, six percent of the workforce, must be debited to the Bildt government's economic policy. The resulting loss of production is an estimated 30 billion kronor during the years 1993-99. It is a human and economic waste without parallel in the entire history of Sweden."

Feldt bears the primary responsibility for the under-financed tax reform that drained the national treasury, and virtually the entire responsibility for the single most fateful measure of the neo-liberal era in Sweden: deregulation of the currency market. With that single stroke, the government divested itself of the power to exercise control over the fruits of the nation's natural and human resources-- all according to standard neo-liberal doctrine. At the same time, it became much easier to impose limits on government policy by means of economic threats and sanctions from within and without.

Whatever the degree of necessity, currency deregulation was the first in a series of concessions by which the post-Palme leadership of the Social Democratic Party has painted itself and the country into a corner that offers less and less room for maneuver. It is a mystifying process that seems to be carried inexorably forward by its own inertia. Looming after the forthcoming election is formal approval of a parliamentary decision to surrender democratic control over the country's central bank-- to a handful of technocrats very like the bank's current chairman, Kjell-Olof Feldt. Next stop: Frankfurt and the European Monetary Union.

Against this background, it was inevitable that the current election campaign should be dominated by the issues of unemployment, the economy and the state of general welfare.

Naturally, the Feldt-Bildt depression made the traditional policy of full employment much more difficult to sustain. In addition to the direct unemployment it caused in the private sector, particularly in the construction and manufacturing branches, the resulting loss of revenues produced a rapidly accumulating budget deficit, followed inevitably by urgent demands for massive cuts in the public sector.

To this direct economic pressure was added the apparently serious threats of the Bildt government to carry out a "system shift", away from the Nordic model. The idea was to convince a critical mass of the Swedish population to abandon its reliance on the general welfare system-- a demonstrably efficient form of collective savings and insurance-- for a life of splendid isolation and the selective, profitable mercies of the private insurance industry. For this purpose, the Bildt government's catastrophic failure actually worked to its advantage: By severely damaging the personal economies of so many in such a short period of time, and by spreading anxiety about the future, it apparently succeeded in weakening the social fabric of Swedish society at least to some degree.

Nevertheless, that is essentially the policy which his government adopted after returning to power in 1994. It has been continued with even greater fervour by his successor as prime minister, Göran Persson, who boasts of converting Sweden into the "world champion in savings and deficit reduction". That theme is also reflected in the title of Persson's autobiography, Those Who Are in Debt Are Not Free, a sentiment which U.S. economist Robert Eisner has characterised as, "The dumbest thing I ever heard." On the other hand, the government has been praised for its efforts by elements of the neo-liberal establishment.

There are several explanations for the post-election policy reversal of the Social Democrats. The most obvious is that the party leadership had already abandoned the traditional commitment to full employment in 1990, in preparation for membership in the European Union. Since then, it has faithfully conformed with the so-called "convergence norms" that prescribe a maximum inflation level of two-percent, and an annual budget deficit of no greater than three percent.

A related problem has previously been referred to in the introduction to this election guide, i.e. Sweden's vulnerability to pressures from the international credit market. Egged on by such ardent ideologues as Skandia's Björn Wolrath and the leadership of SAF, "The Market" has enforced cuts in the public sector by wielding the weapons of higher interest rates and lower credit ratings.

As a result of these pressures and ideological demands, the government has deemed it impossible to restore the public sector, and thereby solve a significant portion of the unemployment problem. A side-effect has been a deterioration of public services which appears to be self-defeating and entirely unncecessary (see below, "General Welfare").

That, coupled with the restrictive economic policy of the EU, has made it rather difficult for the Persson government to redeem its pledge to cut unemployment in half by the year 2000. With a bit over one year remaining, the present rate of unemployment is only slightly less than when the pledge was made in 1995, i.e. roughly eight percent.

A great deal of time and emotion has been devoted to debating these issues in recent years, but not much thought. The available evidence does not offer much basis for the notion that workers' rights and social insurance benefits are to blame for the loss of jobs. For one thing, those rights and benefits were never stronger than when unemployment was at its lowest, during the 1980s. The logical inference is that the best way to increase employment would be to improve the situation of workers; but, in fact, there does not appear to be any sort of direct connection between the two phenomena.

Another item of contrary evidence emerged recently when a research group found that unemployed Swedish workers had a much better chance of finding new jobs if they remained in their present communities. A basic tenet of the "inflexibility" theory is that extensive unemployment benefits have a negative effect on labour market efficiency, by decreasing the motivation of the jobless to move to where the work is.

Perhaps the most damaging evidence against the stated connection between "flexibility" and job-creation is that it apparently does not even exist in the country where it is said to do wonders. The "American model" has in recent years received a great deal of attention from Swedish business leaders and political conservatives. But the best evidence indicates that, when statistical discrepancies are corrected, the actual unemployment rate in the U.S. is roughly equal to that of Sweden. This does not take into account the widespread, and largely unnecessary, human suffering that the U.S. model perpetuates.

In short, there is no evidence to support the oft-repeated assertion that so-called labour market inflexibility is a significant cause of unemployment. But the U.S. does provide one useful lesson, as Jeff Faux of that country's Economic Policy Institute points out: "The principal reason for faster U.S. growth and lower employment rates in recent years has been more liberal macroeconomic poilicies. . . . The U.S. has no Maastricht constraints [i.e. EU convergence norms] and has therefore been free to pursue policies to stimulate overall demand."

It is an initiative that the labour movement has been forced to implement by itself, since SAF has in recent years refused to participate in such centrally co-ordinated efforts. Alone among the Nordic countries, Swedish Big Business has adopted a divide-and-conquer strategy, with the long-term goal of reducing the unions to a paper tiger as in the United States.

In general, the safest prediction is that, as long as Sweden holds fast to the neo-liberal economic policy of the EU, unemployment will most likely continue at roughly current levels. According to LO's economists and other analysts, the convergence norms actually require an unemployment rate in the vicinity of 8-10 percent, or higher. Thus, if unemployment declines substantially in Sweden and the rest of the EU, it will be in spite of those norms, not because of them.

In this context, it is probably of no little significance that, while EU economic policy does not appear to have hindered the performance of multi-national corporations-- their profits of those in Sweden have never been higher-- it has tended to weaken the unions and caused widespread suffering among individual workers and their families.

In assessing the wisdom of such proposals, it is well to keep in mind that they are being offered by the same interests and individuals that produced the Feldt-Bildt depression. Other products of their ideological handiwork may currently be observed in the financial chaos of Russia, Southeast Asia and Japan. They are represented, for example, by the influential credit rating agencies which lowered Sweden's ranking a few years back, but gladly placed their highest mark of approval on South Korea just a few months before its economic collapse.

In short, an astute investor could have become extremely wealthy in recent years by doing just the opposite of what the neo-liberal hordes have recommended. Sweden's crucial forest industry, representing roughly one-half of total export revenues, provides a case in point: Having convinced themselves that the climate for their business was bad in Sweden, industry leaders have invested heavily abroad. Most of those investments have turned out to be more or less disastrous, while the Swedish operations continue to make money as though it grew on trees.

The Swedish economy has, in fact, performed so well that it has been possible to recover from the country's worst-ever economic disaster in the space of just a few years. The budget deficit, the significance of which has been grossly overstated, has been reduced so rapidly that a positive balance is anticipated during the next few years. Especially perplexing, from the neo-liberal point of view, is the fact that it is Sweden's comparatively high level of taxation that has made the rapid fiscal recovery possible.

The one genuine problem experienced by the Swedish economy during recent years has been the suppressed domestic demand noted above (see "Jobs & Unemployment"). Small businesses, in particular, have been badly hurt by the same economic policy that has prevented a return to full employment-- at the same time that many unemployed persons have attempted to support themselves by starting a business. But this is of little apparent concern to the multi-national corporations for and by which EU economic policy has been tailored.

However, some of those effects are already becoming apparent, particularly in the public sector. Massive layoffs and bizarre neo-liberal experiments with privatisation in the schools, hospitals and other social services have in many instances produced heavier workloads and related stress. Occupational burn-out among teachers, doctors and other professionals is emerging as a serious problem that threatens to escalate rapidly in the near future. Although the general level of service remains at a comparatively high level, there are increasing reports of inadequacies, abuses and inconveniences at various facilities.

The net result is that, while many social services are overloaded and short-handed, there is an abundance of qualified personnel sitting at home or taking courses in computer programming. It is a situation reminiscent of the 1930s, when truckloads of milk, eggs and other desperately-needed commodities were dumped into lakes and rivers, in blind obedience to that decade's increasingly familiar economic dogma. Since "The Market" does not approve of the public sector, the Social Democratic government has felt compelled to hack away at it, regardless of the social and economic consequences.

Among the social consequences are deteriorating public services and reduced employment opportunities for women, who are disproportionately represented in the public sector. The effects on the economy are more difficult to calculate, but throwing people out of work for no good reason and creating a general atmosphere of uncertainty is presumably not the most effective strategy for restoring consumer confidence and stimulating economic demand.

The Persson government appears to be aware of all this and, having appeased The Market by becoming the world champion in deficit reduction, has announced plans to start reinvesting in the public sector. Naturally, this has been interpreted by neo-liberal observers around the world as an ominous sign that the Swedes may be sliding back into their bad old habits of "too much welfare" and cradle-to-grave suffocation. A continuation of the customary threats and pressures may be safely anticipated.

The basic problem, of course, lies not with Sweden's Nordic model of society, but with the destructive interests that have been attempting to undermine it. and are becoming increasingly obvious with each new crisis of the global economy.