Sweden’s Relative Growth 1850-2020. A Drama in Three Acts

Sweden’s economic growth in relation to developments in the rest of the world exhibits three distinct phases over the past 170 years. From 1890 to 1950, Sweden experienced faster growth than comparable countries. This period of liberalization was followed by a phase of lagging behind until around the turn of the millennium. This relative stagnation is closely associated with the financial repression implemented by the social democratic governments in the post-World War II period. Strong anti-competitive regulations of the financial system, including the political determination of interest rates and allocation of capital, were likely the main cause of the Swedish lagging behind. After financial deregulation, a third phase begins, marked by a weak relative recovery. In line with current research, the three phases of Sweden’s relative growth are explained by the degree of liberalization of the Swedish economy, in other words, by the level of economic freedom.