Taking Different Paths? Growth Models and the Evolution of the German and Swedish Political Economies

Germany and Sweden are traditionally grouped together by the VoC literature as examples of the coordinated variant of capitalism.  These countries, it is argued, have similar production regimes and rely heavily on specific skills and associated institutional capabilities for coordination.  While in Sweden collective bargaining was more centralized and solidaristic in the 1970s, during the 1980s there was a convergence on the German model of industry-based coordination.

In this paper we shift the attention from the supply to the demand side of the two political economies and argue that there is in fact a fundamental difference between the two countries having to do with different "growth models." While Germany became during the 1990s an exclusively export-led model, in Sweden growth remained more balanced and continued to be pulled both by domestic consumption and by external demand.  We explain this difference by linking it to the different responses to shocks hitting to the countries in the early 1990s, to the greater size of the public sector, and to more organized service sector workers in Sweden than in Germany.  We also argue that growth models help to account for the different distributive outcomes between the two countries (low wage, poverty, d5/d1 inequality). In the conclusion we discuss whether recent trends may signal, again, a convergence of the Swedish model on the German "export-led" one, or whether the difference in demand regimes is resilient.