Public subsidies to industry

Description

The second part of the 1970s were a period of recession in Sweden. One cause was a reduction in Sweden's competitiveness in world markets. In response, Sweden's industrial policy became tuned to maintaining high levels of employment by slowing adjustments to the changes occurring in the world's production structure. Swedish industry was given unusually high levels of government subsidies during the recession years. The Swedish shipbuilding industry received even higher than average levels of subsidies. This paper examines the reasons for the substantial subsidization of industry in general and shipbuilding in particular. Sweden's approach to shipbuilding problems is compared with that in Japan, where the industry faced a similar situation. This study concludes that Sweden needed a stabilization policy that aimed at maintaining the general competitiveness of its industries to address, particularly, rising production costs. Instead, government policies hampered profitable areas of industry, preventing them from expanding and thus absorbing the unemployed and those employed in subsidized industries. Moreover, the subsidies may not have gone to those workers most in need, but to those able to mount an effective lobby for subsidies.

Subjects

Series Statement

• World Bank Staff working papers ;