Goal: to address crisis of the Rehn-Meidner model (a sustained decline in labor productivity; wage drift as basis for institutional withdrawal by labor)

Key Assumptions:

corporate profits needed to increase; social equality must become a secondary priority. "First growth, then redistribution." Associated with the ideas of neoliberal Minister of Finance, Kjell-Olof Feldt (1982-90).

Pillars:

(1) devaluation (initially 16%) of the krona to boost international competitiveness

(2) tax reform (i.e., simplification, increase in consumption taxes, elimination of deductions and exemptions, etc.), spending cuts, and liberalization of credit markets

(3) monetary stability: adjustment of krona to an external currency (the Deutschmark and in 1991 the ECU)

Effects:

(1) emphasis on profits caused wage drift and resulted in union fragmentation

(2) labor productivity growth too sluggish to save the Third Road

(3) public spending cuts which fell heavily on public employees undermined union support for SAP

(4) macroeconomic performance was uneven partly due to the inflationary pressures of wage drift and corporate profits; recessionary after 1989; then the crisis of the EMS in 1992

(5) devaluation of krone failed to improve the competitiveness of Swedish industry