ECONOMIC AND COMMERCIAL CONDITIONS

IN

SWEDEN

February, 1935

I. INTRODUCTION

The favourable economic developments which marked the closing months of 1933 continued throughout the past year. Business activity was maintained at a high level, and Sweden continued to enjoy a fair measure of prosperity. The increase of both internal and external trade is reflected in the index of industrial production, which has risen steadily since the autumn of 1933, and at the close of 1934 stood at 4 per cent. above the average level of the year 1929 and 14 per cent. above that of the five year period 1925-30. The total industrial production of Sweden last year was about 22 per cent. greater than in 1933.

A contributory factor to the general improvement in trade and industry which has taken place during the past twelve months was the settlement in February, 1934, of the prolonged strike in the building industry, which permitted the resumption of building operations and had a stimulating effect on allied industries and on the demand for labour. According to the latest returns issued by the State Unemployment Commission, the number of unemployed has decreased since December, 1933, from 171,000 to 93,000. After elimination of seasonal unemployment the number of trade union members now out of work is about 14 per cent. as against 17 per cent. a year ago.

In all the principal trades the collective wage agreements between the masters' associations and the men's unions have been renewed for another year on the same terms as in 1934, thus assuring a fair degree of calm in the labour situation in 1935.

A healthy state now prevails in the internal trade of Sweden, of which an indication is the increased production of the industries working principally for the home market. The turnover in all branches of retail trade exceeded that of 1933. The demand for domestic goods and semi-luxury articles is greater than at any time. since 1929. The standard of living of the people as a whole is high and their purchasing power is steadily increasing. Sweden's foreign trade for the past year was 418 million kronor, or 19-23 per cent. greater than in 1933. The value of exports rose by 20 per cent. and of imports by 18 per cent. The adverse balance of trade was 46 million kronor; this is the most favourable trade balance recorded since 1929.

The demand for Sweden's staple exports is increasing, although not to an extent which would allow of the industries working principally for the export market producing at their full capacity; also the prices obtained for wood products, wood-pulp and paper are now lower than a year ago.

There can be no doubt that Sweden has pursued a prudent and conciliatory policy in trade matters. Apart from certain regulations

in regard to the import of agricultural produce, only minor adjustments have been made in the tariffs and no quotas respecting imports, exchange regulations or other restrictive measures foreign trade have been adopted during the past year.

The measures taken since 1931, in order to improve the lot of the farmers and to raise the standard of agriculture generally, have enhanced the purchasing power of the rural classes as well as improved the conditions under which they live and labour. They have, however, resulted in an over-production of wheat and rye and involved the state in a higher expenditure than was at first anticipated.

The rate of interest has fallen to an extraordinarily low point for Swedish conditions; in consequence of this, industry and commerce can now procure money at rates no one would have thought of a few years ago.

The traffic on the railways continues to increase, and the amount of Swedish shipping laid-up has been considerably reduced, this fact being regarded as a very welcome and promising sign of returning prosperity.

The general consensus of opinion in Sweden is that the economic progress of the past eighteen months will continue for some time, and that trade will increase provided that there are no unforeseen happenings abroad which would tend to retard the advancement of international trade.

Although the unemployment problem is now not so acute as a year ago, it is still a matter of national concern, and further grants will be voted by the Riksdag in order to provide work for the people. In this connection proposals were foreshadowed in the King's speech at the opening of the Riksdag on 11th January, 1935, regarding a series of measures to be taken for the advancement of industry and especially agriculture and forestry. Extensive works in connection with the distribution of hydro-electric power and further electrification of the railways were also to be proposed. An arterial cable, to carry electric power from the waterfalls in the northernmost parts of the country to the distribution systems covering the more highly industrialised areas of the south, is to be laid down.

In an exposition of the budget proposals for the coming financial year, which opens on 1st July, 1935, the Minister of Finance delivered a short survey of the international economic developments during the past year. These, he said, had justified the Government's caution in appreciating the prospects when drawing up the programme of state expenditure at the beginning of 1934. During the second quarter of last year a weakening had occurred in some of the leading foreign markets and this trend became more marked later on, but on the whole it would be premature to speak of any downward change in the general tendency, as there were recent signs of developments in the opposite direction. The freedom of currency had allowed of favourable conditions in certain markets. A comparison with the economic conditions prevailing in the gold

block countries supported the opinion that free currency allowed of greater freedom of action to the forces which had been effective in bringing about an improvement of the international outlook.

There were still uncertain factors to be taken into account in attempting to estimate the economic prospects. The most important of these were related to the development of international trade policies and to the situation on the currency market. It was characteristic of the present situation that a greater improvement had taken place in the various domestic markets than in international trade. The explanation was to be found in the efforts of certain countries to establish economic self-sufficiency. Such a policy could only effect improvements up to a certain limit, but would later on bar further progress.

In the unstable situation on the currency market the co-operation between the countries, whose currencies were bound in a more or less stable relation to the pound sterling, was a firm factor. Especially in regard to Sweden the maintenance of a fixed sterling exchange had been of great value.

The far-reaching regulations for the advancement of agriculture had been carried through with almost unanimous support from the Swedish people. In the economic situation in which Sweden now finds herself it ought to be of common interest to all political parties to explore the possibilities of co-operation. Every attempt to create the necessary balance between purchasing power and technical capacity of production seemed to demand public measures. The policy which had been pursued by the Swedish Government in regard to the domestic market could be quoted as an example. As a result of increased employment increased purchasing power was created, which in turn strengthened the demand for goods.

An expansion of the domestic market by organising the home production so as to make it capable of meeting foreign competition without employing measures for restricting imports is the broad outline of Sweden's domestic policy. The public measures to be taken with the object in view are not of an extraordinary shortterm character, but of a more permanent nature likely to provide more lasting employment. The budget proposals do not, therefore, include any short-term loans nor do they imply any increase of taxation.

II. FINANCE

STATE FINANCES.

Results of the Financial Year 1932-33.-The returns for the budget year 1932-33, which closed on 30th June, 1933, show a deficit of 30 million kronor. Revenue was lower by 18-8 million kronor and expenditure higher by 11.2 million kronor than the estimates passed by the Riksdag a year earlier.

On the revenue side, income and property taxes exceeded the estimates by 10-24 million kronor, stamp duties by 4.62 million kronor, and the net profits from the Telegraph Department and Crown Lands by 3.17 and 3.48 million kronor respectively. The income from customs and excise duties fell short of the estimates by 30-81 million kronor and from the automobile tax by 7.21 million kronor. The net profit from the State Railways was 6.39 million kronor less than was expected.

The increase in expenditure was due principally to supplementary grants for combating unemployment.

Budget for the Financial Year 1933-34.—A cardinal principle of Swedish budgetary policy is that all current expenditure must be met from the receipts of taxation, and loans may be raised only for undertakings which will yield some return on the capital outlay. In their estimates for 1933-34 the Government endeavoured to maintain this principle, but found themselves obliged to propose shortterm loans to cover capital expenditure for unemployment relief works of which the estimated cost was 160 million kronor.

In order to balance the budget, increases were proposed in the income and property tax, and in the tobacco, spirit and malt duties. Large additions were also proposed in the death and legacy duties from which the yield was expected to amount to 40 million kronor, as against 15 million kronor in the financial year 1932-33. The receipts from this source were to be placed to a fund for the redemption of the short-term loans.

During the passage of the budget through the Riksdag certain modifications were made, and the proposal to raise a loan of 160 million kronor for combating unemployment, to be paid off in four years from the death and legacy duties, was modified by reducing this sum to 125 million kronor, whilst the period of amortisation was extended to five years. The estimates of the receipts from many sources of revenue were reduced, and new taxes, e.g. an excise duty on margarine, and a tax on oilcake and other cattle-food, besides an increase of customs duty on certain articles, had to be resorted to. Finally the budget was passed at the figure of 1,010 million kronor.

Supplementary estimates, totalling approximately 19 million kronor, were passed in May, 1934, principally in order to make provision for additional expenditure on public works not foreseen in the ordinary estimates for that year. The total amount borrowed by the state in order to balance the budget and supplementary estimates was 269 million kronor.

The budget results were published by the State Audit Departmen in November, 1934; they show a net surplus of 11.99 million kronor, which has been transferred to the Treasury Reserve Fund. The excess of state assets over liabilities decreased from 1,252.98 to 1,216.76 million kronor. This decline is chiefly due to writings off of 37.12 million kronor caused by an adjustment of the values of the Crown Lands due to changes in the assessment values. A table

setting out, under main headings, the actual income and expenditure of the Swedish Government during the financial years 1932-33 and 1933-34 (inclusive of supplementary budgets) will be found in Appendix la.

Budget for the Financial Year 1934-35.-The budget for the financial year commencing 1st July, 1934, which was laid before the Riksdag at the beginning of 1934, provided for an expenditure of 1,052 million kronor. Following up the policy inaugurated in 1933, the Government asked for a grant of 155 million kronor to be expended on public works as a means of combating unemployment. Out of this amount a sum of 123 million kronor for non-productive works was to be raised by short-term loans. State revenue proper was estimated at 676 million kronor, the income from state commercial undertakings, productive funds and miscellaneous sources at 135 million kronor, and 241 million kronor was to be obtained by borrowing.

During the passage of the budget through the Riksdag the estimate of state revenue proper was raised to 694 million kronor, borrowing was increased to 282 million kronor, and the proposed expenditure on public works reduced to 127 million kronor. The budget for the current financial year as finally passed was balanced at 1,106 million kronor and thus exceeded the original estimates by 54 million kronor, the excess being chiefly due to extraordinary outlays not foreseen when the original estimates were prepared.

The new items of expenditure include 65 million kronor for a temporary advance of capital to the Swedish Cereals Association, 8 million kronor to meet possible losses on the guaranteed purchase of cereals, and 5 million kronor for state investment in A/B Industrikredit, a company established by the state for the purpose of granting medium-term and long-term credits to industrial

concerns.

The amount reserved for the amortization of short-term loans during the fiscal year 1934-35 is 36 million kronor. An estimated deficit of 3 million kronor in the revenue required for this purpose was met by a slight increase in the rate of ordinary income tax.

The aggregate amount of short-term loans required to meet expenditure on public works has been estimated by the government at 230 million kronor, and it is expected that this sum can be repaid within six years.

A table showing the separate main items of the current budget, as compared with those of the budget passed in 1933, is set out in Appendix IB.

Preliminary figures for the first six months of the current fiscal year indicate that the revenue from taxation and also the net profits from state productive funds and commercial undertakings will considerably exceed the budget estimates. The return of total income for June to December, 1934, is 421,153,000 kronor against