This chapter argues that exports were the key driver of Swedish economic growth in the period from 1994 to 2008. In contrast to the German case, however, macroeconomic management and the system of coordinated wage bargaining served to boost domestic demand and to diffuse wage growth and productivity growth from the exposed sector to the sheltered sector. Over this period, the Swedish economy as a whole grew more rapidly than most OECD economies and exports became more diversified, with ICT products and high value-added business services assuming a more important role. We argue further that the Great Recession of 2008 to 2009 precipitated a shift toward a greater reliance of domestic consumption as a growth driver. Expansionary fiscal and especially monetary policy supported this shift, with construction and other sheltered sectors, characterized by lower profit shares than export-oriented manufacturing, becoming prominent actors within the dominant growth coalition.

The established view is that the Stockholm-School economist Erik Lundberg was a tenacious opponent of the so-called Rehn-Meidner model, an economic and wage policy program developed by two Swedish trade-union economists after WW II. But despite his ideological objections, Lundberg shared many of the premises of the model in his debate with Gosta Rehn in the early 1950s. Furthermore, in their debate, Lundberg approached Rehn's policy program and macroeconomic theory. Lundberg's ambiguous attitude turned into a complete adoption of the Rehn-Meidner model in the 1960s. By highlighting the model's originality, Lundberg also correctly downplayed the impact of the Stockholm School.

The Swedish Rehn-Meidner model is a unique economic- and wage-policy program for the simultaneous achievement of full employment, price stability, growth and equality. This article presents, specifies and develops the model's underlying macroeconomic theory. The Rehn-Meidner theory is a synthesis between a flex-price Kaldorian model of profit margins and a Kaleckian model where profit margins are squeezed under full-employment conditions. The theory deviates from both the Kaldorian and Kaleckian models by stressing the importance of low profit margins for productivity growth. Moreover, in the Rehn-Meidner program, full employment is guaranteed irrespective of the level of aggregate demand. The Rehn-Meidner theory and policy deserve a prominent place in macroeconomics even in the age of globalization and financialization. However, some weaknesses of the model make it necessary to modify the arguments for and partly the composition of its policy program.

The idea that firms are more innovative under difficult external condition has no prominent place in evolutionary economics. The neo-Schumpeterians agree with Schumpeter that innovation is stimulated by positive driving forces and associated with industrial renewal through creative destruction. Also Darwinian economists shed light on opportunity factors (variation) and selection. On the other hand, in neoclassical Schumpeterian models, fierce competition and low product demand may enforce innovation and productivity increases in established firms. An orthodox Schumpeterian tradition even maintains that innovation in depression is the cause of the following recovery. But the orthodox Schumpeterians are as reluctant as the neoclassical Schumpeterians to elaborate the underlying psychological mechanism. In the theory of transformation pressure, firms facing an actual decline in profit are supposed to be more creative and rational, or at least more anxious to follow near-rational heuristic rules, having a positive effect as a possible over-reaction on innovation and productivity growth

In the aftermath of a deep recession and public budget crisis, a Social Democrat government pursued an ambitious fiscal austerity policy in Sweden in the mid 1990s. Economic advisors were guided by the idea that fiscal austerity would have neutral or expansionary effects on output and employment. In order to avoid large public deficits in the future, the government also introduced radical fiscal rules. The main conclusion in this article is that the fiscal austerity measures in the mid 1990s delayed the Swedish economic recovery and that neither these measures nor the radical fiscal rules were responsible for Sweden's impressive macroeconomic performance in the following years. The positive economic development in Sweden up until the Great Recession was driven by export, profit and technology, reflecting an international upswing and the country's flexible exchange rates and industrial composition. The floating exchange rate, together with independent monetary policy and luck, explain why Sweden could avoid a sharp decline in GDP growth during the global financial and EMU crises. The demanding fiscal rules restricted the possibilities and willingness of the non-socialist government to respond to high unemployment with an expansionary fiscal policy.

The theory of transformation pressure maintains, by reference to cognitive and emotional factors, that productivity and innovation are stimulated by a decline in actual profits. In periods of increasing profits, firms governed by historical relativism, the peak-end rule and overconfidence will opt for the status quo. In the following profit recession, actors become more alert, calculating and creative, favoring a transformation, especially if they fear that the survival of the firm is at stake. The theory of transformation pressure was tested by a within-subjects experiment where undergraduate students in macroeconomics acted as managers for an established company. The role play sheds light on the students' investment strategy choices and underlying psychological perceptions under varying profit conditions. The theory was only partly confirmed by the experiment. There are arguments in industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressure and good opportunity.