ABSTRACT
This chapter explains the economic strategy with which Swedish unions sought to cope with the problems posed by the mid-1970s international economic crisis was toward increased influence by both the state and unions on microeconomic decisions. The establishment of Social Democratic control of the state on a basis clearly more durable than in the past prompted a significant reorientation of the union's strategy in the market arena. In combination, the pattern of economic policy introduced by the Social Democratic government in the 1930s and the Basic Agreement defined the main features of the relationship among the state, labor and capital characterizing the Swedish model. The limits to the scope of state action called for by the Rehn model are also those characterizing Keynesian policy. For Keynes, the traditional functions of government had to be extended only to bring aggregate investment to the level required for full employment but not to determine the composition of investment.
