The two preeminent economies of the world – those of Japan and the United States – are headed on a collision course. The bilateral trade imbalance between the two countries is at a record level and is receiving increasing attention from government officials, business leaders, and the general public. In spite of the perceived importance of the problem, its causes and consequences are still not fully understood. Although there is agreement on some of the more general causes, there is substantial disagreement as to the seriousness of this problem and the likely nature of its resolution. Furthermore, as Japan and the United States become increasingly interdependent, the severity of the problem is likely to escalate.

What happens to Japan – U.S. trade relations and trade imbalances over the next few years will be of critical importance. At stake is nothing less than the future prosperity of the world economy, for adverse economic effects on Japan and the United States can generally be expected to harm each and every country with which these two economic superpowers do business.

This collection of essays evaluates the important issues just mentioned from the perspectives of leading economists in the areas of macroeconomics, international trade, and Japan – U.S. business and economic issues. The book is divided into three sections: Part I focuses on the importance of U.S. macroeconomic policy for the trade imbalance, Part II on the microeconomic causes of the problem, and Part III on Japan's role in the trade imbalance and what actions it is likely to take to help alleviate this problem.

MARCHING INTO THE NUCLEAR POWER SOCIETY

Government–business cooperation and the economic boom both continued. The Social Democratic party, which dominated the Swedish state, established increasingly intimate ties with the business sector, especially with major companies. Under the leadership of Tage Erlander and banker-industrialist Marcus Wallenberg, the Swedish economy experienced a golden age that made the Swedish living standard the highest in the world during the 1960s. The chairman of the Swedish Trade Union Confederation and the director of the Swedish Employers' Confederation toured the United States together and gave speeches about “the Swedish Model,” which involved centralized collective bargaining agreements and a labor–management relationship marked by cooperation and consensus. The Social Democrats supported a liberal economic policy aimed at furthering growth, accelerating the restructuring process, stimulating expansive economic forces, and facilitating the mobility of labor from low-wage companies threatened with bankruptcy to the most profitable economic sectors. Industrial profits and employee pay climbed at a record pace. In such a flourishing economic climate, no one seemed to benefit from conflict; it appeared as if continued consensus was to everyone's advantage.

In the end, however, growth itself came to be questioned. Progress had its price. It led to the so-called moving van policy – government-sponsored training and incentives to relocate from economically depressed areas to those with labor shortages – which was viewed somewhat less favorably by those who were subjected to it than by those who had devised it.

DETERMINISM AND THE DOCTRINE OF HARMONY

The triumph of parliamentary government in Sweden was followed by a period of parliamentary crisis. Just as Swedish public life before World War I had fallen short of the constitutional ideals of the Left, events after the introduction of universal suffrage and parliamentarism did not live up to leftist expectations either. Arvid Lindman's proportional representation formula preserved the multiparty system. In addition to the Conservatives, the Liberals (who had split in 1922 into a “Prohibitionist” and a “Liberal” party before merging again in 1934) and the Social Democrats, there were two comparatively new parties represented in Parliament – the Agrarians and the Communists; the latter had broken away from the Social Democrats. There was no parliamentary power base for a strong government. Short-lived minority governments came and went, including the Conservatives, the Prohibitionists (both with and without the Liberals as a coalition partner), the Social Democrats, and an occasional nonparliamentary government of senior civil servants. Under such circumstances, it was not possible to carry out a thoughtful and purposeful government policy. Politics became one continuous strategic game. In parliamentary committees, the parties were constantly looking over each other's shoulders with the aim of forming new coalitions to improve their positions, perhaps by unseating the government and helping form a new cabinet.

SAFETY NET OR “STRONG SOCIETY”?

Cooperation between socialists and nonsocialists continued. The Social Democrats exhibited a probusiness attitude. “The governing party's nationalization plans have been stowed away for a while,” one nonsocialist newspaper wrote after the 1948 election. Now the thing to do was to get rid of lingering wartime economic regulation. This wish was also fulfilled: During the 1950s one set of regulations after the other was abolished. The Swedish economy underwent a liberalization. A new forum was found for the continuing dialogue with business that the Social Democrats had initiated during their efforts to create a consensus on economic policy: The Thursday Club shut down and was replaced by occasional conferences at the Harpsund estate, which an industrialist had bequeathed to Sweden's prime minister as an official country residence. In this peaceful setting, the government could clear up problems and misunderstandings about economic policy. “The spirit of Harpsund” became a symbol of smooth cooperation between the state, represented by the Social Democratic government, and the business community. “The recurring discussions at Harpsund between the government and representatives of the business sector and working life are one of several signs that a new spirit of cooperation is being created,” wrote Stockholms-Tidningen, now a Social Democratic newspaper.

UPPER-CLASS RULE OR POPULAR RULE?

The tariff dispute was over. For the first time, the people had let their voice be heard. The actual opinion they had expressed was a matter of debate. But one thing was clear: The issue of the people's right to play a part in governing the country had irrevocably arrived on the political agenda.

The tariff issue was depoliticized soon after the 1888 law was adopted; it was like a flame that had flared up quickly in the forecourt of Swedish parliamentism. Succeeding it as the new, dominant political litmus test was the suffrage issue. With their roots among broad categories of urban consumers, free traders were usually supporters of expanded suffrage, whereas the protectionists, with their base among prosperous rural freeholders, feared the urban masses and opposed a broader franchise. But as we have seen, there were also free traders who opposed radical reforms of voting rights. During a transitional period there is thus reason to count not only the Left (mainly Liberals and Social Democrats) and the Right (mainly Conservatives, who coalesced into a modern party soon after the turn of the century) but also a third party. In this case it was “the moderate free traders,” who in the two-dimensional Swedish domestic politics of the early 1890s combined support of free trade with opposition to universal manhood suffrage, before the voting rights issue overshadowed all other issues.

FREE TRADERS AND PROTECTIONISTS

During the first half of the nineteenth century, free trade made its European breakthrough. For a limited period following the Napoleonic Wars, the mercantilist tarriff-and-rule system was fully restored. However, in the industrial society that was now emerging, with its vibrant activity, increased production, population growth, urbanization, and improved communications, there was no place for economic restrictions. A steadily growing quantity of goods was being permitted to flow more and more freely among peoples.

For a long time, Sweden did not share the economic growth of the Continent. It was a poor, backward agrarian country with a number of restrictive regulations governing trade and business. But a few reforms during the mid-nineteenth century resulted in full economic freedom, even in rural areas. A crucial factor in this development was that the United States and certain European states began to carry out a policy of retaliation toward Sweden's extensive tariff system. Another crucial factor was the intensive economic boom of the 1850s. Prices climbed very rapidly. It became necessary to suspend tariffs on both grains and animal feed. The reform was originally intended as a temporary measure. But circumstances made it permanent.

In theory, the doctrine of free trade was universal.

OWNERSHIP AND WELFARE ECONOMICS

Socialism derives its specific character and problems from its attitudes toward ownership.

The ideologies of the nineteenth century sometimes described ownership as the mainspring of progress, at other times as the root cause of the miseries of the class system. The former position was espoused by representatives of bourgeois liberalism, an ideology closely associated with the industrialization process. The latter was the view of socialist theorists, who generally believed that it would be necessary to interfere with the right of private ownership in order to create a happier society in the future. Karl Marx developed this view into a provocative theory of industrial development. He taught that mass poverty made it impossible for capital owners to find customers for all their products. As a result, violent crises would arise in the capitalist system. In the end the system would be hit by a major catastrophe, in which the economically exploited workers would seize power and transfer industrial companies to public ownership. Toward the end of the nineteenth century, practically all Social Democratic parties embraced this program.

In Sweden, the early Social Democrats put all their energy into political reforms unrelated to the ownership of capital. Together with the Liberals, they struggled for universal suffrage and parliamentary government.

In this work I have attempted to fulfill two purposes. The first was to write a basic textbook on Swedish politics during the past one hundred years. Rather than provide an exhaustive description, my account has focused on a handful of the most important controversies, beginning with the tariff dispute of the 1880s, that saw the birth of the modern party system. It examines the turn-of-the-century conflicts on suffrage reforms and the introduction of parliamentary government, then analyzes the crisis agreement of the interwar years – which laid the groundwork for the Swedish welfare state and its expansion of the public sector – and continues with studies of the postwar political battles on the economic planning issue and the compulsory supplementary pension system. The book closes with the present-day controversies on nuclear energy and government-run employee investment funds.

My second purpose was to present a theory of politics that has attracted increasing international interest – rational choice theory. Without denying the importance of other theories, it calls attention to the aims, calculations, and maneuvers of political actors; in game theory, it has found a concise format for summarizing its research findings. My own contribution has primarily been intended to show how rational choice theory can be applied empirically, because the disputes included in my book serve to illustrate various political strategies, games, and decision rules discussed by the theoreticians.

THE VOTER'S PARADOX

In more than seventy years, only one political party has succeeded in attracting a majority of the Swedish electorate during peacetime: In 1968 the Social Democrats received 50.1 percent of the vote. Two years later, their share of the total vote fell by nearly 5 percent. Whereas democratic theory has been based on the assumption that the majority makes decisions, political practice has meant government through coalitions or other agreements between various minorities. As a result, politics has largely become a tug-of-war among parties with differing views. Those who currently belong to the winning coalition must constantly weigh their positions on a variety of issues. How far can they pursue their own policy without destroying their cooperation? How valuable is their coalition as such? How should parliamentary successes, extracted at the cost of concessions on substantive issues, be weighed against the voters' reward for pursuing a consistent policy? The level of political drama was heightened in the 1970s by the Swedish constitutional reform, which introduced a unicameral system and strictly proportional representation. Under these circumstances, the Swedes have seen their politics increasingly turn into a game of bargaining among minorities. Politics has become a series of deals and compromises, surprising initiatives and sudden shifts in the structure of majorities, agonized indecision and sweaty press conferences.

The Cambridge series in the Political Economy of Institutions and Decisions is built around attempts to answer two central questions: How do institutions evolve in response to individual incentives, strategies, and choices; and how do institutions affect the performance of political and economic systems? The scope of the series is comparative and historical rather than international or specifically American, and the focus is positive rather than normative.

Leif Lewin uses rational political models to analyze significant political events. His models explain the interactions of rational agents pursuing their goals in a political context constrained by the goal-seeking activities of other rational actors. His events are taken from the last century of Swedish political (especially parliamentary) history, but readers will easily find parallel episodes elsewhere. Lewin employs both formal reasoning and careful analysis of historical materials to analyze cases that range across the conflict between free traders and protectionists in the late nineteenth century, the introduction of universal male suffrage and electoral reform in the early twentieth century, cooperation between social democratic and bourgeois parties on the planned economy in the late 1940s, and the decision to utilize and develop nuclear power plants in the late 1970s.

Lewin's game-theoretic analysis focuses on the choices of political actors. Many of these readily found winning strategies.

MANEUVERING ROOM IN POLITICS

The concept of politics as rational action was defined in the introductory chapter of this study in two steps: first, as the ability of politicians to rank their preferences; and second, as the ability to act strategically – that is, to maneuver in such a way that as many of their preferences as possible can be realized at the present time, without thereby diminishing their long-term prospects.

On the basis of this definition, we have been able to follow our politicians as they have used strategic action to further their own positions on a number of major controversial issues in Sweden during the past century. The exclusive pursuit of their first preference has rarely been the best way for these actors to promote their interests. But by modifying their preferences in various ways, linking them with other issues, referring them to other decision-making bodies, maintaining silence about them, or – on the few occasions when this is considered suitable in spite of everything – by uncompromisingly arguing their case in order to force their opponent into retreat, the winners of these games have managed to increase their influence on impending decisions.

What should be our attitude toward such strategic action in politics? Is it an acceptable means of achieving political goals? Or is it a morally dubious undertaking that only reinforces our “contempt for politicians,” to use a phrase that is fashionable in Sweden today?

PLANNING FOR THE POSTWAR PERIOD

The outbreak of World War II brought a pause in the debate on economic planning. The ideological dispute on the role of the state in the business sector gave way to a truce as wartime regulation was imposed on the economy. Under the leadership of Per Albin Hansson, a grand coalition government was formed. It included representatives of the Social Democrats, Conservatives, Liberals, and Agrarians. The detailed regulation of the country's economic life that now took effect was supported by all social classes. Employees refrained from demanding extra pay to compensate for high wartime prices. Consumers felt called upon to accept a rationing system, manufacturers went along with price freezes and government direction, and special-interest organizations relinquished their independence and participated in the wartime economy as administrative bodies. To express this consensus, different groups chose stylistic approaches that best suited their varying traditional world views. In the conservative camp, it seemed natural to appeal for national unity in the face of danger and to call on special interests to subordinate themselves to the best interests of the country. In the Social Democratic camp, leaders preferred to describe the necessary economic regulation in terms that might conjure up the image of an economy dedicated to meeting social needs, which had always been the ideal of socialism.

FOUR CONCEPTS OF MONARCHY

Ever since the 1880s, the monarchy had shown newly awakened political ambitions. During the tariff dispute, Oscar II had taken the opportunity to demonstrate his power by using his constitutional prerogative to dissolve the Second Chamber, which had long been regarded as a dead letter. Sweden's system of government, the king reasoned, was “constitutional but not parliamentary in the modern sense of this word.” Consequently, the “verdict of the ballot box” alone should not determine the shape of the government. During the suffrage dispute, the king had once again used his prerogative, this time negatively by citing the right of the monarchy in principle to refuse to dissolve the Second Chamber when there were good reasons for adopting such a position. The new king, Gustaf V, who assumed the throne in 1907, shared his father's constitutional views in all essential respects.

The same period had also witnessed the emergence of a more and more ideologically conscious Left, with its roots in the political forces that members of Parliament had unwillingly helped unleash during the tariff dispute. Leftists advocated parliamentary government, as opposed to the division of powers specified in the Constitution. The controversy concerned the role of the king in the formation of a government.

I. Introduction

The energy picture in the ASEAN region is quite diverse, viewed from either the demand or the supply side. This diversity reflects differences in stage of economic development, energy resources endowment, and other factors — including energy policies. Per capita primary energy consumption in the ASEAN region in 1984 ranged from 29.3 barrels of oil equivalent (boe) in Singapore to 1.4 boe in Indonesia. Similarly, the share of non-commercial energy (fuelwood, agricultural waste, etc.) in total primary energy consumption in 1984 varied from an estimated 38.7 per cent in Indonesia and 26.4 per cent in Thailand to only 9.6 per cent in Malaysia and almost nil in Singapore.

The six ASEAN countries, however, share a common feature in that they assign great importance to the petroleum industry in their economies. Indonesia, Malaysia, and Brunei are important regional producers and net exporters of oil and gas. The Philippines, Singapore, and Thailand are net importers of energy in general, and oil in particular. None the less, all three countries also have a sizeable petroleum refining capacity. Singapore, in fact, is the third largest refinery centre and third largest oil trading centre in the world. Thailand has greatly stepped up its efforts over the past few years to reduce dependence on energy imports by promoting the production of natural gas and oil, in addition to coal (lignite). In 1985, production of natural gas and condensate by the Union Oil Co. in the Gulf of Thailand has reached the rate of 327 million cubic feet per day (mmcfd) and 14,136 barrels per day (bpd), respectively. Production of crude oil in the North by Shell has amounted to 20,688 bpd. The Philippines is also producing some oil from ten producing wells.

China, being an important regional producer and a net oil exporter, has developed over the years various relations with ASEAN countries in the field of energy generally and petroleum in particular.