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serious problem by US standards, reached a seasonal high of nearly 4% in early 1972 and elicited official concern.

In order to control inflation, while trying to achieve virtually full employment, the government continues to emphasize industrial expansion. Although the private sector still accounts for over 90% of the industrial output, government planners make their influence felt by channeling public investment into areas which contribute directly to achieving the national goals of full employment and industrial growth - construction, transportation, communications, and the development of hydroelectric and nuclear power facilities. In 1966 the Social Democrats managed to pass legislation establishing a government investment bank which provides capital to private companies, thus competing with private lending institutions and increasing the government's role in the private sector. Special tax provisions which allow companies to set aside up to 40% of their profits in a tax-free reserve further enhance governmental influence in industry. About one-third of this reserve may be used after 5 years, but the remainder may be used only with government permission. Authorization is given when the Labor Market Board, a state agency, determines the economy needs a boost, as it did in 1958, 1962, 1967, and 1971.

Rising food prices, perhaps the most disturbing aspect of inflation, prompted direct popular action reminiscent of less tranquil periods in Swedish history. Boycotts of meat and milk were widespread and effective in February 1972. Without a significant role in agricultural production the government seemed able to do little but to manipulate the few remaining agricultural subsidies and to ease or eliminate restrictions on foreign imports.

While the ever mounting taxes are hardest on the large middle class, they are needed to finance the comprehensive but still expanding social welfare system. Already one of the most pervasive and generous in the world, and social policy of the government ranges over a broad field, including social insurance, comprehensive health care programs, family and child welfare, public relief, and labor placement and protection. Recent reforms in the already enlightened penal system have commanded world attention. The last major reform in conventional social welfare was the enactment in 1959 of a compulsory retirement pension program for all workers to supplement the existing old-age pensions. The program provides retirement income equivalent to about two-thirds of the average pay over a worker's highest paid 15 years.

Perhaps the domestic issue on which the Social Democrats have been most vulnerable is the chronic housing shortage that has plagued Sweden throughout the postwar period. Housing construction was markedly stepped up in 1965, when the goal was set for the construction of 1 million new dwellings over the next decade. The government encouraged builders to step up housing production by offering incentives, such as advantageous financing, tax concessions, and priority procurement of materiel. About 82,000 new units were constructed in 1966; by 1968 the goal was 100,000 units annually was exceeded, as it was in the 2 following years. Having achieved its immediate objectives in housing, the emphasis is now shifting towards providing more spacious dwellings for growing numbers of Swedes. The Moderates, for example, anticipate that rising expectations in an essentially free economy will bring an increased demand for home ownership; about 50% of urban residents still rent their apartments.

The importance of foreign trade - it accounts for approximately one-fourth of the gross national product - is an underlying factor in efforts to maintain international exchange stability. The government accords national treatment to foreign firms operating through incorporated Swedish subsidiaries, but maintains strict control over foreign acquisition and exploitation of natural resources and the operation of certain services. Sweden's eventual relationship with the EC, which absorbed 28% of its total exports in 1971, is of great national concern. At present, the government is pledged to seek a relationship with the EC consonant with Sweden's neutrality.

2. Foreign

Despite their neutral position, most Swedes identify themselves with the ideals and aspirations of Western liberal democracy. They are repelled by the repressive policies which have characterized the Communist regimes of the Soviet Union and Eastern Europe.

In the late 1940s Sweden was faced with a fundamental decision on the question of training its traditional policy of non-alliance or seeking security in a larger defensive grouping, such as NATO. After intensive public debate, it was clear that majority opinion favored continuation of the policy of neutrality. Subsequent efforts on the part of Sweden, Norway, and Denmark to join in a Scandinavian defense alliance came to naught when the latter two countries decided to join NATO. despite its position outside NATO, Sweden has taken a favorable view towards the organization and has regarded it as a deterrent to Soviet aggression against members and

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APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200090019-6