Where Schumpeter was nearly right - the Swedish model and capitalism, socialism and democracy

In Capitalism, Socialism and Democracy Joseph A. Schumpeter concluded that socialism would eventually displace capitalism in Western democracies. This would come about as a result of the superior performance of capitalism. We extract six "stylized" propositions that are essential elements of Schumpe ter's prediction about the fate of capitalism. These propositions are confr onted with the development of the Swedish economy. The three main results o f the analysis are: (1) The evolution of the Swedish economy closely followed Schumpeter's pred ictions until about 1980: Large firms became increasingly predominant in pr oduction and innovative activity, ownership of firms became more and more c oncentrated, individual entrepreneurship waned in importance, the general p ublic grew increasingly hostile towards capitalism, and by the late 1970s e xplicit proposals for a gradual transfer of ownership of firms from private hands were launched. (2) Design of tax and industrial policies fueled a development of the econo my along the lines predicted by Schumpeter. In general, the policies discou raged private wealth accumulation. In particular, the policies favored conc entration of firms and concentration of private ownership. (3) The turning point away from the path to socialism coincides with real w orld developments that disclosed two major flaws in Schumpeter's analysis. First, the ever more obvious failure of socialism in Eastern Europe went ag ainst Schumpeter's assertion that socialism can work. Second, Schumpeter, w ho thought that modern technology would make the giant corporation increasi ngly predominant, did not foresee the revival of entrepreneurship that took place in the Western countries around 1980.