Assar Lindbeck was an enormously influential Swedish political economist. A believer in free markets, he was also committed to the idea of a welfare state. His work as an economist was notable for always being rooted in “real life”, not in a priori theoretical abstractions.
Lindbeck, who has died aged 90, chaired a government investigation after the Swedish financial crisis of the early 1990s. The commission’s report suggested reforms that revitalised Sweden’s economy, stabilised the political system and argued in favour of making the country’s central bank independent.
These reforms helped pave the way for Sweden’s remarkably stable and dynamic economy over the subsequent three decades. Swedish membership of the EU had just been settled at that time and was made more successful by the Lindbeck Commission’s proposals. His efforts were also crucial in establishing the Nobel Prize in economics. He was chairman of the prize’s committee for many years.
Lindbeck had excellent connections in high places. He was a close friend of former prime minister Olof Palme. However, the two men fell out over Lindbeck’s strong criticism of the Social Democrats’ endorsement of plans to let trade unions take over ownership of the country’s big private companies. Admired, or at least respected, by many, he was also a controversial figure who made enemies. As an economist, he was an analytically brilliant policy-oriented academic. Typically, he did not start from economic theory, but from observing and trying to understand the real world.
Assar Lindbeck was born in 1930 in Umea, north-east Sweden. His parents had a modest economic background. They were solid social democrats and trade unionists. His father became an important local politician in northern Sweden and was characterised by his son as a “talented pragmatist” fond of lively discussion on social and political issues. Lindbeck took after him in that regard.
In his youth, Lindbeck could probably have chosen a musical career at the academy in Stockholm. At the time, he played both the piano and clarinet and composed his own work. But instead he chose Uppsala university where he studied political science and economics. He was married twice. First to Dorothy Nordlund, with whom he had a son and a daughter. He later married Solveig Wikstrom, professor emerita of business strategy and consumption at Stockholm Business School. Later in life he took up abstract painting.
In the 1950s, when Linbeck was a young researcher, Sweden was a country with many regulated markets and a dominant belief in the beneficial effects of state price controls and other market interventions. Lindbeck analysed the housing market, agricultural sector with its foreign trade controls and the labour markets. As a result of this work, by the end of the decade he had become a strong believer in deregulation and letting markets allocate the economy’s resources efficiently.
At the same time — and here he differed from many economists in English-speaking countries with similar views on the role of markets — Lindbeck was a warm supporter of publicly financed welfare systems, such as free healthcare, childcare and education, including at university level, and a national pension system. Yet he was also critical of how various welfare arrangements were implemented. In particular, he analysed how they might damage incentives for work, ambition and frugality, sometimes hurting both efficiency and equity, not to mention the public purse.
He suggested improvements but did not advocate getting rid of the welfare state. The system should, instead, incorporate incentives for work, savings and personal honesty, he believed, taking social norms into account.
In his last two decades, Lindbeck focused on the conflict between insiders and outsiders in the labour market. He noted that those who have a job — the “insiders” — may prevent “outsiders” from getting work, and thus raise unemployment. He also argued that thresholds for those who wish to enter the labour market needed to be lowered. He continued to work more or less full time on such issues until only a few months before his death.
This practical focus was characteristic of Lindbeck. He had strong views on how economists should practise their craft and obtained inspiration from real world problems. Mathematical models could be useful, he believed, but only to serve and support the study of “real life”. Economists should not select economic problems because they suited a particular mathematical model. He wisely warned that such economists risked becoming “brilliant fools”.