Productive public good investment allocations, and group discriminatory redistributions are conflicting resource use options between which every government must choose irrespective of its political make up. This paper is the first to derive an incisive explanation of how governments combine political and economic calculation to balance these competing choices. Realistic societies can be analyzed as a mixture of two polar cases — idealized, utopian, consensual democracy and perfect autocracy. Thus, in making the choice between social investment and redistributive taxation every government behaves somewhat like an pure democracy and somewhat like a selfish dictatorship.

The deterioration of economic performance in Sweden from about 1970 was to some extent result of a number of exogenous shocks and unnecessary policy mistakes. It was, however, also related to basic changes in economic and social system in Sweden in late 1960s and early 1970, when government spending, taxes, and regulations started to expand dramatically. It is also argued in paper that problematic political, economic, and social mechanisms had become embedded in long-term dynamics of system itself. These various experiences are background for recent reforms and retreats of the Swedish experiment.