This mixed economy traditionally featured centralised wage negotiations and a heavily tax-subsidised social security network. The Swedes still enjoy an advanced welfare system, and their standard of living and life expectancy are almost second to none.
The country is also a common destination for refugees and asylum seekers - immigrants make up more than 10% of its population.
Swedes voted in a referendum in 1980 to phase out nuclear power, and the country began to decommission reactors in 1999. However, fears over climate change and energy security persuaded the government to reverse the decision in 2009, and plans are on the table to replace the country's 10 remaining reactors.
Sweden is known throughout the world for its neutrality. This policy has led to a number of Swedish politicians taking on international roles, often mediating between conflicting groups or ideologies. With the ending of the Cold War, Sweden felt able to join the European Union in 1995 although it still declines to become a Nato member.
Sweden was one of three EU countries not to join the single European currency. In the first referendum on membership after the euro's introduction in 12 of 15 EU countries, Swedish voters rejected it by a clear majority in September 2003.
King: Carl XVI Gustaf
Prime minister: Fredrik Reinfeldt
The Alliance for Sweden, a centre-right coalition headed by Moderate Party leader Fredrik Reinfeldt, came to power at elections in September 2006, ending 10 years of rule by the Social Democrat Party.
Governing with a slim seven-seat majority in its first term, Mr Reinfeldt's government cut income taxes, trimmed benefits and sold off state assets.
Buoyed by Sweden's rapid economic recovery from the 2008 , Mr Reinfeldt looked assured to win a second term ahead of elections in 2010 and become the first centre-right PM to be re-elected since World War II.
However, his Alliance for Sweden fell short of an overall majority by two seats, and Mr Reinfeldt formed a minority coalition government. The anti-immigration Swedish Democrats became Sweden's first far right party to win seats in parliament.
The opposition centre-left Social Democrats, who governed Sweden for much of the period since World War II, suffered a painful slump in support.
After becoming party leader of the right-wing Moderate Party in 2003, Mr Reinfeldt moved it towards the political centre, toning down its criticism of Sweden's welfare state and adopting a consensual approach. He supports Sweden's entry into Nato, provided there is cross-party support.
Born in 1965, Fredrik Reinfeldt joined his party's youth wing in 1991. He is married and has three children.
Swedish audiences enjoy a wide variety of public and commercial broadcast services.
TV is the most-popular medium. Public Sveriges Television's (SVT) main competitor is commercial network TV4. Sweden is home to the regional media giants Bonnier and the Modern Times Group (MTG).
Most households have multichannel cable or satellite TV. Sweden has made the switch to digital terrestrial TV (DTT) and pay TV is broadcast in the format.
Public radio is run by Sveriges Radio. There are nearly 100 private radios; some are part of near-national networks.
Most Swedish homes take a daily paper and the country is among the world's top consumers of newspapers. Aftonbladet is the best-selling daily. Many titles have a regional readership. The government subsidises newspapers regardless of their political affiliation.
By June 2010, around 8.4 million Swedes were online - more than 92% of the population.