The commenters are quite right that Swedish productivity continued to rise and that the Swedish standard of living remained quite high, even through the stringent regulations of the welfare age.
The crux of the story, of course, is that the Swedish economy as a whole was growing slower in production terms under the stringent welfare state controls of the second-half of the 20th century. The Swedish economy was structured to favor consumption and unproductive investments like housing. Swedish tax reform in the early 1990s succeeded in eliminating some of these preferences, and the Swedish economy has been growing more efficiently (in production terms) since then.
The discussion is...do we favor the standard of living...or do we favor production?
My response is obvious: We should let the market decide. And the market wasn't deciding under old rules. The Swedish government laid down law after law that effectively limited the dynamism of their economy and favored consumption over investment.