The article sets out with a critical review of the concept of social exclusion as relates to citizenship. It then discusses the Swedish welfare state model, its development and crisis from the mid 1970s, its comprehensive transformation after 1990 and the contingent ”Third Way” shift in political and ideological perspectives on economic policy and labour-market policy. The next section discusses Swedish migration and integration policy during the same period (1975 – 2005), focusing on the major changes taking place parallel with, and linked to, the transformation of the Swedish model. The central role played by policy changes in the EU and adaptation to EU integration is highlighted. Thereafter follows a brief account of the consequences of these shifts on labour-market policy and on integration policy. A central concept here is racialized exclusion, developed below. The issue of “structural discrimination” is touched upon. This concept that has been used to analyze the consequences of discriminating institutional practices the effects of which are reinforced in interaction with the exclusionary dimensions of ethnicity, class, and gender. The possibilities and limitations of legislation and policy initiatives against ethnic discrimination are discussed in relation to an emerging political economy of exclusion. Here comparison with the US legislative experience against discrimination is pertinent. In summary, the possibility of alternative paths is explored in terms of social and labour-market policies in Sweden and Europe. In this context the overarching political vision of a “Third Way” is critically discussed in so far as it has the possibility to offer a strategy for social inclusion beyond the Swedish model.