"Why Sweden Works"

Got a link from Jersey Perspective from my friend Dan Kreiss. Interesting U.S. perspective comparing the Swedish innovation economy (or the lack of) with the U.S . The main points are that high taxes does not necessarily mean anti-business socialism and whether tax cuts creates new jobs, wealth, etc. Taxes are an everlasting discussion all over the world...

My comments:

Sweden and large corporations

From the very beginning Sweden was an entrepreneurial country. Many products common today are Swedish patents and innovations, like the freezer, the zipper, the centigrade thermometer, the propeller, the monkey wrench, the pacemaker, the dynamite, the safety match, the ball bearing.

We still invent stuff, but since the beginning of the 1960s large engineering corporations have totally dominated the trade and industry (well, except for the basic industry forest and mining).

A few families and banks have been controlling the largest listed firms in Sweden. This is due to a Social Democratic political ruling, almost without a break, since the 1930s.

The political and economic powers have been united by strong common interests. The Social Democrats get support for their social and economic policies from the private sector, if the largest firms remain under Swedish control to prevent the capital to migrate. And the economic policy was tailored to suit the large dominating companies. Sweden has for example the lowest corporate taxes in Europe – 28 percent, compared to 38 percent in Germany, 40 percent in the United States and 42 percent in Japan – plus a special tax relief for foreign key personnel. This is a traditional policy of appeasement to keep the large Swedish companies – Ericsson, AstraZeneca, ABB, Volvo, Saab, etc – within the country.

In Sweden public limited companies also separate stock owner votes from capital. On ideological grounds the Social Democrats focused on the largest listed firms, in particular their investments and R&D spending. They supported financing via tax-subsidized retained earnings and loans from a strongly relation-based banking system. The economic policy for egalitarian reasons disfavoured equity markets as a supplier of capital.

Thus Swedish firms have only to a limited extent been dependent on the stock market, ownership did not disperse and addition of new firms has been very poor. There has been a very limited formation of private fortunes tied to new, fast-growing firms fuelled by equity market financing.

The drawback

This agreement between the political and corporate powers worked well until the 1970s, but the economy stagnated and did not respond to recessions and the globalisation. The policies were too focused on the very largest firms, and systematically ignored the need to create new ones.

The result is an unusually large proportion of very old and very large firms in Sweden, with well-defined owners in control. 31 of the 50 largest listed firms in 2000 were founded before 1914. Only 8 was founded between 1945 and 1970, and no large company has risen after that.