Economic Planet | Can Sweden show Europe how to become competitive again?

The Swedish economy, in many ways, has suffered the same tribulations as the rest of Europe: recent bouts of runaway inflation and recession, and now the prospect of meager growth in a world divided by geopolitical and economic conflicts.

Still, the Nordic country has a list of high-tech companies that is the envy of its neighbors. Spotify and Skype are globally recognized brands. Klarna, a financial technology company, and King Digital Entertainment, the maker of the video game Candy Crushare other examples of local technological powers.

“They have something – particularly in the technology sector – that other European countries don’t really have to the same extent,” observed Jacob Kirkegaard, a senior fellow at the German Marshall Fund.

These entrepreneurial successes are attracting renewed attention at a time of concern about Europe’s ability to compete with American and Chinese advances in high technology.

The US has spawned a generation of companies such as Google, Meta and Amazon, while China’s tech scene has flourished with companies such as Alibaba, Huawei and TikTok owner ByteDance.

Europe, of course, has its own tech giants, such as Dutch company ASML, a global leader in semiconductors. But overall, the continent is seen more as a bystander than an innovator, known more for its aggressive regulation of foreign tech companies than for creating its own companies.

The economic impact of this delay is considerable, but it also has important social implications. European policymakers are concerned about the long-term effects of relying on foreign companies for communication, social media, shopping and entertainment, rather than on companies with what are commonly called “European values”.

These values ​​include a greater appreciation for privacy, preventing the spread of hate speech, and maintaining strong labor protections and a better work-life balance.

Critics of European tech policies complain of less access to venture capital and a cultural aversion to risk-taking. European tech workers have often moved to the United States rather than start companies at home.

But Sweden has had a different experience. It has produced more tech unicorns (startups valued at more than $1 billion) per capita than any other European country after tiny Estonia, according to a report on European technology by Atomico, an investment firm. It ranks fourth in the number of unicorns, behind Britain, Germany and France, countries with populations six to nine times larger.

Mario Draghi, a former president of the European Central Bank who analyzes the “crisis of competitiveness” for the European Union, recently cited Sweden as an example to follow. Its technology sector is twice as productive as the European Union average and it offers strong social programs, he noted.

In interviews, a dozen entrepreneurs, investors and economists agreed that one ingredient of Sweden’s success was the efforts it made in the 1990s to bring personal computers and broadband to large parts of the population. At the time, most people were just getting used to the shrill sound of dial-up modems.

Fredrick Cassel, a partner at Creandum, a venture capital firm that has invested in Spotify and Klarna, said his ability to use the internet at home put him on the path to tech investing.

The drive to equip every home with a computer and to expand connectivity has allowed Sweden to produce a “generation of engineers,” said Mr. Cassel, 50. “I find it hard to imagine that happening without those two pieces of infrastructure.”

Swedish entrepreneur Hjalmar Nilsonne had a similar experience. He recalls receiving his own HP Pentium II computer in 1998, at the age of 10: it “changed my life by introducing me to programming and the internet.”

Nilsonne, who founded and then sold Watty, recently co-founded a startup called Neko Health with Daniel Ek, founder and CEO of Spotify.

“He had the exact same story as me,” Mr. Nilsonne said of his Neko partner.

Analysts also point to Sweden’s tradition of public and private investment in research and development, which currently accounts for 3.4% of total output, one of the highest percentages in Europe. There was also a large pool of assets from family foundations such as Wallenberg and IKEA, as well as a government-controlled pension system, which served as local sources of early venture capital in the small country.

Swedish companies have always been pushed to look for customers outside the country, which has a population of just 10 million, said Åsa Zetterberg, chief executive of TechSverige, a trade organization.

This has forced start-ups and industry to “be competitive in the global economy.”

Half of the country’s gross domestic product comes from exports, and the technology sector accounted for 11% of total exports in 2022.

Niklas Zennstrom, Skype founder and now CEO of Atomico, said startups can get seed funding, but they have a much harder time getting funding for expansion in Europe than in the United States.

The push for more funding comes as governments around the world are trying to steer economic development more aggressively. The United States has increased spending by hundreds of billions of dollars on semiconductors, alternative energy and electric vehicles to compete more aggressively with China.

Sweden’s top industrialists and investors have repeatedly stressed the crucial role the country’s extensive social safety net plays in encouraging entrepreneurs to experiment and take risks, despite the high taxes that fund the programs.

An effective “welfare system” is the best way for the Swedish government to encourage entrepreneurship and innovation, Mr Cassel said.

Free education, free health care, free child care. “You can afford to take risks, you won’t be on the street if you fail,” he said.

This article was published in the New York Times.

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