Monday, July 09, 2007


Confederation of Swedish Enterprise (Svenskt Näringsliv) issued a "Focus on Enterprise in Advantage Sweden". As we can see, Advantage Sweden includes the list of proposals to raise the competitive mentality and business conditions in Sweden in the age of new global economy.

First, globalisation empirically benefits trade sector as well as non-trade sector as it enables the latter to gear-up the speed of price convergence which is an important factor in controlling inflation shocks in the long run. Likely, there is no long-run trade-off between inflation and unemployment as Keynesian aggregate demand management mistakenly assumed. Also, together with sufficient and responsible monetary policy management, globalisation benefits consumers through lower prices in the retail sector as there is no greater welfare service to the poor than retail price competition and liberalized labor market. After facing a falling GDP for two years back in early 1990s, Swedish economy sufficiently climbed back on track in line with responsible monetary policy of controlling inflation in search of a nominal anchor guided by Riskbank, the Swedish central bank.

Second, Swedish economy currently generates an internationally low level of investment into domestic economy, probably the outcome of risky and rigid business environment hampered by staunch compliance costs (the price of administrative barriers) and high tax burden. Capital formation is huge but most of its stock is headlined abroad where a majority of capital formation of Swedish multinationals is placed. Swedish example is also a nice case study of capital flight behavior which aggregates the key-note from New Laffer Curve - invest only in low-tax countries.

Third, disability pay, sickness leave and generous job-absence schemes present a huge barrier to investment dynamics and capital formation respectively. Generous, womb-to-tomb or cradle-to-grave welfare schemes, of course, need to be financed to cover-up the amount of expenditure spent by public sector. Welfare dependency is of course an external shock levied on private sector through higher taxes and welfare contribution rate. In other case, there is a possibility of getting deeper into public debt and higher fiscal expenditure which, again, penalizes and deteriorates investment, entrepreneurship and labor supply.

Fourth, the age pyramid in Sweden is lopside which means that age dependency will rapidly increase relative to the growth of labor supply. In real terms, higher welfare contribution rates could rampantly hamper the productive behavior as a source of growth. In 2000, Swedish policymakers successfully reformed and partly privatized the pension system, allowing personal retirement accounts and thus helping to cut the fiscal burden caused by the exponentially growing age dependency rate.

Fifth, according to Global Entrepreneurship Monitor, Sweden faces a severely low entrepreneurial formation, resulted from a lack of trust and external risk caused by deteriorating administrative compliance and high tax wedge which means the lack of incentives to produce entrepreneurial dynamism. Swedish policymakers should know that international competitiveness depends on competitive strategies and performance endorsed by the entrepreneurial sector and thus its performance also depends on macroeconomic conditions for doing business.

Recently I read the publication The Globalisation of Swedish Economy written by Ulf Jakobsson, shedding the light over the main features of structural global change in Swedish economy. Without dynamic entrepreneurship and competitive mentality neither Sweden nor Slovenia or any other country's economy and society can't survive the global economic turmoil.

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