The Outlook
STOCKHOLM
While most of Europe is trying to slash the public sector to adjust to the New Economy, Sweden aims to use today's technology boom to expand its already substantial welfare state.
Its generous government plans to roll out a $2 billion national high-speed data network that will connect even the remotest Arctic villages to the Internet, bringing a degree of equal opportunity to the New Economy. To cut costs, it has enlisted Silicon Valley companies to provide electronic procurement among state-owned companies. It gives tax breaks to businesses that furnish all employees with personal computers.
Ruling Swedish politicians hope the country's tech boom will add to tax revenue and increase government efficiency for years to come. That could make state funds available to realize a cradle-to-grave utopia -- including plans to provide every Swedish senior citizen with a personal assistant, expand public schools and state hospitals, and improve day-care centers.
Sweden has come a long way since the recession of the early- and mid-1990s. The country has a modest budget surplus for the first time in nearly 30 years, thanks largely to spending caps imposed by a pragmatic Social Democrat minority government. The business climate has improved, too. Sweden today is a hub for high-tech start-ups -- more than 1,000 companies were founded last year alone -- and is the home of telecommunications-gear maker Telefon AB L.M. Ericsson, the world's third-largest handset producer. More than half of all Swedes use the Internet, and more than 70% have mobile phones.
Microsoft Corp. and Intel Corp. are among the companies that have set up research centers here to benefit from a large pool of engineers. Stockholm recently christened itself "Wireless Valley." Says Princeton University economist Paul Krugman: "They are doing extremely well without having to degrade social protection to U.S. levels."
There's no call to get too comfortable, though. According to a 1998 report by the Organization for Economic Cooperation and Development, the country ranks No.15 on the list of the richest nations, down from No.3 three decades ago. During that period, the country's annual tax receipts increased to 51.6% of gross domestic product, the highest in the world, from about 40%. Meanwhile, social-security benefits swelled, but the quality of services declined, many Swedes complain.
Nearly one-third of the working population is employed by the public sector. And an estimated 20% of the nation's corporate revenues are generated by state-owned companies. That prompts critics to demand that the state use the current boom to create vast changes in the tax and social-security system as well as in state ownership of major enterprises.
"This is a historic opportunity to really lower taxes," says Bjorn Tarras-Wahlberg of the Swedish Taxpayers Association. "We should privatize faster and continue to keep spending in check."
So far, the government has only a handful of tax cuts in store: Capital-gains taxes, property taxes and income taxes may go down a bit this fall. That's too little for Mr. Tarras-Wahlberg or many of those working in Sweden's information-technology sector who pay high income taxes and see profits from stock options swallowed up by taxes. Indeed, the average worker here pays 64.4% of combined direct and indirect taxes on his salary, while capital-gains tax is 30%. That may lead more corporate powerhouses and talented employees to move abroad.
In the past two years, Astra AB, Stora AB and Volvo AB have moved their headquarters outside the country after merging with foreign firms. Ericsson opened a London office building top managers. Last year, about 40,000 Swedes acquired cars abroad to avoid taxes on the purchase.
Still, the Social Democrat government, traditionally the country's largest single political entity, doesn't seem worried. As it did in the early days of its five decades in power, it is appealing to popular captains of industry to help realize its vision of an electronic welfare state. The move has met significant success: Several rich 20-something Internet entrepreneurs have joined a governmental IT task group that aims to steer the state's role in the New Economy, and most of its members publicly support the ideas of an egalitarian broadband network, an electronic government and even high taxes.
"So many people wrongly think that taxes are a bad thing," says Jonas Birgersson, the 29-year-old millionaire founder of IT consulting firm Framfab AB, who pays some 60% of his salary in income taxes. "But if you use tax money carefully, if you spend it wisely, it can help business."
The government points out that the nation's lead in mobile technology in the Nordic region came about thanks to state investments in a mobile standard in the 1990s; companies such as Ericsson got an edge over rivals because the government was an early adopter of the technology.
Similarly, the government's investment in national railroads aided industry. Now, high-speed Internet networks may do the same. With high-speed networks, Sweden can serve as a broadband test market for companies world-wide, while locals may be inspired to try out new business ideas.
"This brings us one step closer to realizing our dream," says Commerce Minister Leif Pagrotsky. "We provide opportunities to people who would otherwise be left out. In return, we'll get more ideas and higher productivity."
-- Almar Latour