We need to be more like Sweden (it's not what you think Corbynistas)

There's a picture we have of Sweden as, depending on our political prejudice, some sort of social democratic world of joy or else a sort of stifling, controlling, high tax dystopia. I suspect that we don't think of this:

Stockholm produces the second-highest number of billion-dollar tech companies per capita, after Silicon Valley, and in Sweden overall, there are 20 start-ups—here defined as companies of any size that have been around for at most three years—per 1,000 employees, compared to just five in the United States, according to data from the Organization for Economic Cooperation and Development (OECD). “What you see is that start-ups have a high survival rate in Sweden, and they have relatively fast growth,” Flavio Calvino, an OECD economist, told me. Sweden also ranks highest in the developed world when it comes to perceptions of opportunity: Around 65 percent of Swedes aged 18 to 64 think there are good opportunities to start a firm where they live...

Somehow the image of Sweden as a free-wheelin', creative place filled with start-up tech businesses runs counter to our stereotype of the socialist haven. So what's driving it?

Maybe this has something to do with it?

Sweden’s reforms were a response to a financial crisis in the 1990s, when GDP growth sank, unemployment spiked, and the government, in an effort to avoid devaluation of its currency, raised interest rates to 500 percent. To jump-start economic growth, the government deregulated industries including taxis, electricity, telecommunications, railways, and domestic air travel to increase competition, according to Persson.

Along with privatising primary schools, hospitals and old people's homes. And there's more:

The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent. (Sweden’s corporate tax rate today, at 22 percent, is much lower than the U.S.’s 39 percent, though few companies actually pay a rate that high.)

Gasp! It gets better too...

In the 2000s, Sweden also got rid of its inheritance tax and a tax on wealthy people, which further incentivized people to earn large sums of money and, often, invest it back into the economy. “There was more capital available, so angel investors started to appear,” Braunerhjelm said. Today, there are significant tax breaks for starting and owning a business; for example, entrepreneurs can now have a larger share of their income taxed as capital income, which has a lower tax rate.

So privatisation, deregulation, ending taxes on investment and cutting taxes on rich people seems to work. For sure there are other factors too - a strong welfare state, good education, high levels of technical literacy and the end of protectionism (joining the EU will have helped a bit here) - but it's a lesson that, if we want a successful, wealthy and open modern society that cares it's not done by attacking markets. Quite the reverse.

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On US start-ups - or rather the lack of them

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From Joel Kotkin in New Geography:

A 2010 SBA report found that federal regulations cost firms with less than 20 employees more than $10,000 a year per employee, while bigger firms paid roughly $7,500 per employee. The biggest hit to small business is environmental regulations, which cost small firms 364 more percent than large ones. Small companies spend an average $4,101 per employee on such regulations, compared with $1,294 at medium-size companies (20 to 499 employees) and $883 at the largest companies. This has come over a period when many of the key costs faced by the business-owning middle class – house prices, health insurance, utilities and college tuition – have all soared.

Make running a small business more expensive and there will be fewer small businesses. It's worth remembering that, when you talk to business people, it's almost always regulatory barriers that they cite as the source of growth problems. And, for large and established businesses, it makes good business sense to accept those regulatory costs since they prevent new entrants and increased competition.

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