Sweden’s Position in the Global Economy Swedish Globalization Forum May 2012 Christian Ketels

Sweden’s Position in the Global Economy Scope of the Report How is Sweden’s economic performance in a global context? What are critical root causes for this performance that Swedish policy makers can affect? Base report going wide, not deep Provides synthesis, key data, and a framework Identifies key challenges for Sweden going forward ; suggests directions for action

The Conceptual Framework Performance Prosperity Outcomes Global Economic Activity Fundamentals MACRO MICRO Institutions Macro-economic Policies Business Environment Conditions Company Operations and Strategy

Long-Term Trends in Prosperity GDP per capita, US-$, PPP-adjusted Countries that have surpassed Sweden in terms of prosperity: 1970s: Canada, Iceland, Norway 1980s: Austria, Denmark 1990s: Australia, Ireland Sweden United States EU-15 Performance is good, especially since the structural reforms in the early 90s that were largely sustained by the governments that followed However, the performance is not exceptional: Sweden is tracking the U.S., not more, and while it is outperforming the European average, Europe is on a global scale a relatively weak benchmark in terms of growth Countries that Sweden has surpassed in terms of prosperity: 2000s: Germany, Denmark, Ireland, Canada, Iceland Source: Groningen Growth and Development Center, The Conference Board, 2006

Labor Mobilization Hours worked per Capita Annual hours worked per Capita Source: Conference Board (2012)

Swedish World Market Export Shares Swedish World Market Export Share, in % Service exports Total exports Goods exports Source: WTO (2011)

Relative Change in World Export Market Share, 2000 – 2010 Change in Market Share 2010 to 2000 as % of 2000 Market Share Source: WTO (2011)

Sweden Export Portfolio By Cluster, 2000-2010 Change In Sweden’s Overall World Export Share: -0.02% Forest Products Sweden’s world export market share, 2010 Business Services Furniture Communications Services Communications Equipment Heavy Machinery Fishing and Fishing Products Metals and Metal Manufacturing Shift to services Traditional cluster ‘forest products’ is keeping up well Biopharmaceuticals Transportation and Logistics Power and Power Generation Equipment Sweden’s Average World Export Share: 1.2% Aerospace Engines Construction Services Automotive Hospitality and Tourism Aerospace Vehicles and Defense Oil and Gas Change in Sweden’s world export market share, 2000 – 2010 Note: Bubble size is proportional to total export value in 2010 Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Change of Share of Chinese Imports Selected European Countries Share of Country in Chinese Imports, Level in 2000 = 1 Switzerland Germany Norway Denmark Sweden Finland Source: UNCTAD (2011), author’s analysis.

Chinese Imports from Sweden Share by Product Group 2000 2010 Source: UNCTAD (2011), author’s analysis.

Swedish Exports by Firm Size Selected Markets SMEs share in total Swedish export value, 2007 All Swedish exports: + 6.9% Norway Germany All Swedish exports: 31.7% BRIC US Change in SMEs share in total Swedish exports, 2000 - 2007 Note: SMEs defined as <200 employees, bubble size proportional to total export value Source: Statistics Sweden, KTH (2012), author’s analysis

Sweden’s Foreign Direct Investment Position World market share Flows (3-year moving average) Outward FDI Stocks Inward FDI Generally strong But downward pressure due to late stage of cycle has been increased due to global volatiltiy Significant risk of strong external shock BSR somewhat isolated from direct financial contagion But BSR strongly affected from real changes in the global economy Source: UNCTAD (2011), author’s analysis.

The Shifting Face of Globalization The Role of Trade and FDI in the Swedish Economy Relative to GDP Inward Stock Imports Outward Stock Exports TRADE FDI Source: UNCTAD (2011), Statistics Sweden (2011), author’s analysis.

Cluster Sector Employment over Time Share of Total Employment Sweden 11 EU countries Source: European Cluster Observatory (2012), author’s analysis.

Employment by Cluster Sweden, 2000-2008 Absolute Job Gains Absolute Job Losses Paper products Information Technology Automotive Heavy Machinery Analytical Instruments Metal Manufacturing Telecom products Sweden’s EU employment share, 2008 Lightning and Electrical Products Business Services Production Technology Medical Devices Transportation and Logistics Construction Entertainment Products Shift to services Traditional cluster ‘forest products’ is keeping up well Oil and Gas Pharmaceuticals Processed Food Farming and animal husbandry Aerospace Change in LQ (fixed country sample), 2000 - 2008 Total employees, 2008: Source: European Cluster Observatory (2012), author’s analysis.

Competitiveness Profile of Sweden 2011 Micro Macro Business Environment Quality Company Sophistication Social Infra- structure and Pol. Institutions Macroeconomic Policy Context for Strategy and Rivalry Political Institutions Related and Supporting Industries Rule of Law Demand Conditions Human Development <5 5-8 9-11 12-15 >15 Significant advantage Moderate advantage Neutral Moderate disadvantage Significant disadvantage Global Rank Factor Input Conditions Capital Admin. Logistic. Comm. Innov. Skills Source: Unpublished data from the Global Competitiveness Report (2011), author’s analysis.

Doing Business in Sweden Doing Business 2012 Rank Change in Rank vs. 2011 Getting Electricity 8 -2 Trading Across Borders -1 Registering Property 19 -3 Resolving Insolvency Dealing with Construction Permits 23 No change Protecting Investors 29 Starting a Business 46 -6 Getting Credit 48 Paying Taxes 50 Enforcing Contracts 54 Source: World Bank (2012)

Innovative Output Selected OECD Countries, 1999 to 2009 Average U.S. utility patents per 1 million population, 2007-2009 Taiwan 10,000 patents (avg. 1999 – 2009) = CAGR of US-registered patents, 1999 to 2009 Source: USPTO (2010), Groningen Growth and Development Centre, Total Economy Database (2010)

Innovation Performance Sweden’s Rank among European countries Enablers Firm Activities Outputs Human resources New doctorate graduates per 1000 population aged 25-34 1 Percentage population aged 30-34 having completed tertiary education 5 Percentage youth aged 20-24 having attained at least upper secondary level education 9 Open, excellent and attractive research system International scientific co-publications per million population 4 Scientific publications among top 10% most cited publications worldwide 6 Non-EU doctorate students as % of all doctorate students 8 Finance and support Public R&D expenditures (% of GDP) 3 VC (% of GDP) 2 Firm investments Business R&D expenditures (% of GDP) 1 Non-R&D innovation expenditures (% of turnover) 18 Linkages & entrepreneurship SMEs innovating in-house (% of SMEs) 8 Innovative SMEs collaborating with others (% of SMEs) 6 Public-private co-publications per million population 4 Intellectual assets PCT patents pplications per billion GDP PCT patent applications in societal challenges per billion GDP Community trademarks per billion GDP 9 Community designs per billion GDP 7 Innovators SMEs introducing product or process innovations (% of SMEs) 9 16 Economic effects Employment in knowledge -intensive activities (% of workforce) 5 Medium-tech and high-tech exports (% of total exports) 12 Knowledge-intensive services exports (% of total service exports) New-to-market and new-to-firm sales (% of turnover) 30 Licence and patent revenues from abroad (% of GDP) 4 Note: Coloring indicates relative strengths and weaknesses Source: Innovation Union Scoreboard (2012), author’s analysis.

Learning Outcomes Across Countries 2009 Finland Proficiency Score, 2009 Germany SWEDEN Norway Denmark Source: OECD, Pisa 2009 database

Key Issues Impact of Policy Reforms Level of educational attainment is modest compared to international peers Labor market reforms have had an impact but worked largely through increasing labor supply Innovation systems remains highly ranked but structural challenges are growing Impact of Changes in the Global Economy Smaller companies become increasingly important for exports and innovation. Foreign markets are increasingly served through FDI The majority of net job creation occurs in sectors that serve local markets

Action Areas Impact of Changes in the Global Economy Impact of Policy Reforms Impact of Changes in the Global Economy Integrate reform efforts across individual policy areas Position Sweden in the global economy Realign policy tools with changing patterns of firm behavior

Action Areas: Integrated Action reform efforts across individual policy areas Realign policy tools with changing patterns of firm behavior Position Sweden in the global economy Current policy approach too often targeted on narrow problems Lack of incentives to enter the labor market Lack of competition in education system Lack of incentives to commercialize research While these problems are real and important, a step-change in outcomes will require a more systemic approach Address supply (incentives, quality of education, relevance of science) Address demand (skill demand, returns to education, returns to business-academia collaboration Address linkages (matching, information, collaboration platforms)

Action Areas: Policy Tools Integrate reform efforts across individual policy areas Realign policy tools with changing patterns of firm behavior Position Sweden in the global economy Current policy approach is too often based on traditional economic structures Internationalization seen as export promotion Research collaboration seen as spin-offs or linkages to multinationals While the policy tools applied in these areas are important, they are insufficiently aligned with the needs of the emerging economic structures FDI (inward and outward) and exports are simultaneous elements of firms’ internationalization strategy Growing role of SMEs in trade and innovation Innovation is taking place in internationally connected regional clusters of research institutions and firms of different sizes

Action Areas: Global Positioning Integrate reform efforts across individual policy areas Realign policy tools with changing patterns of firm behavior Position Sweden in the global economy Current policy approach is too oriented on doing what is good in general rather than on what benefits Sweden most in particular Focus of policy reforms on weaknesses Focus on cross-cutting dimensions Positioning is not about picking winners, but about focusing policy on creating competitive advantages for the location Specific business environment strengths Specific clusters Integrated policy packages in high-priority areas