A doubling of the GDP growth rate might not sound particularly exciting, but over time it has very major effects. An increase in the GDP growth rate from one to two per cent entails the standard of living doubling within 35 years instead of 70 years. For Sweden the stronger growth rate during the second half of the 19th century meant that we emerged from the developing country stage. A number of factors contributed to this development. Free trade was an important element. Our exports abroad were central to this process, which was of course facilitated by the development of the railway system. During the first decades after 1850, there were three main export products contributing to a very rapid export upturn; oats, iron and timber. The importance of exports of oats from the southern part of Sweden is something of a curiosity. Oats were the fuel of that time. All of the horses providing transport in industrial cities like London required oats and much of this came from Götaland. The construction of the railway, as well as investment in industry, housing construction and agriculture naturally required capital. This was mainly obtained from abroad. Sweden was a typical example of a country with an expansionary economy making use of saving in other parts of Europe. This borrowing from abroad was on a very large scale and, prior to the outbreak of the First World War, Sweden was probably the most indebted nation of the time.
It is the potential growth rate that sets the limits. We at the Riksbank must take into account this rate and any changes in its development, even though monetary policy does not directly affect potential growth. Similarly, we must take into account changes in competitive conditions, as changes here can have both direct and indirect effects on the development of inflation. Possible measures to strengthen potential growth are an issue for other forms of economic policy, involving, for instance, the stimulation of competition to improve allocation of resources. The high growth rate over the past decade has been primarily generated by the fact that we have used available resources more efficiently. On the other hand, we have not supplied many more resources either in the form of hours worked or of capital/investment. From the mid-1980s up to 1993 the opposite applied. The limited increase in productivity that arose then was due to investment, i.e. capital intensity increased. Over the past ten years we have had an impressive annual increase in factor productivity, while capital intensity has increased at a slow rate. It is worrying that the increase in labour supply has been, and still is, so limited. In this aspect we differ from most of the other countries that have been aided by increased labour supply in raising their growth rate. An important explanation for the poorer development in Sweden is the amount of longterm sickness leave and early retirement.