As I see it, expected corporate profits and access to reasonable investment financing are vital for a process of transformation. Wage formation Let us now take a look at a period when wage formation was one factor behind a less successful transformation of the Swedish economy. When the industrialised economies began to recover after World War Two and international competition increased, partly because trade barriers were dismantled, it became increasingly necessary for Swedish firms to adjust their product range. The requirements resembled those that now seem to lie in the not too distant future. For much of that period the level of Swedish wage costs rose rapidly. This meant that corporate profitability was under pressure both from the increased international competition and for rising wage costs. To cope with this pressure, firms tried to cut production costs by means of rationalisation rather than by investing in new products. With diminishing profits, they lacked the new investment stimulus and the rapid renewal of the capital stock that the pressure for change called for. During a period of transformation, rationalisation is not enough; new developments are equally important. At first, most things still went well. The 1960s was a fantastic decade for growth. In time, however, the strategy proved to be defensive and stagnation set in in the 1970s. There are limits to growth through rationalisation. Without renewal, growth normally slows sooner or later. Compared with other countries, the trend rate of growth in Sweden did indeed turn downwards.
The financing of these companies accordingly imposes different requirements in markets for risk capital and loans. The US markets for risk capital appear to be more highly developed and more focused on the financing of high-risk projects than seems to be the case in Europe, where bank loans predominate and a larger proportion of financing goes to reliable, established firms. With the advent of the euro, the financial system in Europe may become more developed and, like its counterpart across the Atlantic, offer more alternative forms of financing. With a single currency in the euro area, the capital markets will gradually become more liquid and thereby more efficient. There will probably be more corporate financing with bonds and equity, forms of financing that are less common at present in Europe than in the United States. Signs of this are already evident. There is reason to make a deeper analysis of the financial system’s contribution to the changes that are needed in the Swedish economy. The introduction of a single currency may come to play a more important part in this transformation in that it influences the development of Europe’s financial system. This is an argument in the discussion about EMU that I have not encountered hitherto. Conclusion Sweden has already come a long way in utilising information technology. In order to reap the full benefit of this and go on enjoying the combination of high growth and low inflation, it is essential that the right driving forces and conditions are in place.