The lack of investments in new products and the dependence on a gradually outmoded structure of production helped to impose an adjustment of the entire nation’s material standard. For many years growth in Sweden was weaker than in the world around us. This example shows how a “new economy” at that time resulted in problems for the Swedish economy rather than opportunities. The lack of change, because wage formation did not function properly, led to a weaker economy that was more inflation prone. The period clearly illustrates how globalisation, increased competition and new technology can result in lower growth and higher inflation if changes are not made in time. If the economy is under pressure from strong competition as well as poorly functioning wage formation, there is a risk of economic renewal lagging behind. Concluding remarks As I have said, the new information technology is making rapid progress. As far as we can see today, it will affect production and distribution processes as well as consumer behaviour. That in turn makes the environment more competitive and calls for changes in Sweden’s corporate sector. Put to good use, this transformation can probably create stronger potential growth, lead to higher productivity growth and lower inflation, and favour employment. The favourable changes that have occurred over a number of years in the Swedish economy since the 1980s suggest that such a development is within our grasp. But as I just mentioned, if wage formation does not function properly, firms will be under pressure from two fronts.
3  BIS Review 118/1999  Opinions about the causes of the pronounced change in the Swedish economy are not completely unanimous. The stable prices presumably played a part. When inflation is low or the price level is stable, those who have to plan for the longer run face less uncertainty. Another significant factor was probably the credit system’s development in the 1800s. Banks were established and the abolition of interest controls was followed by more financial expertise. That made it possible to exploit the inventions and finance investments in the emerging industries. An increasingly stable form of government presumably contributed, too. A series of constitutional reforms provided a guarantee of stability. Economic activities benefited from the abolition of trade guilds, freedom to trade and the reform of joint-stock companies. The reform of elementary education was, of course, another important step that ultimately promoted human capital. This catalogue is not intended to be a complete account of all the factors behind Sweden’s transformation from a poor country into a rapidly expanding industrial nation. The point I want to make is that a variety of institutional changes seem to have been needed to provide a stable framework for the subsequent process of industrialisation. It is just this stability in the fundamental conditions for economic activities that was no doubt important for the process that resulted in the industrial revolution, which in itself was full of commercial risks and uncertainties.