Structural changes generate developments that are often referred to at present as a “new economy”. The marked improvement in productivity maintains profits and keeps prices down. During the transformation, a good circle is created but it is difficult to tell how long it will last. It can be described, if you like, as a period of extensive rationalisation and heightened efficiency. The growth trend is raised for an indefinite period, enabling the economy to expand more rapidly without inflation taking off. It should be born in mind that the adaptation to the new information technology does not occur automatically. It is not the case that one day we suddenly find the new technology has begun to be implemented in ways that are leaving their mark on economic developments in general. The late 19th century provides important lessons about the necessary conditions for this good circle. At the beginning of the 1800s Sweden was still a poor country with an unstable form of government, a chaotic monetary system and a general shortage of credit facilities. Ninety years later the Swedish economy had undergone a dramatic transformation. Inflation was low, with an orderly monetary system. The nation was bursting with vitality in every field. An impressive range of products, many of them world leaders, were being developed on the basis of Swedish inventions. Swedish financial experts were engaged in the exploitation of the inventions at an early stage. Employment was provided for more and more people, living standards rose and growth was among the highest in the world.
Profitability will be depressed both by increased competition and by rising wage costs. Investment will be held back and the transformation will proceed too slowly or not at all. There will then be no quick renewal of capital stocks. Firms will not make good use of the new information technology. I have cited wage formation as a conceivable factor that may hamper a transformation, but of course there are other factors as well, for example the tax system, the educational system, etc. It is not a function of the Riksbank to point out specific factors that can affect the pace of structural change. But perhaps we can contribute to a broader discussion of the new economy. Various factors that hamper or check an adjustment could thus result in the Swedish economy following a lower, not a higher, path for long-term growth, with a stronger, not a weaker, inflation propensity and a continuation of high unemployment instead of a reduction to the low level that most people want. These risks seldom feature in the general discussion about the new economy. The changes that many people refer to as the new economy unquestionably present a number of challenges to the Swedish economy in the present situation. My comments have indicated, moreover, that the notion of a new economy is not correct; that is not what it is all about.