Sweden’s economy has in many ways suffered the same travails as the rest of Europe: recent bouts of crushing inflation and recession, and now the prospect of meager growth in a world riven by geopolitical and economic conflict.
Yet this tiny Nordic country boasts a roster of high-tech entrepreneurs that is the envy of its neighbours. Spotify and Skype are globally recognised brands. Klarna, a financial technology company, and King Digital Entertainment, the creator of video game giant Candy Crush, are other examples of local tech powerhouses.
“They have something – particularly in the technology sector – that other European countries don’t really have to the same extent,” said Jacob Kirkegaard, a senior fellow at the German Marshall Fund.
That entrepreneurial trajectory has been attracting renewed attention at a time of growing concerns about Europe’s ability to compete with American and Chinese advances in high technology.
The US has produced a generation of companies such as Google, Meta and Amazon, while China’s tech scene has blossomed with firms such as Alibaba, Huawei and ByteDance, the owner of TikTok.
Europe, of course, has its own tech giants, such as Netherlands’ ASML, a world leader in the semiconductor sector, but the continent is generally seen as more of an observer than an innovator, known more for its aggressive regulation of foreign tech companies than for creating its own businesses.
The economic impact of falling behind is substantial, but it also has important social implications. European policymakers are concerned about the long-term effect of relying on foreign corporations for communication, social media, shopping and entertainment rather than relying on companies with what are often called “European values.”
These values include a greater appreciation for privacy protection, preventing the spread of hate speech, and maintaining strong employment protections and a better work-life balance.
Critics of European tech policies complain of less access to venture capital and a cultural aversion to risk-taking. European tech workers often move to the United States rather than start companies at home.
But Sweden has had a different experience. It has produced more tech unicorns — startups valued at more than $1 billion — per capita than any other country in Europe after tiny Estonia, according to a report on European technology by Atomico, an investment firm. And it ranks fourth in terms of the number of unicorns, after Britain, Germany and France — countries whose populations are six to nine times larger.
Mario Draghi, a former European Central Bank president who is analysing the EU’s “competitiveness crisis”, recently pointed to Sweden as an example to follow. Its technology sector is twice as productive as the EU average and offers strong social programmes, he said.
In interviews, a dozen businessmen, investors and economists agreed that one ingredient of Sweden’s success was initiatives in the 1990s that gave a broad swath of the public access to personal computers and broadband. At the time, most people were just getting used to the shrill sound of dial-up modems.
Fredrick Cassel, a partner at Creandum, a venture capital firm that has invested in Spotify and Klarna, said his ability to use the internet at home put him on the path to becoming a tech investor.
The push to put a computer in every home and create connectivity gave Sweden a head start in producing a “generation of engineers,” said Cassel, 50. “I find it hard to imagine that happening without those two pieces of infrastructure in place.”
Swedish tech entrepreneur Hjalmar Nilsonne had a similar experience. He recalls receiving his own HP Pentium II computer in 1998, when he was 10: “It changed my life, introduced me to programming and the Internet.”
Nilsonne, who founded and later sold Watty, recently co-founded a startup called Neko Health with Daniel Ek, the founder and CEO of Spotify.
“He had exactly the same story as me,” Nilsonne said of his partner Neko. “We started playing with computers. We learned how to build websites. We started selling websites to friends and family when we were teenagers. And all of that was possible because we had access to the Internet from a very early age.”
Analysts also point out that Sweden has a tradition of public and private investment in research and development, which currently accounts for 3.4% of total output, one of the highest percentages in Europe. There was also a large pool of assets from family foundations such as Wallenberg and Ikea, as well as a government-controlled pension system that served as a local source of initial venture capital in the small nation.
Swedish companies have always been forced to look for customers outside the country, which has a population of just 10 million, said Asa Zetterberg, managing director of TechSverige, a trade organization.
That has forced startups and the industry, he said, to “be competitive in the global economy.”
Half of the country’s gross domestic product comes from exports, and the technology sector accounted for 11% of total exports in 2022.
Niklas Zennstrom, founder of Skype and now chief executive of Atomico, said that startups were able to get early funding but had much more difficulty securing financing for expansion in Europe compared to their US counterparts.
The push for more funding comes as governments around the world try to more aggressively steer economic development. The United States has increased spending on semiconductors, alternative energy and electric vehicles by hundreds of billions of dollars to compete more aggressively with China.
President Joe Biden’s signature laws emphasized subsidies, loan guarantees and tax incentives for companies investing in the green transition and advanced technology.
Biden’s policies also made a nod to social support, requiring chipmakers that receive subsidies to provide affordable child care, but the focus is on industrial and technological aspects.
Founders and investors in Sweden repeatedly highlighted the crucial role played by the country’s extensive social safety net in encouraging entrepreneurs to experiment and take risks, despite the high taxes levied to fund the programs.
An effective “welfare system” is the best way for the Swedish government to foster entrepreneurship and innovation, Cassel said.
Free education, free healthcare, free childcare. “You can afford to take risks, you won’t be out on the street” if you fail, he said.
Sebastian Siemiatkowski, founder of Klarna, also praised Sweden’s safety net.
He said his immigrant parents were often unemployed when he was growing up. Still, he was able to get health care, attend top schools and get a computer at home at a young age “without having any money.”
Sweden (together with Belgium) spends more on education as a percentage of GDP than any other member of the European Union.
Siemiatkowski noted that Sweden is also far ahead of the United States when it comes to equality of opportunity. The country ranked fourth in the World Economic Forum’s social mobility index in 2020, the latest available. The United States ranked 27th.
That, he said, is an important reason why Sweden is “overachieving.”
This article originally appeared in The New York Times.
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