Panel Discussion: Internationalization of Services: Implications for a Small Open Economy

The concluding panel discussion was moderated by the conference chairman, Dr Mattias Ganslandt. The discussion focused on the topics of how Sweden can gain from services globalization, how those gains can be achieved and distributed, and what structural changes are needed.

The first question posed to the panelists regarded the implications of trade in services for a small open economy.

The Chairman of the Swedish Parliament’s committee on Industry and Trade, Mrs Karin Pilsäter, argued that there are immense opportunities for small open economies to prosper by opening up even more, and in particular Sweden, must focus on competing with knowledge and competence rather than low wages. One of the most important conclusions is that the politicians must encourage individuals to develop ideas and products that potentially can be traded globally. More concretely she suggested that the educational system must be improved and certain taxes must be lowered.

Dr Ganslandt asked the vice president of IBX, Mr Peter Lageson, if Mrs Pilsäter’s suggestion was the best remedy available.

Peter Lageson answered that in his opinion we need a change of attitude towards buying services. Further he claimed that from a business perspective, the largest menace to the small open economy in a globalized world is the failing of organizing the supply chain according to long-term prospects. Moving production to Asia can be the most cost-efficient alternative in the short run, but it might not be true in the long run. In ten years, the production costs in China can be such that we will see a completely new situation. This implies also that we should not be paralyzed by the fact that we loose some jobs to off-shoring now. In addition, Peter Lageson called for the need to expose European suppliers to more competition, and to obtain a competitive base of service suppliers in Sweden.

Next, Mattias Ganslandt asked the panel in what way we need to develop the service sector in Sweden, and more specifically how globalization affects the public sector.

The Chief Economist at the Swedish Agency for Public Management, Dr Richard Murray, replied that the main priority is to develop the existing services in the public sector, and to encourage a willingness to pay for these services. Such a reform is necessary for Sweden to benefit also from globalization, and rationalize the public sector by allowing private entrepreneurs who can innovate. According to Karin Pilsäter, the current structure of the public sector employing low-paid women must be remodeled and opportunities be given to these women to perform these services on an entrepreneurial basis instead. The public sector can never be a global player, but the entrepreneurs will.

The Director of the Research Institute for International Economics, Professor Magnus Henrekson, noted that there is a lack of skilled labor in certain sectors, such as elderly care, health care and preschool teachers. Further he noted that Sweden has endogenously created a labor market consisting of the middle-wage college-educated employees that do not benefit from globalization. He emphasized that better, targeted education is vital, and schools must convey some fundamental qualities.

Answering the question whether closing down universities will help increasing the quality of education, Karin Pilsäter said no. But the primary and secondary education must improve in quality, in order to prepare the students for college education. Peter Lageson emphasized that encouraging entrepreneurial skills is much more important given the fast change on the global market. A prerequisite is that we focus on leadership, ideas, and will.

Does Sweden have any comparative advantages in any of the services sectors, and does the trademark of Sweden have any value?

Having a high share of well-educated labor now, may not be important in a few years, according to Richard Murray. If labor markets are opened up internationally, a medical doctor from Thailand can work internationally and hence increase his wage; but wage differentials will persist. Sweden is in a position to build trademarks based on the public sector. We have a reasonable quality and a good reputation, but we need entrepreneurs to do that.

Magnus Henrekson replied that despite being heavily taxed there are good examples of entrepreneurship in Sweden, such as IKEA, Securitas and H&M. How the entrepreneurial spirit canalizes depends on the basic economic and political conditions in the country. He also mentioned Capio as a company that has suffered from the strict regulation of private actors in the public sector. The company has now decided to expand in other European countries and sell its Swedish part, which is a big loss to the country. Karin Pilsäter continued by noting that it is in general impossible to predict which sector is going to boost next. Hence the job of the politicians is to provide a solid ground for entrepreneurship and then nurture where it is needed.

Peter Lageson, Magnus Henrekson, Karin Pilsäter and Richard Murray, described the potential of the service sector as a creator of prosperity and narrowed down the obstacles which stand in the way for a strong and successful Swedish export in the service sector.

It is evident that the globalization affects different groups in society in different ways, which can create a sense of insecurity. Mattias Ganslandt asked the panel how general political support for globalization can be maintained in Sweden, if the benefits are unequally distributed.

Peter Lageson said that it is important that the rules are consistent and harmonized internationally, different laws in different countries create unnecessary irritation when firms trade globally.

An average job in the private sector exists for seven years before it is destroyed. Hence job destruction is not new or unknown, according to Magnus Henrekson, but what currently happens is that we create insecurity, without giving firms the opportunity to create more jobs. This means that the politicians should work with both instruments to increase the demand for labor. Richard Murray worried that the inflexible unemployment laws will lead to difficulties in obtaining support for a change in the market structure. Karin Pilsäter concurred that encouraging people to enter the labor market by giving incentives to exit unemployment quickly at the same time as entrepreneurship is stimulated are two components that are vital for support.

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The Research Institute of Industrial Economics, IFN, is a private and independent foundation devoted to pursuing highly relevant research for trade and industry.

The researchers at IFN are united in their belief that economic methods offer a powerful tool for understanding society.

The main research programs are:

  1. economics of entrepreneurship
  2. globalization and corporate restructuring
  3. economics of the service sector
  4. economics of the electricity markets
  5. economics of institutions and culture.

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