Headlines 2014

"We cannot rest on our laurels"

2014-07-01


The Swedish self-image as a future knowledge-driven economy is quite feasible to implement. Though, it requires a number of changes, writes Magnus Henrekson, IFN, in the book Position Sverige – Om innovation, hållbarhet och arbetsmarknad, presented in Almedalen last Tuesday (July 1). He explained that Sweden ranks high in terms of innovations and patents. But we are not good at the next step: Through entrepreneurship and by building businesses, translating patents and innovations into high-growth companies. This requires a series of reforms.

In the picture: Magnus Henrekson in a conversation with Mats Ögren Wanger (ed.) during the seminar in Almedalen.

 

"Sweden has improved its relative competitiveness, growth and job creation capacity since the crisis in the early 1990s as the transformation of knowledge into goods through entrepreneurship has become much more efficient. This in turn is the result of improved institutional conditions. But we cannot rest on our laurels. If Sweden is to remain competitive and increase its prosperity further continual improvement is required, "writes Magnus Henrekson in Position Sverige (Ekerlids förlag), and adds that there are still significant deficiencies in terms of developing new knowledge. He believes that the skill level in both basic education and higher education should be increased substantially. He proposes a number of measures:

  • sustained effort to increase the quality of students' ranking and achievement in the PISA system
  • apprenticeships to combat exclusion of those students who are not motivated for higher theoretical studies
  • better synergies between the educational system and the business sector
  • a substantial improvement of teacher training, status and wage levels

Freedom of entry and free choice has created insurmountable management problems in the education system, writes Henrekson. A system that will "never work well unless the grading is externalised and relative grading is introduced. It is sufficient if the average grade level in each class or school is determined by national tests graded externally.

Magnus Henrekson also writes about the plethora of available forms of public support for entrepreneurship: "Every such system diverts entrepreneurial talent from more viable businesses." But he welcomes the steps taken to make it more profitable to work instead of living on welfare. He argues, however, that further changes ought to better promote innovative and fast growing companies. Three areas are of particularly important: the labor market regulation, wage formation and social insurance.

Magnus Henrekson writes that "greater labor mobility improves productivity and the ability to pay high wages as the matching becomes more efficient" . He points out that:

  • increased innovativeness requires further steps towards more decentralized and individualized wage
  • that there is reason to believe that a Danish flexicurity system, combining weaker employment protection with a more generous public income insurance, makes it easier for businesses to grow rapidly

About taxes Henrekson writes: "Since large part of the innovation process is carried out by employees labor taxation is important. Already at relatively modest salaries, the tax including social security contributions amounts to 63 percent of labor compensation and then rises to 67 percent in the top bracket (when you have to start paying värnskatt). One important step would be to abolish värnskatt and stop levying payroll taxes above 7.5 income basic amounts, ie the level above which the payroll tax gives no additional benefits. This would lower the top marginal tax rate from 67 percent to 51 percent. "

Stock options are an instrument that is used successfully in the U.S. and, Magnus Henrekson suggests, that similar systems ought to be introduced in Sweden. But that would necessitate a different tax treatment of gains on stock options.

 

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