What future for Swedish research?

Half of Swedish R&D investment comes from 20 companies. This poses risks for the future, says Nima Sanandaji.

Sweden has for many years been internationally known as a home to innovative businesses and strong scientific institutions.

Investments in technology remain strong, but there are worrying trends. An increasing amount of this research is being outsourced abroad. Also, the investments in research and development are tied to a small number of companies. Swedish research is thus very sensitive to the actions of a small number of actors. If only a few of these actors were to outsource their research, Sweden would lose its innovative edge.

In order to maintain the competitiveness of the economy over time there is a need for new research-intensive companies to be founded and expand.

Until the end of the 19th century, Sweden was still an impoverished nation. But the expansion of private property and free markets opened the way for economic development. Until the middle of the 20th century, Sweden experienced phenomenal growth. Entrepreneurial companies that developed or adopted new technologies played an important role in this development.

SKF is a good example. This Swedish company is known as the largest manufacturer of bearings in the world. The company was founded in 1907 based on the invention of the ball bearing. Already by 1912 SKF was represented in over 30 countries and employed over 20,000 people. Pharmacia was founded in Stockholm in 1911. The company, now absorbed into Pfizer and GE Healthcare, launched many innovative medicines, such as sulfasalazine which is an effective treatment for rheumatoid arthritis and inflammatory bowel disease. Other Swedish companies which have based their success on research and development include Volvo, Ericsson and Electrolux.

According to the Confederation of Swedish Enterprise’s information project Ekonomifakta, Sweden invested 108 billion kronor in research and development in 2006. This corresponds to fully 4 percent of the Swedish economy, a high figure in international comparison. Three quarters of this research and development occurs in private business and the funding comes predominately from private enterprise.

The problem is that almost half of these investments occur in a total of 20 Swedish companies. In a time of global competition, an increasing amount of the sums spent on research and development is moving abroad. Ten years ago 78 percent of the research and development investments of large Swedish corporations were focused on projects actually carried out in Sweden. Today this figure has reduced to 56 percent.

Sweden’s economic development started lagging during the 60s and the 70s, as taxes were raised from a relatively low to a very high level. One of the most important results of this societal change was a reduction in the number of entrepreneurial companies that were founded. A significant part of Swedish enterprise is comprised of large companies founded before the year 1970. The fact that so much of the research occurs in a small handful of companies is related to the lack of renewal in the Swedish economy.

Many of the big companies that currently fund so much of the research in Sweden will over time go out of business or move their research abroad. If Sweden is to stay on top of technological development, it is vital for new innovative companies to develop and expand. A free environment for private business is vital not only for the economic, but also the scientific development of Sweden.

Nima Sanandaji

Nima Sanandaji is president of the Swedish free market think tank Captus and publisher of Captus Magazine.