How Sweden Became Europe’s Epicentre Of Innovation

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Ranked in 2016 as the second most innovative country in the world by the World Intellectual Property Organization and named the most innovative European country by the European Commission, Sweden has no doubt a lesson or two for the rest of Europe when it comes to fostering innovation.

With a population of about 9.8 million, comparable to the population of Europe’s current startup hotspot London, Sweden has managed to be the birthplace of world-known companies like Skype, Spotify, iZettle, and many more. In fact, when looking at it from a per capita perspective, Stockholm is the second most fruitful tech hub in the world, second only to Silicon Valley.

Of course, with all this success, one is left wondering: how is it that a small country known for its socialist government, high tax rates and cost of living has become a world leader in innovation? At StartUs we explored exactly this topic to shed some light on what matters the most when innovating, and what countries can do to nurture innovation.

#1 Income Safety Net

Sweden may have high taxes, but this also enables the government to provide its citizens with generous benefits that go from healthcare to unemployment help and public services. Thus, Swedes have a comfortable safety net they can rely on in case times get hard or the startup they founded gets bankrupt. This in turn makes them more likely to take on more risk than they otherwise would have. Since higher risk is linked to more innovation, the income safety net provided by the government acts as a driver for innovation.

#2 Non-Hierarchical Structure

Scandinavia is generally known as being a very equalitarian region to live in, and Sweden is no exception. It is not uncommon for celebrities to hang out in places the average person would go to, the mentality strongly encourages cooperation. Under such conditions, even interns are stimulated to express their ideas freely. This flat-hierarchical type of workplace has obviously paid off for the Swedes.

#3 Education

Again, a positive consequence of high taxes, is the high-quality, free education system Sweden provides for its citizens. Not only is access to quality education available, but there is a strong focus on creativity which certainly has an important impact on innovation:

Internationally, Sweden has contributed greatly to the music industry, and not only through Spotify, but just think of the many artists that call Sweden their home: Avicii, Axwell, Zara Larsson, Sebastian Ingrosso, Swedish House Mafia among others. Impressive for such a small country. Moreover, the Global Creativity Index, which ranks 82 of the world’s countries based on talent, technology, tolerance and criteria, positioned Sweden ahead of every other country.

#4 Early Investment In Technology

The 1990s saw a strong investment in technology infrastructure as the government laid the foundations for high-speed internet and provided its citizens with incentives to own a personal computer. This early investment has turned out to bring high returns to the country years later and for the years to come.

#5 Global Mindset

Perhaps one of the reasons Sweden has experienced such tremendous success in innovation is its small size. As Skype founder Niklas Zennström puts it: “We think globally from the outset” realizing that “the domestic market is not big enough”. With this pressure to expand rapidly abroad, Swedish startups achieve this objective in about 1.4 years.

#6 Ease Of Doing Business

While you may think that it is hard starting a business in Sweden because a large part of income will go to the government, the country is ranked number 9 in the Doing Business Index, one position ahead of Ireland, known for the “Irish double sandwich” practice which attracts large corporations. The index takes into consideration how easy it is to start a business, get credit but also takes taxes and investor protection into account.

So you see that a country with high taxes is not damned to have stagnating innovation levels, and Sweden is not an exception, as its neighbours Denmark and Finland are not far behind. Taxes seem to have much more than a one-dimensional effect on doing business and innovation. Together with the right mindset to doing business, investment in education & technology, and a healthy appetite for risk backed up by income safety nets, a country is on the right track to cultivate the next wave of innovation.



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