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The State in the New Economy
What´s the role of the state in the new economy? There is a clash between the old state and the new economy - but also a vital role for the state. Remarks at the Swedish-French IT Day in Paris.

Carl Bildt
Senior Advisor IT Provider

Taxes, broadband and regulation – the state and the information society.

Remarks at the Swedish-French IT Day, Paris, December 4, 2000.

We are meeting in truly turbulent times.

A year ago, the markets were busy turning dust into gold as the valuations of companies associated with the new economy were going through the roof.

Today, what was then into gold is rapidly being returned to dust. The markets are hammering the former darlings of the new economy with a force seldom seen before.

If we look at the macroeconomic developments of our countries, there are distinct dangers in this situation. If policy authorities are not careful, there is a risk of an Internet recession affecting large parts of the economy.

But on a more fundamental level, there is also promise in the new situation. We are seeing a microeconomic reshaping also of the new economy. And there will be a healthier and better economy resulting from the turbulence and the shakeout that we are now seeing the beginning of.

When companies start to focus on their build-rates instead of their burn-rates of capital we are entering a healthier phase.

Because the underlying revolution in technology and science goes on.

We are only in the beginning of the third industrial revolution.

We have seen the advent of the steam engine, we have learnt that it can give new power to old things, we are beginning to see that it can create new possibilities. But we haven’t yet seen the railroads, transformed continents and built fundamentally new economies.

The capability of the microprocessors are doubling app every 18 months. The capacity of the different communication networks are doubling app every nine months. The traffic over the Internet doubles app every three months.

It is the fastest technology-driven change of our economies that humanity has ever seen.

However we measure things, there is a distinct “northern light” over the advent of the new economy in Europe. In most areas, we are still significantly behind the United States. But there is no denying that the Northern European countries are the vanguards of the change in Europe today.

Obviously, there our lesson to be learnt.

How did this happen? Can it be sustained?

I believe there is a cluster of reasons why this cluster of competitive advantage appeared in the North during the 1990’s.

Political changes were obviously important.

Professor Michael Porter has done more than anyone else to study the competitive advantage of nations. Studying the roots of the Swedish example, he has noted that “a better, more competitive environment has emerged through the deregulation of infrastructure, the opening of financial and currency markets, privatisation and more vigorous anti-trust enforcement.”

The radical liberalisation of telecom in Sweden and Finland in 1992 – substantially ahead of most of the rest of the European Union - coincided not only with the introduction of the new GSM technology, but also with the necessity to rethink old truths forced upon us by a severe economic crisis, the advent of a new generation of aggressive entrepreneurs and the gradual entry of our countries into the common regulatory framework of the European Union.

Suddenly, capitalism was back in business.

But the answer goes more deeply than that. Earlier than in other countries, the possibilities of the Internet revolution were in focus in the political and public debate in Sweden.

Not by regulation and not by subsidies, there was an attempt by public leadership and by daring young entrepreneurs to bring Sweden forward by focusing the attention not the least of the younger generation on the possibilities ahead.

It’s my opinion that the role of the state is critical. But in the new economy we must define the role of the state in a new way. The new economy and the old state don’t always go together.

First. The state must create the best possible conditions for entrepreneurship, flexibility and change.

Here, much remains to be done in our countries. Studies by the OECD indicate that it takes on the average twelve times as long time to set up a new company in Europe as in the United States.

And as we are entering a new phase in the development of many companies, classical questions of taxes and labour market rules, which have been less important during the boom period, will suddenly be of great importance. We must create a much better climate for SME’s all over Europe.

Second. The state must create a regulatory framework making it possible for the new economy to operate also across the borders.

This must be a European far more than a national task. The nation state is simply too small. We must not fragment our possibilities. It is only together that Europe can be part of shaping the new global framework.

The e-Europe initiative of the European Commission is central to this. Important steps have been taken this year. But as the communication of the Commission to the Nice meeting next week shows, much remains to be done.

The French Presidency must not forget these issues in the battles of Nice. And the Swedish Presidency has a golden opportunity of leadership on these issues during the coming six months.

The freeing of the local loop all over Europe as fast as possible is central to the emerging broadband revolution. The further liberalisation of financial markets is equally critical to the smooth financing of the rollout of broadband and the advent of the new applications industries. And the Euro will obviously create far better conditions for the booming e-retailing of tomorrow – for those countries part of it.

Third. The state must assure that much more effort is invested in the education system and in basic research. We are way behind the United States in basic research, and the gap seems to be widening. We have only few universities that can truly compete with the best across the Atlantic.

Here, Europe must do much better in the years ahead.

Fourth. The state must show leadership by its example. We are wiring schools far slower than we should. There are enormous possibilities in basic as well as advanced health care. The public sector must show leadership in the development of the e-services economy.

In sum: the new state in the new economy should concentrate on doing what only the state can and should be allowed to do. But old state habits of trying to do what the markets do better should be discharged as soon as possible.

The markets can finance the broadbands. But only the state can finance the teachers and the schools. The physical capital is important for today, but the human capital is critical for tomorrow.

If the old state focused on quantity, the new state must focus on quality.

The “northern light” is there over the new economy in Europe. But the tasks ahead are immense. The leaders of the European Union have committed themselves to making Europe “the most competitive and dynamic knowledge-based economy in the world” within ten years.

This will require vast changes.

We are on the verge of the mobile Internet revolution. The Next Generation Internet will be fast, always on, everywhere, natural, easy, intelligent and trusted. We will all be living and working in an intelligent networked environment. We will be competing with bandwidth per capita.

We must not lull ourselves into believing that everything has been done. Then the leaders of today are certain to be the losers of tomorrow.

Bildt Blog Comments

In addition to this webpage, and the email letters ongoing since 1994, I have now started a blog as well.

You find it at

At you will continue to find articles, speeches and different documents.

At the blog there will be the shorter and perhaps somewhat faster comments.

And the e-letter continues to give at the least an attempt at analys.

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