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New Economy  


IT Visions in Istanbul
13/2/2001
In Istanbul, Swedish and Turkish IT entrepreneurs meet to discuss common visions for the future. I was asked to give some remarks on the lessons of Sweden for Turkey and Europe in these regards.


Carl Bildt
Senior Advisor IT Provider













Northern Light over the New Economy in Europe

Remarks at the Swedish-Turkish IT Day, Istanbul, February 13, 2001.


It is truly a privilege to be here in the ancient city of Istanbul and discuss the future of Europe.

Because when we discuss the changes now occurring in our respective economies, driven by the enormous advances in science and technology, we are also discussing the future of Europe.

It is the ability of Europe as a whole to adapt itself to a rapidly changing global economy that to a very large extent will determine the future of our continent.

And its the ability of our respective countries to use the new possibilities that have been opened up that will determine our position in the new Europe that is evolving.

Sweden is a member of the European Union only since little more than six years back. The first half of this year, Sweden is holding the position of the presidency of the union.

And Turkey is moving towards becoming a member some time in the future.

In both of our cases, the process of European integration is a major factor in the development of our economies and our societies. Some would even say that it is the most important factor of change in our economies and societies.

I arrived in Istanbul yesterday not from Stockholm but from New York on the other side of the Atlantic. From the largest city of America to the largest city of Europe.

There, the discussion on the information technology revolution and the new economy has entered a new phase. And this we will see in Europe as well in the months and years to come.

The first wave of the Internet revolution is over. Financial markets are hammering business models that are obviously not working. If speed was the king a year ago, it is now cash that it is the king. We see technology spending increasing slower, venture capital financing declining and a general scepticism against much that was greeted very differently only a year ago.

And there are certainly tendencies in the same direction in Europe as well. The slowdown in the European economy is less pronounced that on the other side of the Atlantic, but there is no mistaking the signs that we are beginning to see. And the attitudes of the financial markets tend to be the same on both sides of the Atlantic Ocean.

We are dealing both with a cyclical weakening of economies, particularly in the United States, and with a reassessment of what the so-called new economy actually means.

And in both cases we are dealing with something that fundamentally, within limits, is both healthy and necessary.

Last year was the best year for the global economy in nearly two decades. There were clear tendencies towards overheating in several of the leading industrialized countries. It is healthy to moves towards rate of growth that are more sustainable in the longer perspective.

And it is certainly healthy to move towards business models and concepts that are more stable and sustainable within the so-called new economy. When we see demands for profitability coming back, we are seeing the return of the values that will secure the future of the entrepreneurial revolution we are now in the beginning of.

At the core, we are talking about a development that is driven by technology. And while financial markets are cooling off, we see no signs whatsoever of any corresponding cooling off in the development of science and technology. Rather the other way around.

The Internet revolution has been with us throughout most of the 1990s. The Internet itself is of course much older, but it was only with the arrival of the World Wide Web in the early to mid 1990s that the Internet become accessible and started to transform our economies.

Since then, development has been staggering.

Today, there are over 400 million people around the world connected directly to the Internet. Since some months back, there are more Internet users outside the United States than in the country.

And the development continues.

The capacity of the microprocessors continues to double approximately every 18 months. This has been the case since the mid 1960s, and this could well be the case for several more decades.

The capacity of different telecommunications network be that old copper lines, fiber or different radio technologies have started to double approximately every nine months if you look at the past few years.

And the traffic on the Internet continue to double approximately every three months with acceleration rather than deceleration being likely in the coming years.

Indeed, while the computing revolution continues with breathtaking force, it is the communications revolution that is increasingly taking the lead. And hand in hand they are taking us into the third industrial revolution.

We are only in the beginning.

If we were to compare with the first industrial revolution, we can say that 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 havent yet seen the railroads, transformed continents and built fundamentally new economies.

This is yet to come. We are now on the verge of entering the second wave of the Internet revolution.

But before going further into this, we should look back on that first wave of the past ten or so years, and see the lessons that can and must be learnt from this.

And here the example of Sweden or indeed the Nordic countries have much to teach us all.

There is no doubt that Europe is still behind the United States in the development of the so-called new economy. Erkki Liikanen in the European Commission usually says that we are on the average between one or two years behind the US in important areas.

But within Europe, there is no doubt that it is the Nordic countries, and in particular Sweden and Finland, that are leading the development. In certain areas, they might even claim to be on the level with or even surpassing the United States.

There is a distinct Northern Light over the advent of the new economy in Europe.

How did this happen? Can it be sustained? And which are the lessons that can be learnt?

I believe there is a cluster of reasons why this cluster of competitive advantage appeared in the North during the 1990s. And they have their roots in what happened in the earlier parts of the 1990s.

First, Sweden and Finland passed through difficult economic times. In Sweden, it was the painful adjustment from the financial bubbles of the 1980s. In Finland, it was the disappearance of the Soviet trade that had been so important for so long.

Complacency was simply not an option if you were either handling the economic policy of these countries or if you were a businessman or a prospective entrepreneur.

Thinking anew was a necessity. Change was imperative. There was truly the need for a new start.

Secondly, there were important changes in the policies of these countries during these years.

Professor Michael Porter is today the worlds leading authority on 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.

And of particular importance was the radical liberalisation of telecommunications in Sweden and Finland in 1992. This was the most radical liberalisation so far done in Europe, and thus gave our countries the most open and most competitive market for telecommunications at the same time as the new GSM standard for digital mobile telephones appeared and as the Internet revolution started to be felt.

The importance of this can hardly be exaggerated. A new generation of entrepreneurs suddenly saw new possibilities. And the older parts of our economies equally suddenly saw the necessity of adapting to circumstances that were radically different.

But in addition to the need to start anew which was forced by the economic difficulties of the early 1990s and the profound effects of the liberalisation and the opening up of the markets came the effects of our countries moving to become full members of the European Union.

It was in 1995 that we become full members of the European Union. By then, our economies had already started to recover strongly. The GSM revolution had started to have a profound effect on our economies and societies. The Internet revolution had started in earnest.

But it was when we entered that wider political, legal and financial framework that is the European Union that the conditions for these developments were substantially further improved. There was no longer any going back on the economic reforms. On the contrary, some of them, notably in the field of telecommunications, were seen as leading the way for the rest of Europe.

The rest is, as they say, history.

Fiscal consolidation continued during the 1990s, which was naturally of fundamental importance. Measures were taken to create incentive to a widespread use of personal computers. The development of the broadband networks for the future started to come in focus for both the public debates and political attention.

I always talk about Sweden and Finland together, and I do it for two reasons.

The first is that the three factors I have mentioned applied equally to both countries, while they did not apply to other Nordic countries or other European countries, and thus explain why these two countries stand out in all the comparisons made on a European or on a global level on the position of different countries.

In some respect, the one country is in the lead, in some other respects, the other country is in the lead. Together, however, they are the Top of Europe when it comes to the New Economy.

There are differences between the two that are important. Sweden has a far longer and stronger industrial and technological tradition. Ericsson, which is today the worlds undisputed leader in networks for the coming generation of mobile telephone system, is a company with a long and a proud history to build on. But Finland has a more aggressive entrepreneurial climate with taxes lower than Sweden and, accordingly, growth rates that are higher than those in Sweden.

The lessons to be learnt for other countries and for us are thus fairly clear-cut.

First, that change is the order of the day, and complacency is certainly not an option.

We were forced to change, and we benefited from these changes. Others were not forced or did not change, and they have done less well.

Second, that open and competitive market is the number one precondition for change and success. It was when we opened up our markets that we started to liberate the forces both of foreign and domestic competition and entrepreneurship.

And third, that the European framework is of importance. The more open and the more integrated the European markets are, the better are our condition for common success.

These were the conditions that lead my country to success in the first wave of the Internet revolution. And I am convinced that they will apply to all countries as we are now entering the second wave of this revolution.

I believe one can talk about a Next Generation Internet that we now start to see coming. It is an evolution rather than a revolution, but it still merits to be talked about as a new generation.

This Next Generation Internet will be fast, always on, everywhere, natural, easy, intelligent and trusted. In all of these respects, it will represent a quantum jump over the generation of Internet that was driving the first wave of the Internet revolution in our economies and our societies.

We will see the rapid development of different broadband technologies to deliver much faster rates of transfer at much lower prices to far more places than before.

We will always be connected to the Internet as the dial-up era disappears and the era of packet switching appears.

We will be living in an environment of devices that are all connected to and communication through this Next Generation Internet. We will be living in increasingly smart homes in an increasingly smart environment.

We will soon start to see this as natural in the same way as electricity or telephones or radios are natural parts of our lives. The Internet will be the most important infrastructure of all parts of our societies.

We will be able to trust and rely on these systems to a degree we are not ready to do today. The Internet is built to be robust and reliable, but software is still in its early days, and we must be able to deliver more secure and reliable systems in the years to come.

In Sweden, new and old entrepreneurs are busy trying to design the new products for the next wave of the Internet revolution. Ericsson can stand as an example of the giants, with its world leading position in the new networks of the new systems, while another company here today, Melody Interactive, can stand as an example of innovative communications solutions for those operators wishing to jumpstart their entry into the next wave. All over the field, Swedish entrepreneurs are trying to lead the way, based on the successes achieved during the 1990s.

But complacency must not be an option now either. Markets are changing fast. New technologies have the potential of rapidly changing also very stable patterns. Who had heard of Napster a year ago? To be an entrepreneur in the new economy is to recreate the company and its products over and over again.

And the same applies to the economic environment.

Turkey is today in a process of economic reforms necessary for its own vitalisation as well as for its integration with the rest of Europe as well as the global economy. It is as challenging as it is necessary. Sweden can serve as an example of the rewards that are there.

But also Sweden needs to continue and accelerate its economic reforms. The Organisation for Economic Cooperation and Development (OECD) recently gave us a roadmap on what we ought to do in order to sustain our good economic development. To stand still is to fall behind in these rapidly changing times.

And Europe as a whole needs to continue. In Lisbon last March, the heads of state and government of the European Union declared their aim of turning Europe into the most competitive and dynamic knowledge-based economy in the world within a decade.

The goal is ambitious but not unattainable. And last week the European Commission presented its agenda for further reforms ahead of the meeting of the heads of state and government of the EU in Stockholm in late March that will assess progress since Lisbon and stake out the way ahead if the ambitions should be fulfilled.

The Lisbon goal of creating an integrated market for financial services in Europe by 2005 must be accelerated. The liberalisation of telecommunications must be carried forward. The same applies to the energy markets. The conditions for entrepreneurship must be improved. And Europe must be able to fully use the potential of the new currency the Euro as its coins and banknotes a year from now replace the old coins and old banknotes in from Athens in the south to Helsinki in the north.

We are living in challenging times. But seldom have our possibilities been greater.

We have the possibility of peace and freedom and democracy in Europe in a way we perhaps never before have had. This is obviously of profound importance for every aspect of our societies.

We are living in the fastest scientific and technological change ever in the history of mankind. We are in the beginning of the third industrial revolution. We are entering the second wave of the Internet revolution.

I believe there are great possibilities for our two countries Sweden and Turkey to build on old foundations in these new times. Together, entrepreneurs in our countries can seek to explore all the new possibilities that are there as we are together making our contribution to building a new and better Europe.

And today will be a great contribution to that joint endeavour of ours.


Wednesday 
6/4/2005 
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 http://bildt.blogspot.com.

At www.bildt.net 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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