Why Does Sweden Have So Many Start-Ups?

“Sweden used to have a heavily regulated economy in which public monopolies dominated the market, which made it difficult for such replacements to occur, but regulations have since been eased. While Sweden was making it harder for monopolies to dominate the market, the U.S. was changing its regulatory landscape to favor big companies and established firms (largely through overturning anti-monopoly laws and permitting industry consolidation), argues Lars Persson, an economist at Sweden’s Research Institute of Industrial Economics who has studied new-business creation in Sweden.”

“Sweden also gives some credence to the controversial idea that cutting corporate tax rates can help stimulate entrepreneurship. The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent. (Sweden’s corporate tax rate today, at 22 percent, is much lower than the U.S.’s 39 percent, though few companies actually pay a rate that high.)”

“Before the 1990s, there was also little foreign competition in Sweden. Protectionist legislation prohibited foreigners from taking substantial ownership in Swedish companies, and fewer than five percent of private-sector employees worked in foreign-owned companies in the 1980s. Then, Sweden opened its market to foreign competition in the 1990s, which helped in a few ways. Instantly, there were more companies that could acquire mature start-ups, which added to the incentives to start new businesses; Mojang, the gaming company, for instance, was acquired by Microsoft for $2.5 billion in 2014. And inefficient domestic firms that weren’t able to compete with foreign firms tended to go out of business, creating a vacuum in which new companies could arise. The share of foreign ownership of Swedish companies shot up from 7 percent in 1989 to 40 percent in 1999.”