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Tuesday, 18 September 09:49 (GMT -05:00)



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“Swedish phenomenon”: unknown secrets of the country’s success by the eyes of investors


Investment news of Europe, Sweden. No small country has been talked of or written about so much as Sweden. The image of this successful and idyll Scandinavian country captures a great many. Economists are trying to penetrate deep into the unprecedented economic success of Swedes, politologists are attracted by the unique experience of building so-called “Scandinavian socialism”, state of general welfare, for investors Sweden certainly is the country attractive for investing their capital, as it seems to be an island of stability, where one can find rescue and comfort from the experienced troubles. It is true that just a century ago Sweden was a poor and downtrodden agricultural country, whose population had massive emigration overseas (every 5th Swede lived in  the USA). Today the country rightly is:
- “big brother” in Scandinavia (according to tradition, according to population size – more than 9.3 mln., according to territory – the 3rd position among the countries of Western Europe and the 5th among European countries), according to the stake in general GDP of 7 countries of the region (Sweden,
Denmark , Norway, Finland, Estonia, Latvia, and Lithuania) – 35%, according to FDI into these countries’ economies – almost 50%, etc.);
- one of the strongest economies in Europe. Particularly, in the rating of Global Competitiveness Index in the World Economic Forum 2010-2011 Sweden has only let Switzerland pass ahead of itself;
- the state with the highest well-being worldwide. Sweden has more than once been acknowledged “the best country worldwide”, and last year it won the high 6th position in the rating of most prosperous states (Legatum jointly with Oxford Analytica and Gallup World Poll Service). More impressive data can be suggested. In this reference, according to the research of Tällberg Foundation, which included 16 most frequently quoted ratings of world community development, according to the total number of points, Sweden has occupied the 1stposition;
- one of the few countries that soon recovered from global economic crisis: last year the growth of GDP amounted to more than 4% (according to other data, about 5%). No developed country managed to approach Sweden according to this point (although economic decline here was deeper than in the majority of other countries); it has most stable budget balance in European Union – 0.0% GDP, etc.

In general, today Sweden represents the image of stable economic oasis, which stands out among the majority of debt-stricken countries of EU. All this (and much more) allows experts to talk about Swedish exclusiveness, which is called “tiger of the north”, “vehicle of progress”, and “lighthouse of European light”, and its economy – “as stable as Pippi Longstocking”. So what is the secret of its success? What are the main benefits of Swedish model of development? Let us delve into it together.

So richcold/Swedish table

As information materials claim, there exists no notion of “Swedish table” in Sweden itself; here it is simply called a picnic one; however, for our narration any meaning of it will do, as the reasons of Swedish community well-being are to be discussed. The experts of
Forex Academy and Masterforex-V Exchange Trade pay the attention of international investors to the fundamentals of successful development of the country’s economy:

1. Historical factor. The following components can be related to the specifics of the history of Swedish development:
- a 200-year foreign policy neutrality of the country. Since 1814, after Napoleon war, Sweden quit fighting, which means that two devastating world wars have passed by it. There is no point in resting on how other countries again and again had to rebuild and how much effort they put into it. However, during the last years Swedish neutrality has become quite relative (its participation in war against Libya as an example);
- Social-democratic labour party being at power for a long period of time. It has unchangingly ruled the country since 1932 till 1976, which assured not only political stability, which is so much needed for economic reforms, but also social peace in the state;
- active role of labour unions (they unite about 80% of the whole working population of the country) in resolving conflict situations (particularly, the centralized system of negotiations between labour unions and entrepreneurs concerning wages), as a result of what the country for decades has not experienced either social disruptions, or even serious strikes;
2. Rich natural resources. Swedish natural resources are so rich in metals, uranium, zinc, gold, silver, wolfram, etc. that it is enough for export shipments. The situation is complicated by the fact that many deposits are difficult to exploit, which is one of the reasons why there remain so many unexplored deposits. Let us also add hydropower resources and wood to the list. It is well-known that more than one half of the country’s territory is occupied by dense forest;
3. Broad participation of the government in economy. Let us give only one example. For you must know that ⅓ of all working population is employed in Swedish governmental sector. It is a rather rare occurrence for a capitalistic country; for example, in
Great Britain only 10% of working population is employed in governmental sector. By the way, some experts call this feature of development one of the factors, which helped Sweden to quickly deal with crisis. According to the participation of the government in economic life, today Sweden has no equals in the range of developed countries worldwide.
However, a considerable governmental sector is not equal to considerable weight of state ownership. Let us say directly that it is not large in Sweden, as 85% of all Swedish companies are private and produce about 90% of the country’s production (moreover, lately the country is experiencing total privatization). Therefore, all claims about “Swedish socialism” are no more than just a figure of speech;
4. Powerful modern industry. The leading position in Swedish economy is occupied by machine engineering, electronics, chemical production, etc. The country has long ago placed its bet not only on industrial production, as this was not enough for Swedes, but it has also placed its bet on releasing only high quality production. As it is said, “Made in Sweden, made sensibly”. And today the country is a confident leader in the number of world-known brands and population size. Their sole list can impress anyone – Volvo, Saab, Ericsson, Electrolux, IKEA, Oriflame, Scania, TetraPak, Trucks, Alfa Laval, you name it. Every of them is one of the world market leaders. It is also to the point here that this generally small country has a powerful military-industrial complex. It manufactures well-reputed worldwide maneuver fight aircraft Gripen (it is called the best European fight aircraft), helicopters, submarines, surface ships, tanks, self-propelled howitzers, shoulder-fired air-defense weapon, etc. In other words, it is not by chance that in the recent years Sweden has reached the 7th position worldwide according to weapon sales;
5. Innovative economy. It is fairly believed that no truly strong economy is possible without innovations. In this reference, in the passed 2010 Sweden has occupied a more than honourable 2nd positionin the list of most innovative countries worldwide, having exceeded the USA itself. Let us give only most significant facts:
- owns leadership in the sphere of biomedicine (for example, the country is known for its development and production of latest antineoplastic drugs). Swedish biotechnological sector is the 4th in Europe;
- is the leader in the sphere of high technologies. It is enough to say that it is Sweden that has the highest stake of IT goods in general export, namely, 9.5%. Currently, Swedes are actively involved in creating an alco-lock, which will prevent an intoxicated driver from starting a car, an infrared sensor, by the signals of which a computer distinguishes pedestrians and warns a driver, technology that allows cars to warn one another against various threatsis being tested, etc.;
- occupies the leading position in Europe according to the number of published scientific worksin ratio of population size;
- occupies the 6th position worldwide according to income from royalty receipts. Such examples can be called more and more. It is high time to explain the reasons of such innovation boom in the country. In this reference, not only the obsessive spirit of invention, characteristic of Swedes since long ago, is worth mentioning (let us remind that it is here that Celsius thermometer was invented, as well as an adjustable (Swedish) spanner, matches, safety belts in cars, and we cannot but mention a computer mouse), but also generous financing of scientific research. Sweden spends 3.6% of GDP on research and development, which per capita amounts to more than in any other country worldwide, except the USA;
6. Highly professional workforce. The country’s population has a very high general level of education. It is true that in Sweden both the state and the companies are generous with creating studying courses, advance training, retraining, and teaching adults. There is a well-established system of correspondence study here, including circles and educational programs. It is hard to believe but the most prestigious and, consequently, most well-paid profession in the country is an engineer. High labour capacity, well-educated personnel that knows English, developed business culture, and effective management style were achieved by means of general effort;
7. Stability of financial system. A lot attracts investors in Sweden; for example:
- deficit-free budget (today a rare case in the world);
- volumes of crediting by Swedish banks of problematic
Greece, Italy, Portugal , and Spain amount to about 2.6% of the country’s GDP, whereas in Ireland it makes up 43%, and in France – 35% (Business Week);
- being the member of European Union, the country is not included into Euro zone, which enabled the country to go for usual in such circumstances devaluation of national currency. The rate of Swedish krona has lowered, which together with the decline of domestic demand has led to considerable positive balance of trade and payments in the country;
- in the past, there remained fears, connected with the collapse of economy in Eastland, which, as it seemed, Sweden “was bound” to experience (it has for a long time been 2nd among main Lithuanian investors (15% of FDI), whereas Swedes keep the major part of their connection in Latvia, for 3 main Swedish banks – SEB, Nordea, and Swedbank function there). It soon turned out that serious Swedish investments are limited to investments in retail and wholesale trade of the Baltics, real property, and that financial intermediation was of top priority. But not so many countries make up the Baltics!
8. Favourable climate for developing entrepreneurship. Economic and legal climate of the country is rightfully recognized by investors as one of the best in the world, for the implemented laws in the country are precise, clear, and stable:
- general VAT rate in Sweden amounts to 25%;
- high income tax (this is yet to be discussed further), which is combined with a relatively low corporate profit tax of a company – 26.3%, which is the 11th position in Europe;
- employer’s social distributions do not exceed the average level in Western Europe;
- low risk of labour disputes;
- honesty in doing business;
- high level of technological development;
- developed infrastructure;
- low corruption level. Transparency International anti-corruption organization positions Sweden on the 4th place in the world, calling it one of the best countriesfor doing business. As Swedes themselves say, this happens not because people are different or less thievish, but because rules are different, to be more exact – clear. Due to this clarity, it is harder to be corrupted here. For example, in Sweden everyone has a right to request expenditure data from a state official. However, cases, exactly this word, of corruption do happen here. One of the latest juicy scandals is connected with officials of Goteborg city council, who took bribes from a large building company and closed their eyes to padded bills for payment and fictitious constructions.
9. Favourable location of the country. It is easy and rather quickly to reach not only large cities of Scandinavian countries from Sweden, but also of the Baltics and Northern Russia (it opens access to three markets at the same time); therefore, it has turned into a convenient logistic center for many global companies. Today ⅔ of 100 largest world companies have their regional offices here, among which Dell, Honda, Philips, Toyota, Adidas, Canon, and Thomson. Sweden has practically become the center of economic activity in Scandinavia.
10. Export-oriented economy. Due to narrow internal market, the country’s economy has long ago become mostly oriented to foreign trade. Today its ratio in GDP amounts to 53%. There is one, but rather impressive, example to it – Sweden obtains 28% of the world’s household appliances market.

What isSwedish paradiselike?

Everyone knows about generous social protection of Swedish government. Many have heard that active social policy of the country is built on the principles of social solidarity (the state does not leave anyone alone with his troubles such as loss of job, diseases, old age; it protects everyone “from the cradle to the grave”) and general well-being. Swedes believe that this favours social homogeneity of the community and, consequently, its social stability. People are truly taken good care of here, which is something that many of us have already forgotten. “Swedish paradise” includes broad social rights for all citizens: young and old, ill and healthy, rich and poor. Let us mention only the most important directions of this policy:
- various allowances. For example, in addition to child allowance, the government pays for all public services of a single mother. It is clear that all kindergartens and nurseries in the country are free of charge;
- old people are provided with residential homes (Swedes regard this as nothing shameful), which are represented by comfortable hotels with full service and treatment at state expense. At the same time the elderly are not deprived of pension;
- only a week ago unemployment allowances amounted to 80% of wage; they were paid for the period of about 10 months;
- before crisis pension amounted to 60 – 80% of wage. Although taxes on pension are charged in Sweden, its pension is one of the highest in Europe;
- free education. Almost all system of higher education in the country is state-owned. The state assigns 4.9% of GDP for education, which is one of the highest rates among the countries of OECD;
- preferential medical service. There is a very high level of medical care in the country. As the majority of hospitals are state-owned, from 70 to 80% of local budget is assigned for medical care. This is the source of Swedish longest in the whole Europe duration of life, 9th position worldwide.

It is obvious that al tlhis and much more demands large government expenditures. There is data that they jointly amount to more than 60% of GDP, which makes the country the 1st according to this criterion. However, Swedes have chosen this way rather consciously and are not going to turn from it, maybe just to correct it slightly. One can understand them. What can measure the feeling of absolute protection, human dignity, social solidarity, andjustice in the highest meaning of the word? In Sweden you will see almost no plush villas, frequent pompous palaces, limos of fabulous size, yachts that costmillions, private airdromes, and nobody will be surprised to see the prime minister in a street crowd or a cinema hall. Rich people certainly are represented here, but, first of all, they are not many here and, secondly, it is not common to expose one’s wealth to public or boast of it in Sweden. All this also explains the fact that, according to the research of American Institute of Public Opinion named after G. Gallup, Sweden shares the 2nd position with
Canada and Australia (65%) as for people’s satisfaction with life.
It is this cocktail of conditions and circumstances that gave birth to “the third path of development” in Sweden, the path, which successfully combines the best from “wild” Anglo-Saxon capitalism and “dangerous Soviet collectivism”, namely, market-oriented economy and general social protection.

Best Karlssons in the worldor features of national character

It is obvious that Swedish success is first of all the merit of the country’s citizens. If one tries to imagine the image of average Swede, it is best to imagine Karlsson-on-the-Roof. In the end, it is not for nothing that this surname is the 3rd most widespread in Sweden. Although, Swedes themselves do not like Karlsson, supposing that he is a “cad, egoist, cheater, boaster, andprovoker”. Maybe this happens because they all find their own features in the character? Their most important common feature probably isirregularity. Swedes leave a truly bright impression. They are distinguished by the following features:
* patriotism. One cannot get somewhere not having seen the blue-and-yellow flags, as they are on the houses, kindergartens, schools, in one word, everywhere, including confectionary. They love their country with, to our post-soviet point of view, some strange love. The matter is that Swedes are proud not of their country’s past, but of its present, which can actually be understood;
* Nordic tranquility, circumstantiality, buckram, andjudgment. How did or Karlssonsay – “Be calm, just be calm”? Swedes plan almost every step before making a decision; this process can take months while they are considering it from every possible angle. One will never see either their frantic joy, or their deep dudgeon. In other words, “No big deal, it is all labours. There is nothing to be disappointed of”. Some see stupidity behind their terseness (there is a great number of anecdotes concerning this. For example, how do Swedes kill fish? Drown them in water), others see disdain, although, mostprobable, the matter is with their…modesty. It has become the country’s custom to consider self-confidence a big sin;
* law abidance. Regulation and due process of their lives are overabundant, due to what they are sometimes considered dull and naive. Their meticulous law abidance can be considered a unique occurrence in the world. Norwegians speak of Swedes as of 9 million people that act as chiefs and experts tell them to: they quit smoking, because this is appealed for by health authorities, attend circles in order to find out what European Union is, etc. There are two notions in life that Swedes always adhere to; they are “set” and “sufficiently”. It is set that children shall receive sweets on Saturday, which means that they will only eat sweets on Saturday; fishing is set to be done in specially designed locations, having filled a real Talmud and having left the money for the catch in a small box in back wood; sorting garbage into numerous containers and tanks (tea-bags are torn apart, for the paper is thrown into one garbage bin and the brew into another); a city bus is entered only by the last door, although all of them are open, etc. Swedes were taught to abide to law for a long time and in a rather peculiar manner. Thus, in Stockholm there still exists the law of open windows, which was introduced in 17th century, so that anyone could see whether people live to their means. Therefore, now every Swede believes that this is his duty to inform the police of the observed violation;
* working hard. The main point of their lives is work, you bet, as one cannot fool around much, having such taxes;
* desire to reach consensus. Heated discussions are rarely seen here, as Swedes believe that several convincing arguments are more important than forcing voice. They fear conflicts a lot and do not like to disappoint other people. Therefore, Swedes rarely refuse directly, preferring a promise “to think”.
In general, Swedes are generous and friendly, just like their fairy fellow countryman Karlsson.

Up or down the “wall-mounted/Swedish ladder”?

However, not everything is so cloudless and perfect in the Swedish Kingdom. There are certain grounds for a critical look on today’s development of the country. This, for example, has already been done by a French philosopher Guy Sorman in his article with aneloquent headline “The Welfare State, RIP” (“Project Syndicate”, USA). So what are the problems of Sweden? Is it true that Swedish model is under threat? What is the price of the policy of equality and solidarity? Experts of Forex Academy and Masterforex-V Exchange Trade pay investors’ attention to the following narrow places of Swedish economy.
Worsening of some economic factors:
- unemployment rises with high pace – from 6% in 2008 to 8.5% this year. The experts express their fears of high unemployment turning from cyclical into structural. Few new jobs are being created in the country;
- governmental finances have worsened to the greater extent than in many other countries – from 38% in 2008 to 42.6% of GDP in 2010;
- significantly higher pace of household crediting in comparison with the income of the population and the increase of prices on housing (for the last 10 years household prices have increased twice here; their increase was quicker only in Spain );
- income from research and development stopped rising; at the time when the governments of other countries are actively increasing investments in research and development, this can influence Swedish goods competitiveness at foreign markets;
- even Saab company is currently experiencing serious problems, it was closed more than once due to its debts before service parts suppliers; moreover, its assortment of production, which consists of only 3 cars,  is outdated; only last year, for the first time since 2005, Volvo gained income, the same year it was bought by Chinese group of companies Geely, having although promised to maintain its independence and management;
large governmental sector. It is not just high, but one of the largest in the world; at the same time it is worth mentioning that capacity in governmental sector is low, and the cost of labour force is high;
peripheral location of the country is known of particularly by increasing transport expenses of producers;
high dependence on export. The fact that Sweden has suffered from economic crisis more than other countries (decline of GDP in 2009 amounted to 4.4%, and has become the largest during one year for the entire post-war period) is the result of strong dependence of economy on foreign markets;
exclusively heavy burden of tax. As it has already been mentioned, Sweden is the country with high level of well-being (GDP per capita amounts to more than $38 ths.); however, Swedes are rarely represented in the lists of the richest people in the world. This is explained byredistribution of income through taxes and government expenditures. Graduated tax is implemented here, rather high by the way. Thus, if in France the rich are charged 40%, in
Germany – 45%, then in Sweden – 56% (it is higher only in Denmark ). Almost 60% of the country’s GDP is assigned to taxes, which is the highest number in OECD. Astrid Lindgren’s income tax has once amounted to 102%, and the famous Ingmar Bergman ran away from the country in order not to get imprisoned for concealing from taxes. Such cases were more than enough. It is clear that by means of super-high taxes super-high social expenditures are paid. However, they suppress entrepreneurship activity in the country, cause outflow of capital (it has already happened before the crises of 90-s when Swedish investments in Europe exceeded two times Japanese and American ones together), favour trade migration, for example, to Norway, where the level of life is higher, stimuli to labour are higher, and social dependency is encouraged. It is not for no reason that Sweden has occupied the 18th position in the Ease of Doing Business index, being passed by all Scandinavian countries.

How much longer will Sweden be able to carry this burden, to stand the hard pressure on state budget?

It is currently reducing its expenditures: the first 3 days of an illness are not paid any more, and for the rest the payment of a sick leave is lowered to 75% of wage, pensions are lowered, it has become harder to receive unemployment allowance, etc.
demographics. The country’s population is getting older, as Swedes live longer and give birth to fewer children. And although the birth rate here is not as bad as in Germany, on the contrary, it is considered rather high due to European standards, but it is still not enough. It is known that a Swedish woman gives birth to the first childat the average age of 30, which is the oldest age in Europe (together with Ireland and Holland). The present problems are obvious due to the fact that the ratio of people aged more than 65 in Sweden amounts to 18.8%, whereas for reproduction of the population it shall not exceed 7%;
country of immigrants. Sweden is considered a paradise for immigrants because it has most liberal immigrant laws not only in Europe, but including the USA and Canada, which are exclusively loyal to refugees. Due to this, today about 20% of the country’s population was born abroad and whose one or two parents are immigrants. Suburbs are frequently inhabited by black people, Iranians, Arabs, and Turks (for example, the population o fMalmo city is to ¼ composed of Muslims), crime rate is increasing (85% of convicted rapperswere born abroad or by parents-immigrants), extremism is growing.

So what is expecting Swedish legendary model? Crash? More than once many were predicting its collapse, but every time the idea failed and the country recovered after crises. It’s a pity that there is nothing truly ideal in life; however, this model has an excellent feature – to alter, adapt, and redevelop. Having steadily positioned itself on two whales during the period of crisis and having activated market tools, Sweden has always returned its leading positions in the world and… has restored the state of general well-being. The secret is to manage timely, and Sweden has always been successful so far.

Experts of the Department of In-Depth
Trade System Study of Masterforex – V admit that Swedish krona is forming the full range of correction waves and subwaves of Daily2 level to a long-term bear trend. Experts of the Department of In-Depth Trade System Study of Masterforex – V explain that the further weakening of krona will be happening within с(С) wave of the same wave level, and the closest resistance will be represented by the point of crossing of important levels of correction and impulse networks – 6.8018. Breaking a sloping channel and MF pivot by the price will indicate the end of correction and the continuation of strengthening krona in a long-term trend. At this path, support will be provided by the sloping channel and MF pivot.



The Editorial Board of “Market Leader” magazine, jointly with experts of Masterforex-V Academy, holds a questionnaire in
traders’ forum: in your opinion, will investment attraction of Sweden continue to grow?

• yes, always, Swedish economy is expecting further strong development;
• no, within time the country will become less attractive.

 

You are free to discuss this article here:   forum for traders and investors

 

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