The New Economy
Anförande vid ICT Forum i Milano, Italien
After the burst of the financial market bubble surrounding the so called new economy during a couple of years, we are now in a position to take a more sober assessment of where we are and where we are heading. Just days ago, the OECD held a meeting of ministers in Paris, at which it reported the result of a two-year study into the subject of economic growth, the new information technologies and the challenges we are faced. Called “ The New Economy: Beyond the Hype”, the report concluded that “the evidence suggests that something new is taking place in the structure of the OECD economies”. And this “new” that is changing our economies is of course the rapid introduction and diffusion of new technologies, most notable those associated with information and computer technologies. Now, it is thus officially confirmed by that custodian of convention wisdom in terms of economic affairs in the world, that while there might not be an entirely new economy, there is certainly something new in the economy. And that’s significant. Beyond the bubble and after the hype, we can thus see that it wasn’t just bubble and hype, but that it is indeed a question of new forces transforming our economies. There can be no question that the United States is in the lead when it comes to this development. Throughout the 1990’s, the level of investment in high-tech in the US economy has app 50 % higher than in the European Union, the amount of venture capital available as a proportion of GDP app twice the level in the best EU economies and the effects on productivity and growth in the over-all economy much more apparent than anywhere else in the world. But if we look at Europe, there is no question that it is has been in the North – and particularly in Sweden and Finland – that the development of the so-called new economy has been most apparent. There has been a distinct Northern Light over the appearance of the new economy in Europe. Naturally, we ask ourselves which were the factors that contributed to this, and which are the lessons to be learnt for the years to come for Europe as a whole. The OECD report points at a number of factors that are of significance. It notes, that “countries that moved early to liberalise telecommunications have much lower telecommunications costs and a wider diffusion of ICT technologies than countries that were late to take action”. And this remains, I believe, the key to the experience of Finland and Sweden. In 1992, we undertook the most radical deregulation of telecommunications yet done in Europe. Most countries in the EU remained sceptical at the time, but by the end of the 1990’s, all of them had decided to go down the same road of liberalisation. But this key political change coincided with other factors. In the early 1990’s, both Sweden and Finland went through very difficult economic times. It was necessary for everyone – from the government down to the smallest firm – to look anew at their situation and how they should face the future. Complacency was simply no option. At the same time comes the transition from the older analogue network for mobile telephones that had been operating for a decade among the Nordic countries – the NMT system – to the new digital European standard of GSM. Suddenly, Sweden and Finland emerged as the most open, the most competitive and the most challenging market for the new technologies. And we saw international actors coming in at the same time as we saw new domestic actors stepping on to the scene. But the GSM revolution was only part of it. These were the years when Internet started to become more widely known. In 1994, the World Wide Web emerged from obscurity, and started an entirely new development. In 1995, on the other side of the Atlantic, the IPO’s of both Netscape and Amazon started the dramatic development on the financial markets, and the same year saw the setting up of the first pure European web companies in Sweden. Naturally, Ericsson and Nokia are important parts of the story as well. From 1993 up until recently, production of telecommunications equipment in Sweden increased by no less than 40 % every year. And while Nokia has been emerging as the world’s most successful company when it comes to selling mobile telephones, Ericsson can claim to be the world’s most successful company when it comes to the networks that are key to the development we will see in the years to come. But for me, it is not the impressive figures for production of telecom equipment in either Sweden or Finland that is the true hallmark of the success. For more important is both the emergence of a large number of new companies, based on new ideas and launching new products, and the widespread use throughout society of the different new information technologies. During the last month, we have seen the financial markets starting to come back to the ICT sectors. We are no longer in the boom, but neither are we in the bust. We are in a situation where one is beginning to see the long-term significance of the entire sector. What we have seen so far in terms of the “new” in the economy is, in my opinion, only the faint beginning. So far, we have seen the second generation of the mobile telephone and we have seen the first wave of the Internet. We are about to enter into the second wave of the Internet revolution, and then mobility will be a critical part of the entire development. Technological developments do continue. We see how the capacity of microprocessors continues to double on the average every 18 months. We can note that there is the claim that the capacity of telecommunications in different forms doubles on the average every nine months. And we have certainly noted that during the last few years’ traffic on the Internet has doubled on the average every three months. The next generation of the Internet will be much faster, will always be on, will connects things far more than humans, will be everywhere and all the time and will be far more secure and far more stable than what we have seen so far. It will no longer by a dial-up system, but a true step towards a truly networked society. I am convinced that we will, within this decade, see the convergence between the classical telephone system of today – mobile or not – and the Internet system, that we will have more IP addresses distributed than people on the planet, and that in the more advanced countries will not only an IP address be what all get at birth but will also be a natural part of most of the things and devices that are produced. We will be living in a truly connected environment, where networked intelligence will be available to assist and help our environment and us in numerous different and diverse ways. It goes without saying that there are also significant problems along this road. We must handle the very significant issues of privacy that will be there. We must be certain of the stability and the security of the systems. But overall, we can look forward to a truly revolutionary development, which will make what we have seen so far look as just the humble beginning. The developments possible will be challenging for both individual economic actors and for regions and countries. Success will not come by itself. For nations, I believe some factors will be of significance. First, bandwidth per capita. The importance of this can hardly be exaggerated. Here, different technologies should compete freely, aiming at providing society with an abundance of bandwidth at continuously lower prices. At the moment, the number one country in the world in this respect seems to be Korea. Second, venture capital as a proportion of GDP. Clearly, the mount of capital available to finance new ideas, and to guide them towards the market, will be of crucial importance. There might be lots of capital around, but it is venture capital that is capable of taking the risks that are always associated with great economic transformations of the sort we are now entering into. The US is far ahead of Europe in this respect Third, the number of particularly young people engaged in different forms of entrepreneurship. This is a revolution driven from below. And here, we in Europe must see the reality. A recent study of entrepreneurship around the world showed that one in eight adult in Brazil was engaged in entrepreneurial activity, one in ten in the US, one in twelve in Australia, one in 25 in the UK and Germany and one in 50 in Sweden and Finland. And fourth, the quality of the education given primarily to the younger generation, with the percentage of every generation attending high school and university critical. Here, we have advantages in Europe in the form of our primary education, although there is room for improvement, but clearly lag behind when it comes to world-class centres of excellence for higher learning. Other factors could certainly be added to my list. A sound macroeconomic framework remains essential. But increasingly structural reforms geared towards these four objectives will, in my opinion, be key to the success of nations and regions. Sweden and Finland did develop a significant advantage during the 1990’s, but there is no guarantee that we will be able to hold on to our position forever. Others are catching up fast. We must be able to further develop our policies and abilities in a number of ways. Europe has one significant short-term disadvantage that we should be able to transform into a long-term competitive advantage. We are divided into different nations, speaking different languages and having, to some extent, different cultures. This diversity can be an initial problem, but if can and will be turned into a significant advantage, in that we learn how to operate across national and other boundaries. In the global marketplace of tomorrow, this will be a major competitive advantage. Between Sweden and Italy there is a great potential for further cooperation. The recent agreement between IT Provider and Telecom Italia Mobile – between one of the leading VC actors in Northern Europe and the largest single mobile telephone operator in the world – shows the potential that is there. Other significant agreements, as the one between Telia and Olivetti on a new mobile portal, demonstrate the same. And I am convinced that our gathering here today will lead to further contacts and efforts in these directions.
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