up to 1993 the opposite applied. the limited increase in productivity that arose then was due to investment, i. e. capital intensity increased. over the past ten years we have had an impressive annual increase in factor productivity, while capital intensity has increased at a slow rate. it is worrying that the increase in labour supply has been, and still is, so limited. in this aspect we differ from most of the other countries that have been aided by increased labour supply in raising their growth rate. an important explanation for the poorer development in sweden is the amount of longterm sickness leave and early retirement. worry over these tendencies increases if one takes into account the fact that future retirements may further limit the labour supply. however, let us leave the discussion of the labour supply and concentrate instead on the productivity aspect. the combination of price stability and budget stability is an important explanation for the development in productivity. price and budget stability increase households ’ and companies ’ willingness to make long - term decisions. stable prices also entail better information value in relative prices, which improves the allocation of resources. if we consider other factors that have stimulated the upturn in productivity in recent years, there are several central changes. one generally seeks explanations in factors such as technological developments, education, competence and incentives among the work force, as well as the allocation of resources in society. at the same time, the pressure on companies to use resources efficiently has increased during the 1990s. greater competitive pressure resulting from both increased internationalisation and deregulation in various sectors has increased the need for companies to economise their scant resources. less extravagant use of resources means that the labour force and capital are employed in other areas where they contribute better to the national economy. although the changeover can be difficult for those who lose their jobs, a better allocation of resources is a necessary condition for improving welfare. openness is important productivity is also affected by a country ’ s capacity to utilise technological progress in other countries. this capacity is in turn dependent on how open a country is to impulses from outside, which is determined by the obstacles to ideas, products, services and production factors moving freely across borders. the capacity to reconsider regulations and institutions so that changes can be adopted is an important part of this openness. the negative experiences of the closed economies during the interwar period led to trade barriers being successively lowered after the second world war. a gradual increase in free trade stimulated the global economy and this was particularly important

of regulation we as a country forgot our own experiences from the 19th century on the value of free movement of capital and the importance of the price mechanism in efficient allocation of resources. deregulation since then has meant that there are currently greater similarities with the late 19th century / early 20th century than with the intervening period of regulation. i have used the word deregulation here. on a general level this is an appropriate description, but one can also describe developments in terms of changes in regulation. this is because, at the same time as considerable deregulation has occurred, there are other regulations remaining and new ones have been introduced. one important difference, however, is that today ’ s regulations are aimed at allowing the price mechanism to function, i. e. they are market - conforming. these regulations are usually aimed at protecting savers and investors against risks and abuse. in this sense it is a case of re - regulation. the financial sector thus fulfils a central role as a lubricant for the economy. an efficient financial sector increases a country ’ s potential growth rate. today approximately 80, 000 people are employed in the financial sector, although the number of bank employees in sweden is in relative terms lower than in any other oecd country. this and other indicators show that we have a relatively efficient financial sector. growth based on productivity and labour i have emphasised, in this roughly sketched outline, the important role of growth in the development of our standard of living. however it also plays a central role in monetary policy discussions, as demand in the economy in relation to production capacity is decisive for whether inflationary bottlenecks will arise or whether we will underutilise the production potential. it is the potential growth rate that sets the limits. we at the riksbank must take into account this rate and any changes in its development, even though monetary policy does not directly affect potential growth. similarly, we must take into account changes in competitive conditions, as changes here can have both direct and indirect effects on the development of inflation. possible measures to strengthen potential growth are an issue for other forms of economic policy, involving, for instance, the stimulation of competition to improve allocation of resources. the high growth rate over the past decade has been primarily generated by the fact that we have used available resources more efficiently. on the other hand, we have not supplied many more resources either in the form of hours worked or of capital / investment. from the mid - 1980s