incomes are the compensation paid to owners of, for example, machinery and inventories, commercial real estate, residential property and land. as a large part of this capital is owned by firms, it follows that an expected increase in corporate profits must lead to higher growth of either total gdp or of the gdp share that consists of capital income. experience shows, however, that in the long term the profit share is fairly constant at around one - third of gdp ; the remainder, approximately two - thirds, consists of wages. the stable long - term relationship between these shares accordingly means that the trend rate of increase in corporate profits roughly matches gdp growth. historically, therefore, the increase in corporate profits should lie between 2 and 3 per cent. the historical statistics on the profits of swedish listed companies are rather inadequate but a look at the american companies in the s & p 500 index shows that their long - term profit growth does not quite come up to the trend for gdp ( diagram 3 ). there have been periods, however, when profit growth was above this trend ; the profit share was then probably higher in the total economy but sooner or later it fell back to the long - term trend. diagram 3 : united states : real profits ( s & p 500 ) 1 00 trend 1. 5 % per year 1 87 0 18 80 18 90 1 90 0 1 91 0 1 9 2 0 1 9 30 1 9 4 0 1 95 0 1 96 0 19 70 19 80 1 99 0 2 00 0 source : shiller. the profits of listed companies can, of course, rise comparatively rapidly in the short run. if the profit share moves up from, say, 30 to 35 per cent, this implies a temporary increase in profits of 15 to 20 per cent, spread over the years when the profit share is elevated. such a temporary increase in the profit share has not been uncommon in connection with technological breakthroughs. it occurred in sweden in the 1990s and also early in the twentieth century in the era of electrification. the profit share followed a rising path up to the end of the 1910s and this was accompanied by higher gdp growth ( diagram 4 ). it is perhaps hardly surprising that this led many shareholders to believe that profit growth would continue to exceed the historical trend in the longer run. that did not happen. an elevated profit share tends to fall back sooner or later and corporate profits then return to their longterm path. neither do i believe that in connection with the ongoing technological breakthrough we can look forward

urban backstrom : the swedish economy speech by mr urban backstrom, governor of the sveriges riksbank and chairman of the board of directors and president of the bank for international settlements, to the swedish shareholders ’ association, orebro, 30 october 2001 * * * first a word of thanks for the invitation to come to orebro and discuss matters to do with the swedish economy with you. it is now a fortnight since the riksbank presented this year ’ s third inflation report. some more statistics have been published in the meanwhile but the information they contain does not point to anything particularly new. so today one can hardly arrive at an assessment of economic developments in sweden one to two years ahead that differs all that much from the picture outlined in the report. those of you who want to know more about our assessment should consult the riksbank ’ s website, www. riksbank. se. the whole report can be downloaded, as can all the figures on which the tables and charts are based. diagram 1 : the ” new economy ” concept in swedish media. ( number of hits ) 2001 jan. oct. sources : mediearkivet and presstext. there are, however, a couple of questions concerning the swedish economy and the outlook in the somewhat longer term that i should like to dwell on here today. diagram 2 : ” the it - bubble ” affarsvarlden : it - index index nasdaq : nasdaq : composite dow jones : industrials usa dow jones industrial average, close daily [ index 1996 - 01 - 02 ] sources : hanson & partners ab. usa nasdaq composite index, close daily [ index 1996 - 01 - 02 ] one is what has happened to the discussion about the “ new economy ”. swedish media are mentioning the subject less and less ( diagram 1 ). i believe that mirrors how people ’ s interest in general has waned. and considering how rapidly and extensively prices have fallen for it and telecom shares, one is inclined to the view that all the talk about the third industrial revolution was really something of a dead end ( diagram 2 ). that leads on to my other question, namely the part that technological breakthroughs play for corporate profits and thereby for the return on equity. where did the “ new economy ” go? concerning my first question, perhaps it is not so surprising that we now hear less and less about the “ new economy ” than we did last year. share prices for it and telecom