mr backstrom gives his perspective on sweden ’ s economy and looks at factors that contribute to long - term growth 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, given at the university of gothenburg on 27 october 1999. * * * a current topic, in the united states and elsewhere, is whether structural changes have made it possible to achieve stronger economic growth than before without generating inflationary tendencies. the term – a new economy – has been coined for this phenomenon. the us economy ’ s new, improved performance is sometimes said to be due in part to the rapid advances in computer technology and telecommunications. internet is a part of this. progress in these fields has led to better and more efficient processes for production and distribution. this in turn has paved the way for stronger competition, higher productivity growth and thereby lower inflation. consumers, moreover, are better informed than they used to be. productivity growth in the united states does seem to have risen. the imf, to mention one observer, considers that the potential growth rate – the annual growth that can be achieved without boosting inflation – has moved up from 2. 25 % to 2. 75 %. an even higher potential rate has been estimated by others. in sweden, too, most things suggest that labour productivity has risen somewhat faster in the present decade than it did in the 1980s. the shift may be in the order of one - half of a percentage point. this is the change that lies behind the common, but not entirely certain, estimate that nowadays the swedish economy can maintain an annual growth rate between 2 % and 2. 5 %. but swedish data do not yet provide any definite evidence of an improvement in productivity, and hence in potential growth, that corresponds to what has happened in america. it does seem likely, however, that the rapid advances in information technology will also have a major impact on future production and distribution processes in sweden. sweden is well to the fore in internet applications. still, when and to what extent these factors will affect growth in general is not yet clear. but even though appreciable general economic consequences cannot be discerned at present, the tendencies are worth considering. some parallels can perhaps be drawn with the situation over a century ago, when sweden was being transformed fairly rapidly from a poor european country into a dynamic and strongly expanding industrialised economy. there are also lessons to be learned from developments in recent

stable framework for the subsequent process of industrialisation. it is just this stability in the fundamental conditions for economic activities that was no doubt important for the process that resulted in the industrial revolution, which in itself was full of commercial risks and uncertainties. improvement in opportunities for change but … a similar gloss can be applied to the realignment of economic policy from the second half of the 1980s to the middle of the 1990s. there have been a number of reforms aimed at creating stability and opportunities. the credit and currency markets have been deregulated, components of the social security system have been reformed, a tax reform has been implemented, targets have been established for government finances, price stability is enshrined in law and the riksbank has been given an independent status. all this represents good possibilities of the swedish economy facing a stable future as we step over the threshold to a new millennium. the question is, however, whether the new information technology will be implemented in the far - reaching ways that are necessary in order to reap the really large benefits. let us look at another period in sweden ’ s economic history when things did not go quite as well. after world war ii, when activity in the industrialised countries recovered and competition grew, partly because trade barriers were lowered, it became necessary to realign production in sweden. the need for change resembled what we are beginning to discern on the horizon today. for much of this post - war period, however, wage costs rose at a rapid rate. profitability in swedish business was accordingly under pressure from two fronts : growing competition from the rest of the world and rising wage costs. firms countered the pressure on profits by rationalising in an attempt to cut production costs rather than by investing in new products. the diminishing profits simply did not provide the stimulus that was needed for a prompt renewal of the capital stock in response to the pressure for change. a process of change involves shedding, but development is equally important. most things still looked good to begin with. the 1960s was a fantastic decade for growth. but the strategy proved to be defensive and stagnation set in during the 1970s. rationalisation has its limits as a means for growth. without renewal, growth normally slows sooner or later. measures are called for in periods of growth but it is easy to be deceived and lean back to enjoy the fruits. the long - term growth trend did indeed begin to turn downwards more markedly than in other countries. economic policy responded