Sweden is a high-tax, high-spend country, where employees receive generous social benefits and ample amounts of vacation time. Studies have proven the country has beaten the odds and continuously excels in promoting the formation of ambitious new business on an unexpected level considering the size of its economy.
Global companies like Spotify, the digital music service; Klarna, the online-payment firm; and King, the digital gaming company which developed games like candy crush were all founded in Sweden. Stockholm produces a high number of billion-dollar tech companies per capita, only second to Silicon Valley. Flavio Calvino, an OECD economist explained that start-ups have a high survival rate and relatively fast growth in Sweden. Now, what three key takeaways can African countries learn from Sweden about propelling startups.
Joseph Schumpeter theorized that economies thrive when “creative destruction” occurs, meaning new entrants are able to replace established companies. Sweden used to have a heavily regulated economy in which public monopolies dominated the market, which made it difficult for such replacements to occur, but regulations have since been eased. African countries ought to take a cue from this by easing up regulations especially for startups and levelling the playing field for both new entrants and established companies. If you make it more difficult for monopolies to dominate the market, then you will have new firms entering the market.
Cutting Corporate Taxes in Half or More
Sweden also gives some credence to the controversial idea that cutting corporate tax rates can help stimulate entrepreneurship. The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent. Before the reforms of the 1990s, Sweden favoured established companies over individuals who wanted to start a business in a number of ways: Individuals in Sweden had to pay taxes on their firm’s income and their own income from the business, while established businesses had a number of ways to reduce this double taxation.
A Change in Perception
Around 65 percent of Swedes aged 18 to 64 think there are good opportunities to start a firm where they live. This is a key takeaway for Africans who perceive the environment or political affiliations would not favour any new business venture.