The Swedish National Innovation System 1970-2003 - Vinnova

on dividends to shareholders have been high, as have
personal income taxes, 66 figures 16.4 and 16.5
Moreover, taxes related to new firm start-ups and
the initial stages of small firm development should
have generated considerable disincentives to start-up
ventures. Swedish tax rules related to closely-held firms
are particularly unfavourable to fast-growing firms. 67
Despite some recent improvements, the risk reward
for starting and growing new firms in Sweden is still
relatively unfavourable to such entrepreneurial ventures.
On the other hand, bankruptcy rules have been modified
and now involve considerably lower personal risks.
Still, general attitudes in Sweden seem to be the
most sceptical in Europe towards risk-taking and the
most critical to entrepreneurs who have failed. 68 The
problems with taxes related to start-ups and early stages
of SME growth are now widely recognised and proposed
to change. Some measures have also been taken towards
such changes, 69 although no new comprehensive tax
structure design has yet been presented for and discussed
in the Parliament.
As a result, the general Swedish tax incentive
structures should have favoured capital accumulation in
large established firms, rather than capital investments
in start-ups and new ventures. While this should have
been an efficient method of promoting growth in the
existing industry, it should have generated tendencies
of technological and industrial lock-in effects, which
may be hampering to radical innovation and industrial
renewal.
There is reason to believe that the incentive
structures generated by this tax system were adequate
and efficient in periods with relatively slow renewal and
structural change, but that it might be less adequate for
a situation which requires greater innovation rates and
structural renewal in which start-ups and SME growth
should become more important. 70
Further, the Swedish regulation structures have
probably generated relatively weak incentives for
start-ups and SME growth, although considerable
improvements have been achieved in recent years. 71
Given that large firms have much larger administrative
resources than SMEs, the Swedish regulation structures
should not have generated particular disincentives for
large firm industrial activities in Sweden. 72
Labour market incentives
Another important incentive structure in the Swedish
national innovation system has been the relatively high
low-wage profile and low salary spread on the Swedish
labour market. As a consequence of the breakdown of
the central salary negotiations in 1983, the salary spread
has increased considerably in Sweden. However, the
Swedish salary structure is still highly concentrated in
international comparison. 73
This has been the result of a long-standing
principle, based on the Rhen-Meidner model for
salary development, established in the 1960s, which has
since been adopted as a basic profile of labour market
agreements between employer organisations and labour
unions. This model was particularly important in the
first half of the period, but also continued to influence
Swedish labour market negotiations in the later part of
the period. 74
A condition for the application of this model was
centrally co-ordinated salary negotiations. Sweden has
a tradition of an exceptionally high degree of union
participation among both blue-collar employees and
white-collar staff, as well as a high degree of employer
membership in the central employer organisation.
Therefore, the labour market organisations have not only
had a vested interest in, but also to a large extent been
carriers of, the Swedish labour market, which thus have
been characterised by a high degree of corporativism. 75
As a consequence of these labour market structures,
the incentives to focus on high rates of process
innovations have generally been strong in Swedish
industry. As a result, Swedish manufacturing industry
has been characterised by high labour productivity,
based on highly competitive production processes and
organisation. This kind of restructuring pressure on
Swedish industry was also intended by the architects
of this wage policy. While it has been highly effective
in generating an efficient flow of manufacturing
process innovations, it may not have been as efficient in
stimulating product innovation investments in Swedish
industry. 76
Innovation investment incentives
Direct R&D-related incentives in terms of tax credits
for R&D costs have not been present in the Swedish
national innovation system since 1983, when such a
system was abolished. The reason for the abolition of
this system was that international evaluations indicated
a very low impact on real net R&D investments in
businesses. 77 Also, since the tax credit could only be
claimed by firms with a taxable income, the system
discriminated against new start-up firms. Despite the
absence of a direct tax credit, tax deductions are in any
case possible in firms with large turnover and significant
total investments, which to a certain extent permit tax
deduction.
Another important set of incentive structures in the
Swedish national innovation system relates to university
research. Swedish universities are supposed to be the
dominating research base for both scientific development
and for the benefits of the Swedish industry and public
sector. According to the Swedish research policy
doctrine, universities are supposed to perform functions
in relation to society as a whole that in most other
countries are carried out by R&D institutes. However,
56 THE SWEDISH NATIONAL INNOVATION SYSTEM 1970–2003