A comment by Charles Kenny on a post of mine last year has stuck with me:

One possible measure for innovation per capita (many flaws) is patent applications filed by residents per year. In the US its 141,342 as compared to 8,599 for Sweden. Works out at 1/2,000 people in the US, compared to 1/1,000 in Sweden. Suggests you’re right… [That Sweden is more innovative than the US.] Again, if you look at Science and Technical Journal Articles published in 2000 — 166,829 for US, compared to 8,219 for Sweden — or royalty and license fee receipts (36.5bn compared to 1.4bn) Sweden comes out ahead on per capita terms. Yay ray socialists.

I have to quote Charles Kenny as my sole authority here because I have looked for but not found this information myself on the public web. But he is a World Banker, so either he has special access to internal databases, or he made it all up, in which case this blog will have to go through soul searching not unlike that at the New York Times, and I’ll have to hold a meeting with myself and ask myself some hard questions (“Why did you promote Charles Kenny from sometime comment-leaver on your personal blog to editor on MemeFirst, despite his atrocious dress sense? Didn’t alarm bells go off when he started “blogging” from Kabul, but never produced the receipts?”).

Since that post, I’ve entertained a number of theories as to why Sweden is so innovative, but I came across a new one recently, again in the interview of Joe Stiglitz by the Wall Street Journal:

WSJ: Is the European approach [which focuses more on the role of government in the economy and the existence of a welfare state] a viable alternative?

MR. STIGLITZ: Countries like Sweden never bought into the American style. It hasn’t abandoned its welfare system [where medical care and social security are considered the responsibility of the government] and yet it’s still very strong. The New Economy has penetrated Sweden to a great degree, but the country has weathered the downturn much better than the U.S. It promoted the New Economy in a more stable way, having a strong welfare state that allowed people to take a risk [on investing in technology start-ups and other New Economy companies and offering a huge safety net if things faltered].

It’s a really interesting notion, and it might go a long way to explaining why the received wisdom that lower taxes lead to higher GDP growth is not backed up by statistics.

Here are my own two homespun explanations for Sweden’s exceptional innovation record. They might be completely bogus, so I will rely on sophistry to make them appeal:

Progressive regulations: Sweden is the world’s avant-garde for stringent regulations concerning pollution abatement, public health, natural resource management, safety codes, and the like. These are costly, and you might expect these costs to dampen growth. But Swedish businesses, forced to develop technologies to cope with these regulations, soon find themselves selling their innovations to Europe and the US, who tend to adopt similar regulations with a lag. First mover advantage by government decree, if you like.

Mercy taxing: In Sweden’s notorious high tax environment, so-so business ideas don’t survive. The companies that do make it have to be very efficient at what they do. The miracle happens when these companies then leave the nest that is Sweden and expand into low-tax countries, like the US. Look at Ikea. Look at H&M. Imagine the profits they reap in the US if they manage to be profitable back home. This is my “If it doesn’t kill you it will make you stronger” theory of economic development.

<irony>To conclude, Sweden should increase welfare spending, ban fossil fuels and raise taxes.</irony>