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Overcoming Distance Through Attractiveness

By Fredrik Johansson

Political discussions in Sweden about distance and location seem endless. The issue not only arises in the debate over our internal challenges (north/south, centre/periphery), but is also a recurring theme in discussions about Swedish competitiveness. However, changes in the global network economy make absolute distances and locations less important, instead more fundamentally raising the question of a place's attractiveness.

New geographies and organization of businesses

One of Sweden's most influential entrepreneurs in the past thirty years was the late Jan Stenbeck, who, through his ideas and visions, was essential in transforming Swedish society. Stenbeck used his resources and entrepreneurial talent and skills to reform industries: private television and radio, telecom companies, media enterprises, dotcoms. A key approach for Stenbeck was to challenge existing state-controlled monopolies and provide market-based alternatives. It is fair to say that he successfully led a private sector charge against old, resistant institutions.

Stenbeck's motto was that politics beats economy – politicians can always make decisions against companies or markets – but, he added, technology beats politics. This was also his business credo. Satellite transmission transformed a de jure state television monopoly into a virgin market for freewheeling broadcasters of mixed quality. Mobile telecommunications made state control over telecom infrastructure impossible, or at least pointless.

Inspired by new research on cities' external relations, I would add that politics may still have control over territory, and that territory has significant implications for the economy (i.e. for the business environment), but that technology – and the shift in how the global economy operates – makes absolute distance less important. A key challenge for policy-making is thus to use the control over territories to create attractive places with well-functioning institutions that can appeal to a critical mass of people and firms.

Globalization is reshaping the nature of trade and international capitalism, while the growing knowledge content in production makes people more important and machinery less so. This combination diminishes the importance of distance. What once were bilateral chains of production and distribution has evolved into complex, often global, networks where the value of the final product is developed in numerous countries, and where access to imports is as important as access to markets/exports.

A Swedish-designed product, produced in China, using raw materials from Russia, marketed and sold in Germany is different from a product designed, sourced and produced in Sweden and then sold to Germany. Another example is the new but already classical "Designed in California" branding of the iPhone (assembled in China by a Taiwanese company, with the various parts of the phone sourced from numerous places around the world).

This economy of complex networks of design, production and distribution makes absolute distances and locations less important. Instead the real challenges lie in designing and co-ordinating these transnational business networks – and that can be done from California or from Stockholm.

Take Skype as an example. One of its founders, Niklas Zennström, stated that disregarding national boundaries was an important part of the company philosophy from the start. In an interview for Wired in 2010, he said:

"We made sure from day one that Skype was an international business – we were incorporated in Luxembourg, we had software developers in Estonia, we moved to London. The internet has no country boundaries." [1]

Stockholm – competing to collaborate

This is the global environment that cities and nations have to cope with. To be distinctive, a city needs to be an attractive location for firms, potential employees and their families. This is something that is, of course, very much determined by politics.

The Stockholm capital region is growing fast. Stockholm and Oslo are the two fastest growing cities in Western Europe, and it is predicted that this will continue for at least the next decade. The challenge will be to cope with this growth while maintaining attractiveness. In a knowledge-based economy, attracting the right talent is a crucial factor and a competitive game in a global market, where absolute distance matters less and the attractiveness of cities and regions becomes more important.

The Stockholm Chamber of Commerce is fully aware that the main challenge for our members and the business community in the region will be to recruit highly educated people. All forecasts show that there will be a growing shortage of highly educated people towards the end of the 2020s. To attract talent will therefore be the name of the game for the near future, not least because this goal will be fuelled further by disadvantageous demographic situations in many Western countries.

Looking to the future

From my perspective, there are some more reflections to be made. First, Stockholm's importance for the development of Sweden is substantial – and growing. The success of the region has always been important for the country as a whole, but in the next decades it will become even more critical, as reflected in the current demographic and economic statistics and forecasts.

More than 60 per cent of Sweden's current population growth is taking place in the wider region of Stockholm. Even though less than 30 per cent of the population lives here, more than a third of the country's GDP is produced in the region. Looking further ahead, we have calculated that 40 per cent of Sweden's total economic growth until 2030 will happen in the Stockholm capital region.

A second reflection is that there is a need to fully leverage the opportunities from enhanced integration into northern Europe. There is a need to better link together the Nordic cities to create a wider integrated economic area. In doing so, we can enhance the diversity and critical mass of our market potential and make the Nordic region even more attractive. It is important for both politicians and business to understand that few things are more important for Stockholm than the success of Copenhagen, Helsinki and Oslo.

I am optimistic about the future of the wider Stockholm region. We are doing well, and we have the opportunity to become one of the most attractive regions in the world. This will, however, require good political leadership on all levels – local, regional, national and European.

[1] D. Rowan, What I've Learned, By Skype's Niklas Zennstrom, The Wired, 6 November 2010, retrieved 9 October 2012

Back to Nordregio News Issue 4, 2012