If the 1980s had been a time of change, the 1990s were to be even more so. Economically the decade began with a crisis and ended in a boom. The depressed economic outlook early in the decade set the scene for dramatic changes in the telecom world.
The period began with a rapid and steep economic decline. Deregulation in the 1980s had created euphoria without anyone realizing what was to follow. At the beginning of the 1990s, Sweden’s economy was in bad shape. Wages were rising by almost 10 percent annually, while productivity was increasing by only 1–2 percent and inflation remained high. Sweden entered an economic depression.
All the credit extended in the 1980s was now described as irresponsible – but the banking system was in an unstoppable downward spiral. The Swedish government set up an emergency bank and pumped billions of kronor into the system. The budget deficit increased dramatically, unemployment grew and benefits had to be reduced.
An important factor was the major tax reform that had been decided by the Riksdag (parliament) in 1989 and which was implemented between 1990 and 1991. This broadened the tax base while lowering marginal rates of tax substantially. These measures came too late, however, to prevent the crisis.
Klas Eklund, chief economist at SEB, describes the situation thus: “It takes time for people and companies to alter their behavior, for example where savings and work are concerned. In addition, some of these measures came in the wrong order. Deregulation of the credit market took place while the old tax system was still in place, and this favored consumption based on loans. Private consumption rose several years in a row – much more than disposable incomes did.”
DEREGULATION STARTS
The deregulation of the telecom market that started during the 1980s proved to be a long and circuitous process.
One rarely noted fact is that Sweden has never had an official fixed-network monopoly. On the other hand, Televerket still had a completely dominant position in Sweden in the 1970s, as the agency’s Bertil Thorngren puts it: “Hardly one electron was allowed to move without the appropriate permission of some department at Televerket. But there was no point in defending a monopoly, official or not, on far too small a domestic market. We were sitting on a crock of gold … we had everything to gain from more normal market conditions.”
As head of planning at Televerket, Thorngren played a role in the changes that were to come. The Televerket board had applied to the government in 1980 for permission to set up a holding company called Televinvest AB for its subsidiaries and related companies. At the same time the double role played by Televerket as an official agency and a commercial undertaking was addressed.
A decision by the Riksdag enabled Televerket to be lifted out of the
national budget. From 1984, through its wholly owned Telefinans AB,
Televerket was able to borrow for investments in its own name, even on the international market.
One major signal came when British Telecom won an international procurement order for the Swedish Foreign Office’s telecommunications.
IMPORTANT FOR ERICSSON
Sweden’s policy was also important for Ericsson. Because of monopolies in the telecom world, the company was virtually excluded from many major markets. In the US, the company’s Swedish registration now turned out to be an advantage. The US would not approve the importation of government-subsidized products, and sent a MAFF (Market Access Fact-Finding) delegation to Sweden to study Ericsson’s close cooperation with Televerket in Ellemtel.
Thorngren recalls: “It concluded that this was commercial collaboration and had nothing to do with industrial policy. Later Sweden was recognized by the FCC as a country where the market was as open as in the US, ahead of the UK in fact. This gave the go-ahead for Ericsson to sell AXE in the US, while competitors such as Alcatel and Siemens were excluded because of their close links to the governments of their countries.”
Author: Svenolof Karlsson & Anders Lugn