How can the Swedish Government promote the opportunities of digital transformation in the economy?
The Swedish Government’s overall objective is for Sweden to become the world leader in harnessing the opportunities of digital transformation. Within the international context, Sweden is already among the leading countries for the diffusion and use of digital technologies, through substantial public and private investments.
In the most advanced economies, the lion’s share of those investments takes place through the spending on information communication technology (ICT). In 2010, for example, the European commission launched a Digital Agenda for Europe which sets ambitious goals for Europe’s digital economy. The rationale for policy is that a large part of the productivity growth derives from investments in ICT and that the new internet economy creates many new jobs. Within the Swedish context, previous studies conducted by the Swedish agency for Growth Policy Analysis (Growth Analysis) showed that the Swedish ICT sector and ICT investments together accounted for 42 per cent of labour productivity growth over 2006–13.
Hence, a number of questions are of interest: What does this mean for policy? What are the areas where policy makes a difference? What type of policy interventions will be needed to promote the digital transformation? The international literature shows that policies to promote digital transformation have been implemented in response to a number of market failures, which may result in less transformation than would be desirable from a societal perspective.
Growth analysis conducted two studies that analyse the progression of the Swedish businesses on their digital transformation journey. The first study reveals that the digital intensity differs between sectors. At the forefront, we find the retail, manufacturing, ICT and real estate sectors leading the way; whereas the construction, hotel and restaurants and transport sectors are lagging behind. Firm size is also a key factor that helps explain the observed differential in digital intensity across firms and sectors. Overall, large firms exhibit higher digital intensity compared to small firms by more than a factor of two.
Digital intensity by firm size and user component
Building on the previous results, another study was conducted to analyse the relationship between the use of digital systems to manage operations and productivity. The study shows that firms that use ERP software benefit from higher productivity compared to non-ERP using firms. Furthermore, we estimate a productivity premium for each branch of activity and find that it explains 40 per cent of the cross-sectorial variability in usage of digital technologies. Hence, we find a positive correlation between the sector level productivity premium and the share of firms in the industries that use ERP software.
After outlining some of the properties of the on-going digital transformation, this report addresses the ways in which changes challenge existing policies. Finding the right policy mix is no simple task. An optimal policy mix takes into account interactions among new and existing support instruments, and ensures balanced support. To this effect, a study was conducted that examined the justification of the policy instruments used to promote the digital transformation in Swedish industry. Growth Analysis initiated an inventory of policy instruments covering selective support to digital innovation as well as framework conditions, where rules and regulations could be updated in the light of the digital economy. The study takes up the challenge of bringing reflexive learning to the problem of developing and implementing the industry 4.0 section of the strategy Smart Industry. It introduces the idea of describing the choice and formulation of its particular “support instrument mix”. The results of the analysis suggest that there is room for improvements in terms of enhancing the knowledge spillovers across the spectrum of support instruments, which target either leaders or laggards in terms of digitisation.
Growth Analysis studies provide knowledge on the rationale for policy. The table below connects market- and systemic failures with our studies and suggests how the policy implementation could be improved.
The policy rationale
Capability and resource failure
The organizational changes needed to implement digital technologies successfully.
Market failure where the private returns to digital innovation are lower than social returns
The interaction between financiers that have expert knowledge about digitalisation and support digital leaders and financiers with limited digitalisation expertise and which support digital laggards.
Collaborations between policy domains in a whole of the government approach.
Business support should to a higher degree be adapted to digital maturity of recipient. Less mature firms should receive support to develop their digital leadership. The state should support the acquisition of know-how required to implement the organisational changes needed to reap the benefits digital technologies.
Policy implementation should focus on improving the interaction between financiers that has expert knowledge about digitalisation, which mainly support digital leaders, and financiers with lower expert-knowledge about digitalisation, which for the main part support digital laggards. Additionally, policy implementation should aim at creating collaboration platforms between financiers with different roles to facilitate knowledge and expertise exchange. Last, but not the least, enhanced dissemination between different actors in the innovation system should be achieved through the development of new capacities in terms of result packaging and sharing.
The government and public agencies need to collaborate across policy domains to achieve the good governance and coherence of the policy instrument mix that can place Sweden as the frontrunner in harnessing the opportunities of the digital transformation.
Beyond our recommendations, there are other policy interventions which the Government can undertake to support the digitalisation of Swedish business life. We have identified a number of key issues that warrant further attention and for which we do not have sufficient justification for a policy recommendation at this stage. We aim to shed light on some of the issues that lie within our expertise in future analyses, while others lie beyond the scope of our competence.