The Dynamics of Firm and Industry Growth : The Swedish Computing and Communications Industry

Abstract: The growth of the Swedish Computing and Communicationsindustry is studied in this thesis. Growth is seen as a dynamicprocess moved by the entry, expansion, contraction and exit offirms.The analysis is founded on the theory of the ExperimentallyOrganised Economy, which views the economy as an experimentalprocess. The entire thesis is organised around the problem ofresource allocation and the issue of growth through theintroduction of new combinations into the economic system,using the terminology of Schumpeter (1911). Competence blocsdetermine the efficiency of the economic process, i.e., theextent to which it leads to sustained economic growth ratherthan stagnation. Change is a fundamental feature of theeconomic process, firms have to be flexible to survive and theeconomic system must promote flexibility to grow. Many trials,or experiments, are required to discover and select "winning"firms and technologies. Hence, the turnover (i.e., entry andexit) of firms is supposed to have positive effects on growth.Theory, furthermore, predicts that new and small firms are moreentrepreneurial and innovative and that they, therefore, willgrow faster than old and large firms.The empirical results show that firm growth decreases withfirm age, decreases with firm size, increases with firmindependence, decreases with government ownership and thatindustry growth increases with firm turnover. Moreover, thesmallest firms have been the major job contributors during the1993-1998 period investigated empirically. It is also shownthat employment growth is facilitated by a sustained high entryof firms.Lastly, many policies, several of which were introduced inthe late 1960s and early 1970s, have selectively supportedlarge firms in mature industries. Hence, they have exercised arelatively negative influence on exactly the types of firmsthat have been shown to contribute to growth. These policieshave also made the Swedish economy less flexible. It is arguedthat this partly explains the slow economic growth in Swedencompared to other OECD countries since the 1970s. Aninteresting question is where Sweden would have been today witha different policy orientation.Keywords:The Experimentally Organised Economy;Competence Blocs; Industrial dynamics; Industrialtransformation; Firm age, Small-firm growth; Turnover of firms;Computing and Communications industry; IT industry;Institutions.