Look at this city
Stockholm is internationally considered one of the best places for an internet company to work from, even though the rules there are very different from those in Silicon Valley. Perhaps that is the very reason.
If Swedish people have one characteristic that might be considered extreme, it would be their level-headedness. Restraint, politeness and moderation are considered fundamental virtues, whereas any form of loudness is frowned upon. So people have to be very upset before they take to the streets, as they did in Stockholm on 11 May 2016. That morning, they assembled outside the Riksdag, the Swedish parliament, holding up signs that read “Don’t make us move to the USA – we don’t like burgers”, or “Fix this, fast!”
They were mostly young entrepreneurs from the tech industry, protesting against what they considered to be poor conditions for start-ups in the Swedish capital. They complained of insufficient housing, that immigration laws were too strict and taxes on stock options too high. Their demonstration followed an open letter to Sweden’s politicians from Daniel Ek, the Swedish founder and chief executive of Spotify. He voiced the same criticisms, threatening to move Spotify abroad, if necessary, unless Stockholm was prepared to accommodate his needs.
This conflict has been simmering for some time, and it is about nothing less than whose prerogative it should be to determine the city’s future, in which direction the city ought to develop – and how Stockholmers want to live there. Essentially, it is a battle between the Swedish-style social-democratic welfare state and a Californian economic system reliant on the market’s powers of self-regulation.
But is Stockholm really as backward and hostile to innovation as many online entrepreneurs are claiming?
On the contrary. In recent years, the city has proved to be a very good location for internet companies. The Financial Times celebrated Stockholm as a “unicorn factory”, because the density of online companies with a market value in excess of $1bn – so-called unicorns – is higher here than anywhere except Silicon Valley. Sweden’s unicorns include Spotify, Skype and the video games company Mojang, creator of Minecraft.
Stockholm also regularly scores very well in other rankings of cities in which tech companies flourish: 18% of its citizens work in the tech industry, for example, more than in any other European city. In Berlin, they make up 12%, in London 11.5%. Stockholm seems to have accomplished the feat of being successful in an economy driven by start-ups while not giving up its identity as a welfare state.
Modern planned economy
The reasons for Stockholm’s success go back several decades. In the 1990s, the Swedish government helped realise Bill Gates’s vision of putting “a computer in every home” – by subsidising the purchase of PCs for families. An entire generation of Swedes grew up with computers, taking them for granted, learning to program them and tinker with them. The large numbers of software developers and other digital workers who are proving so useful to the Swedish economy right now were made possible by government funding 20 years ago.
The need for a public digital infrastructure was also recognised early. In 1994, the city-owned company Stokab was set up to provide a very high-speed, high-performance fibre-optic network. Stokab is responsible for the cables, but it does not have to operate at a profit. This means that everyone can enjoy the benefits – not only those areas that are most lucrative. Stokab does not sell internet access to end-users but makes its infrastructure available to more than 100 competing service providers. These then offer businesses and private households broadband access of up to 1,000Mbps at very affordable rates.
According to the latest State of the Internet study, Sweden had the third-fastest internet connections in the world in the first quarter of 2016. Germany, whose federal government is struggling to persuade private sector network providers to expand the fibre-optic infrastructure, is ranked 25th, and may slide even further down the table, because its competitors in this ranking, Slovenia and Latvia, are expanding their network capacity considerably more swiftly.
Another study – Cities of Opportunity, carried out by PricewaterhouseCoopers – finds that Stockholm’s schools are excellently connected. Here, too, Stokab has paid off, providing more than 130 of them with high-speed access. Many provide pupils with laptop computers or tablets, and pilot projects are testing whether programming ought to be introduced as a compulsory subject alongside the current options of resistant materials and textiles. Stockholm’s mayor, Karin Wanngård, is even in favour of teaching programming to primary school pupils.
So what is making the young entrepreneurs take to the streets?
Waiting lists for housing
Two months after the rally, one of the organisers of the protests is sitting in the café of Epicenter, a co-working office and start-up hub. Although the day is drawing to a close, the skies outside remain light – the midsummer night festival is due to take place soon, and the nights are short at this time of year. “Of course, Stockholm is still a fantastic place to launch a start-up. But if we are not careful, we are going to lose the head start we have over most other cities,” says Tyler Crowley. He is an American from Los Angeles who came to Stockholm four years ago and has become one of the key figures of the local tech scene. Crowley organises monthly meetings and the annual STHLM Tech Fest – a conference at which everyone who is anyone in the industry has their say, including Niklas Zennström, the co-founder of Skype, to Ek, of Spotify.
“It is almost impossible for people coming to Stockholm to find an apartment,” Crowley explains. “For a long time, I had to live in hotels. Now, I am paying more than €2,000 [£1,800] a month for a small apartment in an outlying suburb.” The Swedish market for rental accommodation is closely regulated. Rents for almost all apartments, especially in conurbations such as Stockholm, are capped. A waiting list determines who gets an apartment, not the landlord. Anyone looking for a flat must patiently wait their turn. The average wait for an apartment in Stockholm is nine years. In particularly coveted districts, you may have to wait up to 20 years.
The regulations do, however, also mean rents in Stockholm are very low: less than €700 for a flat with about 66 square metres (700 sq. ft.) of floor space. “The only problem is, you can’t get hold of one. Anyone who does is only going to leave it feet first,” says Crowley. For rapidly growing IT companies, which often need to hire dozens or even hundreds of developers in a short space of time, Stockholm’s housing market is a huge obstacle.
On the other hand, should a city’s housing market really be adjusted to maximise the growth of its companies? Should a community meant to serve everyone bow particularly to the wishes of an influential and highly successful corporate world? Or are other criteria more important? Are start-up mantras such as Facebook’s “Move fast and break things”, which can also be found on the walls of Stockholm’s co-working spaces, the right guidelines for living together as a society?
These are some of the questions being heatedly discussed in Stockholm right now – but they need to be worked out in some form everywhere in the world. To what extent is a city or country prepared to relinquish quality of life, security or regulation in the interests of creating the best growth conditions for an industry that, in an era of venture capital, depends purely on rapid growth?
One of the most important mediators in Stockholm between the young entrepreneurs and politicians is Joseph Michael. He has worked for the city for five years and is a key contact for the tech industry through the programme Invest Stockholm. He cautions against abolishing the Swedish model: “It is not quite as black and white as some people like to make out,” he says. “Of course, the current housing market is not particularly effective and it is especially tough on new arrivals. But many people fear that if we were to deregulate it, the rents would explode. The result would be total segregation. Only the rich could afford to live in the city any more, while everyone else would be forced to move to the urban hinterland.” This is also one of the reasons why the city is taking a tough stance against people offering rooms on Airbnb all year round, and other black economy schemes.
The challenge is enormous: Stockholm is one of Europe’s fastest-growing cities. Its population, which was 750,000 at the start of the millennium, has risen to 910,000 and is expected to exceed a million by 2020. “We really are doing everything we can to reduce the pressure on the housing market,” says Michael. “We intend to build 30,000 new apartments by 2020 and 140,000 by 2030.” He tries not to take sides. “I am absolutely convinced that we want the same thing and that we see our goal in the same direction,” he says. “It is only a question of the speed with which we are moving ahead. In an open letter, Spotify calls for an extremely fast pace. We may perhaps not be quite that fast.” Nevertheless, he says that to deregulate the housing market would not solve all the problems: “Sure, you don’t find government waiting lists for an apartment in London or San Francisco. You can go out and rent one straight away. But will you actually be able to afford it?”
It is indeed doubtful whether a deregulation of the kind demanded by some Stockholm start-ups would actually improve the situation. Although there may not be any waiting lists in San Francisco and Silicon Valley, the housing problems there are ultimately even more severe than in Stockholm. A widely publicised news story at the end of 2015 concerned a Google employee who has been living in a converted van in the company car park for more than a year. He was not prepared to pay the kind of rent being charged in the area, where even a shared room would have cost him some $2,000 (£1,600). The community of San Jose, which lies in Silicon Valley, recently refused to authorise the construction of a new industrial estate, reasoning that although it would generate 49,000 new jobs, there was already no residential accommodation available. So it would seem that the Californian approach does not necessarily lead to unlimited economic growth either.
Social security rather than fear for your livelihood
Gustav Borgefalk knows both the Swedish and the Californian way. He is a co-founder and CEO of Sqore, a relatively young company specialising in online recruitment. It creates skills-based internet tests and competitions to help companies and universities find the right applicants for jobs or scholarships. “It is less and less a matter of CVs or particular references,” he says, “not least thanks to internationalisation. What matters are actual skills. And companies can check these very easily with the help of our online competitions.” Borgefalk spent a year in Silicon Valley, some of this at Ray Kurzweil’s Singularity University, which is sponsored by Google.
“It was great,” says Borgefalk. “But I realised that I wanted to return to Stockholm and work on Sqore here.” Sqore’s premises in the trendy district of Södermalm do not look like today’s typical, functional open-plan offices. The company occupies a large old residential property. The wood-panelled maze of spiral staircases, miniature foyers and secret doors stretches across three floors and 14 rooms. Some of the offices have open fireplaces. But it is not oddities like these that drew Borgefalk back to Sweden: “In Silicon Valley, the only things that matter are achieving rapid growth and as high an exit as possible,” he says. “Here in Sweden, on the other hand, most company founders are trying to establish a sound company. They are more frugal and concentrate more on their revenue model and long-term growth.”
So, by no means all internet entrepreneurs are dissatisfied. “The infrastructure here is ideal for setting up a company,” says Borgefalk. “If you are a student, for example, you get plenty of support and have lots of time to try things out for yourself without risking too much.” He speaks from experience: he set up Sqore together with two fellow students while at university himself. Today, they employ 50 people. Both the KTH Royal Institute of Technology and the Stockholm School of Economics have produced many successful companies like this.
One of the myths surrounding Silicon Valley is that only the toughest make it there. Those who are prepared to go to the extreme for their idea and risk everything; those who, when “bootstrapping” – starting up without external funding – will sleep on the passenger seat of their ancient Toyota or live on cheap packet noodles for months on end. But perhaps that is not ideal and maybe the Swedish way of providing young entrepreneurs with a social safety net is a more healthy approach.
The mountain of debt many young Americans are left having to repay, the six-digit loans for university fees, makes it harder to start companies. Sweden provides generous funding for its students for up to 11 semesters; and government aid is available to company founders.
San Francisco as a blueprint?
The more closely you compare Sweden and California, the more absurd it seems to choose the latter as a blueprint for the best possible tech ecosystem. No matter how often companies there emphasise that they want to make the world a better place, they consistently fail to ensure that their own place remains reasonably agreeable to live in. More and more, San Francisco is becoming a city in which part of the population lives on the streets and the other part gets rich developing apps to have meals delivered – needed because people don’t like to go out on the streets anymore because of all the homeless people.
Maciej Cegłowski, founder of the bookmarking platform Pinboard, recently told a conference in Berkeley, California: “Take a stroll through downtown San Francisco and try to persuade yourself you’re in the heart of a boom that has lasted for 40 years. You’ll see a residential theme park for tech workers, surrounded by areas of poverty and misery that have seen no benefit and ample harm from our presence. We pretend that by maximising our convenience and productivity, we’re hastening the day when we finally make life better for all those other people. (…) We obsess over these fake problems while creating some real ones.”
Of course, you are entitled to consider the Swedish model outdated. You can sneer at the coffee break, known as fika, observed almost religiously by all companies. You can consider it old-fashioned that the shops close early and the whole country downs tools in the middle of June for six weeks, withdrawing to small summer cottages. You can shake your head over the 480 days of paid parental leave and state-run childcare systems. But if Silicon Valley and Stockholm both manage to produce settlements on Mars, it is not hard to guess in which colony life will be more agreeable.