Shining Stockholm

McDonald's is an odd choice for a meeting of stock analysts in business suits, no question. But then, these are not ordinary times for Sweden or for Jonas Birgersson, the boyish-looking entrepreneur who called the meeting at the birch-paneled fast-food joint in central Stockholm. Birgersson showed up dressed, as usual, in hiking clothes, and sounded a bit like a young Bill Gates, spinning visions of the high-tech future.

The time was August of last year. Birgersson's Internet consultancy Framfab, which develops Internet services for Ericsson, Ikea and other companies, had recently gone public, turning 100-plus employees into instant millionaires. In Stockholm and among dot-com cognoscenti around the world, a buzz was building around Birgersson and Framfab. Still, it was a shock when more than 200 analysts and local journalists filled the McDonald's so full that the meeting was moved to a nearby cinema. The excitement on that day last summer was justified. Since Framfab's IPO, its stock price has risen by more than 1,500 percent. With its expected acquisition this week of the IT management consultancy Guide Konsult, Framfab is the largest Internet consultancy in Europe and the third largest in the world, with a market capitalization of about $4.1 billion.

Just as Gates years ago saw a world in which a PC graced every desktop, Birgersson, 29, sees one in which there is universal, warp-speed access to the Internet via mobile phones as well as computers. Like Gates, Birgersson dropped out of university to chase his vision with kidlike enthusiasm. His ambition is shared by a growing cadre of Swedish entrepreneurs and researchers, and it is driven by the looming marriage of the Internet and third-generation mobile telephony in Europe. In a matter of months that combination has put Sweden at the very forefront of two key information technologies: wireless communication and what is called true broadband, the connections or "pipes" that carry data at up to 20 times the speed of the cable-TV modems now spreading across the United States.

This has enormous significance for Sweden, which is simultaneously the most wired and most wireless country in the world, and for newly hip Stockholm, which has become the European capital of the Internet. The Swedish economy, a wreck less than 10 years ago, has bounced back. Prosperity and creativity have turned Stockholm into a Scandinavian Seattle--a place where a new mood and new money have energized everything from design to music. The new economy has also jolted the famous Swedish welfare state, fueling a national debate over whether the economic reforms introduced over the past decade went too far or not far enough. And it will cause the rest of the world to pause and take positive notice of Sweden once again. "Sweden was [seen as] a failed society," Prime Minister Goran Persson told NEWSWEEK. "Now we have begun to deliver, and we are recognized in a completely different way." Adds Birgersson: "Here we are in old, cold Sweden, fighting against the very best brains of the American market."

How did Sweden get so young, hot--and competitive? Deep technological roots and some recent bright blossoms have helped. Communication has long been crucial in Sweden, with a small population (today 8.9 million people, barely more than Greater London) spread across an often-inhospitable land mass a little larger than California. Swedes loved the telephone when it was new (Stockholm in 1900 had more phones than London or Berlin), and they took to wireless phones and the Internet with equal enthusiasm. Education and a commercial mind-set are factors too. Because of their relative isolation, Swedes look abroad for ideas and opportunities. For generations they have learned English, now the language of the Internet--and they've done so in a lavishly funded state education system that also places a high value on science and engineering.

Finland has many of the same qualities, but it's smaller and can't match Sweden's industrial or financial muscle. In the fields of wireless and broadband, Sweden is "the most advanced consumer test-bed on the planet--far ahead of the rest of Europe and the United States," says the American technology forecaster Paul Saffo (box). The result is what Mats Wennberg, a London-based Microsoft Network vice president, calls a "dynamic loop" in Sweden--a convergence of needs, skills and attitude that build on one another.

Stockholm is at the heart of it all. "The whole place feels like a start-up," says Wennberg. That became particularly evident in the last year to anybody trying to book a hotel room at the Grand or the Lydmar (so tech-trendy that individual guests can customize the elevator music). There were weeks when you couldn't get a table at Fredsgatan 12 or a seat in the skyscraping Gondolen bar, with its panoramic view of the city. You could see the forest of construction cranes on the drive in from Arlanda airport. You could see the coming soon billboards erected by Oracle, Intel and other global behemoths in the Stockholm suburb of Kista, a huge hub of wireless R&D. The statisticians saw it, too, but couldn't keep up. Since last April Sweden's National Institute for Economic Research has repeatedly raised its growth forecast for 1999, boosting it from 2.2 to 4 percent--or more than twice the overall rate for the European Union. Unemployment has fallen, and now runs at 6.6 percent.

Claes Britton, coeditor of the style magazine Stockholm New, remembers seeing the very beginning of the boom, back in 1995. From his office window in Stockholm's Ostermalm district he watched the birth of Spray, a Web-page designer that within six months would become the biggest business of its type in the world. One of the half-dozen twentysomethings behind it was Jonas Svensson, who had gone to San Francisco in 1994 with some friends and seen the future. To Britton, his new neighbors looked like "neopunk skateboarders." Soon the techies were driving the other business tenants from the building with their 24/7 work style and loud music.

At the Stockholm School of Economics in the mid-1990s, professors Kjell Nordstrom and Jonas Ridderstrale saw change coming too. They noticed that their students weren't going straight from graduation into suit-and-tie careers at one of the big Swedish companies like Electrolux or even Ericsson. "They used to think of themselves as employees," says the black-clad, head-shaven Ridderstrale. "Now they think of themselves as employers." Everyone wanted a piece of the Internet. The role models were people like Johan Stael von Holstein, who in 1996 founded Icon Medialab and started building Web sites for companies like VW and Coca-Cola, and Christer Sturmark, who in 1997 set aside his rock-music aspirations and a journalism career to cofound a Net consultancy called Cell.

As for Birgersson, he first recognized the possibilities of the Internet when he turned a small group of Dungeons & Dragons fanatics into a computer network of 25,000 players. In 1995 he founded Framfab--or "future factory"--and three years later he started up Bredbandsbolaget (B2), a telecom company specializing in broadband technology. By the end of this year B2 expects to have installed its technology in 500,000 homes in Sweden.

Meanwhile, with no shortage of venture capital around Stockholm, the Web-start-up frenzy that Birgersson helped to kick off shows no sign of letting up. The original Spray has since merged with Razorfish, a New York company. Svensson now runs an Internet portal called Spray that's operating in Sweden, Norway, France, Germany and Italy and is expected to go public this year. Estimated value: at least $4 billion. By early 1999 Britton was reporting in his magazine that there were 700 Internet-related companies in Stockholm--more than any other city outside the United States. In the past four months or so, according to Enskilda Securities, Stockholm has added about 100 more.

The heat from the new economy is spreading. Whyred, a two-year-old fashion house, sells its youthful street clothing at Fred Segal in Los Angeles and Harrods in London. Terence Conran, the successful London restaurateur, came to town to redo Berns. Musically, Stockholm was being hailed as the new Seattle by the mid-1990s, as bands like the Cardigans made global names. Sweden is the third largest exporter of pop music, behind the United States and Britain. During the first 10 months of 1999 Swedish music exports were up 24 percent, including new artists like Meja (Sturmark's kid sister) and unsinkable ones like ABBA. These days Trade Minister Leif Pagrotsky travels the world promoting "Cool Sweden."

It's been a while since Sweden had much to promote. With a strong industrial base that was spared aerial bombing in World War II, the country's economy didn't be-gin to falter until the 1960s. That was when hubris set in, says Klas Eklund, chief economist of the Swedish bank SEB: "Politicians started to think Swedes were God's chosen people and that we could break all the laws of economics." Some maximum marginal tax rates actually exceeded 100 percent. Sick-leave compensation was so high that absenteeism sometimes hit 33 percent. By 1991 the world was reading the last rites to the Swedish "middle way."

Climbing out of the hole took some doing. Sweden deregulated its credit and currency markets (in Europe, only Britain's are more liberal). It reformed its tax code. Corporate taxes are low (30 percent), but personal taxes are high (55 percent). Sweden joined the EU in 1995, and is moving toward adopting the euro as well. Successive governments tightened budgets, tweaked the welfare system, privatized and deregulated.

Persson's Social Democratic government will enact more reforms, says Pagrotsky. "I preach that we should trust markets more," he says. "Right and left on these issues is not the way." However, as Pagrotsky knows, there is little appetite in Sweden for a scorched-earth assault on what is still a generous cradle-to-grave welfare state. Even a conservative economist like Anne Wibble of the Federation of Swedish Industries says: "We are not going to change the core of our ideas about public financing that provides a good welfare system."

Stockholm is not Wall Street circa 1988, a zone of unabashed greed. In a city where the (privatized) subway system is wired so you can use your mobile phone underground, practicality trumps flash. A Ferrari-Maserati dealership opened last year, but the parking lots of dot-coms around town are not spilling over with flashy cars. In fact, you're more likely to find corridors and cloakrooms filled with mountain bikes. Jonas Svensson has shelled out money for furniture designed by Eames and Saarinen in his offices, but he still gets to and from work on his bike. "And it's not even a mountain bike," he says. Jonas Birgersson travels by train and still keeps a sleeping bag in his office in case he has to stay over. He has been agonizing for months over whether to buy a car, any car. The betting around the office seems to be on a Volvo. Practical man: Volvo is one of his clients.