Sweden is among the leading economies of the world. Once a major European military power, the Nordic country has not waged any wars for more than 180 years. Instead, while enjoying the fruits of peace and neutrality, it has achieved impressive economic and social results under a unique mixed system of high-technology capitalism and extensive social-welfare benefits. With an educated and highly efficient labor force , Sweden has developed a world-class manufacturing sector with advanced communications. The country provides excellent conditions for scientific innovation, and the size of its investments in research and development is about 4 percent of its gross domestic product (GDP), or more than twice the average in western Europe. Sweden is a world leader in terms of the number of patents it holds and of the relative weight of the technology sector in its economy. Timber, hydropower, and rich iron ore, with which Sweden is abundantly endowed, make up the traditional resource base of an economy that has been predominantly export-oriented. For a long time after World War II, the country has been considered as a perfect example of an economically prosperous democratic society with an equitable distribution of wealth, generous social benefits, and an enviable living standard for the majority of the population. Although the country encountered some economic difficulties in the early 1990s, by 1995 it was still second only to Switzerland in terms of its GDP per capita , and by the end of the decade it was growing faster than most of western Europe.
During the 1990s, this extraordinarily successful economy was somewhat disturbed by budgetary problems, a bank crisis, and rising inflation and unemployment, combined with high personal taxes and a gradual decline of its competitiveness in international markets. The lack of venture capital (money needed to start a business) to support new business ideas and the high tax rate on individual entrepreneurs are thought to have diluted Sweden's full capacity for economic innovation before the late 1990s. Also, low labor mobility (the willingness of the workers to relocate to areas with higher demands for labor) has been considered as an impediment to effectively combating unemployment. The government is trying to address these problems. Analyzing Sweden's economic problems in the late 1990s, the International Monetary Fund (IMF) and the Organization on Economic Cooperation and Development (OECD) have commended the country's overall economic management, its budget consolidation, and its monetary policy , but pointed out that structural reforms will still be needed particularly to increase labor market flexibility and to lower individual taxes.
After Sweden joined the European Union (EU) in 1995, its efforts to meet the group's rigorous standards caused some additional economic strains. Some political indecision over the country's role in the political and economic integration of Europe had prevented it from joining the EU at an earlier stage and from becoming a charter member of the European economic and monetary union (EMU) in 1999. Sweden has not yet decided to switch to the single euro currency and transfer control over its monetary issues to the European Central Bank (ECB) as 11 other EU members did in 1999. It has harmonized, however, its economic policies and regulations with those of the EU, and Sweden's government plans to hold a referendum in the future on whether the country should join the EMU.
Sweden is one of the world's most attractive countries for foreign investors. Apart from offering a favorable business climate, a strong domestic market, an advanced high-tech sector, a qualified labor force, optimal management skills, and generous " welfare-state " benefits, it also offers the second lowest corporate tax rate in Europe. Foreign direct investment in the 1990s has increased more than elsewhere in Europe. Between 1990 and 1997, the number of foreign companies active in Sweden has increased by almost one-half. In 1997, foreign-owned firms (mostly from Finland and the United States) employed more than 14 percent of the labor force. Although Sweden's economy is relative small, in 1998 it had 29 out of the 500 largest companies in Europe—by far the highest number per capita in the continent. Swedish managers are also reckoned among the world's leaders in terms of their international experience and their language skills.