The Nordic advantage is gone

On 1 October, the Nordic Council of Ministers released Analysis of Competitiveness in a Nordic Perspective , a Nordic counterpart to the Draghi report, examining many of the same questions about productivity, innovation and Europe’s ability to compete in a rapidly changing global economy.

The Nordic starting point is stronger than that of Europe as a whole. But the report also shows that the productivity advantage the Nordics once had over the US has essentially disappeared. At the same time, challenges around commercialisation, scale-up capital, skills and infrastructure risk making it harder to keep pace.

Five key takeaways for Swedish and Nordic industry

1. The productivity lead over the US has disappeared

Nordic productivity remains high, roughly on par with the US and well above the EU average. The problem is the trajectory.

Since 2000, productivity has grown by around 1% annually in the Nordics, compared with 1.6% in the US. A productivity advantage of around 14% over the US at the beginning of the century had essentially disappeared by 2023.

For high-cost economies like Sweden, that matters. Maintaining high wages and living standards depends on our ability to continuously produce more value making investments in AI, digital technologies and advanced production increasingly important.

2. We are good at creating knowledge but less successful at turning it into business

The Nordics consistently rank among the world’s most innovative economies. Sweden and Denmark are among Europe’s innovation leaders, and the region invests heavily in education and R&D. But strong inputs do not automatically translate into strong outputs.

The report points to weaker patent activity and challenges in turning research into commercial deployment and sustained productivity growth. Meanwhile, US investment is more heavily tilted towards growth-oriented assets such as intellectual property and ICT.

The challenge, then, is not simply to invest more in innovation but to become better at turning knowledge into technologies, products and companies that can grow globally.

3. Creating startups isn’t enough, they need to be able to scale here

The Nordics perform relatively well when it comes to creating high-growth companies. But access to capital becomes a much bigger challenge when those companies reach the scale-up phase.

Venture capital investment amounts to roughly 0.1–0.2% of GDP in the Nordics, compared with around 0.8% in the US.

That raises a fundamental question: Can the Nordics create the next generation of global technology companies if they need to look elsewhere for the capital required to become global?

Closing the scale-up gap will require not only more capital, but capital willing to take risk and models that can share risk around large technology and industrial investments.

4. Skills, regulation and energy risk becoming bottlenecks

Capital alone will not solve the competitiveness challenge. Companies also need the people, infrastructure and regulatory conditions required to invest. The report highlights skills shortages as a major constraint, particularly in STEM and the capabilities needed for AI, digitalisation and the green transition. In Sweden, 79% of companies report that access to skilled staff limits investment.

At the same time, reporting requirements, lengthy permitting processes and regulatory uncertainty can increase costs and delay investments.

And while access to fossil-free electricity should be a major Nordic competitive advantage, grid constraints and long connection queues risk becoming a bottleneck as industry electrifies and demand from areas such as AI infrastructure and data centres increases.

5. Competitiveness is increasingly about technological relevance

There is also a bigger shift taking place. The Nordic economies have prospered as small, open economies deeply integrated into global trade. But that openness also creates vulnerabilities in a world of geopolitical tensions, trade barriers and fragile supply chains. Nordic exports correspond to around 50% of GDP, making the region particularly dependent on functioning international markets.

At the same time, China is becoming an increasingly powerful competitor in areas such as machinery, electronics and advanced manufacturing – sectors particularly relevant to Sweden and Finland.

This makes technological leadership about more than productivity. Capabilities in areas such as advanced manufacturing, energy, telecommunications, critical materials and defence increasingly determine not only how competitive a country is, but how relevant and resilient it is in the global economy.

A strong starting point is not enough

Perhaps the most important takeaway from the report is that the Nordics do not lack strengths. We have capital, research and highly skilled people. We have strong institutions, advanced industry and access to fossil-free energy.

The challenge is turning those strengths into higher productivity, new technologies and companies that can scale globally fast enough to keep pace with the rest of the world.