Tag: politics

Europe’s AI Edge May Be in Stockholm

The most recent stop in our QED tour of European fintech ecosystems was Sweden, where we used the occasion of Stockholm Fintech Week to meet some of the best founders in Europe.

We are by no means strangers to Sweden: Apart from having been born there myself, Nigel Morris also served on the board of Klarna in the early days, helping them with everything from credit underwriting to international expansion during those formative years.

So consider this “top five” take the latest installment in a Nordic saga that has been close to our hearts for more than a decade.

Impression #1: Sweden goes for the European AI crown

The cutting edge of innovation is very much happening in Sweden.

From Lovable to Legora, just to name two recent examples, Swedish AI is breaking out and the next generation of companies are getting funded with big tickets. It was also quite remarkable how plugged in the latest generation of founders were to the US and the rest of the world.

What seems to really differentiate Sweden in the AI context today is the focus on practical application layers, the amount of funding coming in from the US, the sheer number of AI start-ups per capita, and the recent success stories that are fueling the virtuous cycle.

There is also a lot of thought around globally focused vertical AI solutions, that bundle AI with a regulated layer, thus creating moats in a field that has the risk of being commoditized or overtaken by the big foundational companies. This shows that Swedish founders are very much at the forefront of how to build defensively in the age of AI.

This was indeed probably the most interesting pattern we saw: the best founders are not building horizontal AI, they are embedding AI into regulated verticals, creating defensibility where others risk commoditization.

Based on the founders we met this week, the best is yet to come, and just like Spotify came to dominate music streaming, we strongly feel Sweden will continue to produce global winners in AI.

Impression #2: Founders are thinking big and global, and the world is noticing

There is no shortage of global fintechs that have come out from Sweden, and Klarna, Zettle, Trustly, and Tink are just a few recent examples, not to mention Spotify and Skype from prior decades. Early employees and new entrepreneurs are quickly spinning out of these and other household names, and global funds from the US and Europe are flocking to Stockholm to back them.

As a result, a lot of founders are getting funding with very big rounds while still in stealth mode, and these newly funded founders are certainly thinking big. In other words, the winners and household names of tomorrow are being funded now as we speak.

Another very important factor here is that the relatively small global market of Sweden forces founders to think internationally pretty much from Day 1.

Impression #3: The ecosystem is small, but very concentrated

As we learn in microeconomics, a concentrated but large benefit tends to win over an equal but distributed cost. This power of concentration is very much evident in the Stockholm fintech scene. Compared to a place like London that is much bigger, the fintech (and tech) scene in Sweden feels very tight, very motivated, very focused, and very much ready to take on the world.

There is almost a sense of mission or preordained destiny about many of the founders we met, and from experience we know that this kind of focus is a crucial ingredient for success.

Impression #4: First principle thinking is driving true innovation

As we travel European ecosystems, we see many that are competitive and entrepreneurial. If somebody goes after an idea, others copy it, and build local flavors of globally proven models.

Swedish entrepreneurs however, stand out with more first principle and original thinking, and as a result end up being global trendsetters and innovators compared with many other European countries. A good example of this outside the world of tech is how the safety obsessed culture of Sweden gave us the seat belt which was invented by Volvo employee Nils Bohlin in 1959.

Impression #5: Sweden has become very wealth and entrepreneur friendly

This goes against many people’s stereotype of Sweden, but Sweden has quietly become very wealth friendly over the last couple of decades. Since 2005 there is not inheritance tax, and since 2007 there is not wealth tax. Capital gains tax is effectively flat and can be quite low, and stock options were reformed in 2018.

Add to this the fact that a high safety net drives higher risk taking, along with the deep tech and engineering culture, and it should not come as a surprise that Sweden actually has 2x more billionaires per capita compared to the United States. Twice as many.

So from the days when we sat of the board of Klarna to today, we remain excited about Sweden. Stockholm is now Europe’s most efficient AI factory, and if you are not spending time in Stockholm right now, you are missing where European AI is actually being built.

GDP Is Dead: How AI Forces a Rethink of Growth, Politics, and Power

Remember Simon Kuznets. Mid-20th century economist, immigrant, and empiricist. He believed that economic output could be measured in a standardized form using mathematics and statistics and he gave the world the tool to do it: national income accounting and Gross Domestic Product (GDP).

Born 1901 in what is today Ukraine, Kuznets emigrated to the United States in 1922 after the turmoil unleashed by the collapse of the Russian empire and the Bolshevik Revolution. He came of age during a time of depression and war and was fascinated by economic change and the big forces that shape it. In the 1930s-40s he pioneered systemic ways to measure economic production, income, and consumption across an entire economy, creating the concept of GDP and winning him the Nobel Prize in 1971.

A radical thinker, he was ever critical of the tool he had created, warning that it did not take into account inequality, unpaid work, and environmental damage, famously cautioning that “the welfare of a nation can scarcely be inferred by a measure of national income.”

Despite cautionary warnings by its creator, GDP has nonetheless become the scoreboard of modern capitalism.

Until perhaps now. The advent of the AI economy and its profound implications may in fact be the death knell of this flawed but seemingly universal statistic.

Firstly, the core assumptions that back GDP are very specific and human labour centred: People work, firms hire, wages fund demand, output is scarce, production is costly, and prices signal value. Human capital, and the productivity of it, is one of the binding constraints on growth.

In a modern AI economy the constraint on growth shifts away from labour to compute, energy, data, capital, and raw materials. In this new world, rare earths and energy matter more than office workers. As a result, economic returns will increasingly shift to owners of capital and natural energy resources away from labour. This has the risk of creating huge income inequalities as the old economic models that tie wage growth to economic growth start breaking down.

In this new paradigm, output no longer equals employment, productivity no longer equals income, and growth no longer equals welfare.

Secondly, demand side metrics such as GDP will start becoming more misleading. One example of a potential paradox is that AI agents may produce lots of output, very cheaply, on the surface looking like GDP is actually contracting (as it measures prices).

This will likely bring with it a shift to more supply focused measurements that take into account how much natural resources an economy has access to. As the framework shifts towards the quantity of energy and raw materials we can harvest, issues around environmental balance will become unavoidable.

On the one hand we will have a hungry machine that demand energy and natural resources at enormous scales, while on the other hand we will have the spectre of global warming and environmental imbalance. We will need to make choices between harvesting the “free” resources of the environment versus more economic growth, and the current framework of GDP is not equipped to properly account for debit and credit side of this trade off.

It is very likely that a new sort of politics that address wealth re-distribution and environmental factors will start to emerge across the world, and we are in fact seeing early examples of this today in many places. Likewise, a new geopolitics focused on energy, data, compute, and natural resources is already emerging.

What is ultimately at stake is not a better statistic, but a better understanding of power. GDP told us who was productive in a labour economy. AI demands that we understand who controls energy, compute, data, and capital in a post-labour one. Measurement shapes policy, and policy shapes outcomes. When the measure fails, politics fills the gap.

GDP was the right tool for an industrial century. The AI age will require something harder, more physical, and more honest, one that acknowledges that growth is no longer constrained by human effort alone, but by energy, resources, and the choices we make about how to deploy them.