[archydeb]

I heard that Sweden's high income tax actually incentivised startups, because the only way to get _seriously_ wealthy was through capital gains.

Does anybody know whether that's true?

If so, it really undermines the narrative that is somewhat dominant in Britain, that high income tax will disincentivize entrepreneurship and innovation etc etc

[INTPenis]

I'm just a layman when it comes to all that but as someone who was raised in Sweden and lived here all my life I feel like the safety net that the government provides plays a huge role in people feeling free to start their own business, or their own band.

When you know you won't become homeless due to a failed venture it becomes easier to take a chance on something.

[kkielhofner]

This is very accurate. While other Nordic and European countries also have strong social safety nets (certainly compared to the US) Sweden seems to have captured something special.

For a country with roughly the population of the Chicago metropolitan area Sweden punches well above their weight in everything from startups to pop culture influence[0] to the point where the referenced article calls Sweden "the unofficial capital of pop music".

Turns out when you have a safety net it's a lot easier to make the jump to forming your own startup vs the US where if you leave your job the first step is to figure out how to get healthcare (and pay for it). In the US you're much closer to complete ruin if you leave a job to pursue your wild startup idea.

[0] - https://www.thrillist.com/entertainment/nation/this-is-pop-n...

[RestlessMind]

> Turns out when you have a safety net it's a lot easier to make the jump to forming your own startup

I think you are overindexing on the safety net part. Here[1] is a chart of startups per capita in Europe. Looking at "startups per 1M inhabitants", Estonia has 1100+ while Germany has only 250 in spite of having a great safety net (apparently).

Same article also shows that Sweden has 1769EUR VC funding per capita, when Finland has only 854EUR and Denmark/Norway don't even show up on the chart. All 4 countries have similar cultures, no?

And let's not even talk about Saudi Arabia which spends a lot on social safety net but I haven't seen much entrepreneurial or artistic exports from that country (oil doesn't count).

I believe "forming your own startup" requires a lot of ingredients - ecosystem or flywheel (see: Silicon Valley), funding for risky bets (see: USA), a bit of hunger, education levels, culture of risk taking etc etc.

[1]

[vintermann]

Counting start-ups isn't trivial. At least if you also want to count something meaningful. Estonia has a lot of finance start-ups due to a friendly regulatory climate for that sort of thing, but do they really count?

Also, for things that aren't purely nebulous (not just thinking of finance here) you can't just go out and start anything anywhere. If you start something in Norway you'd better not rely on cheap local labour, but you might gamble on cheap electricity. Saudi Arabia just has no comparative advantages apart from oil and Hajj tourism.

An actual advantage that I think Sweden has, is the combination of a highly educated and highly creative workforce. Your stereotypical Swedish engineer isn't just educated for economic reasons (because if it was about money, he could have done a dozen easier things anyway). He also has some serious creative ambition. If you are rich enough to pay him and clever enough to steer those ambitions down a profitable path, you can make a ton of money on people like that.

[RestlessMind]

> Counting start-ups isn't trivial. At least if you also want to count something meaningful.

That's why I counted both startups and funding received by those startups.

[tored]

Agree, if you examine Swedish modern history since the industrial revolution you will find that Sweden has always produced lots of startups (or the equivalent in the old days) with both low taxes and high taxes, with a welfare state and without.

High taxes and a welfare state do of course have some role to play (positive and/or negative), but as you say there other important parts that probably matter more.

One thing we can say empirically is that Sweden have had it difficult to create large sustainable companies from startups like it did hundred years ago, Spotify is a notable exception.

[Southworth]

I've done a bit of international work around startups and government policy, as well as lots of checking out various "startup"/entrepreneurial endeavours around MENA,US and EU.

Safety nets, be that a psychological one ( the US with the American dream ) or a welfare angle (sweden, Norway etc) but what seems to be truest or at least in my observation is the psychology of the country in terms of its approach to supporting startups of all flavours matters more. This means,broadly, it being considered an acceptable and successful route of learning business and is not a hyper risky endeavour.

In stable global north countries, it was, historically, considered a radical act to not join a big national or even multinational company. Hell, the terminology of the description tells you the sense of import that we held for the the large beasts of industry.

This all radically shifted with the advent of software, games, websites, SaaS, PaaS etc etc.

It was perceived, over the last 40 years, no longer risky to be in computers, but very wise, and a smart move.

With this rise of the geeks, then came adjacent entrepreneurial activity, fancy coffee shops, better food, etc

Now,this has probably played out one way or the other on every country.

What I have seen, is that entrepreneurs are more present and more numerous than ever, but there are numerous obstacles in their way.

Import limits, sending money internationally, basic banking, travel restrictions, gender limitations, sexuality limitations, freedom of the press, dictatorial governance with a lot of religion as the policy.

These are the limiting factors to growth. Investors will always invest, we can derisk it somewhat with tax breaks, but money makes money.

Ultimately what's designs a great startup ecosystem is excellent people making excellent things with or without government assistance and working together, as a cohesive unit to celebrate and champion making cool shit for money. Be it coffee, be it BBQ, be it software, be it yoga.

Independent businesses require a state that trusts its people, and the people trust the state.

Germany is an odd example, but from my experience with German entrepreneurs is the risk tolerance of Germany investors is very very low. So it's get customers then get money. However, that said, Germany has produced a few good businesses so perhaps there's a method!

It can never be one size fits all when it comes to creating the perfect environment, much like gardening, you've got to work with the strengths of the plot, the soil, the weather etc.

However, if we all think we should replicate the valley on our respective locations then we're truly missing the strengths and values of our communities.

[waspight]

I have heard that Stockholm is the Silicon Valley of Europe as well so Sweden is going strong I guess.

[xvedejas]

I know for many the top concern is healthcare costs; however, for me it is rent. Does the Swedish welfare system do anything that would help with rent for startup founders? Or does that still contribute as much risk as it would be elsewhere?

[pazx]

The swedish welfare system will give you around 2000usd in unemployment every month, depending on previous salary

[xvedejas]

If you're a founder of a startup working full-time and unable to pay yourself a salary yet, can you receive unemployment? (Maybe you would count this as "underemployment"?) What if you left your previous job voluntarily?

[alkonaut]

No but there are grants you can receive for starting companies that lets you pay yourself a low-ish salary for 6 months when starting up. This was extended to 12 months during COVID I believe, unsure what it is now.

[sofixa]

In France, yes. You can apply to get the money you would receive in unemployment benefits as an initial capital in your startup (for paying yourself or for other expenses).

[catears]

My understanding, as a Swedish native, is that income from labour is taxed rather high (i think 70%+ for income over a certain amount). However, capital gains are taxed comparatively low. The two most common ways tax either 30% of the profit, or 1-3% of the annual total value (ish, I don't know the exact numbers and they are probably changing from year to year).

How the incentives play out you have to ask someone else about tough ;)

Edit: Got curious and looked up income tax. Turns out I was slightly wrong, Income is regularly taxed around 55% for really high income, but if you also count in VAT ("moms" in swedish) you get ~70% taxation.

[perbu]

It is pretty interesting to see, though. Sweden has a lot of "old money" and they seem to quite happy letting then keep it.

[jacobr]

The Swedish welfare state involved a lot of compromise and give and take. The system benefits workers in some areas and capital owners in others.

[alkonaut]

Top marginal rate of tax paid by the employer is 55.5%. Employer pays some payroll taxes too but those usually aren’t included when comparing income tax. As a rule of thumb it costs the employer $1.50 to pay someone $1

[hoschicz]

You can't add 55+25 like that; VAT is 25 % of the 45 % left over. So maximum total marginal tax rate is 66.25 %

[jollybean]

It's still uncompromisingly brutal in the minds of most people.

The 'Swede' I know best (Doctor) left for that reason.

The argument most often used is 'But I Get Good Services' - which I'm suspicious of because 1) well, you could just keep the money and spend on the services you want, instead of the services the state chooses for you and 2) there's incredible efficiency in private institutions. I don't see any government in the world ever making a good 'Spotify'. Despite it's flaws, it's nice to have 'music when I want it'.

In short, probably thinks like 'Healthcare for Everyone' (though maybe not socialized entirely) and better retirement comp. are really good ideas and should be universally applied (much as we now know that 'central economic planning soviet style' is a bad idea).

But 2/3's to the State is just a gigantic amount.

Even a small adjustment such as '15% must go towards your Healthcare Insurance' and then let people pick plans, or, 10% must go to a 'Retirement Savings Plan' (of which some of it cannot be withdrawn until 65 and some of it pooled) might even be beneficial.

I think that would start to create some social nudging functions (i.e. payment for Healthcare) while being a bit more fair (i.e. service quality sometimes proportional to money put in).

And maybe the 66% kicks in, but at some much, much higher rate, like over 1M in income.

Finally, we don't seem to account for just 'organizational intelligence' which I think is the biggest difference.

When I see the lunches Swedish kids get I don't think 'they are rich' I think 'they are smart'.

Lunches, esp. mostly vegetables do not have to be expensive, I think the whole 'burgers and tater tots' you see in USA is just stupid, lazy thinking.

Just being a bit creative with the menu, a bit conscientious with the process, and esp. having children help quite a bit would help. Any school kid can do 'something' and past age 8 they can wash veggies, help clean up, sweep. They do this in Japan for a lot of things, why can't we? I suggest children can even learn to prepare certain kids of veggies responsibly.

Since a lot of education is kind of just 'daycare' why not give them some responsibilities as well? I mean, it's like a 'win win'.

The remaining meal functions can be done by a staff.

We can't avoid inherent costs in things but I suggest there is enormous upside in being intelligent about things in 'whatever' systems: Drugs, Incarceration etc..

My minimal exposure to Swedish startups is that they have way better communications - they present their concepts using language, visuals, way ahead of others. This despite Swedish formal education system flailing a little bit behind others (that's a complicated thing). p All of that said I 100% agree that 'safety net' will improve the likelihood of participation 'early stage' startups, not sure what it means beyond that stage.

[jacobr]

> I think that would start to create some social nudging functions (i.e. payment for Healthcare) while being a bit more fair (i.e. service quality sometimes proportional to money put in).

An interesting definition of “fair” - in Sweden the principle is equal health care prioritized according to who needs or benefits most from the care, not how much you pay. If you see it from that point of view, tax is not a transaction where you pay for the services you receive. You pay for the society you receive, which includes people in general being more healthy, not just yourself.

[jollybean]

Most people would reject the idea that someone works hard all of their life gets the same healthcare that someone who does nothing.

Most people are somewhere in the middle, but there absolutely are people do nothing and people who are always being constructive, some in powerful ways.

A society in which 100% of resources would be allocated in that manner (basically communist) would completely fall apart.

I think 'same treatment Healthcare' is actually a bit of a hard-socialist idea that happened to make it's way through society historically (because it needed to have some socialization) but that will ultimately fail, it's on the edge in Canada right now as they are discussion private options.

In much the same way I think fully-private healthcare is a failure.

For the later (fully private) we have to understand the mechanisms are not the same as for regular products or even food etc. - there are existential issues which create gigantic asymmetries. So there must be heavy regulation and likely socialization in certain aspects.

But the converse is still true: 'everyone the same' is a disaster for most of the economy, it's also maybe not such a good idea for healthcare.

FYI - in Sweden the are Private Clinics.

In Canada, where I am from, we have pretty crazy laws, some of those most limiting in the world.

It's illegal to provide private services for all but a minority of issues.

Just consider that: a mechanic can fix your Mazerati, but it's illegal for them to fix your arm.

In practice - there is filtering. 'Important People' somehow manage to get good access, like Sports Stars, politicians. Actual Doctors/Hospitals are not owned by the government (as they are in UK) so they are selective, but the billing rates are theoretically the same.

On the other end, you may or may not get the surgery depending on if you're an alcoholic/smoker etc..

Due to all of this there are very, very weird asymmetries in Healthcare all over the place, notably Doctor's guilds controlling access to their domain, pricing insanity in the US for actual services, insane drug prices due to IP laws and lobbying, inability of governments to innovate effectively. One weird artifact of the later is how much we have to depend on the advancements of other nations.

The NGO style they have in the US is an interesting model as well.

[sofixa]

> The argument most often used is 'But I Get Good Services' - which I'm suspicious of because 1) well, you could just keep the money and spend on the services you want, instead of the services the state chooses for you

I'm honestly baffled anyone seriously thinks that. It takes a minimum of reflection on all of the services provided by a functioning state and their role in society to realise that is just highly impractical. You get economies of scale, you get people who can't afford "services" who can not die, you get social mobility, happiness (if the workers servicing the ones that can afford services are unhappy slaves, that would impact service), etc.

> there's incredible efficiency in private institutions. I don't see any government in the world ever making a good 'Spotify'. Despite it's flaws, it's nice to have 'music when I want it'.

There's incredible efficiency in public institutions too, they just optimise for different things. One for money, the other for reach, impact, accountability. Despite it's flaws, it's nice to have healthcare when you need it without fear of bankruptcy.

[jollybean]

I'm baffled that anyone still believes governments provide truly efficient services in any capacity, for anything at all?

The only areas in which it's ostensibly 'more efficient' are where there are natural monopolies and market conditions that make it impossible to do otherwise, and so we accept socialized intervention.

In most cases, we only socialize 'when necessary' - not the other way around.

"There's incredible efficiency in public institutions too, they just optimise for different things. One for money, the other for reach, impact, accountability." - I can hardly believe anyone could think that. That's what they put on paper, generally not what they do.

Both public and private organizations are fighting for their own institutional survival and power - it's just the mechanisms of influence are different: one gets money from taxpayers with some kind of 'oversight' which is not necessarily responsive to needs, the other, lives or dies on whether or not the provide value to people for a given price (aside form private monopolies).

It takes a 'minimum of reflection' to realize this as we have unlimited practical evidence for it ... were this to be even remotely true, then everything would be socialized as a 'matter of scale and efficiency'. We would be inexorably pulled in that direction - and yet - basically few things are, except maybe Healthcare in the US, as one of those markets that 'requires more social intervention' but for which there is currently very little.

Which governments invent the iPhone? (or could ever?). Hint: it's not a technology, it's a product which requires a product/market orientation, the ability to shift nimbly in innumerable areas of specialty, that no government has ever exhibited any capacity for - except - during wartime. When did they develop Web Analytics? Networking equipment? Effective merchandising mix even for things like groceries which is what give us the amazing variety and quality of products and produce we have? Farming equipment, processes, resources? Search Engines? Automobiles? Music streaming service? Chip designs? Video Games? Superhero Films? Toys? Makeup? Clothing? IoT Products? Furniture, lighting, tools? Construction equipment? Giant supply chains for all of those? Distribution chains? Financial services for investment banking? Retail? Commercial?

This list is really long.

I mean, it all could be done by an elected committee, but in most cases, not nearly as well.

In 1920 - yes - I can kind of understand it; 'on paper' of we merely had the government take over all of the auto-manufacturing plants, we could theoretically reduce costs by 10% by clearing out management, and, reducing profit taking! Citizens Unite! ... but it would not have been good for the future.

After a century of experimentation with all of that, we have some good data.

The government of Canada, in 2022 can't get my Health Records online.

They have spent $800 Million (>10x over budget) on an in-house payroll service for their employees that does not work. That's a lot of money, and it's the tip of the iceberg.

Where is the inquiry?

Obviously governments are necessary for enforcing basic regulatory requirements all over the place as it would not be efficient for us to have private practice to do that, but it depends on the situation. (For example, I wonder if 'rating agencies' need either to be socialized or to have extra careful oversight?)

Some public services with natural monopolies (roads, energy transport) obviously must be socialized in some way, because we can't have 10 different competing electricity grids and/or 'toll roads everywhere'. But of course, government generally does not actually 'build roads' - they contract that out to competitive bids, hopefully with oversight. That would be absurd.

Case and Point for the 'Governments are Better' enthusiasts - in which countries are the roads actually built by government employees? And have a better situation overall? I'll bet nowhere, because it makes no sense at all - even in an industry that is 'very large' with ostensibly a lot of room for 'scale' ... private contractors do the actual road construction.

'Pure R&D' is generally impossible in private markets outside of companies that are 'swimming in profits' (aka Google, MSFT) and even then it's not very pure, which is why higher education has to be strongly associated with government.

Basic education, regulatory considerations, strategic investments of scale impossible by private markets alone (aka chip fabs), investments in markets which are political in nature (weapons systems, space systems, some large energy projects), in which there are other, existential considerations/inelastic situations that combine to warp outcomes (aka Healthcare) there have to be interventions.

In most but not all cases, we have socialization because of necessity not because there are advantages, and vast majority of currently private markets would not benefit from being socialized.

Finally ... maybe this is mostly moot - I'll bet (but I'm not sure, correct me if I'm wrong) that most of the extra taxation in Sweden goes mostly to redistribution type expense, aka paternity leave, retirement, welfare services etc. which are all very expensive, and that Gov. Sweden is probably not directly doing a lot of market oriented things anyhow. I mean, they're not making furniture, coffee, or Music services ...

[ramraj07]

Even without the tax angle isn’t this generally true? Except in very rare cases of becoming CEO of an MNC or something.

[cpach]

You have a point – however, do you know what SWEs in the big US cities earn theses days, working for “FAANG”? (Or Stripe, Square, etc.) It’s not very uncommon to have a yearly compensation of 500-600k or more (USD).

In Sweden, very very few SWEs earn more than 80k/year.

[ramraj07]

I don’t know if we agree on what the definition of massively rich is. Given that 1% of US people are millionaires, my definition of massively rich is 50MM plus net worth.

[pazx]

I live in Sweden and most SWEs I know earn 6000usd or 72k/year after only 5 years.

Earning above 100k is not uncommon.

[Shaanie]

Earning over 80k SEK per month is uncommon. Not unheard of, but uncommon.

[cpach]

“Earning above 100k is not uncommon.”

OK, I believe that. Still a bit from a really good US salary though.

Did you meet many SWEs that had a total compensation of >5 MM SEK/year?

[teknolog]

It is broadly true that you cannot accumulate wealth from salary income as the salary bands are massively compressed.

[petestream]

I would say it is true but more the entire environment. ~15 years ago in Sweden it was relatively easy to become middle class. It was for its time accessible and affordable to have things like education, housing and a family. At the same time it was relatively hard to become upper-middle class because of progressive income taxes, career paths and overall competition. That meant there were a relatively large number of people capable of starting and joining startups with low opportunity cost of doing so. Which also meant there were more startups who were interested in building something that is viable long-term rather than to cash out quickly.

(This isn't really true anymore but that is a different story)

[dazc]

Look at Ireland, low corporation tax (we won't even force you to pay it at all if you're big enough) and a booming economy - producing feck all.

If it wasn't low taxes that achieved this then what was it?

[andsoitis]

Taxes are a part of the story, but neither the whole story nor sufficient on its own. There are other countries with lower corporate taxes, but with a worse economy.

Other things it’s got going for it is a highly educated English-speaking population, geographically favorable location between Europe and the US, which, together with the favorable tax policies, makes Ireland especially useful for American tech and pharmaceutical companies.

[alkonaut]

I don’t know anyone who started a business and did so to be wealthy to be honest. Sure it’s always a nice side effect but I think all the people I know who started businesses would answer “yes” to the question “do you want to do this even if you never make more money than as an employee”.

[peyton]

The only thing that incentivizes startups is access to capital. You need rich people.

[varispeed]

This grinds my gears as this attitude essentially reinforces the serfdom in the society. If you are born into a working class you will remain working class.

The salaries are taxed in a way that a worker cannot easily save money to start their own business, they need to beg bankers for a loan or go cap in hand to the rich people - and oh be sure they'll have to give shares to the business.

In the UK we used to have a nice route for workers to build up their start up fund - basically you could create a company and sell your (and your co-founders) services to other companies. You could pay yourself a small salary or dividend or both to be able to cover rent, bills and day to day outgoings and in a year or two you could have amassed sizeable capital while gaining expertise. As an example, if you wanted to sell Kubernetes based SaaS product, you could have offered Kubernetes maintenance services etc and learn what kind of pain points corporations have and then work on incorporating solutions into your start up offering. Problem is that government believed it was a tax avoidance and closed this route (IR35). Now you can still offer services, but you are getting taxed on revenue which has no advantage over just being an employee and taking forever to save money.

[dazc]

The Gov't believed it was tax avoidance for the simple reason that it was.

It is still possible to build a business in the UK the old fashioned way of working hard and making personal sacrifices.

[varispeed]

Government was never able to prove it was a tax avoidance. If you wanted to draw all the money from the company you would pay broadly the same tax as an employee. The only angle that one may consider as avoidance was that the client wouldn't have to pay employer's NI - but given the freelancer services were charging considerably more than employees, that wasn't an incentive either and they weren't employees, so it shouldn't apply either. Basically tax avoidance angle is a red herring and based on research it was the best carrier for this law to gain public acceptance plus it could paint freelancers in a bad light. The real reason this was adopted, was that big consultancies had a hard time competing with freelancers - they offered better price and expertise and as it happens a lot of government members and party members have vested interest in these corporations.

[petestream]

Most of the inherent cost of a startup is salaries (offices usually second). Most of salaries goes for paying for housing (with market rate and education usually being the other major costs).

Say you have two startup environment. One where it is affordable with housing, education and most people could try to start a startup and another where those things are expensive and few can. Which one requires more capital and which one is more successful?

Investments are something you get when attractive companies are being created. Not something that creates attractive companies in itself. Plenty of countries have plenty of rich people but most don't stand out in terms of successful startups.

[missedthecue]

Exactly. How many tech startups today are funded directly or indirectly by successful founders and tech workers? Is 90% understating it?

[tommiegannert]

You could also run pools via institutional funds. Why do we need rich people?

I'd think the rich people is a side-effect of successful pooling in finance. If you can get away with fees of >1% for "just" finding PE deals, that sometimes ramps up profits really fast.

[Gravityloss]

Stock options are taxed as salary income when excercised though.

[codethief]

No idea about the situation in Sweden but generally speaking I'd say it depends a lot on whether "income" in "income tax" also includes capital gains.

[geysersam]

Don't know any country where it does. In Sweden it certainly doesn't.

[LtWorf]

It doesn't but they are taxed the second you sell them off.

So cool… you're rich but if you actually want to use the money it is taxed.

[kevinak]

Actually... Sweden has a large loophole for extremely rich people. Stick it all in a "Capital Insurance" product and pay a low yearly tax on the amount, rather than the gains.

It kind of makes Sweden into a low tax haven if you're only living off capital.

[pazx]

Income tax and capital gains tax are two different things and two different rules sets. In Sweden income tax is max ~56% while max capital gains is 30%.

[kevinak]

Don't forget to add the "totally not income tax" aka arbetsgivaravgift at another 30% :D

[Jolter]

That does also not apply to capital gains.

[Jolter]

It does not, in Sweden.

[pazx]

Income tax is 30-33% up to ~4500usd/month, for everything above it is 50-55%. Capital income tax is 20-30% depending on the type of capital.