The Sentinel #11: Operations Lessons from Sweden
Welcome, new readers. One of the goals of this newsletter is to look at the world, from different cultural perspectives, and share some of my observations with anyone regardless of where you are in the world.
Is geography destiny? What can we learn about making the best of where we start?
I am going to talk about Sweden (!) and the lessons from operating within limited resource constraints. Given I am an operations prof, it’s easy to talk about resource optimization. But, I only saw my first snow at twenty-one, so it is a big task I take up to talk about Sweden. As usual, I start with Swedish films, and one of the greatest directors ever, Ingmar Bergman. Very few equal Bergman in terms of consistency of high quality.
During the pandemic, I have pondered a lot about The Seventh Seal — a difficult film that no one who watched it really forgets. Much like many of us, the protagonist Block, in the film, tries to resist death in the hope of performing at least a single meaningful act in life.
Back to more mundane things about Sweden. Under the aegis of wonderful colleagues (thanks Z, J, L, and E!), I have been involved in a collaborative project of understanding Sweden by studying resourceful companies that seem to be punch above their weight. With a group of engineering and business students, we visited several iconic Sweden-based global brands, focussing on understanding their innovation (efficiency of ideas) and resourcefulness (efficiency of utilization).
In recent years, a germane question has popped into our popular consciousness.
Why Can’t the United States Build Things Anymore?
One of the challenges in America is that engineering talent has been hollowed out by continued divestment away from manufacturing and generally, the business of building things. We have increasingly focused on software, services, and entertainment to the detriment of the diverse skills of the nation. In doing this, we have shied away from the skills needed to tackle the hard problems (education, health, climate, infrastructure), leaving the problems to be decided by politicians and courts.
Tech Downturn and Efficiency
Tech industry has been in turmoil in recent months and has been “trimming” jobs in a challenging global environment. Suddenly, cash-strapped in a high-interest environment, firms are talking about operational “efficiency”. As Marc Zuckerberg announced laying off 10000 jobs (13% of Meta employees), he talked about the “Year of Efficiency”, he argued:
“As I've talked about efficiency this year, I've said that part of our work will involve removing jobs -- and that will be in service of both building a leaner, more technical company and improving our business performance to enable our long-term vision. I understand that this update may still feel surprising, so I'd like to lay out some broader context on our vision, our culture, and our operating philosophy.”
-Zuckerberg
Sometimes, it appears that efficiency is mistaken for ruthless cost-cutting and headcount reduction.
As the figure shows, Facebook hired more than 25,000 employees through the pandemic, before laying off 22,000 in the last few months. Perhaps, there is value in the “rise with the tide” model, but a part of me wonders that there must be a better way to manage resource constraints than the churn of hiring and firing.
Resource Constraint: Labor Supply Problem!
In times of abundance, efficiency can take a backseat, and companies can be profligate. However, I have argued that we now have a tremendous labor shortfall going on that needs to be fixed. The United States lags severely behind several developed countries in the world (see below). So, it appears the share of prime-age adults is scarce. If the availability of a particular resource were a constraint, then the scarce resource must be valued.
The data from the Bureau of Labor Statistics shows that over the past decade, our worker population has shrunk tremendously.
How does one create a steady supply of workers? As an immigrant myself, of course, I (selfishly) believe that increased immigration is a solution. The book One Billion Americans by Matt Yglesias makes this argument (among others). Increasing the workforce population by delaying retirement is a strict no-no. Political events have shown that messing with social security is a non-starter in the United States. So, how do we create jobs, and solve the resource constraint problem?
Three lessons from Sweden.
1. Encourage Work by Protecting Families.
One meaningful answer that I heard in Sweden was from a top female executive in one of the companies we visited. She said, since Sweden has always had a low population, it has been a historic imperative to get everyone to work. This immediately meant not ignoring women — who are half of the population. Now women are out in the workforce in large numbers. During my visit, I saw women working everywhere, in workshops and factory floors, and in executive and engineering teams (a sharp contrast from India). In Sweden, I was impressed to visit a factory where I saw several female team leaders, and at least one female leader on the shopfloor was leading a team of young men.
If we examine the data on gender norms, the US and Sweden look quite similar in what the population expects of women.1 Yet, in World Bank data, one can see the enormous gap in female labor force participation (FLFP) rates between Scandinavian countries (Norway & Sweden) and the United States.2 For comparison, I chose Italy and India as well. (Unfortunately, despite a recent upward blip, the FLFP in India has remained low, and the trend has been downward, decreasing steadily over time).
How do you solve for encouraging female labor participation in the workforce? Especially in the US, where “trad wife” accounts are going viral on TikTok. No links! Sorry. 😅
How to improve female labor force participation? Definitely NOT by making fun of family life choices (people staying back home to care for their spouse and kids). Instead, embrace family life as a joyful aspect of one’s overall life, and still allow room for long-term aspirations. On International Women’s Day, I saw someone give a fantastic office presentation, and later on, on social media, share a wonderful picture of a cake they had baked that evening.
One often-mentioned tech cliche is “to scale do things that don’t scale”. A very astute observation by Abraham Thomas at Pivotal (an excellent substack, btw) points out that this is a way of increasing efficiency by not wasting the time you desperately need. As I have argued before, spending time with children seems inefficient, but dedicating this time, builds your efficiency by making the remaining time scarce and more valuable.
Sweden solves the FLFP problem by allowing people to take extended time off for parental leave so that they are available for the rest of their careers — and making it a norm so that everyone does it. Parents in Sweden are entitled to 480 days of paid parental leave (each getting 240 days) when a child is born or adopted. In fact, to increase gender parity, this has been amended recently. After 2016, each parent has 90 days reserved exclusively for him/her (which cannot be transferred).3 Why should parental leave improve participation? In the same way, the weekends prepare you, by "recharging" you, for the weekday stints at work.
2. Design for Safe Failures instead of Fail-Safe Designs.
One commendable aspect of entrepreneurial life in Silicon Valley is that failures are not considered a mark of inferior quality or retrograde effort. One way to encourage risk-taking and venture investment is to make failures socially acceptable. Nordic countries (which have seen increasing success in entrepreneurial activity) have taken the other tack.
A regulatory solution is to reduce the economic cost of failures. Social safety nets allow people who suffer failure to start new ventures without suffering financial duress. In Sweden, colleges are free (or have minimal costs), and an entrepreneur whose venture fails can go back to starting a new venture, as she is not strapped for cash due to educational loans.
But lowering the cost of failure alone is not a solution. One should also invest in the basic framework for creating a knowledge base that would help us thrive. Through Lisa Ericsson at KTH, I learned of a government investment program in home computers in the late 90s in Sweden. Sebastian Siemiatkowski, the founder of fintech firm Klarna (one of Stockholm’s biggest unicorns), identifies it as being an important step in his learning programming. (About 950,000 computers were purchased covering 25% of households in Sweden).
3. Encourage Exploration over Exploitation
In Dynamic Programming, (now under the catchier name Reinforcement Learning), we learn of a concept called Exploration vs. Exploitation. The idea is to first explore an unknown environment, at some cost. This exploration allows you to learn and discover the value of your actions before you “exploit” your learning. Despite its high weight on equality, the Swedish system can allow for individual freedom through exploration.
A case in point. Sweden is thought of as an irreligious country. Surely, like in all of Europe, church attendance is far below the United States. However, I think such a view based on “church attendance” misunderstands Sweden in particularly, er… fundamental ways. First, church attendance is dropping everywhere, even in the United States.
In the late-renaissance 16th century, during the Protestant reform movement, Sweden converted to Lutheranism. I would argue that individual equality and welfare state universalism in Sweden are byproducts of its exploration of Lutheranism and its successive revivals. In fact, until 2000, the Lutheran Church of Sweden remained the official church of Sweden — only about twenty years back! Currently, 53.1% of Swedes belong to the church (newborns are automatically registered, so the figures are far higher than attendance figures).
Religion is often about which values one holds dear. One could argue that a small but significant minority in the United States is religious about gun ownership, their academic pedigree, or worshiping the constitution. What we need is avenues for true exploration: both the inner life and the outdoors.
In Sweden, these exploratory values show up in interesting social ways: Allemansrätten for example (“freedom to roam”). A traveler is allowed to access any land -except private residences- and put up a tent, collect wildflowers, mushrooms, and berries, and swim in lakes.
Even as the role of the church (and the crown) in governance has diminished in the modern days, in Sweden, the church and the state have long been aligned in their principles. Some of the shared beliefs are reflected in the national inclination to be self-sufficient and the rugged individualism of neutrality during world wars and currently, the fraught debate of joining NATO.
So, is geography a destiny? Honestly, I don’t know. But, there is a fair number of lessons one could learn from geographic constraints and an increasing understanding of national models all around the world.
Film Notes:
The Seventh Seal. Did you know the Vatican included it as one of the 45 best movies, along with Gandhi, under the theme of Values? (15 movies in 3 categories: Religion, Values, and Art).
Mystery Guest: The clickbaity picture at the beginning of the newsletter is the Swedish actor Alicia Vikander, Academy Award and BAFTA nominated for roles in The Danish Girl and Ex-Machina (a science fiction film that I highly recommend).
Kleven, Henrik, Camille Landais, and Jakob Egholt Søgaard. 2019. "Children and Gender Inequality: Evidence from Denmark." American Economic Journal: Applied Economics, 11 (4): 181-209. https://www.aeaweb.org/articles?id=10.1257/app.20180010
https://data.worldbank.org/indicator/SL.TLF.CACT.FE.ZS?end=2021&locations=SE-IN-US-NO-IT-CN&start=2010
https://sweden.se/life/society/work-life-balance
Great read as always. Lots of TILs.
I've always found it ironic that many of our current leaders and visionaries go on and on about declining birth rates but are nowhere to be found when the conversation shifts to parental leave.