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Finland's road to prosperity

The Finnish economic miracle is a phenomenon studied with awe around the world, and felt with considerable pride in Finland itself. How did a small Scandinavian country transform itself from an economy lacking technological prowess in the 1970s to the innovation powerhouse of ...

The Finnish economic miracle is a phenomenon studied with awe around the world, and felt with considerable pride in Finland itself. How did a small Scandinavian country transform itself from an economy lacking technological prowess in the 1970s to the innovation powerhouse of today? Finland continues to be the most competitive economy in the world, topping the World Economic Forum list four times in the last five years. To answer the question of 'How?', CORDIS News talked to Mr Esko-Olavi Seppälä from the Science and Technology Council of Finland, intimate with the innovation process and development in Finland, and to Dr Erkki Ormala, Vice President for Technology Policy at Finnish technological giant Nokia, who gives a more general industry perspective. Amongst Finland's technological crown jewels are Dr Ormala's company, the world leader in mobile phone technology, Nokia; and the inventor of Linux, the world's largest collaborative information technology (IT) project, Linus Torvalds. While the huge push into innovative areas began to accelerate in the 1990s, the foundations were laid as far back as the 1960s. Mr Seppälä took CORDIS News on a brief history lesson: 'Finnish industry had started to invest in technical development throughout the 1960s, so industry invested in itself in technical R&D [research and development]. From the mid 1960s onwards, there were special efforts to expand higher education, with a law on higher education passed in 1966. This law is still valid today, and is responsible for generating large increases in student and teacher numbers. That enlargement was implemented so that new universities were founded in various regions, not just expanding the old ones,' he said. The importance of this policy cannot be underestimated - it gave Finland a highly educated population with positive attitudes to research and development, irrespective of where they were from. Nothing that occurred later could have happened without this essential ingredient. Today, Finland still tops worldwide lists for literacy, problem solving, mathematics and other indicators for education. Dr Ormala believes that the foundations for industrial change were set through a 'public-private' dialogue, shaping a common vision. 'There were two trends. First, specifically in the late 1970s and early 1980s, it became evident that increasing economic and industrial growth could not be based on trade with the USSR, although this would still be important. For sustainable economic growth, Finland needed access to European markets. The requirement was added value, for competitive advantage and superior products needed to increase market share. 'Secondly, there was a visionary young generation of managers who saw global markets as an opportunity. The '80s was the decade when Finland opened to international institutions and foreign markets,' said Dr Ormala. Again, the managerial backbone was thanks to the solid educational base. But the transfer to technology was not without some reservations. In 1979 to 1980, talk of moving the Finnish economy closer towards technology and micro-electronics caused some concern amongst the unions, who feared job losses in various sectors. However, a pragmatic attitude prevailed and the unions decided to not simply object out of hand, but to see whether the move to a technological society would indeed cost jobs. Dubbed the 'Big Technology Committee', the unions found that in fact the effect on employment would be negligible and if anything, positive. This surprising result 'changed the direction because the unions and blue collar workers began to have positive attitudes towards technological processes,' explained Mr Seppälä. In 1982, on the back of the Big Technology Committee findings, the government made a decision - to promote the principle of technology, taking a broad view of technology and technical policy. 'Technology was given the position which in other countries had been held after World War II,' he said. 'Not just engineers, but looking at technology as a social phenomenon in all sectors of society and society at all levels.' Dr Ormala believes that the move to technology came more from industry itself, allied to excellent channels of communication between industry and government. Instead of asking for support, industry invested itself, and this private funding was then matched with government spending. 'One cornerstone of development was an intensive discussion or consultation between public and private -a consensus mechanism, enabling both to share common vision. This was very important, giving predictability, letting industries invest in Finland - giving trust,' says Dr Ormala. In 1983, Tekes - the Finnish funding agency for technology and innovation - was founded, and after 1983, technology started to have a much more visible role. Strangely, the real catalyst for rapid change came as a reaction to economic instability a decade later. 'Public involvement was in good shape at the end of the 1980s, but then a serious economic downturn took place from 1990 onwards. 1993 was the worst year during the depression, with GDP falling by more than 10 per cent between 1991 and 1993, 400,000 jobs lost, meaning unemployment rose from 3.5 per cent to 20 per cent in this short period,' explained Mr Seppälä. Ironically, at the bottom of the depression, in July 1991, the first commercial GSM phone call was made in Helsinki. 'A lucky start for the economy,' comments Mr Seppälä. 'This can be seen in terms of R&D investment - from 1993 until the end, national R&D grew by approximately 10 per cent each year from 1993 onwards. This was the manifestation of the ICT boom, led by Nokia. Export-oriented high-tech innovation was the breech from depression. That development was not just in private, but also in public sector investment.' From 1995, Paavo Lipponen's SD party went further. In the first government of 1996, public R&D expenditure increased by 25 per cent between 1996 and 1999. The government ploughed huge quantities of cash into research, innovation and entrepreneurship. But how could the Finnish government afford such huge injections of cash? 'Privatisation. After the recovery period, after the depression. Recovery was in good stead from 1996 onwards. It was possible to get extra income from the government, and the public sector gave strong signals to continue investment in the knowledge base. Supported by private-public partnerships, in education, ICT [information and communications technologies] and related areas,' said Mr Seppälä. Perhaps another clue to Finland's success is the continual reassessment and reappraisal of its systems for research, and quick responses to market demands. For example, demand was very high for ICT experts in the late 1990s. In response, the government opened study places to develop ICT experts in a joint programme between government, industry and municipalities between 1998 and 2002. The programme was a success. Alongside the technological improvements were parallel improvements in education. 'With the rapid increase in R&D volume came a rapid increase in R&D personnel. The average education level improved, together with growth in volume, so that the average education level is much higher than in the early 1980s, even though there are three times the personnel. Mr Seppälä explains this double-improvement: 'There are two reasons for this: Firstly, women entered the R&D profession, and from 1990 the number has grown constantly, and still grows. 46 per cent of new PhDs and more than one-third of R&D personnel are women. Secondly, the graduate school system for research training - from 1995 onwards, graduate schools with full-time study places for MSc and preparing PhDs grew. Now more than 100 graduate schools and universities and 1,500 study places are paid by the government,' he said. But education, while an essential ingredient, is not enough on its own. 'Of course the general education level of the whole population should be as high as possible - it is the basis of everything else. But you also need the competition of global markets, you need the know-how and top level research development, giving you assets in competition in global markets. You have to have top people in universities, top companies and be competitive in global science and technology markets.' Mr Seppälä is aware that a country of Finland's size has limitations, so the country has concentrated its efforts in specific areas. 'Finland is a small nation by population - 5.3 million, which restricts and limits the ability to have broad-based competitive companies, but this is what we want to try to achieve - to be successful globally in science, technology and communications.' Dr Ormala agrees. 'To be global you need to focus because you can't be good at everything. Global companies are different to those in the local market.' Now, another revolution is envisaged. While Finland looks very good from the outside, there are calls to re-launch innovation strategies due to what is considered to be flagging performance at home. 'We can say that the most important public players in science and technology in the 1990s are three organisations - expert at funding in the public sector. The Academy of Finland - a system of national research councils, funding basic research in universities. Tekes has a similar role, funding applied technical research in universities and public research centres and channelling technology funding for business companies. SITRA -The Finnish National Fund for Research and Development - the most important public venture capital fund. 'These three organisations cover the whole innovation process. It is important they run national programmes in their areas and have good horizontal cooperation. Separately and together, they are the most important factor behind success so far and will be the basis for the next as well. Now, we need to be both more selective and ready to make bigger decisions than is customary,' says Mr Seppälä. Mr Seppälä believes that bigger decisions will be necessary in the near future. 'A standard research unit is usually run by one group, but bearing in mind EU-level projects and various networks, we should be ready to make bigger monetary decisions - this covers the three organisations' bigger responsibilities, not just their own activities, but should have a broader view of future development of science, technology and innovation. To fulfil that, they need to improve horizontal activities and political decision making, to strengthen activities.' Innovation does have side-effects and unexpected ones. The process of innovation that has so energised the Finnish economy has consequences, too. 'Sticking to science and technology, I can say Finland fell into the depression all at once. Everything fell at the same rate. But, the recovery has taken place at different rates when you compare different regions - Helsinki most rapidly and afterwards, the big university towns of Finland, then smaller towns, and most slowly in remote areas. 'One lesson is that technical innovation favours concentration of activities - ICT industries locate themselves in the biggest centres, which have leisure activities and airports, etc. This is a factor - concentration bringing about rapid economic development and migration from the countryside and sparsely populated areas. In this depression 15 years ago, the public sector retreated from the regions. This means that there are differences in looking at development levels and development rates - the speed that regions develop today. We need to be careful for development in the long term,' he said. The Finnish EU Presidency comes at just the right time for many of those in Europe concerned about Europe's technology 'gap'. The Finnish example does not have to be limited to Finland, and the same model can be used to drive Europe forward. Consequently, research and innovation will be high on the agenda in the coming six months, and for many, this comes not a moment too soon.