1. Innovation-based strategy to globalisation: the case of Finland
Innovation-based strategy to globalisation: the case of Finland
Vesa Vihriälä
17 June 2004
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2. Starting point: a major depression forces restructuring
Starting point: a major depression forces restructuring
Until the end of 1980s growth based on
Export of forest products and machinery (and some consumer goods, mainly to Soviet Union)
Expanding public sector (employment!)
A major depression in
GDP drop over 10 %, or 1 in 5 jobs lost, unemployment rate 3.5 -> 16.5 per cent, a major banking crisis, central govt. debt: 10 -> 70 per cent of GDP
Macroeconomic background
Badly handled financial liberalisation
Major shocks (collapse of the Soviet Union, world recession, high European interest rates due to German unification)
Not a very successful macroeconomic management
But also: the old production and export structure unsustainable in opening market conditions
Vesa Vihriälä
13/11/2018
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3. Strong policy response
Strong policy response
Restoration of competitiveness through devaluation, floating, and repeated moderate incomes policy agreements
Rapid cleaning up of the banking sector
Considerable trimming of public expenditure as a whole
EU-membership followed by EMU-membership
Substantial and sustained increase in R&D expenditure (public & private)
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13/11/2018
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4. Manufacturing output in Finland by industries
Boom in the ICT sector
Production of mobile phone and network equipment exploded
Latent demand for new products
Standards supported (Nordic NMT first, GSM early on)
Competitive domestic market forcing efficiency
Successful strategy by Nokia
Lots of skilled labour available in Finland
Manufacturing output in Finland by industries
(at prices)
Vesa Vihriälä
13/11/2018
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5. Impressive overall recovery
Impressive overall recovery
4½ per cent growth in , led by booming exports
Over jobs created in 7 years, including substantial increase in manufacturing jobs
Current account from a chronic deficit to 8 per cent surplus of GDP; public finances in surplus, public debt down to 40 per cent of GDP
Significant increase in manufacturing productivity
A major structural change in labour demand
Vesa Vihriälä
13/11/2018
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6. GDP/capita in Finland and OECD Europe (at 2002 prices – PPP)
GDP/capita in Finland and OECD Europe (at 2002 prices – PPP)
Sources: OECD, Penn World Tables.
Vesa Vihriälä
13/11/2018
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7. Current account surplus, per cent of GDP
Current account surplus, per cent of GDP
Source: VATT
Vesa Vihriälä
13/11/2018
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8. Productivity of labour in industry
Productivity of labour in industry
Added value in relation to working hours
USA = 100 20 30 40 50 60 70 80 90
100
110 75 77 79 81 83 85 87 89 91 93 95 97 99
FINLAND
Sweden
Netherlands
Great Britain
France
Germany
Japan
Canada
USA
Source: Statistics Finland, Mika Maliranta
DM 36097 04 -
2002 Copyright © Tekes
Vesa Vihriälä
13/11/2018
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9. Manufacturing employment in Finland by industry type, 1980=100
Manufacturing employment in Finland by industry type, 1980=100
Technology
Wages
Skills
Orientation
Sources: ETLA B144 (Small Country Strategies in Global Competition), OECD, STAN Industrial Database.
Vesa Vihriälä
13/11/2018
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10. The competitiveness paradox
The competitiveness paradox
High ranking in many competitiveness comparisons (WEF, IMD, …)
Overall indexes
R&D expenditure
Level of educational attainment
Lack of corruption
Nevertheless
Still substantial under-utilisation of labour resources
Still weak productivity outside a couple of manufacturing branches
Weak attractiveness of foreign investment
Weak attractiveness of foreign talents
Vesa Vihriälä
13/11/2018
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11. Competitiveness indicators
Competitiveness indicators
Total ranking
WEF Growth competitiveness
WEF Business competitiveness
IMD
Competitiveness
ranking
2003*
2002
2001
2000
2003
2004
2003
USA
Sweden
Denmark
Taiwan
Singapore
Switzerland Iceland
Norway
Australia
Japan
Netherlands
Germany UK
Finland 1 2 3 4 5 6 7 8 9 10 11 12 13 15 2 1 5 10 3 4 6 12 9 7 13 15 14 11 1 2 9 14 7 4 15 16 6 5 21 8 17 12 5 1 12 13 10 2 9 23 15 11 20 3 14 8 1 2 3 4 16 8 7 14 22 11 13 9 5 6 8 1 11 7 12 2 14 5 17 4 23 15 21 22 3 1 12 5 17 4 9 8 15 7 25 13 20 19
* Applying 2003 formula
Sources: Tekes and The World Competitiveness Yearbook (IMD)
Vesa Vihriälä
13/11/2018
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12. Ranking of EU Countries
Ranking of EU Countries
Information society
Innovation, R&D
Liberalisation
Financial services
Enterprise environment
Social inclusion
Sustainable development
Network industries
Average
rank
Finland
Sweden
Denmark UK
Netherlands
Germany
Austria
Belgium
France
Ireland
Portugal
Spain
Italy
Greece 1 2 4 3 7 6 5 9 10 11 8 12 13 14
1.4
4.5
4.6
5.1
6.1
6.4
6.5
8.9
9.5
10.1
10.9
12.4
14.0
Vesa Vihriälä
Source: The Lisbon Review: An Assessment of Policies and Reforms in Europe
13/11/2018
DM 36054
Copyright © Tekes
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13. Globalisation of countries
Globalisation of countries
Ranking in 2003
Ireland 1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 15 … ..
Singapore
Switzerland
Netherlands
Finland
Canada
USA
New Zealand
Austria
Denmark
Sweden
Great Britain
Australia
Czech Republic
France
Lähde: Measuring Globalization: Economic Reversals, Forward Momentum 2004 A.T. Kearney/FOREIGN POLICY Magazine Globalization Index, February 2004
Portugal
Globalisation index measures the economic integration, technical connections, personal contacts and political cooperation in the country.
Vesa Vihriälä
13/11/2018
Source: Foreign Policy Magazine Globalization Index
DM 36054
Copyright © Tekes
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14. R&D input in some OECD countries
R&D input in some OECD countries
South Korea
Sources: OECD, Main Science and Technology Indicators; national statistics authorities.
USA
Japan
Germany
Sweden UK
France
Austria
FINLAND
Denmark
Percentage of GDP
Canada
Israel
Iceland
Singapore
China
Norway
DM 36109
Copyright © Tekes
3.5
3.0
2.5
2.0
1.5
1.0
4.0
4.5
0.5
5.0
OECD total
Est.
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13/11/2018
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15.
The share of highly educated (tertiary education) in the age group years
Source: VATT
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16. Countries with the least corruption
Countries with the least corruption
Grade in 2003
Suomi on arvioitu neljänä viime vuotena maailman vähiten korruptoituneeksi maaksi. Transparency International -järjestön tekemässä arvioinnissa oli mukana 133 maata.
Totally corrupted
No corruption
Vesa Vihriälä
13/11/2018
Source: Transparency International Corruption Perceptions Index
DM 36054
Copyright © Tekes
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17. Employment 1990-2004** 13.11.2018 Vesa Vihriälä 13/11/2018
Source: Ministry of Finance
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13/11/2018
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18. Productivity of labour
Productivity of labour
GDP per hour of labour
USA = 100
Belgium
Norway
France
Netherlands
USA
Ireland
Austria
Denmark
Germany
Italy
Switzerland
FINLAND
Sweden
Great Britain
Japan
Source: Statistics Finland
DM 36097
Copyright © Tekes
Vesa Vihriälä
13/11/2018
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19.
Stocks of outward and inward FDI in Finland (Bill. EUR at fixed 2002 prices)
Our Path Abroad/Introduction/k1
Vesa Vihriälä
13/11/2018
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20. Not just a Finnish puzzle
Not just a Finnish puzzle
Overall competitiveness lousy predictor in general
Vesa Vihriälä
13/11/2018
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21. Small size & and peripheral location Lack of competition
Explanations?
Small size & and peripheral location
Lack of competition
Lack of flexibility
Lack of excellence
Lack of networking
Vesa Vihriälä
13/11/2018
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22. New challenges Globalisation Ageing of population
New challenges
Globalisation
Tougher competition from low-cost countries
Particularly low-to-medium tech manufacturing
Disadvantages of small size and peripheral location likely to increase due to agglomeration pressures
Wider opportunities for young educated people to make career abroad, as the role of skilled labour as a factor of production increases
Ageing of population
Declining labour force
Detrimental effect on labour productivity?
Increased burden on public finances
Pensions
Medical and old-age care
Vesa Vihriälä
13/11/2018
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23. Share of Industrial Production by Regions, 1750-2000 (%)
Share of Industrial Production by Regions, (%)
East Asia = China, Japan, India
North America = USA, Canada
Europe = Germany, Great-Britain, France, Italy, Spain, Sweden, Belgium, Switzerland
Vesa Vihriälä
13/11/2018
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24. Industrial employment in Finnish companies in Finland and abroad
Thousand
Sources: Bank of Finland, ETLA.
Vesa Vihriälä
13/11/2018
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25. Addressing the new challenges
Addressing the new challenges
“Finland in the global economy”: A project to assess the effects of globalisation and the required measures to meet the new challenges
Mandate from the Prime Minister
Two tracks:
In-depth studies (clusters, labour market, new economic geography implications)
Cluster-based dialogue between employer and employee organisations
Interim report in June, final report by the end of the year
Vesa Vihriälä
13/11/2018
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26. Globalisation project: dialogue & studies
Cluster-based dialogue between the social partners on Finland’s competitiveness
Steering Group begins its work
Preparation of the
report launched
Seminar:
Interim assessment
The final report
In-depth studies launched
Studies
finalised
January March May July September November
February April June August October December
Vesa Vihriälä
13/11/2018
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27. Elements of a success strategy (I)
Elements of a success strategy (I)
Promoting competition
More active application of competition policy
Opening up public services to private producers
Improving the functioning of the labour market
More flexible wage formation
Improving incentives for both employees and employers to upgrade skills
Improving incentives to seek employment (also to change trade and location) and stay longer in the labour force
Vesa Vihriälä
13/11/2018
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28. Elements of a success strategy (II)
Elements of a success strategy (II)
Improving the innovation system
Addressing the shortcomings of the basic education system
Improving mechanisms for life-long learning
Upgrading higher education, making it attractive to foreign teachers and students
Increasing universities’ financial resources
Increasing university autonomy
Stronger specialisation of universities
Internationalisation of teaching and student base
Increasing and reallocating public R&D expenditure
Wider focus of R&D: not just high technology but also services and business skills across the board
More systematic international networking: need to overcome the disadvantages of small size greater than ever
Vesa Vihriälä
13/11/2018
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