Download National level - Embassy of Finland, Tokyo

Finland: Policy Choices
for Innovation and
International
Competitiveness
Ambassador of Finland Jorma Julin
at Furusato Zaidan, Tokyo, on July 14, 2009
Juha Niemi, lähetystösihteeri
Themes
i) Finland today
ii) 5 key policy choices for economic competitiveness
iii) Finland’s policies to support economic growth, SMEs
and regional revitalization
iv) Lessons from the Finnish experience
Juha Niemi, lähetystösihteeri
’FINLAND TODAY’
Juha Niemi, lähetystösihteeri
Finland in a nutshell
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Located in Northern Europe:
Only one country between Finland
and Japan: Russia
Independence: 1917
Capital: Helsinki
2 official languages: Finnish,
Swedish
Population: 5,3 million
Area: 338 000 km2
GDP/capita 2008 (ppp basis;
IMF): US$ 36 217, a little more
than that of Japan
EU member since 1995
Currency: € (euro)
Juha Niemi, lähetystösihteeri
Finland: known in Japan for...
• Nature
– clean environment
– white summer nights
– Aurora borealis
– Lapland
– sauna by the lake
– silence....
Juha Niemi, lähetystösihteeri
Finland: known in Japan for...
• Famous Finns
– Former President Martti
Ahtisaari (Nobel peace
prize 2008)
– Linus Torvalds (Linux
operating software)
– Kimi Räikkönen
– Jean Sibelius
– Aki Kaurismäki
– Santa Claus
– Moomins...
Juha Niemi, lähetystösihteeri
Finland: known in Japan for...
• Design, ICT industries and
products like
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Nokia
Xylitol
Iittala
Marimekko...
• Politics and policies
– universal suffrage since 1906
– gender equality
– extensive welfare state
combined with high economic
competitiveness
Juha Niemi, lähetystösihteeri
...and good scores in several
international comparisons
•
Harvard Business Review Spring 2009:
– Finland is the innovation hot spot No. 2 in the world
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WEF Global Competitiveness Reports 2003-8
– No.1 or 2 for several years, now no 6
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Transparency Int’l Corruption Perceptions Index 2004-8
– No.1 or 2 in transparency = lowest level of corruption, now No 5
•
OECD/Pisa on education
– No.1 in students’ performance for many years in a row
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Reader’s Digest 2007
•
Finland best for living
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WEF environment comparison
– No.1 in 2005, now No. 5 in environmental sustainability
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Legatum Prosperity Index 2008 (good governance)
– Finland 3rd
Juha Niemi, lähetystösihteeri
Finnish economy and society
in good shape...
– Finnish economy one of the best performers among the OECD
countries since mid-90’s
– brisk economic growth (’08: 2,5%), low inflation (appr. 2%), high surplus
in current account (’08: 5% of GDP)
– government debt 2008 at 33% of GDP; among the lowest in OECD
countries, public sector surplus 5% of GDP
– one of the top countries in terms of income equality
– biggest problems/challenges:
• persistent unemployment which was 2008 at 6,2 % - and now growing fast
because of global economic crisis
• ageing society
Juha Niemi, lähetystösihteeri
Gross domestic product 1990-2007
Change in volume (%)
8
6
4
2
0
-2
-4
-6
-8
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Juha Niemi, lähetystösihteeri
...but can’t escape ill-effects of the
global downturn
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Economic growth to slow considerably in 2009 due to slacker demand for
exports
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exports (appr. 40% of GDP) particularly hit by slowing global demand
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GDP growth estimate 2009: -5-6%; 2010: +1,4%
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Government to stimulate economy by:
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tax cuts and fiscal measures of the magnitude of 1,5% / GDP
boosting construction and renovation of buildings
improving financing options especially for SME’s through public lenders
securing financial resources and guarantees for export companies and banks
Juha Niemi, lähetystösihteeri
Features of economic structure
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Finland: a post-industrial
society like Japan
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Most important export sectors
– ICT and electronics (25%)
– paper and pulp (17%)
– metals (15%)
– machinery (12%)
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Biggest trading partners 2007
1. Germany
2. Russia
3. Sweden
4. UK ...
14. Japan (3rd outside Europe)
agriculture 2-3% of GDP
manufacturing 30% of GDP
services 67% of GDP
share of services in rise
Industrial strengths
– ICT (NOKIA etc)
– machinery and instruments
(Metso, Kone, Vaisala etc)
– paper industries, forest cluster
(UPM-Kymmene, Stora Enso etc.)
– but also design, furniture,
functional foods (xylitol, fructose
etc)
Juha Niemi, lähetystösihteeri
’5 KEY POLICY CHOICES
FOR ECONOMIC
COMPETITIVENESS’
Juha Niemi, lähetystösihteeri
Drivers behind Finland’s
economic competitiveness
1. Efficient educational system
2. R&D intensiveness and well working innovation system
3. Lean regulatory environment and reliable efficient civil service
4. Openness to foreign competition and harnessing globalisation
5. Social market economy and welfare society
Juha Niemi, lähetystösihteeri
1. Solid educational system
• OECD/PISA study on students performance: no 1 since 2000
– good teachers’ training and retraining; interactive teaching methods;
teaching children to learn on their own; schools with much autonomy
• Free, universal education from primary school to university
• Investment in educational system: currently 6% of GDP
– only public education, OECD average -> efficient spending
• Rationale: for a small country with scarce natural resources,
important to mobilize all human resources
– a corollary: high participation of women in the work force (73%)
Juha Niemi, lähetystösihteeri
2. High R&D intensiveness...
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Total R&D investment
6.0 billion euros in 2007
Consistent investment in
R&D since early 1990’s
– currently 3,5% / GDP
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Finland 3rd most R&D
intensive country in the
world after Israel and
Sweden. Japan 4th
6
Billion euros
5
4
3
2
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goal to raise the R&D
investment to 4% / GDP
by 2010
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87
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03
Enterprises
Universities
Other public research
Juha Niemi, lähetystösihteeri
04
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3. Reliable civil service and efficient
regulatory environment
• Transparency International: Finnish civil service virtually unbribable
• Well-trusted and transparent bureaucracy
– lean, flat organizations with low level of hierarchy, efficiency
– customer-oriented
• Little “red tape”or excessive regulations
– objective: expand and strengthen private sector initiative and their job
creation
• Public authorities seen more as regulators and increasingly less as
service providers
– liberalization of telecommunications markets in the early 1980’s
– privatization of postal services
already in 1992 etc.
Juha Niemi, lähetystösihteeri
4. Open economy
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Finnish mindset: embrace globalization, no recourse to protectionism
Benefits:
– forces companies to improve performance in order to stay competitive
– allows access to wider markets, foreign capital and knowledge
– increased competition lessens cost level
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Long engagement in economic liberalization and integration
processes
– FTA with the EEC in 1973, member of the European Union 1995, to the Eurozone 2002 as the only Nordic country, strong supporter of GATT and later WTO
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Greatly dependent on exports
– more than 40% of GDP derived from exports
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High degree of specialisation
• many companies sell over 90% of their production overseas
• at the same time Finland
also much dependent on imports
Juha Niemi, lähetystösihteeri
5. Social market economy and
welfare society
• Equality and social safety nets as key elements for social cohesion
and political stability
• High taxation: “double edged sword” for competitiveness
– Finland’s tax to GDP ratio 43% in 2007, among top of OECD countries (Japan
2006: 27,9% ); has been coming down and continues to do so
• Welfare system contributes to economic development
– free tuition, universal health, elderly and day care,.......
– social safety nets have contributed positively to economic and social
development without eroding competitiveness
• Welfare state enjoys wide support but needs to be streamlined in the
era of globalisation
Juha Niemi, lähetystösihteeri
’POLICIES TO SUPPORT
GROWTH, SMES AND
ECONOMIC REVITALIZATION’
Juha Niemi, lähetystösihteeri
National level
’Emphasis on business conducive regulations’
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Streamlined and predictable regulatory framework
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Efficient and customer-oriented government service
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avoid picking winners or earmark subsidies for specific firms or sectors
success stories based on deregulation and privatization rather than selective industrial policy
Government ownership reduced especially since 1990’s
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online services have added a lot; e-government services actively promoted
social security number has been given to every new baby since the 60’s
No sectoral bias - emphasis on equal treatment for any company
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little red tape
Finland one of the easiest countries to do Business in the world / Economist Intelligence Unit 2009
state ownership never been at the level of for example Sweden or France
Parallels with educational policy:
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to produce human resources with strong basic skills and knowledge
to allow access for all to high-quality education
to enhance womens’ equal and active participation in work force
Juha Niemi, lähetystösihteeri
Nokia’s miracle as a case in point
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Nokia: the flagship of the Finnish ICT Industry
– World leader in cell phones: global market share 35%
– tens of thousands of employees all around the world
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Founded in the 1860’s in Finland
– produced subsequently paper, pulp, rubber boots, tyres, televisions, computers...
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Since 1980’s concentrated on cell phones
Secrets of success
– 1) deregulation of telecommunications in Nordic countries in the beginning of the
1980’s - opened up opportunities for Nokia, but also for Ericson from Sweden
– 2) pool of competent, innovative engineers thanks to solid educational system
– 3) visionary leadership who seized the opportunity
• Present Challenge: to be more innovative and imaginative in order
to be successful in the next
phase of the digital economy
focused on services
Juha Niemi, lähetystösihteeri
National level
’Use of Industrial Clusters’
• Cluster policies implemented already for a long time
– aim to make use of existing strengths
– small country: important to be selective with resource allocation!
• Leading companies to build around a ’must’
– ICT-cluster (Nokia), forestry cluster (UPM-Kymmene, Stora-Enso...) etc.
– other key clusters in Finland: energy and environment; metals and new
materials; health and welfare; services; construction and real estate; foodstuffs
• Smaller companies to grow in the wake of leaders
– ref. Japan’s keiretsus
• Public support made available for R&D
– close co-operation with academia: basic research and commissioned research
Juha Niemi, lähetystösihteeri
National level
’Development of enterprises /SMEs’
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’Enterprise Finland’ online service by Ministry of Economy and Employment
– information on all assistance available to companies or entrepreneurs for establishing and
developing their business
– particularly targeted at SMEs
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Complemented by 15 regional Employment and Economic Development Centres (T&E
cetres) i.e. one-stop-shops for advisory, counselling and financial services
– advice for each phase of enterprise development from setting-up to internationalization
– keywords: easy to use, user-friendly
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Consistent efforts at improving overall operational environment for enterprises
– Entrepreneuship program since 2004 to:
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develop entrepreneurship education, training, counselling
improve start-up and internationalization services
consider need for tax and payment reforms affecting entrepreneurial activity
promote entrepreneurship with a view
to regional differences
revisit legislation affecting
enterprises and functioning of markets
Juha Niemi, lähetystösihteeri
National level
’Further Efforts to Improve Innovation System’
• Concept of Aalto University
– named after Alvar Aalto, a world famous Finnish architect and designer
• Merging of three top universities in Helsinki in 2009
– Helsinki University of Technology
– Helsinki School of Economics and Business Administration
– Helsinki University of Design and Applied Arts
• Objectives
– seek synergies and cross-sectoral benefits for business
– enhance innovation, commercialization of innovations
– contribute to Finnish economy, to attract talented researchers, business people
to Finland
Juha Niemi, lähetystösihteeri
National level
’Further Efforts to Improve Innovation System’
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”SHOKKI” program = Strategic centres for science, technology and innovation
(2007)
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aims at close long-term cooperation for top research institutes and companies
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a research company founded by private corporations with universities/research institutions
finance: 30% public (earmarked for ”Shokki-centres”) / 70% private
to achieve world-class expertise, important innovations, growth and renewal of the economy
research agenda set by owners i.e. companies and research institutes
objective to meet companies’ practical application needs within a 5-10 year period
shareholders, public funding organisations commit to long-term funding
established in sectors of strategic long-term importance for industry and society
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Centers which already function: Forest industries; ICT ; Metals and Engineering
Under preparation: Energy and Environment; Health and Well-being; Built environment
Juha Niemi, lähetystösihteeri
Regional level
• Regional policies
– Objective to guarantee economic vitality and viability by
encouraging regions to make use of their strengths
– subsidies not the only nor the most important key
• Means:
– i) large local autonomy at municipal level
– ii) significant decentralisation of education institutions
– iii) smooth triangular cooperation between business, academia
and public sector institutions
– iv) regional public one-stop-shop services for SMEs and
entrepreneurs
Juha Niemi, lähetystösihteeri
Local autonomy
• decision making power and responsibility for results largely at the
local level
• wide tax collection authority at municipal level
– on average 48% of all municipal economy funded by local taxes
– 27% from other revenues such as usage fees from citizens etc.
– only 17% of operational economy from central government subsidies
• large discretionary powers to decide on spending at local level
– obligation to provide most public services and standards set, but few strictly
earmarked funds
• current trend towards larger and economically more viable units
– ageing society -> productivity increases necessary
– now 348 cities and municipalities
- down from 452 in 1998
Juha Niemi, lähetystösihteeri
Regional level
’Universities as hubs for regional economic development’’
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Regional policy: decentralization also of universities and institutes of higher
education
– appr. 20 universities/institutes of higher education spread accross the country
– top level research not only in capital region: e.g IT in the University of Oulu,
dental science in the University of Turku, bio-medicine in Tampere, etc.
– 22 science and technology parks, COEs in many universities
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Relatively low barriers between public, private and academic actors
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Smooth triangular co-operation between enterprises, universities and public
sector
– both basic and commissioned research
– co-financed research by public
and private sectors
Juha Niemi, lähetystösihteeri
Regional level
’Seamless support system for SMEs’
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one-stop shop principle for start-ups/SMEs:
– crucial role of 15 regional Employment and Economic Development Centres
(T&E-centres)
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Services available
– public funding and advisory services
• crucial for crossing the ”death valley” i.e. first two years after establishing a company
– consulting, expert support
• business development services
– funding, market research, matchmaking abroad
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seamless public support network from start-up to internationalization
Juha Niemi, lähetystösihteeri
Support for new business start up’s in Finland
Tekes, TE-Centres, Finnvera, Sitra, Finpro, Technology/
Science parks, technology transfer companies...etc.
Funding and expert services
Science and
technology research
funding in universities
and research institutes
by Tekes and the
Academy of
Finland
Venture capital funding and
Business Angels,
private, regional, etc.
Seed funding
Tesi, Avera
PreSeed
Tekes, Tesi Progress of Business Plans
TULI, INKA Tekes Search of Business ideas + progress
Foundation of inventions, etc .
Research, knowledge
Juha Niemi, lähetystösihteeri
06.10.2007 Copyright © Tekes
Finnish funding system for starting and
young technology companies
Market based
Venture Capital funding
Finnvera & TESI: Regional
capital investment funds
TESI: Seed capital investment
Finnvera: start fund Vera
Finnvera: Entrepreneur loan
 Max. 85,000 / 80 %
 personal, shares as
guarantee
 volume ~10 mill.
euros/2005
Finnvera: Entrepreneur loan
Tekes: Start loan
TE-centres: Start-up and incubator financing
Businessidea
06.10.2007 Copyright © Tekes
Support based
Research,
know-how
Tekes: R&D financing
Tekes: Funding for feasibility studies
Tekes: Development service funding
Start-ups,
Growth companies,
”Valley of Death” internationalisation
Seed
phase
Finnvera: Start-up loan
 100,000-500,000 euros
Tekes: R&D funding
 average 130,000 euros
 funding level 35-50 %
Innofin: Subsidy
Tekes: TULI- financing
Innofin: Subsidy
 aid max. 100 %
 3,000-100,000 euros
 volume ~2 mill. euros/2005
TESI: Seed capital loan
 50,000 – 1000,000 euros
 volume ~11 mill.
euros/2005
Tekel: Mentor financing
Yrke:
Development
services
for new
companies
TE-centres: Start-up and
incubator aid
 aid 15 % - 45 %
 average 9,600 euros
 volume 1 mill. euros/2002
Renewal,
competitiveness,
productivity
Start
Early
Fast
Juha Niemi,
phase
growth lähetystösihteeri
growth
Tekes: Start-up loan
 max 100,000 (phase I),max
200,000 € (phase II)/80 %
 unsecured
 volume ~4 mill. euros/2005
Tekes: Feasibility studies
(VARA)
 max. 15,000 euros/ 70 %
 for external services
Tekes: Development
service funding
 max. 20, 000 euros / 80 %
CONCLUSIONS:
’LESSONS DRAWN FROM
FINLAND’S EXPERIENCE’
Juha Niemi, lähetystösihteeri
Conclusions
• Finland and Japan share same challenges of increasing global
competition and rapidly aging society
• Share of manufacturing is decreasing, while that of services is
increasing in both countries
• Both countries possess a well-educated population and a strong
technological background
• Keys to success: innovations, better use of immaterial assets and
finding new ways to organise work
Juha Niemi, lähetystösihteeri
Conclusions
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Finland’s experience suggests that it is possible to reconcile
competitiveness and welfare society!
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‘Case Finland’ particularly suggests:
– to play an active part in the global economic system is essential to thrive
– to exclude foreign competition is not good for any country in a long term
– mobilising and educating all human resources is very important
• the role of women as competent workforce
– reforms should not be shunned nor too much deferred: it is necessary to
regularly revisit existing public policies and regulations and institutions
to adjust them as the environment changes and new challenges emerge
Juha Niemi, lähetystösihteeri
Conclusions
•
To enhance economic competitiveness:
– important to lay a solid basis for any business activities in any field of business
through
• i) good and predictable regulatory framework
• ii) investing in education and human resource development
• iii) create a universal, easy-to-use, seamless support system for start-ups
and SMEs
– to reduce barriers for cross-sectoral co-operation between enterprises,
universities and public sector agents
– to allow competition, but also creative destruction
• in other words: avoid market distorting support, subsidies and high barriers
of entry
– keep on trimming the innovation system !!
Juha Niemi, lähetystösihteeri
Online information on Finland
• thisisFinland (http://finland.fi/Public/default.aspx)
• www.finland.or.jp
• www.moimoifinland.com
• www.visitfinland.com
• www.investinfinland.fi
Juha Niemi, lähetystösihteeri
THANK YOU FOR
YOUR ATTENTION !
Juha Niemi, lähetystösihteeri