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WIFO
Länderstrategien Irland,
Schweden, Finnland
Seminar LVA 239.231 „Firmen und Märkte“
Karl Aiginger
Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und
13.15 – 15.15 UC6
H:user/aig/vorlesungen/Linz_SS_2010/Linz_SS_2010_5.ppt
WIFO
Irland
Seminar LVA 239.231 „Firmen und Märkte“
Karl Aiginger
Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und
13.15 – 15.15 UC6
WIFO
IRELAND:
Catching up and forging ahead
Fastest growing European economy in the nineties:
GDP + 8% p.a. (EU + 1.9%, US + 3.3%)
Catching up much faster than the famous 2% rule
GDP/ employee: + 3.2% vs. EU (4.2% – 1.0%; 1990-2000)
Productivity manufacturing + 4.9% (8.0% - 3.1; 1990-2000)
Three core elements
(i) selective inward FDI
(ii) skilled workforce
(iii) prudent coherent policy
In 3 decades: from agrarian, economy to above average
GDP/ capita
GDP per capita 2000: 26.700 EURO (EU: 22.500)
from 63% in 1970 to 119% in 2000
WIFO
History:

Agrarian country

Celtic population (Gales)

Main product: potatoes

Many crisis incl. Famines in 19 th century

Emigration to US, declining population

Land owned by Great Britain

Split into protestant North, catholic south

Member of EU since 1973
1. EURO introduced in 2002 (not in UK)
WIFO
Size, location and income
Population:
GDP:
GDP/ capita:
GSP:
Exports
Imports
3.7 mill
102 bn EURO 2000 (1% of EU)
26.700 EURO at PPP
80 bn EURO (difference to GDP: profits to MNE)
94 bn EURO
80 bn EURO
Specifity from the European Angle
Periphery
North-North- East location
Hub for re-exports into US
Exports to US 13% of GDP (five time EU average)
WIFO
The roots of the success
The deliberate choices:

Openness and EU membership

Outward orientation

Determinedness for change
The institutions:

Social partnership & consistent public policy

Development focus with informal public/ private networks

5- years indicative planning: consistent policy framework

IDA, Enterprise Ireland, Regional planning
Three pillars in the implementation:

Cheap production strategy: taxation, EU structural policy

Selective FDI: High tech based FDI,
export oriented; not for domestic demand
 Skilled and flexible labor, upgrading, connecting
WIFO
The role of government:
Development planning of the competitive environment
Consistent strategy, not firm targets or industry targets
1958: National Development Strategy shift:
from forbidding to encouraging MNE
1985: 1st comprehensive plan
Structural targets: selective policy in favor of 3 C's

Computers

Communication (call centers)

Chemicals (largest industry; incl. Pharma 1/ 3 % of value added)
Ex post evaluations of Industrial Policy
1982 Telesis Report
1992 Culliton Report
Education and training, R&D
Infrastructure, taxes
Education and training, R&D. Infrastructure, taxes
Cluster formation recommended
WIFO
Some prudent measures of Irish Industrial Policy:

Fiber optic lines to all European centers (call center location)

National Linkage Program 1985
IDA enforces backward linkages of MNE firms
Forbait (Enterprise Ireland) supports SME's

Indigenous firms have to prove export base to get grants

High profile headquarters and R&D activities in Irish subsidy a
priority of NDP

Incomes from patents developed in Ireland are tax free
(Tobin 1997)
Measures in Irish regional policy:
All regions have development plans
And make use of domestic and EU subsidies
(contrast to Italy)
Investment grants are contingent
on value added and intangibles
Dublin, Cork, Waterford, Galway (ports)
Galway in the North West: Silicon Valley
Shannon center for MNE
Belfast industrial center
WIFO
The importance of FDI
Inward FDI investment/ GNP
Flow 2000:
22% of GDP
7% in EU
6% in Spain
Share and characteristics of MNE
16% of firms
47% of manufacturing employment
91% of exports foreign owned
40% of GDP produced by MNE
88% of Irish MNE production is exported
The selectivity of Irish FDI policy:

No FDI in labor intensive industries

Leading EU location for high-end US FDI in electronics

33% of PCs sold in Europe are from IRE

40% of PC software, 60% of business application produced in IRE

9 of top 10 pharmaceutical companies have plants in Ireland
 10 out of 15 medical device companies
WIFO
The role of FDI and the European Integration
FDI - Type: greenfield investments for re-export
Locations advantages
Institutional credibility (well organized development agency)
Financial incentives: Low costs, taxes, cheap loans
Skills (technical, local entrepreneurs, English language)
Low transport costs
(via sea and towards non European countries)
Negligible local market
Export based production
No fear of substitution of local firms
Greenfield + export orientation
WIFO
History: Ireland had not always been open for FDI:
Pre 1950 anti FDI approach:
prohibition of foreign ownership (incl. UK firms)
protection of incipient industry (infant industry argument)
a few tariff jumping MNE
Policy change in 1958:
Economic Development 1st comprehensive national plan

Abolishion of Control of Manufacturers Plan

Shannon Airport Development Company

Aggressively enforcing inward FDI
WIFO
Role of European integration

Membership 1973

Large share of regional and structural funds
Used actively for upgrading regions (contrast to Italy)

Continued proactive role of national government (contrast to
Greece)
Ireland most pro active industrial policy (Ruane 1999)
Hands on micro dirigism (Ruane and Görg 1999)
Incentives tied to employment and R&D content
Upfront payments with repayment if target were not fulfilled
High tech favored
Clusters: the three C's
EU demands less distorting rules for attracting investment
Tax exemption for MNE
Tax differentiation manufacturing / other industries
WIFO
Examples for large MNE
In ICT- industries
Intel: 4000 employees, building 3 rd wafer fabric
Dell: 5000 employees, regional center for EU, Middle East, Africa
IBM: 3000 employees, support, software, global e-procurement
Hewlett Packard: 2000 employees, manufacturing, banking,
e.business
Microsoft: 2000 employees, product development, internet hosting
In Healthcare and Pharmaceuticals
Production and exports of blockbusters like Lipitor and Viagra
Production sites for cardiac, optical, orthopedic devices
2 recent success stories in 2002:
Wyeth Medica decides to build largest bio-pharma plant ever
Microsoft buys NAVISON for 1.5 bn Euro as entry into European software market
Largest Irish Firms:
CRH
Bank of Ireland
Allied Irish Bank
Smurfit
Irish Life and Permanent
WIFO
Cheap production strategies
EU Structural funds 3% of GDP in early 90s, 2% in late 90s
Taxes: profit tax waived for MNE
1982 10% for manufacturing; 28% for other firms
tax will increase to 12.5% (starting in 2003)
but 10% remains for existing firms up to 2010
remind: tax is 35% for other European countries
Social partnership lead to moderate wage increases and
Enabled a consensus that high profits of MNE are positive
Profits make up 40% of GDP
Wages 24% below EU average (2000)
Wages make up only 26% of value added (1998; EU 52%)
Unit labor costs have fallen by 44% in nineties
Productivity increase not fully reflected in wages
A policy which may change and is not fully optimal
At the verge of a knowledge based economy
Result:
Share of manufacturing in GDP increases in Ireland from 34% to 40%
Growth of output in nineties: 8% p.a.
In contrast to declining share of manufacturing in all industrialized countries
And less than 20% in the US
WIFO
Education and Skills: the method to attract technological
firms and to induce them to upgrade plants
Highest rate of investment in human capital between 1960-1985
according to Mankiw, Romer, Weill 1992
7 universities, many colleagues
60% of students in business and science
2nd highest education outlays (after Finland)
57% of graduates in engineering, science, compute, business
Media lab Europe (sister of MIT Media Lab)
Result:
Ireland evaded the development trap
Is not hooked on subsidies if they decrease
WIFO
Growth drivers:
Research increasing but below EU average
60% of research expenditure by MNE
first only “peripheral R&D” in Ireland
now attempts of “upgrading” (Amin et 1994 new functions)
Excellent education
Technology diffusion
Asset for the future:
Young and increasing population
40% are younger than 26 yr.; 30% in EU
Pensions costs/ GDP 3% in 2040
Between 12% and 18% in other countries (max I, D, SF)
O ECD, FT 23 11 99
Liability: Low domestic savings ratio
Currently not binding due to high inward FDI
WIFO
The National Development Plan (NDP) 2002-2006
Focus at the policy shift needed
When Ireland passes European average
And subsidies and cheap production strategies have to be abandoned
Investment of over EUR 52 bn over the period 2000-2006
in health services, social housing,
education, roads, public transport,
rural development, water and waste services.
Now 90% from domestic sources
EU will contribute EUR 6 bn
EUR 3.8 bn from the Structural and Cohesion Funds
EUR 2.2 billion under the Common Agricultural Policy (CAP)
Rural Development Plan
Shift to research and education www.ndp.ie
Science foundation Ireland www.sfi.ie
New policy become necessary recently
wage restraint became more difficult
knowledge based society needs skills and training
immigration of skilled people
benchmarking of public sector payments
initiative for 3rd level research capability
WIFO
Ireland as seen from Theory:

Dynamic specialization against H-O model

Export oriented FDI

Catching up faster than 2% rule

Catching up and forging ahead in productivity

High investment without high savings

Skills and Research in underdeveloped economy

Foreign investment lead to growth,

Ireland escaped from development trap
Ireland as seen from policy strategies:

Policy plans in market economy

Incomes policy: social partners coordinated with government

Prudent industrial and regional policy
 Determined not to be “the poor's corner”
WIFO
Status 2002:

Productivity no 4 in world (after B, US, I)

Highest labor productivity in manufacturing in EU

High unit value of exports

High share of technology driven industries

Productivity higher, wages lower than EU average

GDP per head (domestic value added) above EU
GSP (Income per head) lower
GSP/ GDP 80%; difference profit flow to MNE

Asset price inflation (mortgage lending, house prices)
 Infrastructure deficit in some regions
WIFO
Summing up: no miracle but economic success based on
Openness and economic integration
Prudent, active, cooperative institutions
Selective FDI, low costs and skills
And the knowledge that the factors defining success will change
Final question marks: Celtic Bubble or Celtic Tiger?

Will the process continue ?

Is a BSP 20% below BIP sustainable ?

Part of BIP extra profits and transfer prices

Is it sustainable that own investment is low
(and complemented by FDI?)

Inflationary pressure increases (EU )

Crowding out of indigenous firms via wage increase (input market)

What happens if cheap production strategy and structural funds are
lost ?
The coherence of the society,
the prudent planning and the determinedness of the people
together with investment in research, education and new technologies
Favor a continued growth scenario (however at a smaller difference to Europe)
WIFO
References:
Sean Dorgan: Competitiveness in the Science Based Economy, WIFO Symposioum, Vienna 2002
Paul Tobin: Ireland Dublin, 1999
Denis O ` Hearn: Inside the Celtic Tiger: the Irish Economy and the Asian model” London, Sterling,
1998
Frank Barry (ed) Understanding Irelands Economic Growth, Basingstroke London 1999
Ana Tavares: Systems, Evolution and Integration: Modelling the Impact of Economic Integration on
Multinationals’ Strategies’. PHD Dissertation, University of Porto
A. Tavares: ‘The Dialectic Between Regional and Corporate Integration: The Impact of the Single
Market Programme on the Strategic O rientation of Multinational Enterprises, with an
Application to the Portuguese Case’.
A. Tavares: ‘Multinational Subsidiary Evolution and Public Policy: Two Tales from the European
Periphery’ Journal of Industry, Competition and Trade (2002), forthcoming.
Robert J. Barro und Xavier Sala-I-Martin „ Convergence across States and Regions" Brookings Papers
on Economic Activity 1: 1991, S. 107-182.
Eurostat/ EU-Kommission „ Europäische Wirtschaft„ Nr.70, 2000, S. 186f.
Tim Callan und Brian Nolan „ Income Inequality in Ireland in the 1980s and 1990s" in Frank Barry
(ed.) „ Understanding Ireland’s Economic Growth" Basingstoke/ London 1999, S.176.
Europäische Kommission „ Einheit Europas, Solidarität der Völker, Vielfalt der Regionen. Zweiter Bericht
über den wirtschaftlichen und sozialen Zusammenhalt – Statistischer Anhang„ Brüssel 2001,
Tabelle A2.
Paul Sweeney „ The Celtic Tiger. Ireland’s Continuing Economic Miracle" Dublin 1999, S.37
EU Kommission „ Sechster Periodischer Bericht über die sozioökonomische Lage der Regionen der
Europäischen Union„ , Brüssel 1999, S. 221
Denis O’Hearn „ Inside the Celtic Tiger. The Irish Economy and the Asian Model" London/ Sterling
1998,
Bart van Ark und Robert H. Mc Guckin „ International comparisons of labor productivity and per capita
income„ Monthly Labor Review July 1999, S. 36
European Commission „ The Economic and Financial Situation in Ireland: Ireland in the Transition to
EMU" special issue of European Economy 1996 (zitiert bei O’Hearn, S.85).
Wirtschafts- und Sozialausschuss der EU (CES) „ Opinion of the Economic and Social Committee on
The EU Economy 1999: Review" 369/ 2000, Appendix „ Ireland: An Example of Economic Policy
Success"
WIFO
Schweden
Seminar LVA 239.231 „Firmen und Märkte“
Karl Aiginger
Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und
13.15 – 15.15 UC6
WIFO
SWEDEN: A REFORMED WELFARE STATE AS A LEADER IN
INFORMATION TECHNOLO GY
The very long term view: growth deceleration
Slow growth over decades: 75-2000: 1.8% S (EU 2.4%)
Consumption increase by only 5%: 76 – 95 (+ 33% in OECD)
Falling back from 80% of the US (smallest gap of a EU country)
To 68% of US in GDP/ capita
Loosing a 14% lead to EU average within two decades
Macroeconomic performance in the nineties:
GDP per capita 2000: 22.900 EURO; 2% above EU average
GDP/ employee and per hour 10% below
High employment ratio
Low inflation and unemployment
74.6% (EU: 65.5%, US 75.1%)
Growth acceleration in manufacturing
Low GDP growth in nineties:
Productivity higher
High growth in manufacturing:
productivity growth
1.3% (EU: 1.9%)
2.0% (EU: 1.0%)
4.2% (EU 1.7%)
5.3% (3rd rank and > USA)
Focus: to push productivity to increase competitiveness
Despite of low growth (macro economy)
Based on high growth (manufacturing)
WIFO
The socio-political system in Sweden
A Welfare State: indeed “the” model
High incomes + social security + equality
Social Partnership Nordic Style
Re-distributive
Inclusive
Impact on all kinds of policy
High share of public sector
Taxation of capital lower than in other countries
Trade Unions have specific large impact
Social democrats were leading the country most time
Influence on large firms via codetermination and shareholdings of
pension funds
Position attitude to outward FDI
Productivity orientation
Early liberalization of utilities
Liberalization of post and telecom 1993
Liberalization of letter distribution 1993
Deregulation of taxis 1990
Entry of foreign airlines 1997
Today: Most deregulated telecom sectors
Highest productivity in transport
Vertically separated railways (with public ownership in grip)
WIFO
Sweden experienced a severe crisis in 1992/ 93:
The crisis





High inflation up to 13%
Negative real interest rates
Unemployment increased: an unknown phenomenon to Sweden
Budget deficit increased quickly as the economy retarded
Public expenditures between 60% and 65% of GDP
Turnaround with excellent results in 2 nd half 90ties
3rd highest growth in industrial output
Today:
Leading European Country in Growth drivers and innovation
WIFO
The Crisis
Sweden was suffering slow growth of output
And high costs of production (wages, taxes)
Since decades (as many leading countries)
Unsuccessful devaluation 1982:
Restructuring economy from domestic, sheltered to open, based on
competitive export sector
Unsuccessful due to inflationary pressure
Capital intensive, resource oriented industry structure
High share of wood products, pulp and paper, of non ferrous metal
and steel industry;
With second stronghold in machinery, car, engineering industry
Finish crisis added to the problems
Loss of former Soviet market
Similar industry structure with price competition
WIFO
The cure: 4 pillars of reform in crisis 1992/ 93
1. Cheap cost elements:
Another devaluation (with strict after care)
Wage restraint
2. Fiscal responsibility and 7.5% budget reform package
3. Enforcing incentives (small steps in welfare reform)
Elements of work to welfare
Reducing benefit levels
4. Boosting long run growth:
Increasing research
Fostering telecom
Emphasize education
WIFO
The Budget Reform Bill 1994/ 95: the 7.5% package
 Commitment to future expenditure limits
 Consolidation package of 118 bn Swedish Krona (7.5% of GDP)
Decreasing expenditures by
Increasing taxes
Distribution effect calculated:
71.2 BN Swedish Krona
-34.6 transfers to households
- 8.1 subsidies
- 6.8 government consumption
-21.7 others (roads, medicines, education)
69.0 BN Swedsh Krona
23.7 insurance contributions
4.7 taxes for high income earners
6.1 production taxes
27.5 others
43% of burden highest fifth of incomes
11% lowest fifth
Source: Swedish Government: Fiscal consolidation government bill 2000/ 2001 Annex 5: An account of fiscal and monetary policies in the 90s
WIFO
Institutions and incentives
Reform of institutions
 Reinforcing independence of Swedish Central Bank





Liberalization of financial sector (foreign banks allowed)
Enforcing competition policy
Increasing efficiency and competition in public sector
Shift housing policy from firms to tenants
Deregulation of transport, communication energy
Enforcing incentives:
 Reducing marginal tax rate for persons and making capital taxis more
uniform
 Increasing incentives to work
Qualifying day for sick payments
First two weeks to be paid by employer
Compensation from 90% to 80%
Connecting pension to contributions paid
 EU membership in 1995 (but not in EMU)
WIFO
Program: Creating an information society for all
3 Strategic Goals:



Confidence in IT
Competence in IT
Access to IT
Five specific measures:



Employers buy computers for personal use of employed
Goal: fighting “digital divide”
Measure: tax incentive for firms (start 1998)
Vocational education for unemployed (SWIT Project: 1998–2000)
Goal: alternative labor market program
Industry managed/ government financed
Education IT and IT related professions
12.000 people; 90% certificate, 82% became job
Swedish alliance for Electronic commerce GEA
Legal framework (electronic signature)
Information, education, dissemination
Standards, security

Svea Project for SME
Goal: increase business value through electronic business
100.000 firms should have heard up to end 2002
30.000 SME should have adopted and experienced value increase
funding government plus private partners
 Broadband investment
Quantitative targets for national back-bone network
Regional network
Local network
WIFO
Next plans (as of 2002)
Science park for IT connected with 13 universities, 23 university colleges
International cooperation: North S - North Finland
Sweden - Baltic countries
Sweden - Denmark
Invest in Sweden Agency with IT focus
Direct investments:
Inflow 1999 24.7% of GDP
Outflow 7.9%
WIFO
The Swedish model of corporate governance
A guided capitalism with
Institutions, investment funds and
private foundations as owner
Firewall against hostile takeovers:
Special shares voting non voting shares
50% of large firms have split shares
Wallenberg owns 10 out of 25 largest Swedish firms
e.g. 4.8% of shares of Ericsson, but 38.8% of voting rights
Other large shareholders
AB Industrievärden, Investor AB
Wallenbergstiftung, Pensionsstiftels
Svenska Handelsbanken
Bias of financial system and political priorities towards large companies
High share of large firms in country and within top 500
The same firms over decades
Friendly to mergers, soft competition policy
Model of structural change within firms
Not via exit/ entry
Not via unfriendly takeovers
Relative low corporate tax rate 28%, A 34%
15 firms out of big 500 are Swedish
Relative to size three times more than in US
WIFO
Status 2000: Excellent performance in growth drivers

Top ranks in research, education, ICT
Research outlays 3.5% , rank 1 in EU, higher than EU 1.83 (2000) and US 2.7
up from 2% in 1990






Patents and industry research double the EU average
Public expenditures to education: 7.8% (EU 5.5%)
Share of secondary education 76% vs. 58%
Of tertiary
28% vs. 20%
Leading country in ICT expenditure and use
Higher share of internet users than in US
Close to US in Indicators on Knowledge Based Industry
Out of the 16 drivers for growth (in advance economies
8 top 1 position
19 our of 20 among top five EU countries
only deficit share of new/ improved products which is a SME stronghold
Improvement in most indicators on future strength
Consistent investment through the crisis of 92/ 93
Lower share of physical investment GDP
Industry structure changed from capital intensive industries to ICT
Productivity increased more than 10% p.a. in electronics
Exports in ICT now more than that of traditional industries
WIFO
Competitiveness 2000
Wages in manufacturing 15% above EU level
10% Lower than in Germany, Denmark
Tax/ GDP ratio 61%, ways above EU average
High taxes on income, property
Statutory and effective profit tax far below EU average
Growth of output and productivity regained
Specifically in manufacturing, 2 nd half 90ties
Heavily investing into the future: R%D, Education, ICT
WIFO
General assessment
A reformed welfare state of Northern European type
Double strategy of lowering costs and pushing productivity
Reform of institutions and enhancing incentives
Still much larger impact of non market institutions than in
Anglo American model
Taxes low for firms, but higher (60% of GDP) than in other countries
A consensus of the interest groups and a positive role for government and
institutions
Problems may come up if the ICT crisis wold be long term
Disappointing macro- productivity (in non manufacturing)
Insufficient dynamics of medium sized firms and low entry
Inclusive social model with high equality retained
A leading country in the upcoming knowledge intensive society
WIFO
Largest firms in Sweden
Rank in
Name
Industry
Sales
Employment
Market Value
50
Ericsson
Telecom.
30,881.7
105,129
49,974.2
74
Skandia
Insurance
23,021.3
6,717
13,086.9
118
Volvo
Cars, trucks
14,682.9
79,820
5,459.0
123
Electrolux
Electric machinery
14,053.4
91,758
6,477.4
130
Skanska
Construction
13,054.6
45,063
4,608.0
Europe
WIFO
Figure 1m: Location and basic facts: Sweden
WIFO
Figure 8b: GDP per capita at PPP in relation to the EU
100
Sweden
Finland
EU
90
80
70
60
50
40
1960
1965
1970
1975
1980
1985
1990
1995
2000
WIFO
Figure 8i: GDP per capita at PPP in relation to the EU
130
Sweden
Finland
EU
120
110
100
90
80
70
60
50
1960
1965
1970
1975
1980
1985
1990
1995
2000
WIFO
Figure 10b: GDP at 1995 market prices
Growth rates (3 years moving average)
8
Sweden
Finland
EU
6
4
2
0
-2
-4
1971
1976
1981
1986
1991
1996
2001
WIFO
Figure 10i: Growth differences in real GDP of country vs. EU
8
Sweden
Finland
EU
6
4
2
0
-2
-4
1971
1976
1981
1986
1991
1996
2001
WIFO
Figure 11b: Taxes in % of GDP
70
Sweden
Finland
EU
65
60
55
50
45
40
1980
1985
1990
1995
2000
WIFO
Figure 12b: Government outlays in % of GDP
75
Sweden
Finland
EU
70
65
60
55
50
45
40
1980
1985
1990
1995
2000
WIFO
Figure 13b: Budget deficit/surplus in % of GDP
15
Sweden
Finland
EU
10
5
0
-5
-10
1980
1985
1990
1995
2000
WIFO
Figure 16b: Currency in relation to EURO
22
Sweden
Finland
20
18
16
14
12
10
1970
1975
1980
1985
1990
1995
2000
Remark: A decrease in the line marks a devaluation of the currency relative to the EURO.
WIFO
Figure 4: Macroeconomic performance: Sweden
Value added
manufacturing
per employee
1999
GDP/ hour worked
1999
Real growth
1975/ 2000
2
Real growth
1990/ 2000
Productivity growth
1975/ 2000
1
GDP/ employee
2000
Productivity growth
1990/ 2000
0
GDP/ capita
2000
Inflation rate
1990/ 2000
Industry growth
1990/ 2000
Unemployment rate
2000
Industry growth
1975/ 2000
Employment rate
2000
WIFO
Figure 5: Growth drivers: Sweden
Real growth of GDP
1990/ 2000
Firms with continuous
research
Share of
co-operations
4
3
New products/
sales
Macro productivity
1990/ 2000
Growth of
manufacturing
1990/ 2000
Productivity growth
manufacturing
1990/ 2000
2
Innovation
expenditures
/ sales
Investment
/ GDP
1
0
ICT
share
manufacturing
R&D/ GDP
Internet users
per
capita
Research
intensity
PC
per
capita
Patent
activity
ICT/
GDP
Tertiary
education
Secondary
education
Education
expenditure
/ GDP
WIFO
Figure 6: Policy profiles: Sweden
GDP per
capita at PPP
2000
CO 2/ GDP
3
Value added
per employee
1999
Energy
efficiency
Structural change
superindicator
2
Fiscal debt
/ GDP
O penness
Social
expenditure
/ GDP
O utflows
in % of GDP
1996-2000
1
Market
capitalisation
Inflows
in % of GDP
1996-2000
0
Product
market
regulation
Venture
capital
Lifelong
learning
Competition
telecom
Long-term
unemployment rate
Untrained
school dropouts
O pen
tenders
Sectoral aid
Labour
market
regulation
WIFO
Figure 7: Country profiles: Industry structure and quality position: Sweden
Value added
per head in
manufacturing
Value added
per head in
manufacturing
3
Exports
(Sunk cost
industries)
Exports
(Globalised
industries)
Real growth of
manufacturing
Productivity in
manufacturing
Value added
(Globalised
industries)
Productivity in
manufacturing
1
1
0
0
Relative
export
unit value
Value added
(High RQ E)
Import
unit value
Exports
(High RQ E)
Export
unit value
Real growth of
manufacturing
2
2
Value added
(Sunk cost
industries)
3
Exports
(High PPS)
Value added
(Skill
intensive
industries)
Exports
(High product
differentiation)
Exports
(Skill
intensive
industries)
Value added
(High product
differentiation)
Exports
(Knowledge
based services)
Value added
(Knowledge
based services)
WIFO
Figure 17m: The main industries: Sweden
Cutlery, tools and general
hardware
Parts and accessories for motor
vehicles
Basic chemicals
Publishing
Other special purpose
machinery
Other general purpose
machinery
Pharmaceuticals
Specialisation
T V, and radio transmitters,
apparatus for line telephony
Share 1998
Pulp, paper and paperboard
Motor vehicles
0
1
2
3
4
5
6
7
8
9
10
11
12
WIFO
Finnland
Seminar LVA 239.231 „Firmen und Märkte“
Karl Aiginger
Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und
13.15 – 15.15 UC6
WIFO
FINLAND: FROM PAPER TO TELECOM
Geography:
Northern country, thinly populated (17 persons/ m2)
Close ties and long border to former Soviet Union
Traditional resource based structure
5.2 million people, 6 th largest region
Performance:
GDP/ capita 23,200; 7. position, 3% above EU average
Growth in nineties higher, specifically 2 nd half
Excellent performance of industry: + 6% p.a.
High and increasing productivity
High share of manufacturing in GDP
Employment rate in EU average, but lower than in most Nordic countries
Severe Crisis in 1993
Deeper than in Sweden: -10%
Unemployment up to 17%
Product structure: Wood, paper, textile industry
Breakdown of Soviet market
WIFO
Nordic Policy model
Corporate governance corporatism
Large, stable firms with internal restructuring in existing firms
Average age of large firms more than 100 years
Nokia: from pulp, boots, cables to telecom
Tripartite social partnership with influence from government
The turnaround
 Technology policy: public infrastructure
 Government as leader in implementing ICT
 Upgrading education
 Regional centers for development (3 objective 1 regions)
 Upgrading the wood and paper cluster (“forestry cluster”)
 Devaluation
WIFO
Telecom Strategy
Telecom Society Plan
Quantitative targets for schools, government etc.
Early liberalization of telecom
1990 open competition for network and services
Tradition of local competition
No "one network, one supplier" strategy
Stock options for employees (tax reduced)
WIFO
The importance of Nokia

World leader in mobile telecom

58.000 employees

30% of exports
The homebase and the internalization
2% of demand in Finland
20% of production
80% of research
Facit:

without technology focus at industrial policy,

without ICT skills provided by educational system and
1. without early start of electronic government
Nokia would not have been that successful
WIFO
Large industries and large firms
The largest industries
Pulp and paper
Telecom
Special purpose machinery
Publishing
Basis chemicals
The largest firms
Nokia
telecom equipment, software
Stora Enso
paper
Fortum
energy, oil, gas
UPM Kymmene
paper
Metso
conglomerate
WIFO
Internationalization
A new awareness of the necessity to "go west"
Finland had low export/ import ratios
And high shares of trade with former Soviet Union
Shifted exports to EU countries
Internationalized firms
Passive and then active FDI
Up to nineties higher inward FDI, since 1991 more outward,
today outward vs. inward 2:1
ICL, IBM, Siemens, Hewlett Packard, Ericsson, Lotus have
plants in SF
Nokia: software for the next generation is spread to other
countries with excellent skill basis
Member of EU 1995
Founding member of European Monetary Union
WIFO
The growth drivers
Research and patents now well above average
Increasing research even in deepest crisis
Eighty technology parks
Education: high expenditures and high outcomes
Leading in recurrent education
High ranked n PISA ranking of educational skills
Open universities with specific programs
For people with work experience
ICT use among leading countries
High share of co-operations
High share of continuous research
Among 16 growth drivers Finland is leading in 6,
and among the top 5 in 15
Cost position
Wages 10% above EU, but 5% lower than in Sweden
Taxes/ GDP 53%, 7 points higher than in EU,
but 8% lower than in Sweden
WIFO
An overall evaluation
Status 2000
Extremely successful in manufacturing
Productivity acceleration
Specifically 2nd half of nineties
Unemployment down from 19%, but still near 10%
Leading country in ICT
The strategy
Coherent industry, technology, regional policy
Cooperative business climate: “Connecting People”
Fostering research, education, new technologies
Liberalization plus competitive infrastructure
Elements of success
Awareness due to large crisis
Tripartite policy coordination
The luck to host Nokia
Upgrading of traditional industries
Restructuring ability of large firms
Determined for future growth
WIFO
Figure 1l: Location and basic facts: Finland
WIFO
Figure 4: Macroeconomic performance: Finland
Value added
manufacturing
per employee
1999
GDP/ hour worked
1999
Real growth
1975/ 2000
2
Real growth
1990/ 2000
Productivity growth
1975/ 2000
1
GDP/ employee
2000
Productivity growth
1990/ 2000
0
GDP/ capita
2000
Inflation rate
1990/ 2000
Industry growth
1990/ 2000
Unemployment rate
2000
Industry growth
1975/ 2000
Employment rate
2000
WIFO
Figure 5: Growth drivers: Finland
Real growth of GDP
1990/ 2000
Firms with continuous
research
Share of
co-operations
4
3
New products/
sales
Macro productivity
1990/ 2000
Growth of
manufacturing
1990/ 2000
Productivity growth
manufacturing
1990/ 2000
2
Innovation
expenditures
/ sales
Investment
/ GDP
1
0
ICT
share
manufacturing
R&D/ GDP
Internet users
per
capita
Research
intensity
PC
per
capita
Patent
activity
ICT/
GDP
Tertiary
education
Secondary
education
Education
expenditure
/ GDP
WIFO
Figure 6: Policy profiles: Finland
GDP per
capita at PPP
2000
CO 2/ GDP
3
Energy
efficiency
Value added
per employee
1999
Structural change
superindicator
2
Fiscal debt
/ GDP
O penness
Social
expenditure
/ GDP
O utflows
in % of GDP
1996-2000
1
Market
capitalisation
Inflows
in % of GDP
1996-2000
0
Product
market
regulation
Venture
capital
Lifelong
learning
Competition
telecom
Long-term
unemployment rate
Untrained
school dropouts
O pen
tenders
Sectoral aid
Labour
market
regulation
WIFO
Figure 7: Country profiles: Industry structure and quality position: Finland
Value added
per head in
manufacturing
Value added
per head in
manufacturing
4
Exports
(Sunk cost
industries)
Exports
(Globalised
industries)
Real growth of
manufacturing
3
Value added
(Sunk cost
industries)
Real growth of
manufacturing
3
2
Productivity in
manufacturing
Value added
(Globalised
industries)
2
Productivity in
manufacturing
1
1
0
Relative
export
unit value
Value added
(High RQ E)
Import
unit value
Exports
(High RQ E)
Export
unit value
4
Exports
(High PPS)
0
Exports
(High product
differentiation)
Value added
(Skill
intensive
industries)
Exports
(Skill
intensive
industries)
Value added
(High product
differentiation)
Exports
(Knowledge
based services)
Value added
(Knowledge
based services)
WIFO
Figure 17l: The main industries: Finland
Plastic products
Other food products
Printing
Basic iron and steel, ferro-alloys
(ECSC)
Other general purpose
machinery
Basic chemicals
Publishing
Specialisation
Other special purpose
machinery
Share 1998
T V, and radio transmitters,
apparatus for line telephony
Pulp, paper and paperboard
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
WIFO
An overall evaluation
Status 2000
Extremely successful in manufacturing
Productivity acceleration
Specifically 2nd half of nineties
Unemployment down from 19%, but still near 10%
Leading country in ICT
The strategy
Coherent industry, technology, regional policy
Cooperative business climate: “Connecting People”
Fostering research, education, new technologies
Liberalization plus competitive infrastructure
Elements of success
Awareness due to large crisis
Tripartite policy coordination
The luck to host Nokia
Upgrading of traditional industries
Restructuring ability of large firms
Determined for future growth