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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