Finland needs a strategic growth policy!

Finland’s model for industrial and innovation policy worked well for a long time. There was strong economic growth from the mid-1990s to the beginning of the financial crisis in 2008. However, the record-long recession that followed showed that we need more than minor adjustments to the current model. Our global operating environment has changed to an extent that requires radical reform of the Finnish model for industrial and innovation policy.  We need a strategic growth policy.

Luckily, we do not need to develop everything from the scratch; we have several domestic and foreign success stories to draw on. As Jorma Ollila recently mentioned in the “Vieraskynä” guest column of the Helsingin Sanomat newspaper, established companies have much to learn from start-ups.

Early-stage small businesses are where the best and most promising growth stories are being written these days.

The same cannot be said of medium-sized and large companies. Their focus has been mainly in cost savings rather than growth.  While cost saving is important, global competitiveness requires more. After all, the success of medium-sized and large companies is a key priority for Finland’s overall competitiveness and employment.

How can we disseminate the operating models of start-ups among traditional, larger firms, as a way of guiding Finland towards a new growth path?

Nokia’s success bred complacency

Finland has undoubtedly been one of the big winners in the post-war era. Finland’s industrialisation got off to a late start, but we caught up in the 1980s and 1990s to become one of the leading industrialised countries by the early 2000s. The Bertelsmann Foundation in Germany, for example, has ranked Finland as the country that benefited most from globalisation during the period 1990-2011.

Sadly, since those days, Finland has become a prisoner of its own success. The long-running success of Nokia fed Finnish egos, powering the development of the entire country for a long period, but this gave way to dangerous complacency in the late 2000s. The negative effects of such complacency were not at all diminished by the world’s open admiration of Finland’s education and innovation systems.

What can we learn from our mistakes?

The key error was failing to realise in time that the success of the early 2000s and our high rankings in various international benchmarking studies were the result of the right strategic policy decisions being made 20 years earlier. We missed the boat in terms of ensuring our capacity for continuous renewal and our policies had become outworn by the 2010s. Too many companies – Nokia was not the only one – fell asleep and did not renew their business models in time.

Finland’s business and innovation policy was also “dormant.”

Innovation policy based on ecosystem thinking

Let us return to start-ups. What can we learn from small growth companies and what has changed so much in the wider world that we need to make radical changes to our industrial and innovation policy?

Our number one priority – and probably the most important change we need to make – is to change the level at which policy measures are implemented. Global competition is increasingly taking place between global ecosystems comprising several enterprises, rather than between individual companies. A few strong companies typically act as ecosystem leaders or platform providers and set the standards for other companies to comply with when building supplementary products and services. From the perspective of innovation policy, this means that we need to understand the overall ecosystem in which an individual company operates – before making decision on public innovation grants or aid. We may also want to allocate part of the public funding to promising globally attractive ecosystem projects that Finnish companies are developing together

Directing our public innovation initiatives and investments towards promising and ambitious ‘born global’ ecosystems, or the parts of such ecosystems emerging in Finland, is imperative for enhancing Finland’s competitiveness and employment situation. In practice, this means close public-private partnerships where public sector – with the help of innovative public procurement and ambitious goal setting – creates new world-class reference facilities/solutions in close collaboration between large and small companies as well as universities.

These visible and globally ambitious projects should then attract international attention and investments in Finland – in addition to boosting employment and creation of new competitive products and services for exports.

Time to dismantle our policy silos

Fortunately, we are already moving in the right direction. We have come to realise that applied research and the product development as well as export promotion take place simultaneously or at least in tight connection in ecosystems. For example, the Helsinki Capital Region’s Smart & Clean project brings together companies of all sizes, and the cities of Helsinki, Vantaa and Espoo as well as universities  to boost the deployment of best in class  cleantech solutions in the capital region, while developing completely new solutions for transport, energy, water supply and community structure.

In addition to public savings and eliminating inequality, Finland’s ambitious social welfare and healthcare service reform should also be viewed as a part of Finland’s business and innovation policy. This concerns a domestic market worth 20 billion euros, which could be either a forerunner or the last in line when it comes to new innovative solutions, depending on what kind of framework conditions the government decides to put in place.

Supporting new ecosystems-based growth requires new approaches also from the government. We can not continue directing applied research, product development well as export promotion and invest in Finland activities from separate siloes. As described above, these activities take place in an interlinked manner in ecosystems. The same strategic growth policy framework and management structure should set the direction to all of these activities. Furthermore, strategic growth policy can not be managed by no one ministry alone as several ministries contribute to providing the ideal framework conditions in creating new ‘born global’ ecosystems in Finland.

In sum, the current macroeconomic problems of Finland cannot be solved through macroeconomic measures alone; a bold and holistic, nation-wide industrial and innovation policy – a strategic growth policy – is needed. This is a critical issue that deserves cross-ministerial collaboration and active holistic management in Finland.

With these measures, Finland is in a good position to reclaim its innovation leadership in several growth areas driven by global megatrends.  We have first-class expertise in various sectors and a high number of new and bold young entrepreneurs, who want to do their part in building solutions that promote sustainable well-being in Finland and abroad. .

Sitra’s President Mikko Kosonen is analysing the state of Finland in a series of three blogs. Published earlier in this series (in Finnish):
In 2016: Uutta tasapainoa etsimässä
Uudistuakseen Suomen tulisi ottaa mallia ruotsalaisten ”diskuteeraamisesta”