Transcript Innovation-based strategy to globalisation: the case of

Innovation-based strategy to
globalisation: the case of Finland
Vesa Vihriälä
17 June 2004
Starting point: a major depression forces
restructuring
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Until the end of 1980s growth based on
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A major depression in 1991-1993
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Vesa Vihriälä
GDP drop over 10 %, 500 000 or 1 in 5 jobs lost,
unemployment rate 3.5 -> 16.5 per cent, a major banking
crisis, central govt. debt: 10 -> 70 per cent of GDP
Macroeconomic background
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Export of forest products and machinery (and some consumer
goods, mainly to Soviet Union)
Expanding public sector (employment!)
Badly handled financial liberalisation
Major shocks (collapse of the Soviet Union, world recession,
high European interest rates due to German unification)
Not a very successful macroeconomic management
But also: the old production and export structure
unsustainable in opening market conditions
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Strong policy response
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Restoration of competitiveness through devaluation, floating, and
repeated moderate incomes policy agreements
Rapid cleaning up of the banking sector
Considerable trimming of public expenditure as a whole
EU-membership followed by EMU-membership
Substantial and sustained increase in R&D expenditure (public &
private)
Funding of R&D expenditure
Billion euros
5,0
5.0
Other funding*
Enterprises
Public funding
4.4
4.6
4.8
3.9
4,0
4.0
3.4
2.9
3,0
3.0
2.2
2,0
2.0
1.5
1.7
1.8
1.1
1,0
1.0
0.9
0.6
0.0
0,0
1983 1985 1987 1989 1991 1993 1995 1997 1998 1999 2000 2001 2002
* Funding from abroad excluding foreign enterprise funding,
foundations, own funds of universities, other sources.
Vesa Vihriälä
Source: Statistics Finland
DM 36100
11-2003 Copyright © Tekes
21/07/2015
Boom in the ICT sector
Production of mobile phone and network equipment
exploded
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Latent demand for new products
Standards supported (Nordic NMT first, GSM early on)
Competitive domestic market forcing efficiency
Successful strategy by Nokia
Lots of skilled labour available in Finland
10000
8000
6000
Manufacturing output in Finland by industries
(at 2002 prices)
Electronics & electrical eq.
Metal & engineering
Pulp & paper
Chemicals
Textiles & apparel
4000
2000
0
1948
Vesa Vihriälä
1958
1968
1978
1988
1998
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Impressive overall recovery
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4½ per cent growth in 1994-2000, led by
booming exports
Over 300 000 jobs created in 7 years, including
substantial increase in manufacturing jobs
Current account from a chronic deficit to 8 per
cent surplus of GDP; public finances in surplus,
public debt down to 40 per cent of GDP
Significant increase in manufacturing
productivity
A major structural change in labour demand
21/07/2015
GDP/capita in Finland and OECD Europe
(at 2002 prices – PPP)
25000
20000
Finland
OECD Europe
15000
10000
5000
0
1950
1960
1970
1980
1990
2000
Sources: OECD, Penn World Tables.
Vesa Vihriälä
21/07/2015
Current account surplus, per cent of GDP
Source: VATT
Vesa Vihriälä
21/07/2015
Productivity of labour in industry
Added value in relation to working hours
USA = 100
110
70
FINLAND
USA
Netherlands
Sweden
France
Germany
Japan
Canada
60
Great Britain
100
90
80
50
40
30
20
75
77
79
81
83
85
87
89
91
93
Source: Statistics Finland, Mika Maliranta
Vesa Vihriälä
95
97
99
DM 36097
04-2002 Copyright
© Tekes
21/07/2015
Manufacturing employment in Finland by
industry type, 1980=100
180
Technology
180
High-Tech
Medium-Tech
Low-Tech
160
140
140
120
100
100
80
80
60
60
40
40
110
1985
1990
1995
2000
Skills
90
80
70
Skilled
Unskilled
50
1980
1985
1980
180
160
140
120
100
80
60
40
20
0
100
60
High-Wage
Medium-Wage
Low-Wage
160
120
1980
Wages
1990
1995
2000
1985
1990
1995
2000
1995
2000
Orientation
Science-Based
Specialized-Supplier
Scale-Intensive
Resource-Intensive
Labor-Intensive
1980
1985
1990
Sources: ETLA B144 (Small Country Strategies in Global Competition), OECD, STAN Industrial Database.
Vesa Vihriälä
21/07/2015
The competitiveness paradox
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High ranking in many competitiveness comparisons
(WEF, IMD, …)
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Nevertheless
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Overall indexes
R&D expenditure
Level of educational attainment
Lack of corruption
Still substantial under-utilisation of labour resources
Still weak productivity outside a couple of manufacturing
branches
Weak attractiveness of foreign investment
Weak attractiveness of foreign talents
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Competitiveness indicators
Total ranking
Finland
USA
Sweden
Denmark
Taiwan
Singapore
Switzerland
Iceland
Norway
Australia
Japan
Netherlands
Germany
UK
WEF
Growth
competitiveness
WEF
Business
competitiveness
2003*2002 2001 2000
2003
2004
2003
1
2
3
4
5
6
7
8
9
10
11
12
13
15
1
2
3
4
16
8
7
14
22
11
13
9
5
6
8
1
11
7
12
2
14
5
17
4
23
15
21
22
3
1
12
5
17
4
9
8
15
7
25
13
20
19
2
1
5
10
3
4
6
12
9
7
13
15
14
11
1
2
9
14
7
4
15
16
6
5
21
8
17
12
5
1
12
13
10
2
9
23
15
11
20
3
14
8
IMD
Competitiveness
ranking
* Applying 2003 formula
Sources: Tekes and The World Competitiveness Yearbook (IMD)
Vesa Vihriälä
21/07/2015
Ranking of EU Countries
Average
rank
Finland
Sweden
Denmark
UK
Netherlands
Germany
Austria
Belgium
France
Ireland
Portugal
Spain
Italy
Greece
Vesa Vihriälä
1
2
4
3
7
6
5
9
10
11
8
12
13
14
1
3
9
4
8
2
7
5
6
10
12
11
13
14
1
6
5
2
3
9
4
7
11
8
10
12
13
14
1
3
4
9
6
2
8
5
7
13
10
11
12
14
2
5
3
1
4
8
9
7
10
6
11
12
13
14
1
6
5
2
4
11
8
10
12
3
7
9
13
14
3
7
4
10
1
9
5
2
6
12
13
8
11
14
1
4
3
6
8
2
5
7
9
13
10
12
11
14
1.4
4.5
4.6
4.6
5.1
6.1
6.4
6.5
8.9
9.5
10.1
10.9
12.4
14.0
DM 36054
Source: The Lisbon Review: An Assessment of Policies and Reforms in Europe 21/07/2015
09-2002 Copyright © Tekes
Globalisation of countries
Ranking in 2003
Ireland
Singapore
Switzerland
Netherlands
Finland
Canada
USA
New Zealand
Austria
Denmark
Sweden
Great Britain
Australia
Czech Republic
France
Portugal
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 … .. ..
Globalisation index measures the economic integration, technical
connections, personal contacts and political cooperation in the country.
Vesa Vihriälä
Source: Foreign Policy Magazine Globalization Index
DM 36054
21/07/2015
04-2004 Copyright © Tekes
R&D input in some OECD countries
Percentage of GDP
5.0
Israel
Sweden
FINLAND
Japan
Iceland
South Korea
USA
Germany
Denmark
France
Singapore
Austria
UK
Canada
Norway
China
4.5
4.0
3.5
3.0
2.5
OECD total
2.0
1.5
1.0
0.5
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
Est.
Sources: OECD, Main Science and Technology Indicators; national statistics authorities.
Vesa Vihriälä
DM 36109
21/07/2015
02-2004 Copyright © Tekes
The share of highly educated (tertiary
education) in the age group 25-64 years
USA
FINLAND
Sweden
Britain
Belgium
Denmark
the Netherlands
Germany
Spain
France
Ireland
EU-15
Luxembourg
Greece
Austria
Italy
Portugal
0
5
10
15
20
25
30
35
40
Source: VATT
Vesa Vihriälä
%
21/07/2015
Countries with the least corruption
Grade in 2003
Finland
Iceland
Denmark
New Zealand
Singapore
Sweden
Netherlands
Australia
Norway
Switzerland
Canada
Luxembourg
Great Britain
Austria
Hong Kong
Germany
0
1
Totally
corrupted
Vesa Vihriälä
2
3
4
5
6
7
8
9
10
No
corruption
Source: Transparency International Corruption Perceptions Index
DM 36054
21/07/2015
04-2004 Copyright © Tekes
Employment 1990-2004**
25
%
%
80
Participation rate
(right scale)
20
15
75
Employment rate
70
(right scale)
10
65
Unemployment rate
(left scale)
5
60
0
55
90
92
94
96
98
00
02
04**
Participation rate = Labour force / Population of working age (15-64)
Employment rate = Employed labour force / Population of working age (15-64)
Source: Ministry of Finance
Vesa Vihriälä
21/07/2015
Productivity of labour
GDP per hour of labour
USA = 100
120
Belgium
Norway
France
Netherlands
USA
Ireland
Austria
Denmark
Germany
Italy
Switzerland
FINLAND
Sweden
Great Britain
Japan
110
100
90
80
70
1993
Vesa Vihriälä
1997
Source: Statistics Finland
2001
DM 36097
21/07/2015
10-2003 Copyright © Tekes
Stocks of outward and inward FDI in Finland 1975-2002
(Bill. EUR at fixed 2002 prices)
Bill. EUR
70
Outward
60
Inward
50
40
30
20
10
0
1975
1980
1985
1990
1995
2000
Our Path Abroad/Introduction/k1
Vesa Vihriälä
21/07/2015
Not just a Finnish puzzle
Overall competitiveness lousy predictor in general
Vesa Vihriälä
21/07/2015
Explanations?
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Small size & and peripheral location
Lack of competition
Lack of flexibility
Lack of excellence
Lack of networking
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New challenges
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Globalisation
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Tougher competition from low-cost countries
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Disadvantages of small size and peripheral location
likely to increase due to agglomeration pressures
Wider opportunities for young educated people to
make career abroad, as the role of skilled labour as a
factor of production increases
Ageing of population
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Declining labour force
Detrimental effect on labour productivity?
Increased burden on public finances
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Particularly low-to-medium tech manufacturing
Pensions
Medical and old-age care
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Share of Industrial Production by Regions,
1750-2000 (%)
70
East Asia
North America
Europe
60
50
40
30
20
10
0
1750
1800
1850
1900
1950
2000
East Asia = China, Japan, India
North America = USA, Canada
Europe = Germany, Great-Britain, France, Italy, Spain, Sweden, Belgium, Switzerland
Vesa Vihriälä
21/07/2015
Industrial employment in Finnish
companies in Finland and abroad
600
Thousand
500
400
300
200
100
0
1975
1980
1985
In Finland
1990
1995
2000
In Foreign Subsidiaries
Sources: Bank of Finland, ETLA.
Vesa Vihriälä
21/07/2015
Addressing the new challenges
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“Finland in the global economy”: A project to
assess the effects of globalisation and the required
measures to meet the new challenges
Mandate from the Prime Minister
Two tracks:
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Vesa Vihriälä
In-depth studies (clusters, labour market, new economic
geography implications)
Cluster-based dialogue between employer and employee
organisations
Interim report in June, final report by the end of the year
21/07/2015
Globalisation project: dialogue & studies
Cluster-based dialogue between the social partners on Finland’s competitiveness
Steering Group
begins its work
Seminar:
Interim assessment
Preparation of the
report launched
Studies
finalised
In-depth studies launched
January
March
February
Vesa Vihriälä
May
April
The final report
July
June
September
August
November
October
December
21/07/2015
Elements of a success strategy (I)
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Promoting competition
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More active application of competition policy
Opening up public services to private producers
Improving the functioning of the labour
market
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More flexible wage formation
Improving incentives for both employees and
employers to upgrade skills
Improving incentives to seek employment (also to
change trade and location) and stay longer in the
labour force
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Elements of a success strategy (II)
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Improving the innovation system
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Addressing the shortcomings of the basic education system
Improving mechanisms for life-long learning
Upgrading higher education, making it attractive to foreign
teachers and students
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Increasing and reallocating public R&D expenditure
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Vesa Vihriälä
Increasing universities’ financial resources
Increasing university autonomy
Stronger specialisation of universities
Internationalisation of teaching and student base
Wider focus of R&D: not just high technology but also services
and business skills across the board
More systematic international networking: need to overcome
the disadvantages of small size greater than ever
21/07/2015