Innovative activity in the times of crisis experiences of finland
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Innovative Activity in the Times of Crisis – Experiences of Finland. Petri Rouvinen ETLA, The Research Institute of the Finnish Economy World Bank’s Knowledge Economy Forum VIII INSEAD, Fontainebleau, France April 28 – May 1, 2009.

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Innovative Activity in the Times of Crisis – Experiences of Finland

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Innovative activity in the times of crisis experiences of finland

Innovative Activity in the Times of Crisis – Experiences of Finland

Petri Rouvinen

ETLA, The Research Institute of the Finnish Economy

World Bank’s Knowledge Economy Forum VIII

INSEAD, Fontainebleau, France

April 28 – May 1, 2009


Innovative activity in the times of crisis experiences of finland

Take Home Message Whatever you do (as a country), do not cut (public) investment in knowledge in times of economic hardship.


Why not

Why Not?

  • Accumulated knowledge is in the heads of those engaged  If no longer involved, some knowledge is lost forever

  • ½ of knowledge production is learning & training

  • Large adjustment costs  Hard to scale up

  • Clustering dynamics & localized spillovers

  • Path dependency

  • Discontinuities

  • Loses may be unrecoverable

  • Negative spirals / domino effects

 Counter-cyclicalpublic expenditure+ Better opportunities+ Lower (opportunity) cost+ R&D/educ. Is 50–100% wages & related overhead  Full immediate local stimulus with upside potential


In 1990 finland was hit by the deepest crisis of any oecd in the postwar era

In 1990 Finland Was Hit by the Deepest Crisis of Any OECD in the Postwar Era

  • Private & public knowledge expenditures /

  • Major policy shifts

    • Macro  Micro

    • Closed  Open

    • Pro competition

    • Pro globalization

    • Creative destruction

    • Incentivizing individuals & firms

  • The crisis marked Finland’s transition into a knowledge economy

    • But the foundations laid in the preceding 50–100 years!

    • The crisis was beneficial & necessary for restructuring


Innovative activity in the times of crisis experiences of finland

A stylized view of the real educational expenditure in Finland

Billions of euros,year 2000 prices

This ETLA stylized view is based on Arto Kokkinen(forth-coming), Human Capital and Finland’s Economic Growth in 1910–2000, European University Institute.

€6 bn

6-fold increase

in volume in the

last 50 years

€1 bn

1890 1950 2000


Innovative activity in the times of crisis experiences of finland

Finnish Annual Economic Growth 1976–2011% change of real GDP, Statistics Finland with ETLA forecasts for 2009–2011

Rapid & eventually complete

opening up of the economy

Collapse of the Soviet Union  Trade disruption

Mismanaged liberalization  Banking crisis

Domestic real estate & securities bubble

Downturn in forest-related industries

Finland hit mostly by the contraction in global demand

rather than directly by the financial crisis per se.


Early 1990s vs the current crisis

Domestic financial crisis,booming global demand

Strategy: Export-led recovery, re-industrialization

Policy: From macro to micro

Unutilized human capital

1/10 of R&D outsourced

Basic knowledge jobs

Technical

Improving competitiveness

Global financial crisis,contracting global demand

Strategy: Domestic demand, boost competences, “sit out”

Policy: Micro-micro (?)

Weak entrepreneurial spirit

1/4 of R&D outsourced

Advanced knowledge jobs

Non-technical

Loosing ground

Early 1990s vs. The Current Crisis


Finnish response to the current crisis

Finnish Response to the Current Crisis

  • Finnish stimulus mostly not related to innovation

    • Social safety nets  Automatic/passive stimulus

    • Active stimulus, e.g., by advancing public works

  • +7–10% in government R&D expenditure in ‘09

    • Largely competitive funding with strong public–private dialog

    • Consideration of previously delayed VC / angel inv. incentives?

    • Further tax-based R&D incentives in 2010?

    • Further +5–10% in 2010?

  • Nat. Innov. Strategy  Demand- & broad-based

    • Strategic Centres for STI (industry-led R&D consortia)

    • Restructuring public research organizations

    • University reform


Innovation policy objectives in crisis

Innovation Policy Objectives in Crisis

  • Accumulated knowledge stock should not be lost

    • Stock is mostly in the heads of those engaged

    • Maintained by keeping the people engaged

  • Generation & use of new ideas should continue

    • Stock accessed/accumulated by having people solve problems

  • Creative destruction/renewal should prevail

    • For society the stock is enhanced by labor mobility

  • Focus on the innovators (= people engaged)


Lessons from the experiences of finland

Lessons from the Experiences of Finland

  • Engage in the global knowledge economy – it is the only way to a country’s lasting prosperity

  • Take time to build foundations from K–12 up (cf. Aghion)

  • Initially accept any role, however small, in the global knowledge economy – Once in, be conscious of gradually upgrading

  • Investing not only for economic gain but also for cultural & societal development – It will benefit the country in ways not directly measurable in money

  • Do not force it – Have fate in individuals/incentives

  • Waste or not? Depends strongly on framework conditions, business dynamics & individuals


Innovative activity in the times of crisis experiences of finland

Evaluation of the Finnish Innovation System to Be Completed by September 2009www.evaluation.fi

Rouvinen & Ylä-Anttila: Case Study: Little Finland's Transformation to a Wireless Giant. In Dutta, Lanvin & Paua (Eds.), The Global Information Technology Report 2003-2004. World Economic Forum.

Dahlman, Routti & Ylä-Anttila 2006: Finland as a Knowledge Economy. World Bank Institute.


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