Basic features of the Finnish economy

1. Basic features of the Finnish economy Pekka Ylä-Anttila ETLA – The Research Institute of the Finnish Economy

2. is a private, independent and non-partisan, non-profit research institution, founded in 1946 to conduct research in the fields of economics, finance and social policy designed to serve financial and economic-policy decision making. At present the members of the association sponsoring ETLA include central association of industry and employers, major banks and central association of insurance companies. ETLA has two major activities: macro economic forecastingandproject studies. ETLA publishes monographs, reviews and forecasts in several different series. A substantial part of the research results is published in scientific journals and edited books. Macro economic forecasts are published in quarterly publication “The Finnish Economy and Society”. ETLA is the largest economic research institution in Finland. The project studies are organized into five research programmes: - Technology, competence and industrial competitiveness - Industrial economics/industrial dynamics/international business - European integration and international economy - Macroeconomic and finance research - Labour market research ETLA - The Research Institute of the Finnish Economy ETLA has two subsidiaries, Etlatieto (project research and information services unit) and Taloustieto (publishing company). The staff of ETLA (incl. Etlatieto and Taloustieto) is currently approx. 60 persons. Internet: www.etla.fi pekka_ya/esitelmä15092003/k28

3. Economic growth – long -term Late industrializing country Phases of industrial development Crisis of the early 1990s and thereafter Technology and education as drivers The most ICT specialized country The most competitive economy? Globalization challenge

4. GDP/capita in Finland and OECD Europe (at 2002 prices – PPP) Sources: OECD, Penn World Tables. pekka_ya/esitelmä15092003/k01

6. Phases of industrial development DECLINE ADVANCE Investment-driven Innovation- driven Wealth driven Factor-driven • Finland since the mid 1980s Domestic knowledge generation Indigenous innovations, R&D and technology New markets • Finland from the WW II to early 1980s Ability and willingness to to invest Imported but improved technology Differentiated products • Finland from mid-1800 to early 1900s Abundant and cheap wood raw material Imported technology Standard products . Economic growth based on past accumulated wealth Low motivation and incentives for innovation Source:: Porter (1991).

10. Manufacturing output in Finland by industries (at 2002 prices) Sources: Hjerppe-Hjerppe-Mannermaa-Niitamo-Siltari (1976), Statistics Finland, ETLA. pekka_ya/esitelmä15092003/k02

11. Finnish exports of goods by industry 1960-2003 (%) % of total exports of goods Wood products Pulp and paper Machines, machinery and vehicles Electronics and electro- mechanical products Basic metals and metal products Chemicals and chemical products Other goods Source: National Board of Customs. pekka_ya/esitelmä15092003/k29

12. ICT value added ICT employment R&D in ICT (% of business sector tot., 2000) (% of business sector tot., 2000) (Selected ICT ind., % of GDP, 2000) Ireland Finland Finland Finland Sweden Korea Korea Canada Sweden USA Japan Japan New Zealand UK USA Sweden Netherlands Canada Hungary Belgium Ireland UK France Netherlands Netherlands Norway Germany Belgium Denmark France Japan Austria Belgium Czech Rep. USA UK Norway Korea Denmark Canada Italy Norway Denmark Australia Italy France Czech Rep. Australia Portugal Spain Spain Austria Mexico Czech Rep. Australia Germany Poland Spain Portugal Italy Germany Mexico Slovak Rep. Greece 0 4 8 12 16 0 2 4 6 8 10 0 1 2 Total Communic. & other eq. Manufacturing Communic. & other eq. Computer & office eq. Services (for those avail.) Computer & office eq. Services Services ICT sector’s share in value added, employment and R&D pekka_ya/esitelmä15092003/k16

13. Contributions of electronics industry and Nokiato GDP growth in Finland Sources: Ali-Yrkkö et al., updated. pekka_ya/esitelmä15092003/k03

14. R&D expenditure, % of GDP Sources: OECD, Statistics Finland. pekka_ya/esitelmä15092003/k25

15. Post-graduate degrees granted in natural sciences and engineering (1951-2001) pekka_ya/esitelmä15092003/k10

16. Share of tertiary type of graduates in engineering, natural sciences, mathematics and statistics, and computing, % of all graduates pekka_ya/esitelmä15092003/k11

17. Finland in the IMD competitiveness studies 2 2 3 3 3 4 5 8 15 18 19 25 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 IMD WEF Aineistolähteet: Vuosina 1993-1995 IMD:n ja WEF:n yhteiset ja vuodesta 1996 IMD:n kilpailukykyraportit.

18. Good knowledge transfer between companies and universities Cyber security is being adequately addressed by corporations Funding for technological development is generally sufficient High R&D personnel per capita High foreign direct investment flows from Finland to abroad High total R&D expenditure per GDP High total business enterprise R&D personnel per capita The public service is independent from political interference Education meets the needs of a competitive economy Bureaucracy does not hinder business activity Finnish competitiveness is supported by Data source: IMD 2004; calculations by Etla. Note: Based on IMD’s Finnish strengths list. As ”soft” indicators derived from the executive opinion survey and ”hard” indicators collected from secondary sources are listed separately by IMD, the above ”top 10” had to be formed on the basis of historical information. ETLA

19. High total hourly compensation for manufacturing workers High collected total tax revenues per GDP High collected indirect tax revenues per GDP High effective personal income tax rate Personal taxes discourage working or seeking advancement Relocation of production is a threat to the economy In relative terms poor stock market performance Unemployment legislation motivate to look for work Business environment does not attract foreign high-skilled Entrepreneurship of managers is not widespread Finnish competitiveness is undermined by Data source: IMD 2004; calculations by Etla. Note: Based on IMD’s Finnish weaknesses list. As ”soft” indicators derived from the executive opinion survey and ”hard” indicators collected from secondary sources are listed separately by IMD, the above ”top 10” had to be formed on the basis of historical information. ETLA

20. Stocks of outward and inward FDI in Finland 1975-2002 Bill. EUR at fixed 2002 prices Outward stock twice as large as inward Our Path Abroad/Introduction/k1

21. Manufacturing investment in Finland and abroad ETLA The balance of manuf. investment is shifting abroad Source: Ali-Yrkkö & Ylä-Anttila (2004). Data source: Confederation of Finnish Industries and Employers (TT) . \

22. Finnish manufacturing R&D expenditure in Finland and abroad, Bill. Euro /Abroad / Finland Aineistolähde: TT:n investointikyselyt

23. References Castells, M and Himanen, P (2002), The Information Society and the Welfare State – The Finnish Model. New York: Oxford University Press Paija, Laura (ed) (2001), Finnish ICT Cluster in the Digital Economy. Helsinki: Taloustieto (ETLA B 176) Rouvinen, Petri – Ylä-Anttila, Pekka (2003), Case Study: Little Finland’s Transformation to a Wireless Giant. In S. Dutta, B. Lanvin and F. Paua (eds), The Global Information Technology Report 2003 – 2004. New York. Oxford University Press (for the World Economic Forum) Ylä-Anttila, P. (2003), The Information Society and the Welfare State – The Finnish Model (Book review). Research Policy 32, no. 8.