Transcript Finnish Competitiveness & Business Dynamics

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
Take Home Message
Whatever you do (as a country),
do not cut (public) investment
in knowledge in times of
economic hardship.
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-cyclical
public 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
• Private & public knowledge expenditures /
• Major policy shifts
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–
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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
€6 bn
A stylized view of
the real educational
expenditure in
Finland
6-fold increase
in volume in the
last 50 years
Billions of euros,
year 2000 prices
This ETLA stylized view is based
on Arto Kokkinen (forthcoming), Human Capital and
Finland’s Economic Growth
in 1910–2000, European
€1 bn
1890
University Institute.
1950
2000
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
1.6
2010 .0
2005
2000
1995
-6.5
-3.7
-6.2
Collapse of the Soviet Union  Trade disruption
Mismanaged liberalization  Banking crisis
Domestic real estate & securities bubble
Downturn in forest-related industries
-.9
1990 .1
.9
1.8
2.7
2.8
3.7
4.2
4.5
4.9
5.1
3.9
3.7
3.9
3.6
5.2
5.4
3.6
2.6
3.0
2.9
3.3
1985
1980
.3
0
.3
1.3
2.6
3.0
5.1
5.1
6.2
7.0
7
-7
Finland hit mostly by the contraction in global demand
rather than directly by the financial crisis per se.
Early 1990s
vs.
• Domestic financial crisis,
booming global demand
The Current Crisis
• Global financial crisis,
contracting global demand
• Strategy: Export-led recovery, • Strategy: Domestic demand,
re-industrialization
boost competences, “sit out”
• Policy: From macro to micro
• Policy: Micro-micro (?)
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•
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Unutilized human capital
1/10 of R&D outsourced
Basic knowledge jobs
Technical
Improving competitiveness
Weak entrepreneurial spirit
1/4 of R&D outsourced
Advanced knowledge jobs
Non-technical
Loosing ground
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
1. Accumulated knowledge stock should not be lost
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•
Stock is mostly in the heads of those engaged
Maintained by keeping the people engaged
2. Generation & use of new ideas should continue
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Stock accessed/accumulated by having people solve problems
3. 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
• 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
• Evaluation of the Finnish Innovation System
to Be Completed by September 2009
www.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.