Can Finland return to the top in economic competitiveness?

In its new programme, the Finnish Government says that it is committed to making Finland more competitive. This is certainly the time to act. However, the Government Programme cannot improve Finland's competitiveness by itself: the entire nation must get involved.

Finland came 15th in the latest IMD world competitiveness rankings. This result may look quite good at face value, but the trend is worrying: we were still in second place at the turn of the millennium. We have followed the same trend in the World Economic Forum's Global Competitiveness Report, dropping nine places in just over a decade. The other Nordic countries have overtaken us in the fast lane.

In the world of sport, the coach would subject the issue to closer inspection. What's gone wrong with the playbook? Everything seems okay on the surface, with employment rising and the national Competitiveness Pact in place. Wasn't that enough?

ETLA, the Research Institute of the Finnish Economy, points out that measuring competitiveness is a side issue if the findings are not converted into action. So let's see what we can learn from the indicators. You get to the top by playing to your own strengths, correcting your weaknesses and building team spirit.

In surveys, Finland has many strengths, such as high expertise, reliable infrastructure and institutions, and innovative companies. Our success will continue to depend on these.

However, there has been a clear deterioration in our competitiveness in recent years. We have failed to understand the long-term effects of certain decisions. Due to cuts in the funding of Business Finland, our RDI investments fell from 3.9 percent of GDP in 2009 to 2.7 percent last year. During the same period, industry stepped up its product development abroad, while collaboration between research institutes has collapsed. Although the direction seems to be changing, we are still a long way from 4 percent – the level that would return Finland to the top rankings.

Our levels of investment are also depressed by inflexible labour markets. The internal mobility of our labour force, inflexible employment contracts and impediments to work-based immigration remain unresolved. A bloated public sector and taxation are not supportive of competitiveness. In addition, our university research is not world class.

According to the Government Programme, innovation funding will be developed in three main ways. Firstly, Business Finland will receive the first EUR 50 million of the EUR 300 million in additional annual funding required by industry. Secondly, the target for innovative purchases by the public sector – which is still far from being met – will be doubled. If successful, this will generate billions in additional funding. Further innovation investments can be funded by selling off state assets.

Unfortunately, with regard to AI, the Government Programme seems to be focused on threats and regulation; AI's huge potential for Finland seems to have been largely forgotten. This is not the time to slam on the brakes!

Because resources are finite, innovative investments must be correctly targeted. Cooperation between the public sector and industry should focus on long-term strategic programmes, in which key ministries and industry jointly agree on investments and regulation. The number of programmes should be limited to key areas: combating climate change and promoting circular economy, intelligent and sustainable manufacturing, mobility, AI and digitalisation, and healthcare reform. These also play an important role in the universities, which should become more focused, with larger networks and greater industrial collaboration.

Alongside Finland's own investments, there is room for growth in EU funding. In our forthcoming EU Presidency, it would be important to redirect EU innovation funding closer to the markets, where it will create more added value for the business sector. The state should build more risk sharing instruments, to incentivise companies to take greater advantage of EU funding opportunities.

The aforementioned methods should be in the Government's playbook from the beginning, when seeking to return Finland to the leading edge of competitiveness. The labour market negotiations in the autumn will also be highly decisive. Now, if ever, is the time to keep our eye on the ball and remember that flexible employment contracts are the best way to create jobs. And competitiveness.

Most of all, we need team spirit which will ultimately help us to win on the competitiveness playing field. As we saw in the ice hockey world championships in the spring, those with weaker prospects can win if they pull together. The competitiveness of team Finland rests on cooperation between the state, industry, research and employees. Innovations are our ace striker, who will ultimately put the puck into the back of the net.

Pekka Koponen

Chairman of the Board of Directors, Spinverse

Chairman of the Innovation and Competitiveness Working Group of the Technology Industry (Teknologiateollisuuden Innovaatio- ja kilpailukykytyöryhmä)

Read more (in Finnish) Talouselämä June 21, 2019
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