Finland

a Planned Policy Based Approach to a National Innovation System Finland, despite currently being one of the worlds wealthiest and by many counts one of the most innovative nations was a latecomer to industrialization. The development of the modern Finnish innovation system can be primarily attributed to events in the late 20th century. In 1917, just 10% of workers in Finland were employed in industrial applications. The economy remained predominantly agrarian until a period of rapid economic and industrial development following World War II [1]. Economic Transformation The period after the War was a typical example of a technological paradigm shift, characterized by increased trade and a move toward industry based economies. Finland successfully exploited this opportunity, with policies focusing on investments in heavy industries (chemicals, paper etc.) and targeting exports [6]. Stuck between Soviet Russia and Western capitalist Europe, Finland declared itself as neutral but adopted free trade agreements while providing many tax breaks for investments. Easy availability of capital (because of regulated interest rates), US aid and favourable exchange rate policies all contributed towards Finland matching Japans GDP in the 1970s [2]. The next decade also showed strong growth but it led up to a deep recession in 1991. In fact, Finland was among the worst effected European economies (along with Sweden and Switzerland) by the global recession at that time. The deregulation of financial markets, the collapse of Soviet Russia (a loss of Finlands largest trade partner) and the reliance on debt for growth hurt Finland dearly [3] [16]. However, as is often seen, the huge setback to the economy, significant unemployment and production declines during this period set the Finnish government into action
[17]. The widespread effects meant society had lost the mental rigidity often

associated with established economies and technologies. This eased the establishment of a new organizational infrastructure and a focus on creating an innovation and knowledge based economy. The international market was highly competitive, and the government realized the importance of enhanced science and technology to remain competitive in exports, choosing to invest heavily in

creating opportunities for innovation [12]. This was a significant milestone in the development of the Finnish NIS, and the governments policies (initially very proactive, yet always regulatory) led to the efficient and research-intensive innovation system Finland has today [16]. Towards a National Innovation System The Finnish government, which had earlier based its approach on the Swedish model, now looked towards developing a true national innovation system [13] [14]. New to high-tech technology, the primary clusters especially the ICT cluster, emerged with the help of considerable public funding. Finlands Science and Technology Council, chaired by the Prime Minister and with representatives from business, education and policy, delivered policies and reports regularly to enhance the national innovation system holistically including organizational structure and institutional policies. Finland reorganized the Technical Research Centre of Finland (VTT) redirecting focus toward national technology programs. Also, the Ministry of Trade and Industry set up TEKES the Finnish Funding Agency for Technology and Innovation, an important catalyst for innovation [15]. These steps were in addition to SITRA, the Finnish Innovation Fund, set up by the Bank of Finland as an investment and endowment fund reporting directly to the parliament [9]. An important function of these bodies was delivering regular reports on the progress of industry and policies are changed at least every three years, helping policy keep up with high-tech sectors
[15].

A study of the governments role in Nokias rise gives an overview of Finlands innovation policies and their effects. TEKES grants were initially a large percentage of Nokias R&D budget but most were specifically directed towards basic research with long-term goals, a field that private firms often overlooked due to the costs. As Nokia expanded, public funds as a percentage of its R&D expenditure decreased consistently and were mostly used in high-risk projects. However, during the recession in 1991 Nokia remained strong primarily due to government aid. The primary focus of government funds remained smaller companies and new technologies [6]. The government favoured deregulation (not

just in ICT), open standards and equipment compatibility, making the home market highly competitive, providing greater incentives to innovate and form usable research networks. In such a market, user feedback was given renewed importance and was rated as the most important factor in product development
[8]. Finland also focused on the development of industries as clusters encouraging

inter-firm and industry-university interaction. Nokia and other large companies were awarded TEKES grants with the caveat that they co-ordinate with both universities and smaller companies in research [4]. In fact, Nokia, arguably the epicenter of the ICT cluster, works with an estimated 1800 partners in Finland alone, collaborating in both production and innovation. A large part of Nokias basic research is in collaboration with universities, often forming bilateral relationships with know-how and technology flowing both ways [5]. In fact, after an initial strong incentive from the government, academia and firms realized the mutual advantage of strong relationships and took this further. By 200, the ICT cluster, whose development often correlates with technological innovation, accounted for a third of exports, eclipsing the traditionally strong forest and metal products clusters in Finland [14]. By then, the ratio of high-tech exports to imports was second only to Ireland in Europe, showcasing the success of such a concentrated network approach to innovation systems [5] [7]. Educational Reforms Another key feature of Finlands transformation into a knowledge economy was the strengthening of the educational system, currently one of the highest rated in the world with an education HDI of 0.993
[10].

The schooling system was

revamped in the 1960s and made increasingly centralized and comprehensive, integrating the basic years of schooling. After basic schooling, students can either enter grammar schools (feeders into research oriented universities), or join vocational programs [11]. However, the true benefits of vocational training were realized with the establishments of polytechnics. They focused more on practical training and know-how than universities. A polytechnic degree brought vocational training to the same level of general education and created a number of educated and skilled workers employable in the upcoming high-tech companies in Finland. During the recession in 1991, a larger number of people

took up education and this provided a significant amount of social capital for the rapid growth of industries a few years later but the demand for workers was still greater. To reduce the deficit, the government took up a broad expansion program (students in universities doubled, and in polytechnics tripled between 1993 and 1998). Still, industrial growth has been so rapid and continuous that many Finnish countries still face an educated labour crunch [4]. This actually forced companies to create intensive training programs, often in collaboration with universities, further strengthening co-operation. This was also achieved by activities of the Academy of Finland, a funding body for scientific research, working closely with TEKES to strengthen networking in R&D. Conclusion Finland is particularly important in the study of national innovation systems because it purposefully worked towards a nationally integrated system of firms, institutions and organizational structures. Also, proactive government policies along with creation of innovation clusters and networks have proved particularly successful with Finland second only to Sweden in research intensity
[7].

Finland is one of the few catch-up countries that werent particularly

industrialized before World War II and this allowed it to develop a modern interconnected system of innovation nearly from scratch. This allowed the system to encourage networks and a focus on technology and innovation. Despite the favourable outcomes, Finland is facing many challenges with an ageing pensioned population, lack of employment in medium-tech instructions
[16]

and declining trade during the recent global economic slowdown. Many

public institutions in Finland have overlapping services and streamlining has become increasingly important. This coincides with demands of a broad-based innovation system that better encompasses influencing factors such as demand and user driven policies [9]. In fact, the aim is basically to create an innovation system that encompasses all factors influencing innovation, not just the firms and institutions that were the focus of modern systems.

References 1. Statistics Finland - From slash-and-burn fields to post-industrial society - 90 years of change in industrial structure 2. Growth and equity in Finland, Markus Jntti, Juho Saari, Juhana Vartiainen (2005) 3. Inflation Targeting: Reflections On The Finnish Experience - Antti Suvanto 4. National Innovation Systems: Finland, Sweden & Australia Compared - Learnings For Australia (2005) - Prepared For The Australian Business Foundation By Gran Roos, Lisa Fernstrm And Oliver Gupta 5. Nokia In The Finnish Innovation System - Jyrki Ali-Yrkk, Raine Hermans 6. Transformation of the Finnish Innovation system: A network approach Sitra (Reports series 7) 7. Growth And Innovation Policies For A Knowledge Economy : Experiences From Finland, Sweden, And Singapore - Magnus Blomstrm, Ari Kokko, and Fredrik Sjholm 8. Management of the Innovation Process in Small Companies in Finland Allan Lehtimaki 9. Evaluation of the Finnish National Innovation System Full Report (2009) 10. http://hdr.undp.org/en/media/HDI_2008_EN_Tables.pdf 11. Twenty- five Years of Educational Reform Initiatives in Finland - Ari Antikainen & Anne Luukkainen (Department of Sociology, University of Joensuu, Finland) 12. Innovation Policies in Europe and the Us: The New Agenda - Peter Biegelbauer, Susana Borrs 13. 1990 Finland Science and Technology Council Review 14. Research and Innovation Policies in the New Global Economy: An International Comparative Analysis - Philippe Lardo, Philippe Mustar 15. Finnish innovation system - Esko-Olavi Seppl (http://www.research.fi/en/Finnish_innovation_system2) 16. Evaluation of the Finnish Innovation Support System - Luke Georghiou, Keith Smith, Otto Toivanen, Pekka Yl-Anttila 17. Attacking the Recession How Innovation Can Fight the Downturn - Charles Leadbeater and James Meadway With Mike Harris, Theresa Crowley, Sami Mahroum and Brune Poirson