Finland looks inward and embraces globalization
Wednesday, May 02, 2007
Finland may seem like an odd place to go to learn how to cope with the economic challenge from China and India. Small, remote and distinctly unglamorous, with a population of just five million wintry souls, it is rarely top of mind for anyone. As the Monty Python song put it, Finland is "so sadly neglected, and often ignored; a poor second to Belgium, when going abroad." But in its modest, quiet way, Finland is teaching the world something valuable.
Most economists say the best way for governments to cope with globalization is not to put up trade barriers or subsidize chosen industries; it's to invest in education and research and development, creating the smart people and sophisticated technologies that will help you stay ahead. Finland is one of the few places to actually put that advice into practice.
Its R&D spending is higher than any other's except, possibly, Sweden and Israel. Its educational performance is rated the best in the world. It has ranked No. 1 in the World Economic Forum's global competitiveness index four times since 2001, and last year it came a close second to Switzerland (Canada was 16th). Led by cellphone giant Nokia, its economy grew 5.5 per cent last year, fastest in the euro zone.
Finland's leap from hewer of wood to high-tech, knowledge-based economy was born out of desperation. In the early 1990s, after the collapse of the Soviet Union wiped out trade with Finland's next door neighbour overnight, Finns suffered through the worst recession for any industrialized country since the Second World War. Many companies pleaded with the government to bail them out. Among them was Nokia, then on the verge of going bust. The government refused.
Instead, it spent on boosting R&D and retraining workers for better jobs. Today Nokia, which once manufactured rubber boots, is the world's biggest maker of cellphones. Although it now makes all but prototype phones in places like China, Hungary and Brazil, Nokia has kept most of the best jobs - in management, engineering and design - in Finland. Two-thirds of its work force is overseas but half of the R&D is done at home.
Its magnificent glass headquarters in Helsinki is a temple to the new Finland, full of bright young things with tiny, burbling phones.
Other industries have gone up-market, too. The forest industry, once an exporter of timber, planks and later newsprint, now specializes in high-quality papers. As an offshoot, Finland has become the world's biggest producer of paper-making machinery, shipping its expensive, sophisticated machines around the globe.
With a homogeneous society and a tradition of making decisions by consensus, Finland has been able to rally around a vision of the economic future. In 1980, well before the big recession, the Finnish Parliament decided to double R&D spending in a decade. It also decided to open up the telecom market, paving the way for the fierce domestic competition that made Nokia fit to take on the world.
More recently, Finland had a big debate on whether to build a new nuclear power plant. After thorough discussion, the question was put to Parliament, which voted to go ahead. The reactor is now under construction, the first to be built in Europe in 15 years. This is a country that makes a call, then acts on it, a happy contrast with all the hypothetical talk about globalization that goes on in Canada.
Rather than hiding from globalization, Finns have embraced it. Their success should encourage those who fear that rising Asian powers are going to steamroller established economies like so many pancakes. It doesn't need to happen if we play it smart.
Of course, Finland has its problems. Finns are reluctant entrepreneurs, so there are too few business startups. Tax and labour costs are high. Worst of all, the Finnish secret is out. China and India are also investing heavily in education and R&D, so the Finns must find a new way to keep their edge.
For now, though, Finland is no longer notable merely for being, in Monty Python's words: "Quite a long way from Cairo, lots of miles from Vietnam." Today, it seems just a little less silly to sing: "Finland, Finland, Finland; Finland has it all."
Marcus Gee was in Finland while on leave from this paper, as part of a trip to Europe for University of Toronto journalism fellows that was paid for by the Finnish government.