Investing in innovation is key

By Antti Alaja
8 March 2016
Finland Finland
Finnish progressives should promote the idea that long-term science and innovation funding are key investments for the future
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Finnish economy experienced a severe financial crisis and depression in the early 1990s. Financial deregulation of the 1980s, pro-cyclical fiscal policy, hard currency policy and the fall of the Soviet trade were significant factors behind the crisis. On the other hand, the 1990s crisis also highlighted the structural deficiencies of the old growth paradigm. After decades of developmental state policies, Finnish policymakers had to find a new recipe for growth.

New industrial policy thinking emphasised that knowledge can become the driving force of economic growth. Michael Porter’s cluster approach became influential, and Finland was the first country in the world to adopt national innovation system as the key idea in science, technology and innovation policy. Building a knowledge society became a vision for Finland, and public investment in education, technology and innovation was conceived as a national priority.

The broad ‘rainbow coalition’ government led by social democrat Paavo Lipponen decided to increase public R&D spending by 25 per cent in 1996, which symbolised the new policy paradigm. It was also a great coincidence that Nokia became a mobile phone giant only a little after Finland had adopted the new policy model.

If developing the national innovation system and increasing education and public R&D investment became a priority in the 1990s, during the current economic downturn there has been less confidence among policymakers that knowledge and innovation can solve problems. Since 2009 Finland has experienced a severe structural crisis and a double dip depression, and export performance has been anemic.

Public R&D expenditure was cut already during the last government’s term, but the expenditure cuts by the current government led by Prime Minister Juha Sipilä have really made the crisis of science and innovation system acute. For example, University of Helsinki, which is Finland’s top rated university, was forced to lay off around 1000 employees in early 2016.

The government of two center-right parties, The Centre party and National Coalition party, and the nationalist True Finns, has emphasised that Finnish universities have to perform better research with fewer resources. In various statements, government ministers have also belittled the work performed in the universities, which has further angered researchers. While there is a case for strengthening the quality of research, quality is not going to improve through cutting funding.

Public innovation funder Tekes is another victim of the expenditure cuts, as the Sipilä government decided to cut over €100m of its funding for 2016. These cuts will most likely have a negative effect on Finnish companies’ innovation capabilities. According to the SFINNO database on Finnish innovations, Tekes was involved in over 60 per cent of innovations commercialised by Finnish firms in 1985-2007. Tekes projects have also promoted research collaboration among firms, universities and research institutes.

Sipilä government’s economic policy priorities include radically increasing the cost competitiveness of the Finnish economy, cutting red tape and balancing the budget through public expenditure cuts. Popular austerity rhetoric around cutting the red tape sees the state as the problem, and not as the long-term funder of technology and innovation activity. Large public sector and labour market rigidities are named as the key structural problems in the economy.

In the context of conservative turn in Finnish science and innovation policy, Finnish progressives should once again promote the idea that long-term science and innovation funding are key investments for the future, and that this funding promotes innovation-led growth and societal modernisation. In addition to supply-side measures, promoting innovative public procurement should be a priority for progressives.Second, in the spirit of American philosopher Martha Nussbaum, progressives should also emphasise the role of humanistic education in the universities for the democratic and enlightened society. In recent years Finnish science policy has focused too much on commercialising research, but universities best serve the society and the innovation system through performing their basic tasks:  high-quality teaching and research.