We were warned but chose not to listen (15 January 2016)

Finland is an interesting case for any scholar or policy maker interested in knowledge based economy and innovation policy. Finland was among the first countries, if not the first, to adopt the concept of an innovation system to frame its policy making. In the midst of a deep economic crisis in the early 1990’s it became obvious that without major structural changes and renewal of economic policy Finland could not escape its economic destiny on a low-road. It was realized that a macro-level economic policy with regular devaluations of the currency was no longer an option. The government recognized that it needed to foster the international competitiveness of its industries and to do this as inexpensively as possible (Schienstock & Hämäläinen, 2001). Consequently, the focus shifted to constructing a ‘national system of innovation’ and public investments in selected ‘clusters’. The policy approach that began to take shape at that time can be described as a ‘cluster flavored innovation policy’ (Sotarauta, 2012).

From the outset, Finnish innovation policy reflected the original thinking behind the emerging national innovation system literature by emphasizing strongly the interaction between private firms, higher education institutions, and government agencies the purpose being to boost science and technology for economic benefit. Additionally, the innovation system framework proved to be a useful tool for finding ways to view individual organizations as parts of the larger whole. The new concept also produced a new political language (Miettinen, 2002) that focused on breaking the traditional sectorial and economic silos. The results seem to be mixed but, at all events, a new meta-rationale for policy making began to emerge.

It is difficult to asses what were the real impacts of the changes in the policy making but it is a verified fact that Finland went into economic depression in the 1990’s as one of the least information and communication technologies (ICT) specialized countries but emerged from it as the single most specialized one (Rouvinen & Ylä-Anttila 2003; Boschma & Sotarauta 2007). Of course, the transformation was highly influenced, even lead, by Nokia Corporation that became the juggernaut not only of the Finnish economy but the mobile telecommunication revolution globally. As is well known, Nokia’s dominance did not last more than 15 years, or so, and in 2013 Nokia sold its mobile phone business to Microsoft after several years struggle with the challenge launched by Apple and Google instead of its earlier rivals Ericsson and Motorola.

Nokia has bounced back with its new strategy focusing on network infrastructures, advanced technology development and licensing as well as map technology, and the acquisition of Alcacent-Lucent positions Nokia in the top three globally in network infrastructures with Ericsson and Huawei. Nokia has bounced back but Finland has not. The economy has experienced several years no-growth period and unemployment rate has risen close to ten nationally. Nokia’s restructuration, and drastic changes in the system around it, has of course left its mark in the Finnish economy, but Finland is also struggling as the exports to Russia have been decreasing and the other strongholds of the economy are searching for new strategies; pulp and paper industry is diversifying towards biofuels, for example, and traditional machinery companies are fine-tuning their services.

The Finnish history is characterized by periodical distresses, different kinds of hardships. So far the country has been able to adapt strategically to the transformations, and more often than not, it has been argued, pragmatic attitude, intensive collaboration between firms, public sector and higher education institutes and bold investments in the education, research and development have been the core factors in resilience. We might conclude that the relatively homogenous Finnish society has shown strong social capital that allows for effective exploitation of existing resources and implementation of corporate strategies and public policies. Today, all this is not enough. High but inward-looking social capital serves poorly in the continuous exploration of novel competencies, technologies, global networks and brands called for in the knowledge based economy. 

Finnish policy makers were warned about the dangers of closed networks and country-level group thinking already some time ago. An extensive international evaluation of the national innovation system of Finland revealed clearly that there were signs of simultaneous institutional rigidity and complexity in the system (Veugelers et al, 2009) and, as Sabel and Saxenian (2008) put it, there was a danger that Finland was “at risk of becoming a victim of its economic success”. Indeed, it was, and the consequences of slow learning as well as blocking of critical voices from innovation and economic policy debates lead to a political and institutional lock-in that has significantly slowed down creation of new development paths.

Sadly, a cynic might conclude, looking back in the history of Finland, the country needs few more years of economic hardships before being mentally done for new avenues. The situation is not bad enough yet. 

In the past, Finland has shown strong resilience based on both well-established vertical and horizontal co-ordination, fairly lean organizations and high social capital. Next, there is a need to let the differing mental models enter Finland and not only export Finnish products abroad – at all levels of activity novel search networks for global exploration are called for. Fortunately, they may already be in the making at the grassroots level.

As ‘the top’ often hears the critical voices but chooses not to listen, today, ‘the bottom’ needs to act. The cabinets in Helsinki will not detemine Finland’s future but the firms of different sizes, universities, schools, community groups, cities, villages, etc. If we are lucky, the big girls and boys in the cabinets may surprise us pleasantly, but, ultimately, we should not ask what the top can do for us but ask what we can do for ourselves. Therefore, the question is not about top down or bottom up policies but new kinds of middle-round-up-down-circular strategies. 

Generative leadership for exploration is called for instead of management of exploitation.



Boschma, R. & Sotarauta, M. 2007. Economic policy from an evolutionary perspective: The case of Finland. International Journal of Entrepreneurship and Innovation Management. Vol 7, Nos 2-5, pp. 156-173.

Miettinen, R. 2002. National Innovation System: Scientific Concept or Political Rhetoric, Edita; Helsinki

Niosi, J. Saviotti, P. Bellon, B. & Crow, M. 1993. National systems of innovation: In search of workable concepts, Technology in Society 15(2) 207-227

Rouvinen, P. & Ylä-Anttila, P. 1998. Finnish Cluster Studies and New Industrial Policy Making, in Boosting Innovation: The Cluster Approach, OECD Proceedings, 361- 380

Sabel, C. & Saxenian, A-L. 2008. A Fugitive Success – Finland’s Economic Future, Sitra Reports 80. Sitra; Helsinki.

Schienstock, G. & Hämäläinen, T. 2001. Transformation of the Finnish innovation system: A network approach, Sitra Reports series 7, Hakapaino Oy; Helsinki.

Sotarauta, M. & Viljamaa, K. (eds.) 2003. Tulkintoja kaupunkiseutujen kehityksestä ja kehittämisestä: Kooste usean tutkimuksen tuloksista [Interpretations about development of city-regions: Compilation of several studies]. Tekniikan akateemisten liitto TEK. City-offset. Tampere.

Sotarauta, M. 2012. Policy Learning and the ‘Cluster Flavoured Innovation Policy’ in Finland.  Environment & Planning C: Government and Policy. 30(5), 780-795.

Sotarauta, M. 2016. Leadership and the city: Power, strategy and networks in the making of knowledge cities. Routledge; Abingdon, Oxon.

Veugelers R., Aiginger K, Edquist C, Breznitz D, Murray G, Ottaviano G, Hyytinen A, Kangasharju A, Ketokivi M, Luukkonen T, Maliranta M, Maula M, Okko P, Rouvinen P, Sotarauta M, Tanayama T, Toivanen O, Ylä-Anttila P, 2009 Evaluation of the Finnish National Innovation System – Policy Report (Taloustieto Oy. Helsinki University Print; Helsinki

© Markku Sotarauta - est. 1998