WIFO

H:user/aig/vorlesungen/Linz_SS_2010/Linz_SS_2010_5.ppt

Länderstrategien Irland, Schweden, FinnlandSeminar LVA 239.231 „Firmen und Märkte“

Karl Aiginger

Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und 13.15 – 15.15 UC6

WIFO

IrlandSeminar LVA 239.231 „Firmen und Märkte“

Karl Aiginger

Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und 13.15 – 15.15 UC6

WIFOIRELAND:

Catching up and forging ahead

Fastest growing European economy in the nineties: GDP +8% p.a. (EU +1.9%, US +3.3%)

Catching up much faster than the famous 2% rule GDP/employee: +3.2% vs. EU (4.2% – 1.0%; 1990-2000) Productivity manufacturing + 4.9% (8.0% - 3.1; 1990-2000)

Three core elements

(i) selective inward FDI

(ii) skilled workforce

(iii) prudent coherent policy

In 3 decades: from agrarian, economy to above average GDP/capita GDP per capita 2000: 26.700 EURO (EU: 22.500) from 63% in 1970 to 119% in 2000

WIFO

History:

Agrarian country

Celtic population (Gales)

Main product: potatoes

Many crisis incl. Famines in 19th century

Emigration to US, declining population

Land owned by Great Britain

Split into protestant North, catholic south

Member of EU since 1973

1. EURO introduced in 2002 (not in UK)

WIFO

Size, location and income

Population: 3.7 mill GDP: 102 bn EURO 2000 (1% of EU) GDP/capita: 26.700 EURO at PPP GSP: 80 bn EURO (difference to GDP: profits to MNE) Exports 94 bn EURO Imports 80 bn EURO

Specifity from the European Angle

Periphery North-North- East location Hub for re-exports into US Exports to US 13% of GDP (five time EU average)

WIFOThe roots of the success

The deliberate choices:

Openness and EU membership

Outward orientation

Determinedness for change

The institutions:

Social partnership & consistent public policy

Development focus with informal public/private networks

5- years indicative planning: consistent policy framework

IDA, Enterprise Ireland, Regional planning

Three pillars in the implementation:

Cheap production strategy: taxation, EU structural policy

Selective FDI: High tech based FDI, export oriented; not for domestic demand

Skilled and flexible labor, upgrading, connecting

WIFOThe role of government:

Development planning of the competitive environment

Consistent strategy, not firm targets or industry targets

1958: National Development Strategy shift: from forbidding to encouraging MNE

1985: 1st comprehensive plan

Structural targets: selective policy in favor of 3 C's

Computers

Communication (call centers)

Chemicals (largest industry; incl. Pharma 1/3 % of value added)

Ex post evaluations of Industrial Policy

1982 Telesis Report 1992 Culliton Report Education and training, R&D Infrastructure, taxes Education and training, R&D. Infrastructure, taxes Cluster formation recommended

WIFO Some prudent measures of Irish Industrial Policy:

Fiber optic lines to all European centers (call center location)

National Linkage Program 1985 IDA enforces backward linkages of MNE firms Forbait (Enterprise Ireland) supports SME's

Indigenous firms have to prove export base to get grants

High profile headquarters and R&D activities in Irish subsidy a priority of NDP

Incomes from patents developed in Ireland are tax free (Tobin 1997)

Measures in Irish regional policy:

All regions have development plans

And make use of domestic and EU subsidies (contrast to Italy)

Investment grants are contingent on value added and intangibles

Dublin, Cork, Waterford, Galway (ports)

Galway in the North West: Silicon Valley

Shannon center for MNE

Belfast industrial center

WIFO The importance of FDI

Inward FDI investment/ GNP

Flow 2000: 22% of GDP

7% in EU

6% in Spain

Share and characteristics of MNE

16% of firms

47% of manufacturing employment

91% of exports foreign owned

40% of GDP produced by MNE

88% of Irish MNE production is exported

The selectivity of Irish FDI policy:

No FDI in labor intensive industries

Leading EU location for high-end US FDI in electronics

33% of PCs sold in Europe are from IRE

40% of PC software, 60% of business application produced in IRE

9 of top 10 pharmaceutical companies have plants in Ireland

10 out of 15 medical device companies

WIFO

The role of FDI and the European Integration

FDI - Type: greenfield investments for re-export Locations advantages Institutional credibility (well organized development agency)

Financial incentives: Low costs, taxes, cheap loans Skills (technical, local entrepreneurs, English language)

Low transport costs (via sea and towards non European countries)

Negligible local market Export based production

No fear of substitution of local firms Greenfield + export orientation

WIFO

History: Ireland had not always been open for FDI:

Pre 1950 anti FDI approach:

prohibition of foreign ownership (incl. UK firms) protection of incipient industry (infant industry argument) a few tariff jumping MNE

Policy change in 1958: Economic Development 1st comprehensive national plan

Abolishion of Control of Manufacturers Plan

Shannon Airport Development Company

Aggressively enforcing inward FDI

WIFORole of European integration

Membership 1973

Large share of regional and structural funds Used actively for upgrading regions (contrast to Italy)

Continued proactive role of national government (contrast to Greece) Ireland most pro active industrial policy (Ruane 1999) Hands on micro dirigism (Ruane and Görg 1999) Incentives tied to employment and R&D content Upfront payments with repayment if target were not fulfilled High tech favored Clusters: the three C's

EU demands less distorting rules for attracting investment

Tax exemption for MNE

Tax differentiation manufacturing / other industries

WIFO Examples for large MNE

In ICT- industries

Intel: 4000 employees, building 3rd wafer fabric

Dell: 5000 employees, regional center for EU, Middle East, Africa

IBM: 3000 employees, support, software, global e-procurement

Hewlett Packard: 2000 employees, manufacturing, banking, e.business

Microsoft: 2000 employees, product development, internet hosting

In Healthcare and Pharmaceuticals

Production and exports of blockbusters like Lipitor and Viagra

Production sites for cardiac, optical, orthopedic devices

2 recent success stories in 2002:

Wyeth Medica decides to build largest bio-pharma plant ever Microsoft buys NAVISON for 1.5 bn Euro as entry into European software market

Largest Irish Firms:

CRH

Bank of Ireland

Allied Irish Bank

Smurfit

Irish Life and Permanent

WIFO Cheap production strategies

EU Structural funds 3% of GDP in early 90s, 2% in late 90s

Taxes: profit tax waived for MNE

1982 10% for manufacturing; 28% for other firms tax will increase to 12.5% (starting in 2003) but 10% remains for existing firms up to 2010

remind: tax is 35% for other European countries

Social partnership lead to moderate wage increases and

Enabled a consensus that high profits of MNE are positive

Profits make up 40% of GDP

Wages 24% below EU average (2000)

Wages make up only 26% of value added (1998; EU 52%)

Unit labor costs have fallen by 44% in nineties Productivity increase not fully reflected in wages

A policy which may change and is not fully optimal At the verge of a knowledge based economy

Result: Share of manufacturing in GDP increases in Ireland from 34% to 40%

Growth of output in nineties: 8% p.a. In contrast to declining share of manufacturing in all industrialized countries

And less than 20% in the US

WIFOEducation and Skills: the method to attract technological firms and to induce them to upgrade plants

Highest rate of investment in human capital between 1960-1985 according to Mankiw, Romer, Weill 1992

7 universities, many colleagues

60% of students in business and science

2nd highest education outlays (after Finland)

57% of graduates in engineering, science, compute, business

Media lab Europe (sister of MIT Media Lab)

Result:

Ireland evaded the development trap

Is not hooked on subsidies if they decrease

WIFO Growth drivers:

Research increasing but below EU average

60% of research expenditure by MNE

first only “peripheral R&D” in Ireland

now attempts of “upgrading” (Amin et 1994 new functions)

Excellent education

Technology diffusion

Asset for the future:

Young and increasing population

40% are younger than 26 yr.; 30% in EU

Pensions costs/GDP 3% in 2040 Between 12% and 18% in other countries (max I, D, SF) OECD, FT 23 11 99

Liability: Low domestic savings ratio Currently not binding due to high inward FDI

WIFO The National Development Plan (NDP) 2002-2006

Focus at the policy shift needed

When Ireland passes European average And subsidies and cheap production strategies have to be abandoned

Investment of over EUR 52 bn over the period 2000-2006 in health services, social housing, education, roads, public transport, rural development, water and waste services.

Now 90% from domestic sources EU will contribute EUR 6 bn EUR 3.8 bn from the Structural and Cohesion Funds EUR 2.2 billion under the Common Agricultural Policy (CAP) Rural Development Plan

Shift to research and education www.ndp.ie

Science foundation Ireland www.sfi.ie

New policy become necessary recently wage restraint became more difficult knowledge based society needs skills and training immigration of skilled people benchmarking of public sector payments initiative for 3rd level research capability

WIFOIreland as seen from Theory:

Dynamic specialization against H-O model

Export oriented FDI

Catching up faster than 2% rule

Catching up and forging ahead in productivity

High investment without high savings

Skills and Research in underdeveloped economy

Foreign investment lead to growth,

Ireland escaped from development trap

Ireland as seen from policy strategies:

Policy plans in market economy

Incomes policy: social partners coordinated with government

Prudent industrial and regional policy

Determined not to be “the poor's corner”

WIFOStatus 2002:

Productivity no 4 in world (after B, US, I)

Highest labor productivity in manufacturing in EU

High unit value of exports

High share of technology driven industries

Productivity higher, wages lower than EU average

GDP per head (domestic value added) above EU GSP (Income per head) lower GSP/GDP 80%; difference profit flow to MNE

Asset price inflation (mortgage lending, house prices)

Infrastructure deficit in some regions

WIFO Summing up: no miracle but economic success based on

Openness and economic integration

Prudent, active, cooperative institutions

Selective FDI, low costs and skills

And the knowledge that the factors defining success will change

Final question marks: Celtic Bubble or Celtic Tiger?

Will the process continue ?

Is a BSP 20% below BIP sustainable ?

Part of BIP extra profits and transfer prices

Is it sustainable that own investment is low (and complemented by FDI?)

Inflationary pressure increases (EU )

Crowding out of indigenous firms via wage increase (input market)

What happens if cheap production strategy and structural funds are lost ?

The coherence of the society, the prudent planning and the determinedness of the people together with investment in research, education and new technologies

Favor a continued growth scenario (however at a smaller difference to Europe)

WIFO References: Sean Dorgan: Competitiveness in the Science Based Economy, WIFO Symposioum, Vienna 2002

Paul Tobin: Ireland Dublin, 1999

Denis O`Hearn: Inside the Celtic Tiger: the Irish Economy and the Asian model” London, Sterling, 1998

Frank Barry (ed) Understanding Irelands Economic Growth, Basingstroke London 1999

Ana Tavares: Systems, Evolution and Integration: Modelling the Impact of Economic Integration on Multinationals’ Strategies’. PHD Dissertation, University of Porto

A. Tavares: ‘The Dialectic Between Regional and Corporate Integration: The Impact of the Single Market Programme on the Strategic Orientation of Multinational Enterprises, with an Application to the Portuguese Case’.

A. Tavares: ‘Multinational Subsidiary Evolution and Public Policy: Two Tales from the European Periphery’ Journal of Industry, Competition and Trade (2002), forthcoming.

Robert J. Barro und Xavier Sala-I-Martin „Convergence across States and Regions" Brookings Papers on Economic Activity 1: 1991, S. 107-182.

Eurostat/EU-Kommission „Europäische Wirtschaft„ Nr.70, 2000, S. 186f.

Tim Callan und Brian Nolan „Income Inequality in Ireland in the 1980s and 1990s" in Frank Barry (ed.) „Understanding Ireland’s Economic Growth" Basingstoke/London 1999, S.176.

Europäische Kommission „Einheit Europas, Solidarität der Völker, Vielfalt der Regionen. Zweiter Bericht über den wirtschaftlichen und sozialen Zusammenhalt – Statistischer Anhang„ Brüssel 2001, Tabelle A2.

Paul Sweeney „The Celtic Tiger. Ireland’s Continuing Economic Miracle" Dublin 1999, S.37

EU Kommission „Sechster Periodischer Bericht über die sozioökonomische Lage der Regionen der Europäischen Union„, Brüssel 1999, S. 221

Denis O’Hearn „Inside the Celtic Tiger. The Irish Economy and the Asian Model" London/Sterling 1998,

Bart van Ark und Robert H. Mc Guckin „International comparisons of labor productivity and per capita income„ Monthly Labor Review July 1999, S. 36

European Commission „The Economic and Financial Situation in Ireland: Ireland in the Transition to EMU" special issue of European Economy 1996 (zitiert bei O’Hearn, S.85).

Wirtschafts- und Sozialausschuss der EU (CES) „Opinion of the Economic and Social Committee on The EU Economy 1999: Review" 369/2000, Appendix „Ireland: An Example of Economic Policy Success"

WIFO

SchwedenSeminar LVA 239.231 „Firmen und Märkte“

Karl Aiginger

Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und 13.15 – 15.15 UC6

WIFO SWEDEN: A REFORMED WELFARE STATE AS A LEADER IN INFORMATION TECHNOLOGY

The very long term view: growth deceleration

Slow growth over decades: 75-2000: 1.8% S (EU 2.4%)

Consumption increase by only 5%: 76 – 95 (+ 33% in OECD)

Falling back from 80% of the US (smallest gap of a EU country) To 68% of US in GDP/capita

Loosing a 14% lead to EU average within two decades

Macroeconomic performance in the nineties:

GDP per capita 2000: 22.900 EURO; 2% above EU average GDP/employee and per hour 10% below High employment ratio 74.6% (EU: 65.5%, US 75.1%) Low inflation and unemployment

Growth acceleration in manufacturing

Low GDP growth in nineties: 1.3% (EU: 1.9%) Productivity higher 2.0% (EU: 1.0%) High growth in manufacturing: 4.2% (EU 1.7%) productivity growth 5.3% (3rd rank and > USA) Focus: to push productivity to increase competitiveness Despite of low growth (macro economy) Based on high growth (manufacturing)

WIFOThe socio-political system in Sweden A Welfare State: indeed “the” model

High incomes + social security + equality Social Partnership Nordic Style

Re-distributive Inclusive Impact on all kinds of policy High share of public sector Taxation of capital lower than in other countries

Trade Unions have specific large impact Social democrats were leading the country most time Influence on large firms via codetermination and shareholdings of pension funds Position attitude to outward FDI Productivity orientation

Early liberalization of utilities Liberalization of post and telecom 1993 Liberalization of letter distribution 1993 Deregulation of taxis 1990 Entry of foreign airlines 1997

Today: Most deregulated telecom sectors Highest productivity in transport Vertically separated railways (with public ownership in grip)

WIFOSweden experienced a severe crisis in 1992/93:

The crisis

High inflation up to 13% Negative real interest rates Unemployment increased: an unknown phenomenon to Sweden Budget deficit increased quickly as the economy retarded Public expenditures between 60% and 65% of GDP

Turnaround with excellent results in 2nd half 90ties

3rd highest growth in industrial output

Today:

Leading European Country in Growth drivers and innovation

WIFOThe Crisis Sweden was suffering slow growth of output

And high costs of production (wages, taxes) Since decades (as many leading countries)

Unsuccessful devaluation 1982:

Restructuring economy from domestic, sheltered to open, based on competitive export sector Unsuccessful due to inflationary pressure

Capital intensive, resource oriented industry structure

High share of wood products, pulp and paper, of non ferrous metal and steel industry; With second stronghold in machinery, car, engineering industry

Finish crisis added to the problems

Loss of former Soviet market Similar industry structure with price competition

WIFO

The cure: 4 pillars of reform in crisis 1992/93

1. Cheap cost elements:

Another devaluation (with strict after care) Wage restraint

2. Fiscal responsibility and 7.5% budget reform package

3. Enforcing incentives (small steps in welfare reform)

Elements of work to welfare Reducing benefit levels

4. Boosting long run growth:

Increasing research Fostering telecom Emphasize education

WIFOThe Budget Reform Bill 1994/95: the 7.5% package

Commitment to future expenditure limits Consolidation package of 118 bn Swedish Krona (7.5% of GDP) Decreasing expenditures by 71.2 BN Swedish Krona -34.6 transfers to households - 8.1 subsidies - 6.8 government consumption -21.7 others (roads, medicines, education) Increasing taxes 69.0 BN Swedsh Krona 23.7 insurance contributions 4.7 taxes for high income earners 6.1 production taxes 27.5 others Distribution effect calculated: 43% of burden highest fifth of incomes

11% lowest fifth Source: Swedish Government: Fiscal consolidation government bill 2000/2001 Annex 5: An account of fiscal and monetary policies in the 90s

WIFO Institutions and incentives

Reform of institutions

Reinforcing independence of Swedish Central Bank Liberalization of financial sector (foreign banks allowed) Enforcing competition policy Increasing efficiency and competition in public sector Shift housing policy from firms to tenants Deregulation of transport, communication energy

Enforcing incentives:

Reducing marginal tax rate for persons and making capital taxis more uniform

Increasing incentives to work Qualifying day for sick payments First two weeks to be paid by employer Compensation from 90% to 80% Connecting pension to contributions paid EU membership in 1995 (but not in EMU)

WIFO Program: Creating an information society for all

3 Strategic Goals: Confidence in IT Competence in IT Access to IT

Five specific measures: Employers buy computers for personal use of employed

Goal: fighting “digital divide” Measure: tax incentive for firms (start 1998)

Vocational education for unemployed (SWIT Project: 1998–2000) Goal: alternative labor market program Industry managed/government financed Education IT and IT related professions 12.000 people; 90% certificate, 82% became job

Swedish alliance for Electronic commerce GEA Legal framework (electronic signature) Information, education, dissemination Standards, security

Svea Project for SME Goal: increase business value through electronic business 100.000 firms should have heard up to end 2002 30.000 SME should have adopted and experienced value increase funding government plus private partners

Broadband investment Quantitative targets for national back-bone network Regional network Local network

WIFO

Next plans (as of 2002)

Science park for IT connected with 13 universities, 23 university colleges International cooperation: North S - North Finland Sweden - Baltic countries Sweden - Denmark Invest in Sweden Agency with IT focus Direct investments: Inflow 1999 24.7% of GDP

Outflow 7.9%

WIFO The Swedish model of corporate governance

A guided capitalism with Institutions, investment funds and private foundations as owner

Firewall against hostile takeovers: Special shares voting non voting shares 50% of large firms have split shares

Wallenberg owns 10 out of 25 largest Swedish firms e.g. 4.8% of shares of Ericsson, but 38.8% of voting rights Other large shareholders AB Industrievärden, Investor AB Wallenbergstiftung, Pensionsstiftels Svenska Handelsbanken

Bias of financial system and political priorities towards large companies High share of large firms in country and within top 500 The same firms over decades Friendly to mergers, soft competition policy Model of structural change within firms Not via exit/entry Not via unfriendly takeovers Relative low corporate tax rate 28%, A 34% 15 firms out of big 500 are Swedish

Relative to size three times more than in US

WIFO Status 2000: Excellent performance in growth drivers

Top ranks in research, education, ICT Research outlays 3.5% , rank 1 in EU, higher than EU 1.83 (2000) and US 2.7 up from 2% in 1990

Patents and industry research double the EU average Public expenditures to education: 7.8% (EU 5.5%)

Share of secondary education 76% vs. 58% Of tertiary 28% vs. 20% Leading country in ICT expenditure and use

Higher share of internet users than in US Close to US in Indicators on Knowledge Based Industry

Out of the 16 drivers for growth (in advance economies 8 top 1 position 19 our of 20 among top five EU countries only deficit share of new/improved products which is a SME stronghold

Improvement in most indicators on future strength Consistent investment through the crisis of 92/93

Lower share of physical investment GDP

Industry structure changed from capital intensive industries to ICT Productivity increased more than 10% p.a. in electronics Exports in ICT now more than that of traditional industries

WIFO

Competitiveness 2000 Wages in manufacturing 15% above EU level

10% Lower than in Germany, Denmark

Tax/GDP ratio 61%, ways above EU average High taxes on income, property Statutory and effective profit tax far below EU average

Growth of output and productivity regained Specifically in manufacturing, 2nd half 90ties

Heavily investing into the future: R%D, Education, ICT

WIFOGeneral assessment A reformed welfare state of Northern European type Double strategy of lowering costs and pushing productivity Reform of institutions and enhancing incentives Still much larger impact of non market institutions than in

Anglo American model Taxes low for firms, but higher (60% of GDP) than in other countries A consensus of the interest groups and a positive role for government and

institutions Problems may come up if the ICT crisis wold be long term Disappointing macro- productivity (in non manufacturing) Insufficient dynamics of medium sized firms and low entry Inclusive social model with high equality retained A leading country in the upcoming knowledge intensive society

WIFO

Largest firms in Sweden

Rank in

Europe

Name Industry Sales Employment Market Value

50 Ericsson Telecom. 30,881.7 105,129 49,974.2

74 Skandia Insurance 23,021.3 6,717 13,086.9

118 Volvo Cars, trucks 14,682.9 79,820 5,459.0

123 Electrolux Electric machinery 14,053.4 91,758 6,477.4

130 Skanska Construction 13,054.6 45,063 4,608.0

WIFOFigure 1m: Location and basic facts: Sweden

WIFOFigure 8b: GDP per capita at PPP in relation to the EU

40

50

60

70

80

90

100

1960 1965 1970 1975 1980 1985 1990 1995 2000

Sweden Finland EU

WIFOFigure 8i: GDP per capita at PPP in relation to the EU

50

60

70

80

90

100

110

120

130

1960 1965 1970 1975 1980 1985 1990 1995 2000

Sweden Finland EU

WIFO Figure 10b: GDP at 1995 market prices Growth rates (3 years moving average)

-4

-2

0

2

4

6

8

1971 1976 1981 1986 1991 1996 2001

Sweden Finland EU

WIFOFigure 10i: Growth differences in real GDP of country vs. EU

-4

-2

0

2

4

6

8

1971 1976 1981 1986 1991 1996 2001

Sweden Finland EU

WIFOFigure 11b: Taxes in % of GDP

40

45

50

55

60

65

70

1980 1985 1990 1995 2000

Sweden Finland EU

WIFOFigure 12b: Government outlays in % of GDP

40

45

50

55

60

65

70

75

1980 1985 1990 1995 2000

Sweden Finland EU

WIFOFigure 13b: Budget deficit/surplus in % of GDP

-10

-5

0

5

10

15

1980 1985 1990 1995 2000

Sweden Finland EU

WIFO Figure 16b: Currency in relation to EURO

Remark: A decrease in the line marks a devaluation of the currency relative to the EURO.

10

12

14

16

18

20

22

1970 1975 1980 1985 1990 1995 2000

Sweden Finland

WIFO

Figure 4: Macroeconomic performance: Sweden

0

1

2

Real growth

1975/2000Real growth

1990/2000

Productivity growth

1975/2000

Productivity growth

1990/2000

Inflation rate

1990/2000

Unemployment rate

2000

Employment rate

2000

Industry growth

1975/2000

Industry growth

1990/2000

GDP/capita

2000

GDP/employee

2000

GDP/hour worked

1999

Value added

manufacturing

per employee

1999

WIFO

Figure 5: Growth drivers: Sweden

0

1

2

3

4

Real growth of GDP

1990/2000

Macro productivity

1990/2000Growth of

manufacturing

1990/2000

Productivity growth

manufacturing

1990/2000

Investment

/GDP

R&D/GDP

Research

intensity

Patent

activity

Education

expenditure

/GDPSecondary

education

Tertiary

education

ICT/

GDP

PC

per

capita

Internet users

per

capita

ICT

share

manufacturing

Innovation

expenditures

/sales

New products/

sales

Share of

co-operations

Firms with continuous

research

WIFO

Figure 6: Policy profiles: Sweden

0

1

2

3

GDP per

capita at PPP

2000 Value added

per employee

1999Structural change

superindicator

Openness

Outflows

in % of GDP

1996-2000

Inflows

in % of GDP

1996-2000

Product

market

regulation

Competition

telecom

Open

tenders

Sectoral aid

Labour

market

regulation

Untrained

school dropouts

Long-term

unemployment rate

Lifelong

learning

Venture

capital

Market

capitalisation

Social

expenditure

/GDP

Fiscal debt

/GDP

Energy

efficiency

CO2/GDP

WIFO

Figure 7: Country profiles: Industry structure and quality position: Sweden

0

1

2

3

Value added

per head in

manufacturing

Real growth of

manufacturing

Productivity in

manufacturing

Value added

(High RQE)

Exports

(High RQE)

Exports

(High PPS)

Export

unit value

Import

unit value

Relative

export

unit value

Value added

(Sunk cost

industries)

Exports

(Sunk cost

industries)

0

1

2

3

Value added

per head in

manufacturing

Real growth of

manufacturing

Productivity in

manufacturing

Value added

(Skill

intensive

industries)

Exports

(Skill

intensive

industries)

Value added

(Knowledge

based services)

Exports

(Knowledge

based services)

Value added

(High product

differentiation)

Exports

(High product

differentiation)

Value added

(Globalised

industries)

Exports

(Globalised

industries)

WIFO

Figure 17m: The main industries: Sweden

0 1 2 3 4 5 6 7 8 9 10 11 12

Motor vehicles

Pulp, paper and paperboard

TV, and radio transmitters,apparatus for line telephony

Pharmaceuticals

Other general purposemachinery

Other special purposemachinery

Publishing

Basic chemicals

Parts and accessories for motorvehicles

Cutlery, tools and generalhardware

Specialisation

Share 1998

WIFO

FinnlandSeminar LVA 239.231 „Firmen und Märkte“

Karl Aiginger

Dienstag, 13.4.2010, 10.15 – 12.00 K 269D und 13.15 – 15.15 UC6

WIFO FINLAND: FROM PAPER TO TELECOM

Geography:

Northern country, thinly populated (17 persons/m2)

Close ties and long border to former Soviet Union

Traditional resource based structure

5.2 million people, 6th largest region

Performance:

GDP/capita 23,200; 7. position, 3% above EU average

Growth in nineties higher, specifically 2nd half

Excellent performance of industry: + 6% p.a.

High and increasing productivity

High share of manufacturing in GDP

Employment rate in EU average, but lower than in most Nordic countries

Severe Crisis in 1993

Deeper than in Sweden: -10%

Unemployment up to 17%

Product structure: Wood, paper, textile industry

Breakdown of Soviet market

WIFONordic Policy model

Corporate governance corporatism

Large, stable firms with internal restructuring in existing firms

Average age of large firms more than 100 years

Nokia: from pulp, boots, cables to telecom

Tripartite social partnership with influence from government

The turnaround

Technology policy: public infrastructure

Government as leader in implementing ICT

Upgrading education

Regional centers for development (3 objective 1 regions)

Upgrading the wood and paper cluster (“forestry cluster”)

Devaluation

WIFO

Telecom Strategy

Telecom Society Plan

Quantitative targets for schools, government etc.

Early liberalization of telecom

1990 open competition for network and services

Tradition of local competition

No "one network, one supplier" strategy

Stock options for employees (tax reduced)

WIFO The importance of Nokia

World leader in mobile telecom

58.000 employees

30% of exports

The homebase and the internalization

2% of demand in Finland

20% of production

80% of research

Facit:

without technology focus at industrial policy,

without ICT skills provided by educational system and

1. without early start of electronic government Nokia would not have been that successful

WIFOLarge industries and large firms

The largest industries

Pulp and paper

Telecom

Special purpose machinery

Publishing

Basis chemicals

The largest firms

Nokia telecom equipment, software

Stora Enso paper

Fortum energy, oil, gas

UPM Kymmene paper

Metso conglomerate

WIFO Internationalization

A new awareness of the necessity to "go west"

Finland had low export/import ratios

And high shares of trade with former Soviet Union

Shifted exports to EU countries

Internationalized firms

Passive and then active FDI

Up to nineties higher inward FDI, since 1991 more outward, today outward vs. inward 2:1

ICL, IBM, Siemens, Hewlett Packard, Ericsson, Lotus have plants in SF

Nokia: software for the next generation is spread to other countries with excellent skill basis

Member of EU 1995

Founding member of European Monetary Union

WIFO The growth drivers

Research and patents now well above average

Increasing research even in deepest crisis

Eighty technology parks

Education: high expenditures and high outcomes

Leading in recurrent education

High ranked n PISA ranking of educational skills

Open universities with specific programs

For people with work experience

ICT use among leading countries High share of co-operations High share of continuous research

Among 16 growth drivers Finland is leading in 6, and among the top 5 in 15

Cost position

Wages 10% above EU, but 5% lower than in Sweden

Taxes/GDP 53%, 7 points higher than in EU, but 8% lower than in Sweden

WIFO An overall evaluation

Status 2000

Extremely successful in manufacturing

Productivity acceleration

Specifically 2nd half of nineties

Unemployment down from 19%, but still near 10%

Leading country in ICT

The strategy

Coherent industry, technology, regional policy

Cooperative business climate: “Connecting People”

Fostering research, education, new technologies

Liberalization plus competitive infrastructure

Elements of success

Awareness due to large crisis

Tripartite policy coordination

The luck to host Nokia

Upgrading of traditional industries

Restructuring ability of large firms

Determined for future growth

WIFOFigure 1l: Location and basic facts: Finland

WIFO

Figure 4: Macroeconomic performance: Finland

0

1

2

Real growth

1975/2000Real growth

1990/2000

Productivity growth

1975/2000

Productivity growth

1990/2000

Inflation rate

1990/2000

Unemployment rate

2000

Employment rate

2000

Industry growth

1975/2000

Industry growth

1990/2000

GDP/capita

2000

GDP/employee

2000

GDP/hour worked

1999

Value added

manufacturing

per employee

1999

WIFO

Figure 5: Growth drivers: Finland

0

1

2

3

4

Real growth of GDP

1990/2000

Macro productivity

1990/2000Growth of

manufacturing

1990/2000

Productivity growth

manufacturing

1990/2000

Investment

/GDP

R&D/GDP

Research

intensity

Patent

activity

Education

expenditure

/GDPSecondary

education

Tertiary

education

ICT/

GDP

PC

per

capita

Internet users

per

capita

ICT

share

manufacturing

Innovation

expenditures

/sales

New products/

sales

Share of

co-operations

Firms with continuous

research

WIFO

Figure 6: Policy profiles: Finland

0

1

2

3

GDP per

capita at PPP

2000 Value added

per employee

1999Structural change

superindicator

Openness

Outflows

in % of GDP

1996-2000

Inflows

in % of GDP

1996-2000

Product

market

regulation

Competition

telecom

Open

tenders

Sectoral aid

Labour

market

regulation

Untrained

school dropouts

Long-term

unemployment rate

Lifelong

learning

Venture

capital

Market

capitalisation

Social

expenditure

/GDP

Fiscal debt

/GDP

Energy

efficiency

CO2/GDP

WIFO

Figure 7: Country profiles: Industry structure and quality position: Finland

0

1

2

3

4

Value added

per head in

manufacturing

Real growth of

manufacturing

Productivity in

manufacturing

Value added

(High RQE)

Exports

(High RQE)

Exports

(High PPS)

Export

unit value

Import

unit value

Relative

export

unit value

Value added

(Sunk cost

industries)

Exports

(Sunk cost

industries)

0

1

2

3

4

Value added

per head in

manufacturing

Real growth of

manufacturing

Productivity in

manufacturing

Value added

(Skill

intensive

industries)

Exports

(Skill

intensive

industries)

Value added

(Knowledge

based services)

Exports

(Knowledge

based services)

Value added

(High product

differentiation)

Exports

(High product

differentiation)

Value added

(Globalised

industries)

Exports

(Globalised

industries)

WIFO

Figure 17l: The main industries: Finland

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Pulp, paper and paperboard

TV, and radio transmitters,apparatus for line telephony

Other special purposemachinery

Publishing

Basic chemicals

Other general purposemachinery

Basic iron and steel, ferro-alloys(ECSC)

Printing

Other food products

Plastic products

Specialisation

Share 1998

WIFO An overall evaluation

Status 2000

Extremely successful in manufacturing

Productivity acceleration

Specifically 2nd half of nineties

Unemployment down from 19%, but still near 10%

Leading country in ICT

The strategy

Coherent industry, technology, regional policy

Cooperative business climate: “Connecting People”

Fostering research, education, new technologies

Liberalization plus competitive infrastructure

Elements of success

Awareness due to large crisis

Tripartite policy coordination

The luck to host Nokia

Upgrading of traditional industries

Restructuring ability of large firms

Determined for future growth