Finland - Industrial Policy

Industrial policy

The state had played an important role in Finland's industrial development, but it did not intervene directly so much as many other European governments. Intervention in industry began in the mid-nineteenth century, and it increased over time. Tariff policy and government procurement, the latter being especially important during the two world wars, furthered the development of manufacturing. The government's influence was probably most important in the years after 1944, when Finland struggled to make reparations payments to the Soviet Union. Partially as a legacy of this period, the state controlled companies that owned about 15 percent of manufacturing capacity, employed about 14 percent of the work force, and contributed about 25 percent of industrial value added. The state was especially active in sectors requiring heavy investments, such as basic metals and shipbuilding. These state-owned firms, however, did not receive government subsidies; if unprofitable, they failed. Thus, while the state controlled most prices and implemented long-term sectoral plans in agriculture, forestry, energy, and minerals, state-owned firms in manufacturing remained largely free to manage their own affairs.

In the late 1980s, Finnish industrial policy continued to be considerably less interventionist than the policies of most West European countries. The government's strategy for industries that were having difficulty favored rationalization and restructuring instead of subsidies. Industry was encouraged to step up investments to increase productivity and to arrange mergers with domestic and foreign interests to increase efficiency. Policy makers argued that industry, as a small sector (compared with that of many other countries) open to private investment but dependent on exports, must adjust to international conditions.

Despite this hands-off approach, the government did subsidize the research and development of new industrial technologies. Research and development expenditures had remained low until the 1980s, reaching only slightly more than 1 percent of GNP in 1980. After that time, however, the government increased such spending, which exceeded 2 percent of GNP by the late 1980s. The State Technical Research Institute in Otaniemi, founded in 1942, played an important role in providing industry with up-to-date information on new technologies; its maritime engineering laboratory was one of the largest and best equipped in the world. In 1984 the Ministry of Trade and Industry initiated a four-year program of research on target technologies, including applications of laser technology to machine engineering, advanced measurement techniques, and offshore construction techniques for arctic conditions. The government also sponsored technology parks, such as the one at Oulu, that provided facilities for cooperative research projects involving industry and local universities. In addition, investments in technical training promised a continuing supply of workers able to maintain the quality, durability, and dependability of Finnish industrial goods.

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