The Globelix Academy

1. The Globelix Academy Tampere 1–12 June 2008 Professor Gerd Schienstock Research Unit for Science, Technology and Innovation Studies (TaSTI) University of Tampere Finland Tel. +358 3 3551 7202 Fax +358 3551 7265 Email: gerd.schienstock@uta.fi The Industrial Development of Finland: From Path Dependency to Path Creation

2. Increasing interest in long-term technological development and socio-economic change 1/2 Position A a)Industrialized countries have to undergo a fundamental and very rapid transformation towards a new economy (knowledge-based economy) b) Dictating influence of some mega-trends: globalization, pervasive informatization of the economy or scientific–technological revolution c) Convergence in the development of industrialized economies Position B a) Continuity in economic development, change is slow and gradual b) Countries retain patterns of institutional continuity and national distinctiveness even under the conditions of external shocks c) Divergence in the development of industrialized economies (path dependency)

3. Increasing interest in long-term technological development and socio-economic change 2/2 Finland a) Fundamental and rapid transformation of the national economy towards a knowledge-based economy b) Finland as a small and open economy is particularly exposed to external pressures c) Finland has developed a unique model of the knowledge-based economy (ICT industry, social stability, ecological sustainability)

4. The concept of path dependency 1/2 • Continuity in the process of technological change • New innovations line up with earlier technological change; they have historical antecedents of progress • Mechanisms behind path dependency: technical interrelatedness, economies of scale; quasi irreversibility (high switching costs); increasing returns (positive feedback: learning); and social embeddedness of techno-economic processes • Applied to analyse technological development but increasingly used on the organizational, sectoral, and even on the regional and national level

5. The concept of path dependency 2/2 • Path dependency on the national level means that national innovation systems develop and sustain particular technological, organizational, institutional and cultural characteristics • Weak interpretation of path dependency (not technological determinism but social dimension): creative capability of actors; co-evolution of technological and organizational change; institutional embeddedness (learning within the existing growth path) • Problem: a negative lock-in (inferior option of development: retarding economic growth); leading countries in the old paradigm are likely to fall behind due to structural, cognitive and political lock-ins • Getting out of path dependency may become a key problem for industrialized countries

6. The concept of path creation1/2 • Important integrating continuity and discontinuity: distinction between new technological paradigm and national technological trajectories (Dosi) • Discontinuities in technological development and breakthrough innovations are associated with the emergence of a new technological paradigm • Continuity is related to learning processes along a national technological trajectory as the dynamic aspect of technological paradigms • Five building blocks to analyze processes of path creation: 1. window of new techno-organizational opportunities (new technological paradigm) 2. the prospect of new businesses and markets 3. pressures coming from external socio-economic factors (globalization) 4. key change events (economic crisis, political instability) 5. human will to change things (agency problem)

7. The concept of path creation2/2 • The development of a new path, not a sudden break from the old one; new path interacts with the old paths and sectors, dynamic process of interaction (transformation of the old paths and shaping the developing new path: multitude of paths) • Path creation as a contested terrain; confrontation between the forces of change and those of persistence, but also between different groups of modernizers • Problem of “homing” the new paradigm: strengthening the diffusion capacity of an economy (demand factors)

8. Finland’s transformation process1/2 • Path dependency was based on the forest cluster until the late 1980s; dynamic growth of the forest cluster with constantly widening exports after WW II • Development of a new path became visible in the beginning of the 1990s • Lock-in: inefficient use of capital and labour in the forest cluster indicated by comparatively low productivity and efficiency, shrinking global competitiveness in the 1980s • Deep economic crisis: industrial production shrank by about 10 per cent, GDP shrank by about 20 per cent, unemployment close to 20 per cent other causing factors: breakdown of the Soviet Union, economic slowdown worldwide, inefficient macro-economic management

9. Finland’s transformation process2/2 • New technological paradigm: digital, mobile paradigm in ICT, huge innovation potential • Global pressures: Finland as a small open economy is particularly pressured by global competition forces • New markets: creation of a common Nordic market through the establishment of the NMT (Nordic Mobil Telephone) Standard • Agents of change: business people, scientific community, and policy makers (national project) • Conflict between traditional industries and emerging telecommunication sector • “Homing”: diffusion of ICT within the whole economy and society

10. Key characteristics of the old and the new Finnish Growth Model 1/3 Phase of path-dependenteconomic development Phase of creation of a new growth path

11. Key characteristics of the old and the new Finnish growth model2/3

12. Key characteristics of the old and the new Finnish growth model3/3

13. Characteristics of the Finnish technology and innovation policy • Transformative: initiating and sustaining structural change (from a resource-based towards knowledge-based economy) • High road strategy (knowledge-based economy) • Holistic restructuring approach (national systems of innovation) • Anticipatory institutional change: prepare for technological breakthrough (education and science) • Consensus-based (discourse co-ordination) • Reflexive learning (based on fixed goals, for example, R&D investments, competitive benchmarking to identify weaknesses, culture of evaluation) • Demand orientation • Increasing importance of social innovations: organizational forms, networking and institutional adaptation • Socially integrative (Nordic welfare state) • Internationalization: becoming a key hub in global knowledge flows and networks

14. Is the new Finnish path sustainable?Finland as a knowledge-based economy in the making Problems concerning economic sustainability: • Dependency on one sector: telecommunications, extension of the knowledge-based economy to other sectors: increasing knowledge-intensity of resource-based economy; establishing new sectors: bio-technology, trans-sector co-operation • In the telecommunications cluster equipment production is still dominating; increasing focus on software and content production • Dominance of one global firm (Nokia) (exit option), growing ICT network, institutional embeddedness • Continuous industrial restructuring in the ICT sector and fusion of technologies can easily undermine Nokia’s position, new strong competitors (Microsoft, Vodafone, Apple, etc.)

15. Is the new Finnish path sustainable?Social sustainability • Linkages between the knowledge-based economy and the welfare state: the two-thirds society, independent of each other, mutually reinforcing each other (Finland: job creation in the ICT sector and reduced unemployment, differences between rich and poor people have increased, social services have been reduced to some extent but the traditional Nordic welfare state has survived