From innovation to labour costs: Change of emphasis in Finnish competitiveness policy ideas after the Eurocrisis

Abstract

Small open economies such as Finland are particularly exposed to international market competition. In this article, Finland is analysed as a competition state where the pursuit of international advantages is a policy priority. Previously, Finland has been argued to be an exemplar of an economy following a strategy of radical transformation via creatively utilizing corporatist institutions instead of relying mainly on liberal reforms. In the 1990s, Finnish policymakers adopted policy ideas that emphasize technological change, innovation and education as a means to competitive edges and pursued these goals in a coordinated manner. This allowed Finland to adopt an export-led growth model and specialize in technologically sophisticated high-quality products and services. Against this background, it is argued here that after the Eurocrisis, there has been a shift of emphasis in Finland's competitiveness strategy. The article documents how cost competitiveness measured in unit labour costs became the focal point of ideas about and policies to improve national competitiveness between 2012 and 2015. This occurred as a result of an expert economist discourse about Finland’s export problems that emphasized labour costs as the key variable. The Centre-right government’s policies after 2015 reflect the adoption of this diagnosis. On the one hand, unit labour cost reduction has become a policy priority. On the other hand, state expenditure in innovation and R&D policies has been cut substantially. These shifts suggest that there has been a change of emphasis in Finland's post-1990s competitiveness policy model and its ideational underpinnings.