Up to the 1990s, Finland’s economy was based on natural resources. After that, Finland’s GDP started to grew dramatically, with annual growth rates of 10%. The country became the world leader in telecommunication technology with Nokia as its flagship company. How did the country achieve such goal?
The awakening of Finland as a competitive nation
Until the 1990s, Finland’s economy was based on its rich endowment of natural resources and its coastline. It was an economy dominated by 3 clusters focused on pulp and paper processing, metal processing and the wood sector. By 1991, Finland’s real GDP had fallen by 6.2%. Two years earlier the Berlin Wall had fallen and the Soviet Union had dissolved. Until that moment Finland had been highly dependent on imports from the USSR and Germany, Finland was infected by the current economic instability and its three main clusters were affected.
Public spending had skyrocketed in the early 1990s. The factor that contributed to increasing public spending was the rising cost of public debt, a fact that is usually a natural consequence of the existence of a deficit. All of this affected the country. However, they immediately launched macroeconomic austerity policies.
The spectacular exit from the 1991 crisis in Finland was also produced by a great social political consensus accompanied by significant support for private companies. However, Finland had a clear strategy to promote the competitiveness of its companies, which was to nationalize any company that did not meet the expectations set when creating products with higher added value.
In this way, the Finnish government managed to establish optimal conditions to move from a model of inherited prosperity (exploitation of its natural resources) to a model of created prosperity (telecommunications sector) with the country’s private companies as protagonists. Thanks to this model, the country goes from depending on exports to other countries to the rest of the world asking for the goods and services that are generated.
In addition, a company tax of 26% was established and public companies were privatized to increase competitiveness among them.
With the surplus from these privatizations and cuts in public spending in other sectors, the financing of research, development and education programs was encouraged. All of this allowed the creation of a successful public and university education system.
As we can see in the following graph, despite the crisis, investment in education grew dramatically in the 1990s, with annual growth rates of 10%.
Reference should also be made to the financial market liberalization policy carried out by the Finnish government, thanks to which trade barriers that had existed until then were reduced, allowing much more accessible access to loans by the government. banking and an opening to international markets, which increased also increased foreign investment.
Finland as a world leader in mobile technology
In 1917 the national mobile telephone operator (PPT) emerged. In 1921 the association of private operators was born to deal with the PPT, which had practically monopolized the telecommunications market. This competition between operators facilitated the growth, innovation and strengthening of the sector in the country for almost a century. As a consequence of the foregoing, Finland decided not to engage directly in the telecommunications market and to ensure technological neutrality and free operation of the market.
After several years applying this rivalry model between companies specialized in the telecommunications sector (with a total of 815 private companies in the 30s) and the promotion of alliances between them, it made it possible for society to identify itself with the new technologies that they were emerging in their environment. In fact, Finnish society was one of the first to use this technology in its day-to-day life. This sector had not had the same prominence as the main clusters of the country (wood, metal, paper) until the 1990s. At the time when the economy was weak, the country’s prosperity was sought in the sector of telecommunications that had been created years ago.
It went from an economy based on basic low-cost factors in which there was great competition in the market, such as natural resources, to an economy that had investment and especially innovation as its main characteristic, producing products and services that were novel, unique and high quality, that other countries demanded.
Most of the economic resources used in education were focused on training engineers, just as R&D focused on the development of advanced technologies. In addition, in 1998 the government adopted a measure to expand programs in its educational system related to the fields of information and telecommunications. Finland endeavored to specialize its workforce and encouraged R&D in this field. For this reason, Finland became the world leader in this type of technology.
Nokia as a mobile leader and the country’s flagship company
Nokia’s success is closely tied to the manufacture of paper pulp in Finland. The founder of the company decided to abandon the safety of the rubber and cable market due to the uncertainty of telecommunications.
Three companies participated in this transition: Finnish Rubber Works, dedicated to the manufacture of rubber and rubber footwear, Finnish Cable Works, who had seen the possibilities of the incipient communications sector, and Nokia.
They were all very close and decided in 1967 to found the Nokia Group, giving rise to the current Nokia Corporation. In 1964 Nokia developed VHF radio in collaboration with the Finnish company Salora Oy, which for many analysts represented the beginning of telecommunications. That would be the germ of the ARP standard (AutoRadioPuhelin, “radio telephone for the car”), which was the first to offer a mobile phone network in Finland in 1971, whose coverage would be 100% in 1978.
During the following years, different systems and technologies related to the field of fixed and mobile telephony were created. In 1981, the Nordic mobile phone service was born, using the 450 Mhz bandwidth, making Finland the first country in the world where cell phones were established.
Already in the early 1990s, mobile phones represented 10% of the business for the company. From then on, this percentage grew to 7% per year, until 2003 when it accounted for 80% of its total products.
It would not be until 2004 when Nokia became the world leader in mobile telephony, thanks to its mission to “go first” as it manufactured the first mobile phone.