Documents Research Institute of the Finnish Economy, Helsinki 32 results

"This report argues that computer-intensive automation (CIAutomation) is likely to change the nature of work and manufacturing value creation in the emerging Platform Economy. The industrial and service changes based on low-cost computation, as they become more generalized, may reverse Robert Gordon's observations about the slowing growth in productivity. However, the increased adoption of CIAutomation also poses profound dilemmas for society that revolve around whether this automation will be used to solely to replace workers or can be integrated into production of goods and services in ways that augment human capacities and intelligence. Finally, we speculate upon the role of the state in in governing and shaping the emergence of the Platform Economy."

"This paper analyzes occupational polarization within and across firms using comprehensive matched employer-employee panel data from Finland. The occupational distribution in Finland has been polarizing over the last few decades, with mid-level production and clerical jobs eroding while low-skill service occupations and high-skill specialist occupations gain share. We find that the phenomenon is taking place within existing firms, as well as due to firm entry and exit. Service jobs are increasing through the entry-exit dynamics, but also via establishment level restructuring among continuing firms. Routine jobs, including mid-level plant operating jobs, are being destroyed both among continuing firms and at the entry-exit margin. The share of high-level occupations increases largely within continuing firms. Within the continuing firms the job polarization appears to be related to the trade of goods and services, as well as the outsourcing of tasks. Firms with high R&D expenditures and ICT use are more prone to lay off process and production workers."

"During the past two years, the world has experienced its most severe slump since the Great Depression in the 1930s. The Nordic countries have been hit harder than most other countries.

Due to its sharpness and depth, the current global financial and economic crisis has initiated a wide debate on the supposed self-correcting properties of the market economy, on the need for more effective regulation and supervision of financial markets, and on the role of macroeconomic stabilization policies. It has led to a re-evaluation of the role of monetary and fiscal policy. It calls into question the virtues of unfettered globalization, underlining the need for global institutions and cooperation. It throws new light on the costs and benefits of the welfare state and its risk- sharing mechanisms. The crisis is opening up a broad agenda of essential policy issues for renewed consideration.

This is a report on the global financial and economic crisis from the point of view of small open economies with particular reference to the Nordic economies. The report discusses a number of important questions: Why were the Nordic countries hit hard by a crisis, which apparently had little if anything to do with the stability of their own financial systems or with their competitiveness in global markets? What have the Nordics done and what could they do to alleviate the domestic consequences of the crisis? What are the lessons of the crisis with regard to monetary policy and the different choices of monetary regime across the Nordic region? Is there need and scope for expansionary fiscal policy in small open economies even though fiscal multipliers may be small and large budget deficits may threaten public debt sustainability? How can fiscal consolidation and a resumption of economic growth best be reconciled? Should the Nordic countries reconsider their outward-looking growth model in view of a more unstable global economy? Is the Nordic socio-economic model an asset or a liability in the light of the crisis?

The report offers an in-depth analysis of the macroeconomic issues faced by small open economies in a turbulent world economy. It outlines the main elements of the policies that should guide the Nordic countries in their search for less vulnerability and more resilience."

"The bulk of innovation subsidies in Finland are allocated to firms in industries where the employment share of “innovators,” i.e., workers who are specialized in R&D&I, is very high. The average subsidy per employee is typically the highest among young firms. At the firm level, an increase in innovation subsidies is typically associated with an inflow of innovators from high-productivity firms. These findings suggest that innovation subsidies contribute to economic renewal and the diffusion of knowledge between firms. Non-innovation subsidies, in contrast, appear to support established industry structures: a large share of them has been granted to relatively old firms within “traditional” manufacturing industries. Since non-innovation subsidies are systematically allocated to different types of firms than innovation subsidies, they may also crowd out resources from firms that receive innovation subsidies, thereby overriding some of the possible beneficial effects of innovation subsidies."

"To steer economies onto a sustainable path in a way that is compatible with the urgent priorities of economic developers, sustainability needs to come with new business opportunities, growing markets and, most importantly, new jobs. The big question becomes then how do you wed economic growth with sustainability? Enter the growth of cleantech and the emergence of green industries. Recent rankings place Finland in the top-3 of global leaders in cleantech, along with Israel and the US. Driven by an ambition to selectively invest in a ‘green' economic turnaround, a number of strategy-level research documents and roadmaps have been produced in recent years on how to kindle new growth and create jobs in the Finnish CleanTech- and the Bio-economies. The three industry ecosystems frequently mentioned are efficient energy solutions (smart grid), mobility-as-a-service (smart mobility), and the bioeconomy. The ultimate questions to be answered are: In which industry ecosystems does Finland have the necessary assets to be an effective competitive contender? And given the existing asset base, what is the true potential of these sectors as engines of economic growth?

To rise to the challenge, the report probes (a) the structure and direction of industrial activity that underlie the selected ecosystems, (b) the value capture potential of individual companies in them, and (c) the types of financing the companies are most compatible with.

The results are somewhat sobering. They clearly show that for business and economic development purposes the only feasible approach to Cleantech is to deal with it by the ecosystem. The three ecosystems analyzed in this study all feature different industrial structures, make vastly different value propositions, address different markets and involve a very different set of stakeholders. There is little value in cursorily lumping them together under a quasi-common concept such as Cleantech or the Bioeconomy. These concepts have no substance as they do not refer to specific industrial or economic activity. Hence, it is also very challenging to develop concrete instruments for economic or business development purposes that are to promote such activity. At worst, scarce resources are put to suboptimal use, as they are allocated over a vast spread of individual companies and projects that might be a fit with the overall theme of Cleantech but have no common denominator in the form of an industrial ecosystem and its underlying value chains. Our results on a next to non-existent Bioeconomy provide for an excellent showcase.

We further show that even the more promising ecosystems such as Smart Mobility and Smart Grids are in the throes of growing pains. There is much that economic developers can do efficiently to alleviate them. The poor leverageability of industry assets and connections for market access across the board speak of fragile, budding industry structures that make it difficult for companies to establish robust markets and steady businesses in the short term. Companies of different sizes suffer the symptoms in their own ways. On the one hand, large incumbents do wield the assets necessary to conquer the ecosystem – telecommunications operators seem to have an especially favorable vantage point in smart ecosystems – but shoot themselves in the foot by applying conventional, capital-intensive business models that leave the door open for more agile growth companies that harness the potential of digitalization to exploit opportunities. On the other, start-ups and SMEs indeed show the drive and lean on nimble enough business models but utterly lack the assets for a full-scale conquest.

It is easy to envision a symbiotic relationship, in which incumbents provide the capital-intensive assets while their smaller peers introduce the competitive business models. Given the incipient structure of the ecosystems, however, just finding appropriate partners can incur considerable transaction costs. Here economic developers can step in, helping to find matches via collaborative accelerators that broker partnerships between industrial heavy-hitters on a mission of industrial renewal and small growth companies looking for resources and downstream assets.

Finding partners is a formidable challenge in and by itself, but our conclusions point to even more systemic impediments to industrial renewal that lie outside the industry's sphere of influence. One such is the lack of proper standards for the interconnectivity and interoperability of the various, often proprietary, IT systems that the numerous stakeholders to ecosystems run their businesses on. Especially smart ecosystems by definition build on the seamless interoperability across diverse system architectures and organizational boundaries. In the absence of universal standards, interconnectivity needs to be established one relationship at a time, building on contractually agreed, customized solutions that do not scale beyond the specific relationship. Economic developers can considerably speed up the construction of a digital business environment by introducing universal standards that promote the emergence of plug-and-play platforms for efficient interoperability. In a world of autonomous, self-driving vehicles and applications that affect offtake and feed into electricity grids, quality and safety controls for algorithms that govern these systems will be paramount for individual and societal safety."

"This paper explores offshoring of firms' research and development functions. Our analysis employs a previously untapped and unique Eurostat International Sourcing Survey. The results are easy to summarize. First, the magnitude of R&D offshoring is small. Second, a large majority of R&D is offshored within the enterprise group, in contrast to offshoring outside of the enterprise group. Third, most of R&D offshoring from Europe is directed to high-income European countries, not so to low-cost countries in Europe, China, or India. Fourth, R&D jobs do have been lost from offshoring; however, the negative employment impact has been moderate. But the Eurostat International Sourcing Survey does not allow entangling the full net employment effect of R&D offshoring, which could be either negative or positive."

"Global value chain (GVC) upgrading is a key factor in country-level economic performance. Therefore it is important to study its fundamental, firm-level origins. What are the main attributes that drive firms toward GVC upgrading? How do upgrading trajectories differ? The previous literature has largely concentrated on developing countries and firms producing low value-added goods and services. Are there any fundamental differences between these and firms in a highly developed country that mainly operate in sectors other than pure manufacturing? I answer these questions by analyzing a 2015 survey that consists of thousands of Finnish firms from a variety of industries and size cohorts. From the survey, it is possible to determine firms' ex ante propensity for GVC upgrading. I found that innovativeness, the young age of the firm and outsourcing positively affect upgrading. I also found that firms do not plan their upgrading via any specific trajectory."