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Ministry of
                     Education




Evaluation of the Finnish
National Innovation System
Policy Report
www.evaluation.f i
This page is intentionally left blank
     for double-sided printing
Published on 28 October 2009 at 13:00 Finnish local time




Evaluation of the Finnish National
Innovation System – Policy Report
www.evaluation.f i (Also available: Full Report)



	   Chair	of	the	evaluation	panel:	      Professor	Reinhilde Veugelers
	                                 	      Katholieke	Universiteit	Leuven	(Belgium)
	   Other	international	panelists:		     Professor	Karl Aiginger
	                                 	      Austrian	Institute	of	Economic	Research	(WIFO)
	                                  	     Professor	Dan Breznitz
	                                  	     Georgia	Institute	of	Technology	(USA)
	                                  	     Professor	Charles Edquist
	                                  	     Lund	University	(Sweden)
	                                  	     Professor	Gordon Murray
	                                  	     University	of	Exeter	(UK)
	                                  	     Professor	Gianmarco Ottaviano
	                                  	     Bocconi	University	(Italy)
	                Finnish	panelists:		    Professor	Ari Hyytinen
	                                  	     University	of	Jyväskylä
	                                  	     Research	Professor	Aki Kangasharju
	                                  	     VATT,	The	Government	Institute	for	Economic	Research
	                                  	     Adjunct	Professor	Mikko Ketokivi
	                                  	     Helsinki	University	of	Technology
	                                  	     Head	of	Unit	Terttu Luukkonen
	                                  	     ETLA,	The	Research	Institute	of	the	Finnish	Economy
	                                  	     Research	Director	Mika Maliranta
	                                  	     ETLA,	The	Research	Institute	of	the	Finnish	Economy
	                                  	     Professor	Markku Maula
	                                  	     Helsinki	University	of	Technology
	                                  	     Professor	(Emeritus)	Paavo Okko
	                                  	     Turku	School	of	Economics
	                                  	     Research	Director	Petri Rouvinen
	                                  	     Etlatieto	Oy	(a	subsidiary	of	ETLA)
	                                  	     Professor	Markku Sotarauta
	                                  	     University	of	Tampere
	                                  	     Researcher	Tanja Tanayama
	                                  	     HECER,	Helsinki	Center	of	Economic	Research	and	Etlatieto	Oy
	                                  	     Director	Otto Toivanen
	                                  	     HECER,	Helsinki	Center	of	Economic	Research
	                                  	     CEO	Pekka Ylä-Anttila
	                                  	     Etlatieto	Oy	(a	subsidiary	of	ETLA)




Publisher:	Taloustieto Oy	(on	behalf	of	the	Ministry of Education	and	the	Ministry of Employment and the Economy)

Helsinki University Print,	2009

Cover	design:	Porkka	&	Kuutsa	Oy
Cover	photo:	Kai	Kuusisto	/	Plugi
ISBN	978-951-628-490-6
                                                                                                                            1
Sounding Board
    	
    Chairs	of	the	sounding	board:	      	        State	Secretary	Mikko Alkio	(until	31	July	2009)
    	                                   	        Ministry	of	Employment	and	the	Economy
    	                                   	        State	Secretary	Riina Nevamäki	(since	1	August	2009)
    	                                   	        Ministry	of	Employment	and	the	Economy
    Other	members	of	the	board:	        	        Ministerial	Advisor	Pirjo Kutinlahti
    	                                   	        Ministry	of	Employment	and	the	Economy
    	                                   	        Director	Anita Lehikoinen
    	                                   	        Ministry	of	Education
    	                                   	        State	Secretary	Heljä Misukka
    	                                   	        Ministry	of	Education
    	                                   	        State	Secretary	Velipekka Nummikoski
    	                                   	        Ministry	of	Finance
    	                                   	        Director	General	Petri Peltonen
    	                                   	        Ministry	of	Employment	and	the	Economy
    	                                   	        State	Secretary	Terttu Savolainen
    	                                   	        Ministry	of	Social	Affairs	and	Health
    	                                   	        Special	Government	Advisor	Ilkka Turunen
    	                                   	        Ministry	of	Education



    Members of the research and support team

    Ali-Yrkkö,	 Jyrki;	 Autio,	 Erkko;	 Deschryvere,	 Matthias;	 Dixon,	 Roderick;	 Hyvönen-Rajecki,	 Kaija;	 Koski,	 Heli;	 Kotilainen,	
    Markku;	 Kotiranta,	 Annu;	 Nikula,	 Nuutti;	 Nikulainen,	Tuomo;	 Paasi,	 Marianne;	 Pajarinen,	 Mika;	 Palmberg,	 Christopher;	
    Rogers,	John;	Saariokari,	Pirjo;	Tahvanainen,	Antti;	Takalo,	Tuomas;	Väänänen,	Lotta.


    This	Policy Report	summarizes	the	key	findings	of	the	evaluation.	The	Full Report	provides	further	details	and	elaboration.	
    Some	of	the	studies	conducted	to	support	the	evaluation	are	also	available	separately:
    •	 Autio,	E.	(2009).	High-Growth	Firms	in	Finland:	Issues	and	Challenges.	ETLA Discussion Papers,	1197.
    •	 Deschryvere,	M.	(2009).	A	Comparative	Survey	of	Structural	Characteristics	of	Finnish	University	Departments.	ETLA Discus-
       sion Papers,	1195.
    •	 Kotiranta,	A.,	Nikulainen,	T.,	Tahvanainen	A-J.,	Deschryvere,	M.,	&	Pajarinen,	M.	(2009).	Evaluating	National	Innovation	Systems	   	
    	 –	Key	Insights	from	the	Finnish	INNOEVAL	Survey.	ETLA Discussion papers,	1196.
    •	 Nikulainen,	T.,	&	Tahvanainen,	A-J.	(2009).	Towards	Demand	Based	Innovation	Policy?	The	Introduction	of	SHOKs	as	Innovation	         	
    	 Policy	Instrument.	ETLA Discussion Papers,	1182.
    •	 Tahvanainen,	A-J.	(2009).	Finnish	University	Technology	Transfer	in	a	Whirl	of	Changes	–	A	Brief	Summary.	ETLA Discussion Pa-
       pers,	1188.
    •	 Takalo,	T.	(2009).	Rationales	and	Instruments	for	Public	Innovation	Policies.	ETLA Discussion Papers,	1185.
    •	 Tanayama,	T.,	&	Ylä-Anttila,	P.	(2009).	Tax	Incentives	as	Innovation	Policy	Tool	(in	Finnish	with	an	abstract	in	English).	ETLA Dis-
       cussion Papers,	1189.
    Free	electronic	versions	of	all	reports	and	studies	as	well	as	other	related	material	are	available	at	www.evaluation.fi.	
    To	obtain	printed	copies	of	the	reports,	please	fill	a	form	at	the	web	site	or	contact		
    Riikka	Pellikka,	Ministry	of	Employment	and	the	Economy,	riikka.pellikka@tem.fi,	+358	50	302	7671.



    Contacts

    Pirjo	Kutinlahti,	Ministry	of	Employment	and	the	Economy,	pirjo.kutinlahti@tem.fi,	+358	10	606	3548
    Petri	Rouvinen,	Etlatieto	Oy,	petri.rouvinen@etla.fi,	+358	9	6099	0202
    Ilkka	Turunen,	Ministry	of	Education,	ilkka.turunen@minedu.fi,	+	358	9	1607	7299




2
Table of Contents
	
	   Preface	>	4
	   Executive	Summary	>	9



    Overview and
    General Conclusions
	   	       1.	Evaluation	Task	>	12
	   	       2.	Future	Challenges	and	Ongoing	Reforms	>	14
	   	       3.	Policy	Governance	and	Steering	>	20



    Six Main Points of View:
    Summaries by Sub-Panel
	   	       4.	Broad-Based	Innovation	Policy	>	34
	   	       5.	Demand-	and	User-Driven	Innovation	>	42
	   	       6.	Globalization	of	Business	Activities	>	52
	   	       7.	Growth	Entrepreneurship	and	Finance	>	60
	   	       8.	Geography	of	Innovative	Activity	>	70
	   	       9.	Education,	Research	and	the	Economy	>	78



    Growth Strategy: A Strong Commitment
    to Education, Research, and Innovation
	   	       10.	The	Way	Forward	>	88



    Bibliography	>	90
	   Endnotes	>	92




                                                            3
Preface


    In	 the	 fall	 of	 2008	 the	 Ministry of Education	 and	 the	                         in implementing the Strategy	and	in steering the system	
    Ministry of Employment and the Economy	 commis-                                        towards	a	better	future.
    sioned	an	international	evaluation	of	the	Finnish	na-                                       Our	 evaluation	 task	 is	 outlined	 in	 the	 original	
    tional	innovation	system.	As	I	was	in	the	final	months	                                contract	notice	(ref.	no.	2327/420/2008),	as	well	as	in	
    of	 my	 term	 as	 an	 economic	 advisor	 at	 the	 Bureau of                            the	 evaluation	 brochure,	 prepared	 for	 the	 opening	
    European Policy Analysis	 to	 JM	 Barroso,	 European	                                  press	 conference	 on	 11	 December	 2008:	 The	 Minis-
    Commission,	 and	 not	 yet	 fully	 returned	 to	 my	 pro-                              tries	specifically	wanted	an	independent outside view	of	
    fessorship	at	Katholieke Universiteit Leuven	(Belgium),	                               the	system.	We	were	to	look	into	the	current	and	fu-
    the	timing	was	perfect	for	me	to	learn	about	the	fea-                                  ture challenges	and	consider	whether	or	not	they	are	
    tures	 of	 the	 innovation	 system	 that	 continues	 to	 be	                           sufficiently	 acknowledged	 and	 addressed.	 We	 were	
    admired	and	imitated	worldwide.                                                        to	point	out	needs	for	institutional	and	policy adjust-
                                                                                           ments and reforms,	as	well	as	to	draw	conclusions	on	
                                                                                           policy governance and steering.	 Given	 the	 short	 time	
    Shooting a moving target                                                               and	broad	coverage	of	our	task,	we	were	to	evaluate	
                                                                                           the	system	as	a	whole	rather	than	focus	on	individual	
    The	evaluation	mission	turned	out	to	be	challenging	                                   actors,	organizations,	and	instruments.	In	our	evalu-
    not	only	due	to	its	considerable	scope	and	shortness	                                  ation	we	looked	particularly	at	whether	public	bod-
    of	time,	but	also	because	of	the	several	ongoing	tran-                                 ies	and	policies	assist	and	incentivize	both	public	and	
    sitions	in	the	Finnish	system,	in	part	induced	by	the	                                 private	 individuals	 and	 organizations	 in	 generating	
    new	innovation	strategy	(Aho,	et al.,	2008)	that	served	                               and	utilizing	novel	ideas.
    as	our	starting	point;	at	least	four	major	reforms	ad-                                      In	collaboration	with	the	two	Ministries,	the	eval-
    vanced	along	with	our	evaluation	and	dozens	of	new	                                    uation	panel	settled	on	six main points of view in	the	
    policy	initiatives	have	seen	the	light	this	year	alone.	                               evaluation	(Exhibit	1);	the	basic	choices	of	the	Strat-
    Our	 solution	 to	 this	 moving target	 problem	 was	 to	                              egy	underlie	each	point	of	view.	We	organized	our-
    employ	 heterodox	 approaches	 and	 work	 (partly)	 in	                                selves	into	six	sub-panels,	one	for	each	main	point	of	
    smaller	 groups.	 Despite	 the	 evolving	 nature	 of	 the	                             view.	Based	on	the	work	by	the	sub-panels,	we	draw	
    system,	as	well	as	the	valuable	and	welcomed	diver-                                    our	overall	conclusions	as	the	whole	panel.
    sity	in	the	opinions	of	the	panel,	we	ended	up	with	a	                                      Each	 sub-panel	 was	 led	 by	 an	 international	 ex-
    coherent	joint	view	on	conclusions	that	should	help	                                   pert	 working	 with	 two	 Finnish	 ones:	 an	 academic	




    Exhibit 1: The basic choices underlie the                  Global trends, national structures & their evolution, choices of the Finnish National Innovation Strategy
    six main points of view, each studied
    by a sub-panel led by an international
                                                               BROAD-BASED      DEMAND- &         GLOBALIZA-        GROWTH            GEOGRAPHY     EDUCATION,
    expert.                                                    INNOVATION       USER-DRIVEN       TION OF           ENTREPRE-         OF INNOVATIVE RESEARCH,
                                                               POLICY           INNOVATION        BUSINESS          NEURSHIP &        ACTIVITY      AND THE
    Source:	The	brochure	prepared	by	the	Ministry of Educa-
                                                                                                  ACTIVITIES        FINANCE                         ECONOMY
    tion and	the	Ministry of Employment and the Economy	for	
    the	opening	press	conference	of	the	evaluation	on	11	                                         K. Aiginger       G. Murray         G. Ottaviano
                                                               C. Edquist       D. Breznitz                                                              R. Veugelers
    December	2008.                                                                                                                    A. Kangasharju
                                                               T. Luukkonen     M. Ketokivi       P. Okko           A. Hyytinen                          O. Toivanen
                                                               M. Sotarauta     P. Rouvinen       P. Ylä-Anttila    M. Maula          M. Maliranta       T. Tanayama


                                                                                           Innovation activity in a world without borders
                                                                                              Innovative individuals and communities
                                                                                                   Demand and user orientation
                                                                                                         Systemic approach



                                                                    The Finnish national innovation system and policy: policy/institutional reforms/adjustments
                                                                                                     to meet future challenges
4
scholar	 and	 an	 innovation	 researcher	 representing	        tical	policy	concerns.	Finland	is	in	a	unique	position	
ETLA.	 Given	 the	 task	 and	 the	 time,	 each	 sub-panel	     to	lead	innovation	policy	thinking	globally	by	filling	
had	to	make	hard	choices	as	to	its	approach	and	em-            these	gaps	in	scholarly	knowledge	and	by	providing	
phasis;	all	pressing	issues	could	not	be	addressed.	In	        the	scene	for	real	policy	experiments.
writing	the	report	we	have	attempted	to	produce	self-
contained	 chapters,	 even	 if	 this	 necessarily	 brings	
about	some	repetition.                                         Some personal observations on
                                                               Finland and the Finns

Innovation policy remains an art                               Finland	certainly	has	more	than	its	fair	share	of	capa-
rather than a science                                          ble	civil	servants,	which	(as	a	group)	seem	to	be	influ-
                                                               ential	 in	 steering	 and	 developing	 the	 system.	 Often	
In	the	context	of	this	evaluation,	we	largely	took	the	        they	are	not	only	willing,	but	also	eager to accept new
premises	 for	 innovation	 policy	 for	 granted,	 even	 if	    ideas	 and	 rapidly	 integrate	 them	 into	 policy	 discus-
we	are	fully	aware	that	the	underlying	theories	and	           sion.	Nevertheless,	Finland	seems	to	share	the	same	
empirics	 remain	 less-than-satisfactory	 to	 effectively	     institutional	inertia	as	other	countries	when	it	comes	
guide	policymaking,	which	poses	a	challenge.                   to	implementing	reforms.
      Society’s	 interest	 in	 innovation	 stems	 from	 its	        Curiously	enough,	there	is	almost	an	expectation	
central	role	as	a	sustainable	source	of	long-term	eco-         of	 intervention	 in	 Finland.	 The	 possibility	 of	 a	 gov-
nomic	growth	and	thus	improving	welfare	(Aghion	               ernment	 failure	 in	 fixing	 the	 market	 is	 not	 always	
&	Howitt,	2009).	Innovation	policy	is	primarily	mo-            considered	in	depth.	There	seems	to	be	a	culture	of	
tivated	by	failures	in	the	market	for	information	(Ar-         direct and visible public involvement	–	on	the	other	hand	
row,	1962).	While	the	central	role	of	innovation	and	          there	seems	to	be	less	trust	in	alternative	more	indi-
related	policy	justifications	are	both	clear	and	undis-        rect	 measures.	 Broader	 effects,	 say	 with	 respect	 to	
putable,	they	become	much	more	fraught	with	diffi-             competition	 or	 re-allocation	 of	 resources,	 occasion-
culty	when	considered	in	detail.                               ally	escape	policymakers’	attention.	As	in	many	oth-
      For	instance,	small	open	economy	considerations	         er	 countries,	 consideration	 of	 the	 interaction	 of	 the	
call	for	adjustments	in	policy	rationales.	While	this	is	      new	(to-be-introduced)	and	the	old	(still	continuing)	
indeed	frequently	acknowledged	(Toivanen,	2008),	in	           measures	is	sometimes	lacking.	Even	if	there	is	a	host	
reality	the	employed	theories	and	thinking	have	not	           of	available	tools	(Takalo,	2009),	there	seems	to	be	a	
been	adjusted	accordingly.                                     tendency	 to	 stick	 with	 the	 same	 traditional	 instru-
      Even	 if	 innovation	 policy	 should	 be	 as	 dynam-     ments	 and	 sectors.	 For	 example,	 green	 innovation	
ic	and	evolving	as	its	targets,	decades	can	go	by	with	        seems	to	be	less	integrated	into	Finnish	mainstream	
little	real	change	in	policy	conduct.	Unfortunately,	in-       innovation	policy	discussions.
novation	 policy	 theories	 are	 often	 mute	 on	 how	 to	          Incentives	 of	 individuals	 and	 organizations	 are	
adapt	 and	 change	 existing	 policies	 into	 new	 direc-      often	 mentioned	 in	 Finland,	 but	 considering	 them	
tions,	overcoming	resistance	to	change.                        is	not	fully	integrated	into	policy	thinking.	Cutting-
      The	 perspective	 of	 aggregate	 societal	 benefits	     edge	innovative	and	entrepreneurial	activity	needs	to	
does	 receive	 some	 attention,	 but	 discussion	 quickly	     engage	the	best	and	the	brightest	individuals	and	or-
slips	 into	 considering	 individual	 public	 bodies	 and	     ganizations	globally.	This	is	most	likely	to	happen	in	
their	 actions.	 One	 should	 more	 often	 have	 an	 over-     countries	where	their	successful	efforts	are	rewarded	
all	systemic	view	of	the	incentives	and	actions	of	in-         appropriately.
dividuals	and	organizations	currently	targeted	by	a	                Finns	 seem	 to	 be	 superb	 at	 institutionalizing	
bewildering	array	of	instruments	and	measures;	how	            things.	 However,	 more	 attention	 should	 be	 paid	 to	
they	work	in	tandem	is	largely	unknown.                        steering	 and	 developing	 institutions,	 once	 estab-
      The	above	(and	several	others)	are	not	just	issues	      lished,	to	meet	changing	needs	and	perhaps	discon-
in	the	scholarly	research	agenda;	they	are	also	prac-          tinuing	them	when	they	become	obsolete.	Indeed,	in	
                                                                                                                               5
some	 cases	 successful public institutions render them-            well	as	to	forge	a	clear	division	of	labor	between	uni-
    selves obsolete	by	assisting	development	to	the	extent	             versities	and	polytechnics.
    that	sustainable	private	solutions	emerge.                               The	 two	 main	 weaknesses	 of	 the	 Finnish	 sys-
         Upon	seeing	and	hearing	all	the	top	innovation	                tem,	 (somewhat	 dismal)	 growth	 entrepreneurship	
    policy	actors	one	after	another	in	January	2009,	I	was	             and	 (lacking)	 internationalization,	 arguably	 remain	
    struck	 by	 how	 uniformly	 they	 seemed	 to	 think	 and	           orphans	 in	 the	 system,	 that	 is,	 they	 are	 both	 most-
    how	 reluctantly	 they	 expressed	 even	 remotely	 con-             ly	side	issues	for	a	number	of	public	institutions	and	
    troversial	opinions.	While	this	remarkable	consensus	               not	forcefully	advanced	by	any.	One	of	the	problems	
    is	 an	 asset	 in	 certain	 ways,	 (also)	 in	 the	 domain	 of	     in	addressing	these	two	issues	is	that	neither	is	really	
    innovation	policy	Finland	would	benefit	from	more	                  represented	where	decisions	are	made.
    high-flown	thinking	and	outside	exposure,	for	exam-                      Overall,	 the	 Finnish	 innovation	 system	 and	 its	
    ple,	in	the	form	of	exercises	such	as	ours.                         policy-making	 are	 very	 ‘Finnish’	 (which	 in	 many	
                                                                        ways	 is	 a	 great	 asset).	 Efforts	 to	 change	 this	 are	 yet	
                                                                        to	bear	fruit.	While	more	global	exposure	is	needed	
    Finland has ample upside potential                                  in	Finland,	it	should	be	kept	in	mind	that	it	is	a	tool	
                                                                        rather	 than	 an	 end	 to	 itself.	 Internationalization	 is	
    While	not	obvious	on	the	surface,	a	closer	look	sug-                perhaps	better	advanced	by	removing	its	explicit	and	
    gests	that	Finland	appears	to	have	certain	structural	              implicit	obstacles	than	by	direct	measures.
    challenges.	 Reactions	 to	 them	 may	 have	 been	 ham-                  Global	 –	 and	 even	 European	 –	 considerations	
    pered	because,	according	to	many	indicators,	up	un-                 seem	 to	 be	 somewhat	 remote.	 While	 the	 European	
    til	recently	Finland	was	doing	well	in	its	traditional	             Union	is	looking	at	Finland,	to	learn	from	its	innova-
    strongholds.	Now	there	is	both	a	need	and	an	oppor-                 tion	policy	design,	Finland	should	also	look	more	at	
    tunity	to	make	a	clear	break	with	the	past.	It	remains	             the	European	Union.	The	Finnish	innovation	system	
    to	be	seen	whether	or	not	there	is	sufficient	courage	              has	much	to	gain	from	integrating	into	the	single	Eu-
    and	 political	will	 to	see	these	 reforms	through.	 It	 is	        ropean	market	for	goods	and	services,	as	well	as	into	
    certainly	my	hope	that	our	exercise	does	not	turn	out	              the	European	Research	and	Higher	Education	Area.	
    to	 be	 just	 another	 report	 but	 that	 it	 leads	 to	 further	   Indeed,	in	my	opinion	the	success	of	the	Finnish	uni-
    material	developments.                                              versity	reform	hangs	in	part	on	having	a	single	Euro-
         In	the	course	of	its	history	the	Finnish	system	has	           pean	market	for	researchers	and	students.
    grown	complex	to	both	access	and	administer.	Reac-                       The	ongoing	economic	and	financial	crisis	start-
    tions	to	the	Strategy	we	have	been	observing	during	                ed	 to	 fully	 unfold	 only	 after	 we	 had	 submitted	 our	
    our	exercise	mostly	add	to	the	existing	clutter.	As	in	             evaluation	 proposal	 and	 had	 laid-out	 our	 detailed	
    many	other	countries,	touching	institutional	bound-                 work	plan.	Thus,	some	issues	related	to	the	crisis	are	
    aries	 seems	 to	 be	 a	 taboo	 in	 Finland.	 Yet,	 it	 is	 hard	   not	integrated	into	our	analysis.	In	any	case,	develop-
    to	imagine	how	the	necessary	streamlining	could	be	                 ing	a	country’s	innovation	system	is	a	medium-	and	
    achieved	without	it.                                                long-term	issue.	The	current	crisis	may	nevertheless	
         In	my	understanding	the	ongoing	university	re-                 be	 of	 such	 a	 nature	 that	 it	 induces	 more	 long-term	
    form	is	the	most	important	change	in	the	public	as-                 and	even	permanent	changes	in	the	 geography	and	
    pects	 of	 the	 Finnish	 innovation	 system	 since	 estab-          locus	of	specialization	in	innovative	activity.
    lishing	Tekes.	While	the	reform	has	its	risks,	the	panel	                It	is	quite	possible	that	Finland	currently	has	one	
    takes	a	strong	stand	for	it.	We	welcome	its	ambitions	              of	 the	 best	 national	 innovation	 systems	 worldwide.	
    and	 encourage	 its	 implementation	 to	 be	 even	 more	            Even	 that	 may	 not	 be	 enough	 in	 an	 era,	 where	 the	
    radical	than	what	is	currently	being	suggested.	One	                global	 operating	 environment	 is	 rapidly	 evolving	
    of	the	main	issues	to	be	dealt	with	is	the	highly	divid-            and	the	whole	concept	of	a	national	innovation	sys-
    ed	attitudes	and	views	of	the	actors	within	the	educa-              tem	has	rightly	been	questioned	(Nelson,	1993).	Com-
    tional	system.	Furthermore,	it	would	be	equally	im-                 panies	have	been	the	primary	object	of	the	innovation	
    portant	to	reform	non-university	public	research,	as	               policy	but,	as	they	become	increasingly	footloose	and	
6
geographically	dispersed,	the	focus	may	have	to	shift	            ion	 we	 managed	 to	 meet	 and	 even	 exceed	 the	 high	
to	nurturing	and	attracting	creative	individuals.                 expectations	(at	least	my	own).	Obviously	this	is	first	
    The	survey	conducted	to	support	the	evaluation	               and	foremost	due	to	my	fellow	panelists,	impeccably	
suggests	that	the	actors	of	the	Finnish	innovation	sys-           supported	by	Etlatieto Oy	(a	subsidiary	of	ETLA, The
tem	 are	 optimistic	 about	 the	 ongoing	 reforms	 and	          Research Institute of the Finnish Economy)	 and	 the	 re-
the	future	of	the	system.	I	personally	share	this	op-             search	 team	 –	 thank	 you	 very	 much	 to	 all	 those	 in-
timism:	while	some	of	our	proposals	are	laborious	to	             volved!	Over	a	dozen	separate	studies	were	conduct-
implement,	with	some	adjustments	the	good	Finnish	                ed	to	support	our	work.	Some	of	these	are	published	
system	 could	 be	 much	 better	 equipped	 to	 meet	 fu-          separately	along	with	the	two	main	reports.
ture	challenges!                                                       On	behalf	of	the	whole	panel,	I	would	like	to	ex-
                                                                  press	our	gratitude	to	the	two	Ministries,	as	well	as	
                                                                  to	the	Sounding	Board	overseeing	the	project,	not	on-
Acknowledgements                                                  ly	for	their	generous	support,	but	also	for	vigorously	
                                                                  defending	the	integrity	of	the	panel.
In	 the	 course	 of	 the	 past	 year	 or	 so,	 the	 evaluation	        In	the	course	of	the	exercise	we	have	interviewed	
exercise	proved	to	be	both	enjoyable	and	education-               and	heard	over	one	hundred	key	actors	and	experts	
al.	The	final	outcome	can	be	seen	in	this	Policy Re-              of	the	innovation	system,	the	names	of	which	are	list-
port,	 as	 well	 as	 in	 the	 complementing	 Full Report.	        ed	 in	 Exhibit	 2.	 Furthermore,	 around	 two	 thousand	
The	former	serves	as	a	gentle	introduction	and	sum-               individuals	 responded	 to	 the	 survey	 conducted	 to	
mary	of	our	core	findings;	the	latter	provides	further	           support	the	evaluation.	The	inputs	of	these	individu-
details	and	elaboration.	I	must	say	that	I	am	person-             als	and	organizations	is	highly	appreciated	–	without	
ally	very	happy	with	the	outcome,	since	in	my	opin-               it,	we	could	not	have	completed	our	work.



Brussels,	18	September	2009,




Reinhilde	Veugelers,	on	behalf	of	the	evaluation	panel.




                                                                                                                                 7
Exhibit 2: In the course of the evaluation, the panel interviewed and heard over one hundred key actors and experts.
    The panel would like to thank them all – without their help, it could not have completed its work.


    Aho	Esko,	Nokia;	Alahuhta	Matti,	Aalto	University;	Alitalo	Sir-         Empl.	and	the	E.;	Lemola	Tarmo,	Advansis;	Löppönen	Paavo,	
    pa,	M.	of	Empl.	and	the	E.;	Alkio	Mikko,	M.	of	Empl.	and	the	E.;	       Academy	 of	 F.;	 Löytökorpi	 Sari,	 The	 Adv.	 Board	 for	 Sectoral	
    Andersen	Dorte	Nøhr,	Danish	Enterpr.	and	Constr.	Auth.;	An-             Res.;	Lystimäki	Jussi,	Idean;	Marjosola	Juha,	Finnish	Ind.	Inv.;	
    tikainen	Janne,	M.	of	Empl.	and	the	E.;	Antola	Tuula,	Kaipaus;	         Martikainen	 Mikko,	 M.	 of	 Empl.	 and	 the	 E.;	 Mattila	 Markku,	
    Anttila	 Tapio,	 Sitra;	 Bason	 Christian,	 Mind	 Lab;	 Björkroth	      Academy	 of	 F.;	 Misukka	 Heljä,	 M.	 of	 Educ.;	 Mustonen	 Riitta,	
    Johanna,	 U.	 of	 Helsinki;	 Cardwell	Will,	Technopolis	Ventures;	      Academy	 of	 F.;	 Nevamäki	 Riina,	 M.	 of	 Empl.	 and	 the	 E.;	 Nie-
    Dammert	 Ritva,	 Academy	 of	 F.;	 Eerola	 Essi,	VATT;	 Eskelinen	      minen	Markku,	GE	Healthcare;	Niiniluoto	Ilkka	,	U.	of	Helsinki;	
    Jarmo,	 Forum	 Virium	 Helsinki;	 Eskola	 Antti,	 M.	 of	 Empl.	 and	   Nummikoski	Velipekka,	M.	of	Finance;	Nybergh	Paula,	M.	of	
    the	 E.;	 Gädda	 Lars,	 Forestcluster;	 Grundstén	 Henri,	 Finnish	     Empl.	 and	 the	 E.;	 Ollila	 Jorma,	 Nokia;	 Ormala	 Erkki,	 Nokia;	
    Ind.	 Inv.;	 Hägström-Näsi	 Christine,	 Forestcluster;	 Hakkarai-       Paloheimo	 Annamarja,	 Finnvera;	 Parkkari	 Tuomas,	 R.	 and	
    nen	Maija,	Tekes;	Halme	Kimmo,	Advansis;	Hämäläinen	Timo,	              I.	 Council;	 Pauli	 Anneli,	 EU	 Commission;	 Pekkarinen	 Mauri,	
    Sitra;	 Hammer-Jakobsen	 Thomas,	 Copenhagen	 Living	 Lab;	             M.	of	Empl.	and	the	E.;	Pellikka	Riikka,	M.	of	Empl.	and	the	E.;	
    Hansen	Marie	Louise,	Danish	Enterpr.	and	Constr.	Auth.;	Has-            Peltonen	Petri,	M.	of	Empl.	and	the	E.;	Pikkarainen	Mika,	M.	
    sinen	 Saara,	 SHOK	 Health	 and	Well-being;	 Hautamäki	 Antti,	        of	 Empl.	 and	 the	 E.;	 Pohjola	 Hannele,	 EK,	 C.	 of	 Finnish	 Ind.;	
    U.	of	Jyväskylä;	Häyrinen	Kari,	FinPro;	Heikkilä	Pauli,	Finnvera;	      Pötz	Marion,	Copenhagen	Business	School;	Pulkkinen	Raimo,	
    Helve	Heikki,	City	of	Kuopio;	Hermans	Raine,	Tekes;	Hetemäki	           Tekes;	 Pursula	 Tiina,	 Gaia;	 Rintala	 Kari,	 TE-Centre;	 Roma-
    Martti,	M.	of	Finance;	Holstila	Eero,	City	of	Helsinki;	Honkanen	       nainen	Jari,	Tekes;	Rosted	Jørgen,	Fora;	Saapunki	Juha,	PKT-
    Seppo,	Helsinki	U.	of	Techn.;	Husso	Kai,	R.	and	I.	Council;	Jär-        Foundation;	Saarnivaara	Veli-Pekka,	Tekes;	Savolainen	Terttu,	
    vikare	Terhi,	M.	of	Finance;	Kallasvaara	Heikki,	U.	of	Helsinki;	       M.	 of	 Social	 Affairs	 and	 Health;	 Seppälä	 Esko-Olavi,	 R.	 and	 I.	
    Kalliokoski	Petri,	VTT;	Känkänen	Janne,	M.	of	Empl.	and	the	E.;	        Council;	 Sipilä	 Jorma,	 U.	 of	 Tampere;	 Suurnäkki	 Anna,	 VTT;	
    Kari	Seppo,	VATT;	Karjalainen	Sakari,	M.	of	Educ.;	Kauppinen	           Syrjänen	Mikko,	Gaia;	Toivanen	Hannes,	M.	of	Empl.	and	the	
    Petteri,	M.	of	Educ.;	Kavonius	Veijo	,	M.	of	Empl.	and	the	E.;	Kek-     E.;	Tukiainen	Pauliina,	KCL;	Turunen	Ilkka,	M.	of	Educ.;	Vähä-
    konen	Timo,	EK,	C.	of	Finnish	Ind.;	Kemppainen	Hannu,	Tekes;	           Pietilä	Kirsi,	Tekes;	Valle	Antti,	M.	of	Empl.	and	the	E.;	Vartia	
    Kervola	 Petri,	 City	 of	 Kuopio;	 Kivikoski	 Jussi,	 Tekes;	 Kop-     Pentti,	The	Adv.	Board	for	Sectoral	Res.;	Vesa	Heikki,	M.	of	Empl.	
    pinen	Seija,	VTT;	Korhonen	Kalle	J.,	M.	of	Empl.	and	the	E.;	Ko-        and	the	E.;	Vestala	Leena,	M.	of	Educ.;	Virkkunen	Henna,	M.	of	
    sonen	 Mikko,	 Sitra;	 Kulmala	 Harri,	 FIMECC;	 Kutinlahti	 Pirjo,	    Educ.;	Virtanen	Erkki,	M.	of	Empl.	and	the	E.;	Vuola	Olli,	Neapo;	
    M.	of	Empl.	and	the	E.;	Laine	Seppo,	Finpro;	Laino-Asikainen	           Wentzel	Johan	,	Sentica	Partners;	Wilhelmsson	Thomas,	U.	of	
    Tiina,	FinPro;	Lehikoinen	Anita,	M.	of	Educ.;	Lehto	Petri,	M.	of	       Helsinki;	Ylikarjula	Janica,	EK,	C.	of	Finnish	Ind.




8
Executive Summary


                                                                 Premises
    This	section	summarizes	some	of	the	key	findings	of	the	
    evaluation.	It	also	serves	as	an	introduction	and	reading	   Both	 the	 new	 innovation	 strategy	 (Aho	 et al.,	 2008)	
    guide	for	the	three	parts	and	ten	chapters	of	this	Report.
                                                                 and	the	subsequent	Government’s	Communication	to	
                                                                 the	Parliament	(henceforth	the	two	are	collectively	re-
                                                                 ferred	to	as	the	Strategy)	call	for	a	broad-based	and	
                                                                 systemic	approach	as	well	as	demand-	and	user-ori-
Introduction                                                     entation	in	innovation	policy.	The	Strategy	highlights	
                                                                 the	increasing	role	of	information	and	knowledge	in	
This	 report	 completes	 an	 international	 evaluation	          the	society	as	well	as	stresses	the	urgency	in	address-
of	 the	 Finnish	 national	 innovation	 system	 commis-          ing	the	challenges	induced	by	globalization	(Chapter	
sioned	by	the	Ministry of Education	and	the	Ministry             3).	The	Strategy’s	basic	choices	constitute	the	premis-
of the Employment and the Economy	and	conducted	by	              es	of	this	evaluation.
an	independent	outside	panel.	The	assigned	tasks	are                  The	 Strategy	 warns	 against	 partial	 solutions	 in	
•	 To	point	out	needs	of	institutional	and	policy	ad-            developing	 the	 system.	 It	 rather	 calls	 for	 compre-
    justment and reforms,                                        hensive	renewal	and	structural	development	requir-
•	 To	draw	conclusions	on	policy	governance and steer-           ing	 strategic	 management	 within	 the	 public	 admin-
    ing	(Chapter	1).                                             istration.	It	notes	that	individual	and	separate	policy	
      The	panel	took	six	main	points	of	view	(Preface,	          measures	will	not	suffice.
Exhibit	1),	each	of	which	was	studied	by	a	sub-pan-
el	led	by	an	international	expert	accompanied	by	two	
Finnish	 ones.	 The	 panel	 commissioned	 several	 sup-          Reflections on the Strategy
porting	studies	and	carried	out	an	extensive	survey.	
Both	qualitative	and	quantitative	methods	were	em-               The	 Strategy	 defines productivity improvement	 as	
ployed	in	conducting	an	evidence-based	evaluation.               the	main	objective	(Chapter	2),	implying	a	balanced	
      The	panel	makes	critical	but	constructive	remarks	         consideration	of
that	should	help	in	improving	the	Finnish	education,	            •	 Developments	within	existing	units,
research,	and	innovation	system,	which	is	currently	             •	 Re-allocation	between	existing	units,
undergoing	its	biggest	changes	in	the	postwar	era.	It	           •	 Entry	of	new	units,	and
envisions	a	system	that	would	get	the	most	out	of	the	           •	 Exit	of	old	units.
currently deployed	(public)	resources;	it	was	not	asked	         The	 last	 three	 re-allocative	 elements	 have	 previous-
to	consider	their	appropriate	level.	The	panel’s	man-            ly	been	waved	aside.	Second,	the	emphasis	is	on	pio-
date	was	not	to	consider	individual	organizations	or	            neering,	which	suggests	less	(innovation	policy)	con-
their	budgetary	allocations,	but	on	occasions	they	are	          cern	 for	 individuals	 and	 organizations	 that	 are	 not	
touched	upon.	                                                   (seeking	to	be)	at	the	global	frontier.
      Even	if	the	current	state	of	the	Finnish	innovation	             The	panel	welcomes	the	ambitions	of	the	Strategy	
system	is	good,	it	is	not	enough:	While	some	of	the	             but	challenges	some	of	its	key	measures.	Overall	the	
panel’s	 proposals	 are	 laborious	 to	 implement,	 they	        panel	finds	the	Strategy	vague,	leaving	room	for	mis-
are	indeed	needed	to	meet	Finland’s	future	challeng-             interpretation.	The	panel	calls	for	caution	on	several	
es.	 The	 survey	 conducted	 to	 support	 the	 evaluation	       accounts:	broad-based	innovation	policy	can	indeed	
reveals	that	the	actors	of	the	Finnish	innovation	sys-           be	 too	 broad	 (Chapters	 3	 and	 4).	 Demand	 and	 user	
tem	 are	 optimistic	 about	 its	 future.	 They	 are	 ready	     orientation	(Chapter	5)	should	be	interpreted	as	im-
for,	and	even	demand,	major	changes.                             partiality	as	to	the	source,	type,	and	application	do-
      The	findings	have	implications	for	all	innovation	         main	of	innovation,	not	as	a	shift	to	the	other	extreme	
policy	organizations.	The	panel	does	not	wish	to	im-             from	the	current	technology	and	supply-side	empha-
ply	that	any	particular	organization	would	not	have	             sis.	 Analysis	 reveals	 that	 the	 Finnish	 system	 is	 less	
fulfilled	its	mission	in	the	past.                               international	 than	 conventionally	 thought	 and	 that	
                                                                                                                                  9
there	are	signs	that	it	is	falling	further	behind	(Chap-         incentives	and	ample	rewards	on	success	in	risky	en-
     ter	6);	current	ways	of	addressing	the	issue	are	clear-          deavors	are	needed	as	well.
     ly	not	working.                                                       Since	 the	 1980s	 Finland	 has	 been	 in	 transition	
           The	 Finnish	 innovation	 system	 lacks	 explic-           from	 an	 investment-driven	 catching-up	 country	 to-
     it	 cross-ministerial	 decision	 making	 and	 execution	         wards	 an	 innovation-driven	 and	 knowledge-based	
     (Chapters	 3	 and	 7).	 The	 panel	 hesitates	 with	 the	        frontier	 economy	 (Chapter	 2).	 With	 this	 transition	
     Strategy’s	proposal	to	extend	the	Cabinet Committee on           the	locus	of	Finnish	innovation	policy	has	to	change	
     Economic Policy	 to	 include	 innovation	 matters,	 even	        towards	 more	 experimentation,	 risk-taking,	 and	 ac-
     though	it	is	in	line	with	the	panel’s	proposal	that	the	         ceptance	of	failure.	Innovation	policy	should	mostly	
     Ministry of Finance	and	the	Ministry of Employment and           be	concerned	with	the	coming	up	with,	and	employ-
     the Economy	should	assume	a	joint	responsibility	for	            ment	 of,	 truly	 novel	 ideas	 (new-to-the-world	 and	
     the	enterprise-side	of	innovation	(and	growth)	policy	           radical/disruptive	innovations)	with	considerable	so-
     (Chapter	7).	A	broader	and	stronger	Research and In-             cietal	significance.
     novation Council	is	seen	as	an	alternative	for	renewing	              Due	 to	 changes	 in	 operating	 environment	 (e.g.,	
     the	Cabinet	Committee.                                           globalization),	 logic	 of	 innovation	 (e.g.,	 democrati-
                                                                      zation),	 and	 internal	 developments	 in	 Finland	 (e.g.,	
                                                                      reaching	the	frontier),	the	work	of	all	six	sub-panels	
     A call for a systemic renewal                                    points	 towards	 shifting	 innovation	 policy	 emphasis	
                                                                      from	established	incumbent	companies	and	other	or-
     One	 consequence	 of	 weak	 coordination	 within	 the	           ganizations	towards	individuals	and	their	incentives.
     system	 is	 that	 occasionally	 several	 organizations	 go	
     after	the	same	societal	problem	(e.g.,	lacking	growth	
     entrepreneurship)	with	similar	tools,	which	leads	to	            Reforms
     wasteful	replication	and	adds	to	institutional	clutter.
          Current	(public)	aspects	of	the	system	are	an	out-          The	panel	takes	a	strong	stance	for	the	university	re-
     come	 of	 an	 evolution	 of	 several	 decades.	 The	 sys-        form	and	encourages	it	to	go	further	than	what	is	cur-
     tem	has	grown	complex	to	both	access	and	adminis-                rently	 being	 suggested	 (Chapter	 9).	 The	 panel	 calls	
     ter.	Thus,	the	evaluation	calls	for	a	reform	of	the	cur-         for	 a	 continuation	 of	 the	 higher	 education	 reform:	
     rent	research	and	innovation	system,	including	its	ra-           Polytechnics	are	important	actors	in	the	system	with	
     tionales	and	goals	as	well	as	its	organizations	and	in-          their	strong	regional	and	applied	role	and	emphasis	on	
     struments.	The	provided	outline	(Chapter	10)	should	             bachelor-level	education.	In	the	course	of	the	2000s,	
     not	be	taken	as	a	blueprint	or	an	organization	chart	            however,	 there	 seems	 to	 be	 an	 increasing	 tenden-
     but	 rather	 as	 a	 guiding	 principle.	 It	 is	 nevertheless	   cy	to	make	them	more	like	nationally-	and	globally-
     the	case	that	the	desired	outcome	cannot	be	reached	             orientated	research	universities.1	In	the	panel’s	view	
     without	touching	existing	organizational	boundaries.             this	does	not	serve	the	interests	of	the	system.2	There	
          Taken	 individually,	 most	 new	 policy	 measures	          should	be	a	clear	division	of	labor	between	universi-
     are	 consistent	 with	 the	 Strategy.	 Taken	 jointly,	 they	    ties	and	polytechnics.
     appear	piecemeal solutions	the	Strategy	warns	against.	               The	panel	is	cautiously	optimistic	about	the	na-
     The	panel	calls	for	pre-screening	of	new	actions	in	or-          tional	Strategic Centres for Science, Technology and In-
     der	to	prevent	duplication	and	overlaps	(Chapter	3).             novations	 (SHOKs)	 but	 suggests	 limiting	 public	 re-
          Several	sub-panels	touch	upon	the	issue	of	using	           sources	devoted	to	them	(Chapter	4).3	In	the	panel’s	
     tax	 incentives	 and	 on	 the	 role	 of	 the	 Ministry of Fi-    view	SHOKs	are	mostly	about	incrementally	renew-
     nance	more	generally	(Chapters	3,	4,	and	7),	which	in	           ing	larger	incumbent	companies	in	traditional	indus-
     innovation	policy	has	been	tolerating	but	remote.	The	           tries.
     panel	urges	for	consideration	of	all	possible	innova-                 The	 true	 reform	 of	 sectoral	 research	 (public	 re-
     tion	policy	tools:	Knowledge and human capital	as	well	          search	 organizations,	 PROs)	 remains	 in	 gridlock	
     as	 enablers	 of	 innovative	 activity	 are	 important,	 but	    (Chapters	4	and	9).	Even	if	the	PROs	make	a	worthy	so-
10
cietal	contribution	as	well	as	provide	quality	research	       have	 a	 negative	 overall	 impact	 in	 the	 relatively	 dis-
and	services,	the	panel	believes	that	they	have	consid-        advantaged	regions	(Chapter	8).	While	direct	cost	is	
erable	upside	potential	that	could	be	unleashed.	The	          not	very	large,	the	total	cost	becomes	considerable	in	
panel	recommends	moving	their	academically-orien-              terms	 of	 hampered	 regional	 development	 and	 fore-
tated	 research	 to	 universities	 and	 organizing	 the	 re-   gone	growth.	The	panel’s	proposal	is	to	make	the	sys-
maining	tasks	into	4–5	units	in	accordance	with	larger	        tem	transparent	and	not	to	make	regional	imbalanc-
societal	needs	(as	opposed	to	the	ministries’	adminis-         es	a	concern	for	national	direct	support	of	private	in-
trative	boundaries).	A	long-term	binding	action	plan	          novative	activity.5
is	needed	to	implement	the	reform.
     The	 panel	 calls	 for	 a	 clarification and coordina-
tion	 of	 national,	 regional,	 and	 local	 innovation	 pol-   Final remark
icies	as	well	as	their	links	to	other	(non-innovation)	
policies	(Chapter	3	and	8).	Local	and	regional	actors	         The	Finnish	system	is	at	a	crossroads	due	to	both	in-
have	grown	important	also	in	innovation	policy	mat-            ternal	 and	 external	 factors.	 Innovation	 (policy)	 is	 in	
ters.	 They	 have,	 e.g.,	 assumed	 similar	 tasks	 as	 TE-    turmoil	 worldwide.	 While	 Finland	 is	 quite	 well-po-
Centres.4	Currently	national	innovation	support	has	           sitioned	to	meet	future	challenges,	there	is	a	unique
an	 ‘unspoken’	 regional	 bias.	 Primarily	 through	 the	      opportunity	 for	 further	 reforms.	 Furthermore,	 both	
previously	 ignored	 re-allocative	 elements,	 nation-         structural	 challenges	 and	 the	 financial	 crisis	 bring	
al	direct	support	for	private	innovative	activity	may	         about	a	sense	of urgency	that	should	not	be	wasted.




                                                                                                                                11
1. Evaluation Task


                                                                                                                           Premises
                                                           The brochure prepared by the Ministry of Education and
                                                           Ministry of Employment and the Economy for the open-            The evaluation is based on the basic choices of the
                                                           ing press conference on 11 December 2008 outlines the
                                                                                                                           National Innovation Strategy:
                                                           evaluation as shown below (Sections Evaluation, Objec-
                                                                                                                           • Innovation activity in a world without borders.
                                                           tives, Premises, and Task are direct copies from the bro-
                                                           chure; italics as in the original; additions in parenthesis).   • Demand and user orientation as a basis for innova-
                                                                                                                             tion activity.
                                                                                                                           • Individuals and communities create innovations.
                                                                                                                           • Systemic approach – interdependence of success
                                                                                                                             factors.
                                                       Evaluation

                                                       In August 2008 the Ministry of Employment and the                   Task
                                                       Economy issued a contract notice on a public procure-
                                                       ment regarding an International Evaluation of the Finn-             Given the short time and broad coverage of the task,
                                                       ish National Innovation System. The Ministry selected               the innovation system is mostly evaluated as a whole;
                                                       the project through a group of international panelists              thus the focus is less on individual actors, organiza-
                                                       (the members of the panel: Page 1 of this Report) co-               tions, and instruments. The evaluation is less about
                                                       ordinated by Etlatieto Oy, a subsidiary of ETLA, The                history or current structure and more about coming
                                                       Research Institute of the Finnish Economy. The work                 up with proposals for enhancing the system to meet
                                                       will be completed in September 2009.                                future challenges. The main points of view in the
                                                            The evaluation is headed by a panel of interna-                evaluation are defined by the six sections in the fig-
                                                       tionally acknowledged experts. Each foreign panelist                ure above (see Exhibit 1 in the Preface of this Report);
                                                       works with two Finnish panelists. The panelists will                the basic choices of the strategy underlie each of the
                                                       draw their overall conclusions in part based on these               sections.
                                                       sub-projects.
                                                            The project is overseen by a Sounding Board pri-
                                                       marily consisting of state secretaries in various min-              Remarks
                                                       istries (the members of the board: Page 2 of this Re-
                                                       port).                                                              The panel commissioned about a dozen supporting
                                                                                                                           studies and conducted an extensive structured sur-
Evaluation of the Finnish National Innovation System




                                                                                                                           vey. It interviewed and heard over one hundred ac-
                                                       Objectives                                                          tors and experts. It received nearly two thousand
                                                                                                                           survey responses. All available information was ana-
                                                       The objectives of the evaluation are:                               lyzed both qualitatively and quantitatively. To the ex-
                                                       • To form an outside view of major drivers of change                tent possible, the panel’s aim has been an evidence-
                                                         in the system, as well as to evaluate how well they               based evaluation.
                                                         are addressed in innovation policy.                                   As touched upon in the Preface of this Report
                                                       • To identify ways of addressing the current and fu-                – with some gaps in scholarly knowledge, limited
                                                         ture challenges.                                                  budget/time, and a constantly evolving surround-
                                                       • To point out needs for institutional and policy ad-               ing world – analysis will not provide solid guidance
                                                         justments and reforms.                                            in all issues. In these cases the panel has understood
                                                       • To draw conclusions and recommendations for the                   that it is specifically requested to provide its informed
                                                         policy governance and steering.                                   opinion and judgment. On some issues there is neces-
                                                                                                                           sary and welcomed diversity in these opinions, which
                                                                                                                           is not forcefully ironed out in this Report.


  12
Finland is in a position to lead innovation
policy thinking globally.




    On several accounts the evaluation has proceed                    refining the proposals, and overseeing their imple-
in the spirit of the two most important innovation                    mentation.
policy documents in Finland – the new innovation
strategy (Aho et al., 2008) and the subsequent Gov-
ernment’s Communication to the Parliament. One                        Structure
choice is the panel’s inclusive definition of innova-
tion, even if insufficient theoretical and empirical                  This Report is divided to three main parts and ten
backing on occasion forces it to resort to the prevail-               chapters:
ing convention.                                                       • This first part provides an overview of the evalua-
    This Policy Report is accompanied by the Full                       tion and its general conclusions (Chapters 1–3).
Report, which provides further details and elabora-                   • The second part contains the summaries of the
tion. With these two reports, the work of the evalu-                    contributions by the six sub-panels (Chapters 4–9).
ation panel is complete, even if many panelists have                  • The third part briefly elaborates on the longer-
already volunteered for disseminating the findings,                     term future of the system (Chapter 10).




    Exhibit 3: Plenty of international interest on the evaluation.


    Upon introducing the project on 11 December 2008, the web         vant documentation. Towards the end of September 2009, the
    site www.evaluation.fi was launched. The site provides general    site had attracted around 2,500 visits of 1,600 unique visitors
    information on the evaluation process as well as links to rele-   from 52 countries worldwide.




                                                                                                                                        Evaluation Task




                                                                                                                                        13
2. Future Challenges and Ongoing Reforms


                                                                                                                                                           • Pioneering in innovation does not lend itself to di-
                                                              This chapter provides the context of the evaluation in a                                        rect measurement, but for instance Finland’s share
                                                              nutshell by first reviewing some aggregate innovation-                                          of the applications at the European Patent Office has
                                                              related indicators and then summarizing its actors’ opin-                                       been on a continuous rise up until the new millen-
                                                              ions on the Finnish innovation system.                                                          nium (Exhibit 4, right). While it is true that this is
                                                                                                                                                              in considerable part attributable to Nokia, if also
                                                                                                                                                              other countries’ most influential company with re-
                                                                                                                                                              spect to patenting is removed, Finland’s relative
                                                       Catching up and forging ahead?                                                                         position does not change drastically (Exhibit 5).
                                                                                                                                                                Finland’s relatively brisk economic growth in the
                                                       Productivity improvement and pioneering in inno-                                                    early 2000s hid the fact that its strongholds – forest-
                                                       vation are the two foremost policy goals according to                                               and ICT-related businesses as well as industrial ma-
                                                       the Proposal for Finland’s National Innovation Strategy                                             chinery and equipment – were facing structural chal-
                                                       (Aho et al., 2008). On both accounts, Finland’s post-                                               lenges (Rouvinen, 2009). In innovative activity this
                                                       war track record is rather admirable, at least if the                                               was manifested by the fact that R&D working hours
                                                       latter goal is understood to include catching up with                                               declined somewhat in 2005 and considerably in 2007
                                                       the leading economies:                                                                              (Exhibit 6) – for the first time in the postwar era.
                                                       • According to the broadest measure of productivity                                                      Also the composition of the R&D hours worked
                                                          we can reasonably compare across countries (Ex-                                                  conducted within the Finnish national borders is
                                                          hibit 4, left), Finland has almost caught up with the                                            changing towards more challenging coordination, con-
                                                          United States, which is typically considered to be                                               ceptual design, and managerial tasks, while routine
                                                          the global productivity leader.                                                                  tasks (such as basic technical drawing) as well as



                                                       Exhibit 4: Catching up with the US produc-                                            Labor productivity level                       Finland’s patent share
                                                       tivity – Pioneering in innovation.                                           40                                           1.5%
                                                       Finnish and US labor productivity of non-financial                           35
                                                       corporations in 2004 Euros (left). Finland’s share of                        30
                                                       the annual European Patent Office applications right).
                                                                                                                                                     USA
                                                                                                                                    25                                           1.0%
                                                                                                                        Log scale




                                                       Finland has almost reached the US labor productivity                                                 Finland
                                                                                                                                    20
                                                       level (left). Finland’s share of the applications at the
                                                       European Patent Office has been rising up until the
                                                                                                                                                                                 0.5%
Evaluation of the Finnish National Innovation System




                                                       new millennium (right).                                                      15

                                                       Sources: Left – calculations by Nevalainen and Maliranta
                                                       (2009) with the data of Statistics Finland and the US Bureau
                                                       of Labor Statistics. Right – ETLA calculations with OECD data.
                                                                                                                                    10                                           0.0%
                                                                                                                                     1975 1980 1985 1990 1995 2000 2005             1977 1981 1985 1989 1993 1997 2001 2005




                                                       Exhibit 5: Nokia accounts for much of                                        Patents by country                Patent share                      Patents by country
                                                       Finnish patenting, but so does the lead-                                                                       of the top firm                   w/o the top firm
                                                       ing corporation in some other countries.
                                                       Applications at the European Patent Office, 2000–6.                                                                Nokia                       Netherlands
                                                                                                                               Netherl. 42,722                                   48%                                24,952
                                                                                                                                                                       (Finland)                      (w/o Philips)
                                                       Note: Refers to simple counts and is thus not adjusted for                                                                                         Sweden
                                                                                                                                Sweden 21,679                          Philips                                      15,470
                                                       the size of the country. Only those patent applications of                                                              42%                   (w/o Ericsson)
                                                       the top firm that were applied for from the location of the                                               (Netherlands)
                                                       country in question have been included in that firm’s and                                                       Ericsson                            Austria
                                                       country’s data. Patent applications have been collected                      Austria 12,557                              29%                                 12,301
                                                                                                                                                                      (Sweden)                    (w/o Voestalpine)
                                                       from the database based on the applicant’s country code,
                                                       and firm name (top firms).                                                   Finland 12,226                        Novo                           Denmark
                                                                                                                                                                                12%                                6,767
                                                                                                                                                                      (Denmark)                         (w/o Novo)
                                                       Source: ETLA calculations on the basis of the OECD
                                                       PATSTAT database.                                                    Denmark 7,757                         Voestalpine                             Finland
                                                                                                                                                                               2%                                  6,284
                                                                                                                                                                     (Austria)                         (w/o Nokia)

14
Globalization is inducing a qualitative
change in innovative activity.




                                            T&k-henkilöstön tutkimustyövuosien vuosimuutos
                                            sektoreittain

Exhibit 6: R&D working hours in Finland
declined in 2005 and 2007.
Annual change of all R&D working hours done in
Finland (%).

Structural challenges have put downward pressure
on R&D hours worked in Finland. For the first time
in the postwar era, hours dropped in 2005 and
again in 2007.

Source: Statistics Finland.6

                                                     6 3 3 6 6 5 5 7 7 8 8 6 5 4 4 2 2 2 2 5 5 11 10 13 9 4 2 3 4 2                                            1
                                                     1975           1980             1985             1990             1995            2000              -1        -3
                                                                                                                                                         2005



market adaptation and customization are increasing-                             tion seems to be a long-term trend in Finland (Exhib-
ly being located overseas, also in the case of predomi-                         it 7, bottom). The changing task-by-task composition
nantly Finnish-owned and -operated companies (Ali-                              of innovative activity in many developed countries
Yrkkö & Tahvanainen, 2009). Becker, Ekholm, and                                 is more recent; it reflects the exploitation of global
Muendler (2009) echo this for Germany; they note                                opportunities for cost and talent arbitrage and thus
that off-shoring is associated with a shift towards                             the changing locus of specialization across countries
more non-routine and more interactive tasks in Ger-                             (and even across individuals).
many as well as with a labor-composition shift to-                                    The changing locus of specialization in the provi-
wards highly educated workers. Their last observa-                              sion of goods and services does not imply that every-


Exhibit 7: Most R&D hours worked are                 R&D labor hours
carried out in the business sector –
hours are increasingly done by more                  Business sector                   Higher education                       Public sector
educated R&D workers.                                                                  (incl. polytechnics)                   (incl. private non-profit)
Evolution of total R&D hours worked in Finland by
sector (top) and the composition of hours by work-
ers’ educational level (bottom).

Source: Statistics Finland.6




                                                      4,942 15,028 30,090 31,940            2,308    7,662    15,596 16,503    2,994    6,884    7,738        7,800
                                                      1971   1991      2001   2007          1971     1991     2001    2007      1971    1991     2001         2007


                                                     Educational composition of R&D labor hours
                                                                                                                                                                        Future Challenges and Ongoing Reforms




                                                     Business sector                   Higher education                       Public sector
                                                                                       (incl. polytechnics)                   (incl. private non-profit)

                                                                      30%     23%       24%         28%      29%     22%                                  28%
                                                                                                                                                37%
                                                             48%                            0%                       5%       56%      48%
                                                      63%                                           1%       3%                                           6%
                                                                              30%                                                               5%
                                                                      29%               41%         36%              37%
                                                                                                             36%                        3%
                                                             18%                                                               2%                         42%
                                                                                                                                                38%
                                                      10%                                                                              34%
                                                                              42%                                             30%
                                                             30%      36%
                                                      24%                               35%         35%      32%     35%
                                                                                                                                                21%       25%
                                                       3%     5%      5%       6%                                             12%      16%
                                                      1971   1991    2001     2007      1971        1991     2001    2007     1971     1991     2001     2007


                                                                        Above master             Master        Bachelor       Other
                                                                                                                                                                         15
Finland’s traditional locomotives of growth have either vanished
                                           or reached a level, at which major jumps are unlikely.




                                                       thing would move to China or to other off-shore lo-           the transition Acemoglu et al. describe. In the 2000s
                                                       cations. It does, however, mean that innovation and           some of the aggregate productivity growth in Finland
                                                       other business activities will become more geograph-          is attributable to intensifying creative destruction and
                                                       ically dispersed. In principle each narrowly-defined          renewal – now particularly in services (the same proc-
                                                       activity will seek its globally optimal location. While       ess was intense in manufacturing from the mid-1980s
                                                       many supply chains remain quite local, it is neverthe-        to the mid-1990s) – and new micro-dynamism, i.e.,
                                                       less worthwhile to consider what the great second un-         slowly emerging more entrepreneurial Finland.
                                                       bundling (Baldwin, 2006) implies for innovation and                Finland is nevertheless facing a double chal-
                                                       other business activities.                                    lenge: The old welfare trajectory – and industries as-
                                                            Finland is currently in a situation where tradition-     sociated with it – should not lose steam too fast; at
                                                       al locomotives of economic growth – expanding quan-           the same time new sources of welfare should emerge.
                                                       tity and quality of available skills and competences of       There is a strong desire among policymakers to learn
                                                       its citizens, deepening of tangible and intangible cap-       where the next leading companies and industries
                                                       ital, catching up with the global leaders, intensify-         might be found. While this desire is understanda-
                                                       ing productivity-enhancing creative destruction (and          ble, global business, and Finland as a country, has
                                                       market competition driving it), as well as improv-            evolved in such ways that it is increasingly doubtful
                                                       ing institutions – are either out of the game or have         that the question could be answered to any relevant
                                                       reached a level at which major jumps are unlikely.            degree of accuracy. The future of the country is less
                                                       Given that old strongholds are no longer expanding,           on a few leading industries and companies and more
                                                       Finland is actively seeking new sources of welfare.           on widespread entrepreneurial activity. This poses a
                                                            A considerable part of the Finnish success in the        challenge to traditional Finnish policies, which have
                                                       past decades is attributable to increasing openness of        a (successful) history of national missions and target-
                                                       the economy as well as to the long-term commitment            ed programs, even if the system is not – and never
                                                       to (and volume-wise expansion of) education and re-           was – a top-down planning system. Finland’s struc-
                                                       search. While this policy mix is still held dearly in         tural challenges were present well before the ongo-
                                                       Finland, increasing openness, R&D intensity, or edu-          ing financial crisis, which only heightens the sense of
                                                       cational attainment are in themselves insufficient for        urgency in addressing them.
                                                       reaching the desired growth rates.                                 In the context of the current crisis, much of the
                                                            Policies that supported the accumulation of              Finnish stimulus is passive or automatic, i.e., fun-
                                                       wealth in the catching up phase are not the same as           neled via its extensive social safety nets. Finland is
                                                       the policies needed to support prosperity in a leading        nevertheless making considerable active stimulus as
Evaluation of the Finnish National Innovation System




                                                       economy in the current global environment. Acemo-             well and with that – like in its great economic slump
                                                       glu, Aghion, and Zilibotti (2006) note that countries at      of the early 1990s – again signaling its sustained com-
                                                       early stages of development pursue an investment-based        mitment to innovation. As compared to 2008, govern-
                                                       strategy – maximize investment but sacrifice selection. In    ment R&D expenditure will increase 7–10% in 2009.
                                                       the postwar era Finland made heavy tangible and in-           As for 2010, a further 5–10% increase is being consid-
                                                       tangible investments in part at the expense of selec-         ered, along with possible tax incentives for venture
                                                       tion. Due to its past success, Finland should move on:        capital and business angel investment as well as with
                                                       Acemoglu et al. note that closer to the world technology      a general R&D tax incentive scheme.7
                                                       frontier an economy should switch to an innovation-based
                                                       strategy with short-term relationships, younger firms, less
                                                       investment, and better selection of firms and managers.       How its actors see the Finnish
                                                            When Finland was far from the global productivi-         innovation system
                                                       ty frontier, it could advance by adopting technologies
                                                       and ways of conduct that were already established             The survey conducted to support the evaluation (Ko-
                                                       elsewhere. Imitation and incremental improvement              tiranta et al., 2009) covers a wide range of actors and
                                                       were good strategies. Finland is on its way to make           provides new insights. In the survey the national in-
16
The current performance of the Finnish
innovation system is quite satisfactory.




novation system (NIS) refers to the totality of private                    grade for 2014 is 8-. The representatives of public re-
and public actors producing and applying knowledge and                     search organizations constitute the only group believ-
information to promote the welfare of Finnish citizens.8                   ing that the performance of the system will deteriorate
     The respondents of the survey were asked to                           in coming years. The representatives of national pub-
grade the overall performance of the system on the                         lic education support organizations (comprised of
Finnish school grading system from 4 (fail) to 10 (ex-                     the Ministry of Education (ME) and the Academy of Fin-
cellent) in three points of time: five years ago, current-                 land) are the most optimistic about the system’s future
ly (spring of 2009), and in five years. Most groups of                     performance – perhaps reflecting the upside poten-
respondents think that the system has been improv-                         tial of the ongoing reforms in their core domain – fol-
ing in recent years, its current performance is quite                      lowed by associations (including labor market partic-
satisfactory, and that its performance will improve in                     ipants on both sides) as well as national public inno-
the coming years (Exhibit 8). The average grade goes                       vation support organizations (comprised of the Min-
from 7 in 2004 to 7½ in 2009; the average (expected)                       istry of Employment and the Economy (MEE) and Tekes,




Exhibit 8: Most stakeholders think that                        9-
the Finnish national innovation system
has been improving and will continue to                                                                 Gov't: Education support org's
do so – its current performance is quite
satisfactory.                                                  8½
The past, present, and future school grades by
group.

The past, present, and future average grades are 7             8+                                       Other: Associations
(2004), 7½ (2009), and 8- (2014). The representatives                                                   Gov't: Innovation support org's
of public research organizations constitute the only
group believing that the performance of the system
                                                                                                        Gov't: Other nat. public org's
will deteriorate in coming years. The representatives          8                                        Educ.: Polytechnic rectors
of national public education support organizations
                                                                                                        Sectoral: Public research org's
are the most optimistic about the system’s future
performance; smaller innovative firms are the                                                           Other: Municipalities
least optimistic. Overall private actors consider the
                                                               8-                                       Intermediaries: Other
performance worse than public ones.
                                                                                                        Finance: Business angels, VCs
Note: The respondents of the survey were asked to grade
                                                                                                        Educ.: University rectors
the overall performance of the system on the Finnish
school grading system from 4 (fail) to 10 (excellent).
                                                               7½                                       Intermediaries: TE -centres
Groups: Gov’t: Education support org’s – The Ministry of
Education (ME) and the Academy of Finland. Gov’t: Innova-                                               Gov't: Other ministries
tion support org’s – The Ministry of Employment and the                                                 Sectoral: Other research org's
Economy (MEE) and Tekes. Gov’t: Other ministries – All be-
sides ME and MEE. Gov’t: Other nat. public org’s – Includes,   7+                                       Firms: Non-innovative
                                                                                                                                          Future Challenges and Ongoing Reforms




for example, Sitra, Finnvera, and Finpro. Intermediaries:
                                                                                                        Firms: Larger innovative
Other – Includes, for example, regional development
centers and companies and science and business parks.                                                   Educ.: University dep't heads
Firms: Smaller innovative – Firms employing less than 50
                                                                                                        Firms: Smaller innovative
employees that have had innovative activity in the past        7
three years. Firms: Larger innovative – Firms employing at
least 50 employees that that have had innovative activity
in the past three years. Firms: Non-innovative – Firms that
have not had innovative activity in the past three years.
Other: Associations – Several interest groups such as the      7-
Confederation of Finnish Industries EK and the Federation
of Finnish Technology Industries. More information on the
respondent groups in the survey report.
Source: Kotiranta et al. (2009).
                                                               6½




                                                               6+
                                                                    2004    2009              2014
                                                                                                                                           17
The system has grown complex to
                                              both access and administer.




                                                         the Finnish Funding Agency for Technology and Innova-                                        universities, as well as to support the international-
                                                         tion). Smaller innovative firms are the least optimistic                                     ization of universities.
                                                         about the future performance. Overall private actors                                              Given the importance and extent of the reform, it
                                                         consider the performance worse than public ones.                                             is comforting to note that for all objectives across all
                                                              The respondents were asked to consider the en-                                          groups – with the exception of teaching quality in the
                                                         tity of public bodies in the system as well as the (pub-                                     case of university department heads – the reform is con-
                                                         lic) promotion of private innovative activity on a scale                                     sidered to be an improvement over the current state
                                                         from very complex to very simple. Exhibit 9 summa-                                           of affairs (Exhibit 10). The divergence of the views of
                                                         rizes the results. As to the public aspects of the sys-                                      university rectors and department heads is notewor-
                                                         tem (left), with the exception of education support                                          thy and indeed a problem requiring attention.
                                                         organizations (ME, Academy) having a virtually neu-                                               In enterprise innovation policy the establishment
                                                         tral position, all groups of respondents lean towards                                        of the Strategic Centres for Science, Technology & Inno-
                                                         considering the system complex rather than sim-                                              vation or SHOKs is the most significant new policy
                                                         ple. As to the promotion of private innovative ac-                                           instrument in the 2000s. SHOKs are viewed rather
                                                         tivity (right), it is interesting to note that the sys-                                      positively (Exhibit 11, left), especially by the repre-
                                                         tem appears the most complex to the TE-Centres,                                              sentatives of the national central administration.
                                                         private business angels and venture capitalists, as                                               The possible reform of public research organi-
                                                         well as other intermediaries (comprised of public or                                         zations (PROs or sectoral research, as they are collec-
                                                         publicly-supported regional/local competence, ex-                                            tively referred to in Finland has been on the agen-
                                                         pertise, innovation, and technology centers) that are                                        da in Finland for several decades with little visible
                                                         supposed to be the frontline in assisting businesses in                                      progress to date. The respondents were asked how
                                                         maneuvering the system especially when it comes to                                           they would see a possible reform of PROs. All re-
                                                         growth-seeking entrepreneurial startups.                                                     spondent groups believe that a reform would im-
                                                              The ongoing university reform is the system’s                                           prove the performance of PROs, which arguably re-
                                                         most important change in several decades. Its ob-                                            flects the belief that there is considerable unrealized
                                                         jectives are to improve research quality, to improve                                         potential in them that is currently held back by ad-
                                                         teaching quality, to enhance the societal impact of                                          ministrative hurdles.


                                                         Exhibit 9: The system is viewed as being                                                          Complexity of entirety of     Complexity of promotion
                                                         quite complex.                                                                                    the system’s public actors    of private innovation
                                                         Complexity of the national innovation system as                 Gov't: Education support org's
Evaluation of the Finnish National Innovation System




                                                         a whole (left) and of the promotion for private in-             Gov't: Innovation support org‘s
                                                         novative activity (right).                                      Gov't: Other ministries
                                                                                                                         Gov't: Other nat. public org's
                                                         Virtually all groups of actors considered the system
                                                         rather complex. The national public education sup-              Educ.: University dep't heads                                             n/a
                                                         port organizations stand out as the only group that             Educ.: University rectors                                                 n/a
                                                         deems the system to be simple rather than complex               Educ.: Polytechnic rectors                                                n/a
                                                         (even if their position is virtually neutral).
                                                                                                                         Sectoral: Public research org's                                           n/a
                                                         Note: Illustrates deviations from a neutral position. See the   Sectoral: Other research org's                                            n/a
                                                         survey documentation (Kotiranta et al., 2009) for details.
                                                         See the note in Exhibit 8 for definitions of the groups.
                                                                                                                         Intermediaries: TE-centres
                                                         Source: Kotiranta et al. (2009).
                                                                                                                         Intermediaries: Other

                                                                                                                         Firms: Smaller innovative
                                                                                                                         Firms: Larger innovative
                                                                                                                         Firms: Non-innovative

                                                                                                                         Finance: Business angels, VCs

                                                                                                                         Other: Associations                                                       n/a
                                                                                                                         Other: Municipalities                                                     n/a
                                                                                                                                                           Very                   Very   Very                 Very
                                                                                                                                                           complex              simple   complex            simple
 18
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Inno evalfi policy_report_28_oct_2009

  • 1. Ministry of Education Evaluation of the Finnish National Innovation System Policy Report www.evaluation.f i
  • 2. This page is intentionally left blank for double-sided printing
  • 3. Published on 28 October 2009 at 13:00 Finnish local time Evaluation of the Finnish National Innovation System – Policy Report www.evaluation.f i (Also available: Full Report) Chair of the evaluation panel: Professor Reinhilde Veugelers Katholieke Universiteit Leuven (Belgium) Other international panelists: Professor Karl Aiginger Austrian Institute of Economic Research (WIFO) Professor Dan Breznitz Georgia Institute of Technology (USA) Professor Charles Edquist Lund University (Sweden) Professor Gordon Murray University of Exeter (UK) Professor Gianmarco Ottaviano Bocconi University (Italy) Finnish panelists: Professor Ari Hyytinen University of Jyväskylä Research Professor Aki Kangasharju VATT, The Government Institute for Economic Research Adjunct Professor Mikko Ketokivi Helsinki University of Technology Head of Unit Terttu Luukkonen ETLA, The Research Institute of the Finnish Economy Research Director Mika Maliranta ETLA, The Research Institute of the Finnish Economy Professor Markku Maula Helsinki University of Technology Professor (Emeritus) Paavo Okko Turku School of Economics Research Director Petri Rouvinen Etlatieto Oy (a subsidiary of ETLA) Professor Markku Sotarauta University of Tampere Researcher Tanja Tanayama HECER, Helsinki Center of Economic Research and Etlatieto Oy Director Otto Toivanen HECER, Helsinki Center of Economic Research CEO Pekka Ylä-Anttila Etlatieto Oy (a subsidiary of ETLA) Publisher: Taloustieto Oy (on behalf of the Ministry of Education and the Ministry of Employment and the Economy) Helsinki University Print, 2009 Cover design: Porkka & Kuutsa Oy Cover photo: Kai Kuusisto / Plugi ISBN 978-951-628-490-6 1
  • 4. Sounding Board Chairs of the sounding board: State Secretary Mikko Alkio (until 31 July 2009) Ministry of Employment and the Economy State Secretary Riina Nevamäki (since 1 August 2009) Ministry of Employment and the Economy Other members of the board: Ministerial Advisor Pirjo Kutinlahti Ministry of Employment and the Economy Director Anita Lehikoinen Ministry of Education State Secretary Heljä Misukka Ministry of Education State Secretary Velipekka Nummikoski Ministry of Finance Director General Petri Peltonen Ministry of Employment and the Economy State Secretary Terttu Savolainen Ministry of Social Affairs and Health Special Government Advisor Ilkka Turunen Ministry of Education Members of the research and support team Ali-Yrkkö, Jyrki; Autio, Erkko; Deschryvere, Matthias; Dixon, Roderick; Hyvönen-Rajecki, Kaija; Koski, Heli; Kotilainen, Markku; Kotiranta, Annu; Nikula, Nuutti; Nikulainen, Tuomo; Paasi, Marianne; Pajarinen, Mika; Palmberg, Christopher; Rogers, John; Saariokari, Pirjo; Tahvanainen, Antti; Takalo, Tuomas; Väänänen, Lotta. This Policy Report summarizes the key findings of the evaluation. The Full Report provides further details and elaboration. Some of the studies conducted to support the evaluation are also available separately: • Autio, E. (2009). High-Growth Firms in Finland: Issues and Challenges. ETLA Discussion Papers, 1197. • Deschryvere, M. (2009). A Comparative Survey of Structural Characteristics of Finnish University Departments. ETLA Discus- sion Papers, 1195. • Kotiranta, A., Nikulainen, T., Tahvanainen A-J., Deschryvere, M., & Pajarinen, M. (2009). Evaluating National Innovation Systems – Key Insights from the Finnish INNOEVAL Survey. ETLA Discussion papers, 1196. • Nikulainen, T., & Tahvanainen, A-J. (2009). Towards Demand Based Innovation Policy? The Introduction of SHOKs as Innovation Policy Instrument. ETLA Discussion Papers, 1182. • Tahvanainen, A-J. (2009). Finnish University Technology Transfer in a Whirl of Changes – A Brief Summary. ETLA Discussion Pa- pers, 1188. • Takalo, T. (2009). Rationales and Instruments for Public Innovation Policies. ETLA Discussion Papers, 1185. • Tanayama, T., & Ylä-Anttila, P. (2009). Tax Incentives as Innovation Policy Tool (in Finnish with an abstract in English). ETLA Dis- cussion Papers, 1189. Free electronic versions of all reports and studies as well as other related material are available at www.evaluation.fi. To obtain printed copies of the reports, please fill a form at the web site or contact Riikka Pellikka, Ministry of Employment and the Economy, riikka.pellikka@tem.fi, +358 50 302 7671. Contacts Pirjo Kutinlahti, Ministry of Employment and the Economy, pirjo.kutinlahti@tem.fi, +358 10 606 3548 Petri Rouvinen, Etlatieto Oy, petri.rouvinen@etla.fi, +358 9 6099 0202 Ilkka Turunen, Ministry of Education, ilkka.turunen@minedu.fi, + 358 9 1607 7299 2
  • 5. Table of Contents Preface > 4 Executive Summary > 9 Overview and General Conclusions 1. Evaluation Task > 12 2. Future Challenges and Ongoing Reforms > 14 3. Policy Governance and Steering > 20 Six Main Points of View: Summaries by Sub-Panel 4. Broad-Based Innovation Policy > 34 5. Demand- and User-Driven Innovation > 42 6. Globalization of Business Activities > 52 7. Growth Entrepreneurship and Finance > 60 8. Geography of Innovative Activity > 70 9. Education, Research and the Economy > 78 Growth Strategy: A Strong Commitment to Education, Research, and Innovation 10. The Way Forward > 88 Bibliography > 90 Endnotes > 92 3
  • 6. Preface In the fall of 2008 the Ministry of Education and the in implementing the Strategy and in steering the system Ministry of Employment and the Economy commis- towards a better future. sioned an international evaluation of the Finnish na- Our evaluation task is outlined in the original tional innovation system. As I was in the final months contract notice (ref. no. 2327/420/2008), as well as in of my term as an economic advisor at the Bureau of the evaluation brochure, prepared for the opening European Policy Analysis to JM Barroso, European press conference on 11 December 2008: The Minis- Commission, and not yet fully returned to my pro- tries specifically wanted an independent outside view of fessorship at Katholieke Universiteit Leuven (Belgium), the system. We were to look into the current and fu- the timing was perfect for me to learn about the fea- ture challenges and consider whether or not they are tures of the innovation system that continues to be sufficiently acknowledged and addressed. We were admired and imitated worldwide. to point out needs for institutional and policy adjust- ments and reforms, as well as to draw conclusions on policy governance and steering. Given the short time Shooting a moving target and broad coverage of our task, we were to evaluate the system as a whole rather than focus on individual The evaluation mission turned out to be challenging actors, organizations, and instruments. In our evalu- not only due to its considerable scope and shortness ation we looked particularly at whether public bod- of time, but also because of the several ongoing tran- ies and policies assist and incentivize both public and sitions in the Finnish system, in part induced by the private individuals and organizations in generating new innovation strategy (Aho, et al., 2008) that served and utilizing novel ideas. as our starting point; at least four major reforms ad- In collaboration with the two Ministries, the eval- vanced along with our evaluation and dozens of new uation panel settled on six main points of view in the policy initiatives have seen the light this year alone. evaluation (Exhibit 1); the basic choices of the Strat- Our solution to this moving target problem was to egy underlie each point of view. We organized our- employ heterodox approaches and work (partly) in selves into six sub-panels, one for each main point of smaller groups. Despite the evolving nature of the view. Based on the work by the sub-panels, we draw system, as well as the valuable and welcomed diver- our overall conclusions as the whole panel. sity in the opinions of the panel, we ended up with a Each sub-panel was led by an international ex- coherent joint view on conclusions that should help pert working with two Finnish ones: an academic Exhibit 1: The basic choices underlie the Global trends, national structures & their evolution, choices of the Finnish National Innovation Strategy six main points of view, each studied by a sub-panel led by an international BROAD-BASED DEMAND- & GLOBALIZA- GROWTH GEOGRAPHY EDUCATION, expert. INNOVATION USER-DRIVEN TION OF ENTREPRE- OF INNOVATIVE RESEARCH, POLICY INNOVATION BUSINESS NEURSHIP & ACTIVITY AND THE Source: The brochure prepared by the Ministry of Educa- ACTIVITIES FINANCE ECONOMY tion and the Ministry of Employment and the Economy for the opening press conference of the evaluation on 11 K. Aiginger G. Murray G. Ottaviano C. Edquist D. Breznitz R. Veugelers December 2008. A. Kangasharju T. Luukkonen M. Ketokivi P. Okko A. Hyytinen O. Toivanen M. Sotarauta P. Rouvinen P. Ylä-Anttila M. Maula M. Maliranta T. Tanayama Innovation activity in a world without borders Innovative individuals and communities Demand and user orientation Systemic approach The Finnish national innovation system and policy: policy/institutional reforms/adjustments to meet future challenges 4
  • 7. scholar and an innovation researcher representing tical policy concerns. Finland is in a unique position ETLA. Given the task and the time, each sub-panel to lead innovation policy thinking globally by filling had to make hard choices as to its approach and em- these gaps in scholarly knowledge and by providing phasis; all pressing issues could not be addressed. In the scene for real policy experiments. writing the report we have attempted to produce self- contained chapters, even if this necessarily brings about some repetition. Some personal observations on Finland and the Finns Innovation policy remains an art Finland certainly has more than its fair share of capa- rather than a science ble civil servants, which (as a group) seem to be influ- ential in steering and developing the system. Often In the context of this evaluation, we largely took the they are not only willing, but also eager to accept new premises for innovation policy for granted, even if ideas and rapidly integrate them into policy discus- we are fully aware that the underlying theories and sion. Nevertheless, Finland seems to share the same empirics remain less-than-satisfactory to effectively institutional inertia as other countries when it comes guide policymaking, which poses a challenge. to implementing reforms. Society’s interest in innovation stems from its Curiously enough, there is almost an expectation central role as a sustainable source of long-term eco- of intervention in Finland. The possibility of a gov- nomic growth and thus improving welfare (Aghion ernment failure in fixing the market is not always & Howitt, 2009). Innovation policy is primarily mo- considered in depth. There seems to be a culture of tivated by failures in the market for information (Ar- direct and visible public involvement – on the other hand row, 1962). While the central role of innovation and there seems to be less trust in alternative more indi- related policy justifications are both clear and undis- rect measures. Broader effects, say with respect to putable, they become much more fraught with diffi- competition or re-allocation of resources, occasion- culty when considered in detail. ally escape policymakers’ attention. As in many oth- For instance, small open economy considerations er countries, consideration of the interaction of the call for adjustments in policy rationales. While this is new (to-be-introduced) and the old (still continuing) indeed frequently acknowledged (Toivanen, 2008), in measures is sometimes lacking. Even if there is a host reality the employed theories and thinking have not of available tools (Takalo, 2009), there seems to be a been adjusted accordingly. tendency to stick with the same traditional instru- Even if innovation policy should be as dynam- ments and sectors. For example, green innovation ic and evolving as its targets, decades can go by with seems to be less integrated into Finnish mainstream little real change in policy conduct. Unfortunately, in- innovation policy discussions. novation policy theories are often mute on how to Incentives of individuals and organizations are adapt and change existing policies into new direc- often mentioned in Finland, but considering them tions, overcoming resistance to change. is not fully integrated into policy thinking. Cutting- The perspective of aggregate societal benefits edge innovative and entrepreneurial activity needs to does receive some attention, but discussion quickly engage the best and the brightest individuals and or- slips into considering individual public bodies and ganizations globally. This is most likely to happen in their actions. One should more often have an over- countries where their successful efforts are rewarded all systemic view of the incentives and actions of in- appropriately. dividuals and organizations currently targeted by a Finns seem to be superb at institutionalizing bewildering array of instruments and measures; how things. However, more attention should be paid to they work in tandem is largely unknown. steering and developing institutions, once estab- The above (and several others) are not just issues lished, to meet changing needs and perhaps discon- in the scholarly research agenda; they are also prac- tinuing them when they become obsolete. Indeed, in 5
  • 8. some cases successful public institutions render them- well as to forge a clear division of labor between uni- selves obsolete by assisting development to the extent versities and polytechnics. that sustainable private solutions emerge. The two main weaknesses of the Finnish sys- Upon seeing and hearing all the top innovation tem, (somewhat dismal) growth entrepreneurship policy actors one after another in January 2009, I was and (lacking) internationalization, arguably remain struck by how uniformly they seemed to think and orphans in the system, that is, they are both most- how reluctantly they expressed even remotely con- ly side issues for a number of public institutions and troversial opinions. While this remarkable consensus not forcefully advanced by any. One of the problems is an asset in certain ways, (also) in the domain of in addressing these two issues is that neither is really innovation policy Finland would benefit from more represented where decisions are made. high-flown thinking and outside exposure, for exam- Overall, the Finnish innovation system and its ple, in the form of exercises such as ours. policy-making are very ‘Finnish’ (which in many ways is a great asset). Efforts to change this are yet to bear fruit. While more global exposure is needed Finland has ample upside potential in Finland, it should be kept in mind that it is a tool rather than an end to itself. Internationalization is While not obvious on the surface, a closer look sug- perhaps better advanced by removing its explicit and gests that Finland appears to have certain structural implicit obstacles than by direct measures. challenges. Reactions to them may have been ham- Global – and even European – considerations pered because, according to many indicators, up un- seem to be somewhat remote. While the European til recently Finland was doing well in its traditional Union is looking at Finland, to learn from its innova- strongholds. Now there is both a need and an oppor- tion policy design, Finland should also look more at tunity to make a clear break with the past. It remains the European Union. The Finnish innovation system to be seen whether or not there is sufficient courage has much to gain from integrating into the single Eu- and political will to see these reforms through. It is ropean market for goods and services, as well as into certainly my hope that our exercise does not turn out the European Research and Higher Education Area. to be just another report but that it leads to further Indeed, in my opinion the success of the Finnish uni- material developments. versity reform hangs in part on having a single Euro- In the course of its history the Finnish system has pean market for researchers and students. grown complex to both access and administer. Reac- The ongoing economic and financial crisis start- tions to the Strategy we have been observing during ed to fully unfold only after we had submitted our our exercise mostly add to the existing clutter. As in evaluation proposal and had laid-out our detailed many other countries, touching institutional bound- work plan. Thus, some issues related to the crisis are aries seems to be a taboo in Finland. Yet, it is hard not integrated into our analysis. In any case, develop- to imagine how the necessary streamlining could be ing a country’s innovation system is a medium- and achieved without it. long-term issue. The current crisis may nevertheless In my understanding the ongoing university re- be of such a nature that it induces more long-term form is the most important change in the public as- and even permanent changes in the geography and pects of the Finnish innovation system since estab- locus of specialization in innovative activity. lishing Tekes. While the reform has its risks, the panel It is quite possible that Finland currently has one takes a strong stand for it. We welcome its ambitions of the best national innovation systems worldwide. and encourage its implementation to be even more Even that may not be enough in an era, where the radical than what is currently being suggested. One global operating environment is rapidly evolving of the main issues to be dealt with is the highly divid- and the whole concept of a national innovation sys- ed attitudes and views of the actors within the educa- tem has rightly been questioned (Nelson, 1993). Com- tional system. Furthermore, it would be equally im- panies have been the primary object of the innovation portant to reform non-university public research, as policy but, as they become increasingly footloose and 6
  • 9. geographically dispersed, the focus may have to shift ion we managed to meet and even exceed the high to nurturing and attracting creative individuals. expectations (at least my own). Obviously this is first The survey conducted to support the evaluation and foremost due to my fellow panelists, impeccably suggests that the actors of the Finnish innovation sys- supported by Etlatieto Oy (a subsidiary of ETLA, The tem are optimistic about the ongoing reforms and Research Institute of the Finnish Economy) and the re- the future of the system. I personally share this op- search team – thank you very much to all those in- timism: while some of our proposals are laborious to volved! Over a dozen separate studies were conduct- implement, with some adjustments the good Finnish ed to support our work. Some of these are published system could be much better equipped to meet fu- separately along with the two main reports. ture challenges! On behalf of the whole panel, I would like to ex- press our gratitude to the two Ministries, as well as to the Sounding Board overseeing the project, not on- Acknowledgements ly for their generous support, but also for vigorously defending the integrity of the panel. In the course of the past year or so, the evaluation In the course of the exercise we have interviewed exercise proved to be both enjoyable and education- and heard over one hundred key actors and experts al. The final outcome can be seen in this Policy Re- of the innovation system, the names of which are list- port, as well as in the complementing Full Report. ed in Exhibit 2. Furthermore, around two thousand The former serves as a gentle introduction and sum- individuals responded to the survey conducted to mary of our core findings; the latter provides further support the evaluation. The inputs of these individu- details and elaboration. I must say that I am person- als and organizations is highly appreciated – without ally very happy with the outcome, since in my opin- it, we could not have completed our work. Brussels, 18 September 2009, Reinhilde Veugelers, on behalf of the evaluation panel. 7
  • 10. Exhibit 2: In the course of the evaluation, the panel interviewed and heard over one hundred key actors and experts. The panel would like to thank them all – without their help, it could not have completed its work. Aho Esko, Nokia; Alahuhta Matti, Aalto University; Alitalo Sir- Empl. and the E.; Lemola Tarmo, Advansis; Löppönen Paavo, pa, M. of Empl. and the E.; Alkio Mikko, M. of Empl. and the E.; Academy of F.; Löytökorpi Sari, The Adv. Board for Sectoral Andersen Dorte Nøhr, Danish Enterpr. and Constr. Auth.; An- Res.; Lystimäki Jussi, Idean; Marjosola Juha, Finnish Ind. Inv.; tikainen Janne, M. of Empl. and the E.; Antola Tuula, Kaipaus; Martikainen Mikko, M. of Empl. and the E.; Mattila Markku, Anttila Tapio, Sitra; Bason Christian, Mind Lab; Björkroth Academy of F.; Misukka Heljä, M. of Educ.; Mustonen Riitta, Johanna, U. of Helsinki; Cardwell Will, Technopolis Ventures; Academy of F.; Nevamäki Riina, M. of Empl. and the E.; Nie- Dammert Ritva, Academy of F.; Eerola Essi, VATT; Eskelinen minen Markku, GE Healthcare; Niiniluoto Ilkka , U. of Helsinki; Jarmo, Forum Virium Helsinki; Eskola Antti, M. of Empl. and Nummikoski Velipekka, M. of Finance; Nybergh Paula, M. of the E.; Gädda Lars, Forestcluster; Grundstén Henri, Finnish Empl. and the E.; Ollila Jorma, Nokia; Ormala Erkki, Nokia; Ind. Inv.; Hägström-Näsi Christine, Forestcluster; Hakkarai- Paloheimo Annamarja, Finnvera; Parkkari Tuomas, R. and nen Maija, Tekes; Halme Kimmo, Advansis; Hämäläinen Timo, I. Council; Pauli Anneli, EU Commission; Pekkarinen Mauri, Sitra; Hammer-Jakobsen Thomas, Copenhagen Living Lab; M. of Empl. and the E.; Pellikka Riikka, M. of Empl. and the E.; Hansen Marie Louise, Danish Enterpr. and Constr. Auth.; Has- Peltonen Petri, M. of Empl. and the E.; Pikkarainen Mika, M. sinen Saara, SHOK Health and Well-being; Hautamäki Antti, of Empl. and the E.; Pohjola Hannele, EK, C. of Finnish Ind.; U. of Jyväskylä; Häyrinen Kari, FinPro; Heikkilä Pauli, Finnvera; Pötz Marion, Copenhagen Business School; Pulkkinen Raimo, Helve Heikki, City of Kuopio; Hermans Raine, Tekes; Hetemäki Tekes; Pursula Tiina, Gaia; Rintala Kari, TE-Centre; Roma- Martti, M. of Finance; Holstila Eero, City of Helsinki; Honkanen nainen Jari, Tekes; Rosted Jørgen, Fora; Saapunki Juha, PKT- Seppo, Helsinki U. of Techn.; Husso Kai, R. and I. Council; Jär- Foundation; Saarnivaara Veli-Pekka, Tekes; Savolainen Terttu, vikare Terhi, M. of Finance; Kallasvaara Heikki, U. of Helsinki; M. of Social Affairs and Health; Seppälä Esko-Olavi, R. and I. Kalliokoski Petri, VTT; Känkänen Janne, M. of Empl. and the E.; Council; Sipilä Jorma, U. of Tampere; Suurnäkki Anna, VTT; Kari Seppo, VATT; Karjalainen Sakari, M. of Educ.; Kauppinen Syrjänen Mikko, Gaia; Toivanen Hannes, M. of Empl. and the Petteri, M. of Educ.; Kavonius Veijo , M. of Empl. and the E.; Kek- E.; Tukiainen Pauliina, KCL; Turunen Ilkka, M. of Educ.; Vähä- konen Timo, EK, C. of Finnish Ind.; Kemppainen Hannu, Tekes; Pietilä Kirsi, Tekes; Valle Antti, M. of Empl. and the E.; Vartia Kervola Petri, City of Kuopio; Kivikoski Jussi, Tekes; Kop- Pentti, The Adv. Board for Sectoral Res.; Vesa Heikki, M. of Empl. pinen Seija, VTT; Korhonen Kalle J., M. of Empl. and the E.; Ko- and the E.; Vestala Leena, M. of Educ.; Virkkunen Henna, M. of sonen Mikko, Sitra; Kulmala Harri, FIMECC; Kutinlahti Pirjo, Educ.; Virtanen Erkki, M. of Empl. and the E.; Vuola Olli, Neapo; M. of Empl. and the E.; Laine Seppo, Finpro; Laino-Asikainen Wentzel Johan , Sentica Partners; Wilhelmsson Thomas, U. of Tiina, FinPro; Lehikoinen Anita, M. of Educ.; Lehto Petri, M. of Helsinki; Ylikarjula Janica, EK, C. of Finnish Ind. 8
  • 11. Executive Summary Premises This section summarizes some of the key findings of the evaluation. It also serves as an introduction and reading Both the new innovation strategy (Aho et al., 2008) guide for the three parts and ten chapters of this Report. and the subsequent Government’s Communication to the Parliament (henceforth the two are collectively re- ferred to as the Strategy) call for a broad-based and systemic approach as well as demand- and user-ori- Introduction entation in innovation policy. The Strategy highlights the increasing role of information and knowledge in This report completes an international evaluation the society as well as stresses the urgency in address- of the Finnish national innovation system commis- ing the challenges induced by globalization (Chapter sioned by the Ministry of Education and the Ministry 3). The Strategy’s basic choices constitute the premis- of the Employment and the Economy and conducted by es of this evaluation. an independent outside panel. The assigned tasks are The Strategy warns against partial solutions in • To point out needs of institutional and policy ad- developing the system. It rather calls for compre- justment and reforms, hensive renewal and structural development requir- • To draw conclusions on policy governance and steer- ing strategic management within the public admin- ing (Chapter 1). istration. It notes that individual and separate policy The panel took six main points of view (Preface, measures will not suffice. Exhibit 1), each of which was studied by a sub-pan- el led by an international expert accompanied by two Finnish ones. The panel commissioned several sup- Reflections on the Strategy porting studies and carried out an extensive survey. Both qualitative and quantitative methods were em- The Strategy defines productivity improvement as ployed in conducting an evidence-based evaluation. the main objective (Chapter 2), implying a balanced The panel makes critical but constructive remarks consideration of that should help in improving the Finnish education, • Developments within existing units, research, and innovation system, which is currently • Re-allocation between existing units, undergoing its biggest changes in the postwar era. It • Entry of new units, and envisions a system that would get the most out of the • Exit of old units. currently deployed (public) resources; it was not asked The last three re-allocative elements have previous- to consider their appropriate level. The panel’s man- ly been waved aside. Second, the emphasis is on pio- date was not to consider individual organizations or neering, which suggests less (innovation policy) con- their budgetary allocations, but on occasions they are cern for individuals and organizations that are not touched upon. (seeking to be) at the global frontier. Even if the current state of the Finnish innovation The panel welcomes the ambitions of the Strategy system is good, it is not enough: While some of the but challenges some of its key measures. Overall the panel’s proposals are laborious to implement, they panel finds the Strategy vague, leaving room for mis- are indeed needed to meet Finland’s future challeng- interpretation. The panel calls for caution on several es. The survey conducted to support the evaluation accounts: broad-based innovation policy can indeed reveals that the actors of the Finnish innovation sys- be too broad (Chapters 3 and 4). Demand and user tem are optimistic about its future. They are ready orientation (Chapter 5) should be interpreted as im- for, and even demand, major changes. partiality as to the source, type, and application do- The findings have implications for all innovation main of innovation, not as a shift to the other extreme policy organizations. The panel does not wish to im- from the current technology and supply-side empha- ply that any particular organization would not have sis. Analysis reveals that the Finnish system is less fulfilled its mission in the past. international than conventionally thought and that 9
  • 12. there are signs that it is falling further behind (Chap- incentives and ample rewards on success in risky en- ter 6); current ways of addressing the issue are clear- deavors are needed as well. ly not working. Since the 1980s Finland has been in transition The Finnish innovation system lacks explic- from an investment-driven catching-up country to- it cross-ministerial decision making and execution wards an innovation-driven and knowledge-based (Chapters 3 and 7). The panel hesitates with the frontier economy (Chapter 2). With this transition Strategy’s proposal to extend the Cabinet Committee on the locus of Finnish innovation policy has to change Economic Policy to include innovation matters, even towards more experimentation, risk-taking, and ac- though it is in line with the panel’s proposal that the ceptance of failure. Innovation policy should mostly Ministry of Finance and the Ministry of Employment and be concerned with the coming up with, and employ- the Economy should assume a joint responsibility for ment of, truly novel ideas (new-to-the-world and the enterprise-side of innovation (and growth) policy radical/disruptive innovations) with considerable so- (Chapter 7). A broader and stronger Research and In- cietal significance. novation Council is seen as an alternative for renewing Due to changes in operating environment (e.g., the Cabinet Committee. globalization), logic of innovation (e.g., democrati- zation), and internal developments in Finland (e.g., reaching the frontier), the work of all six sub-panels A call for a systemic renewal points towards shifting innovation policy emphasis from established incumbent companies and other or- One consequence of weak coordination within the ganizations towards individuals and their incentives. system is that occasionally several organizations go after the same societal problem (e.g., lacking growth entrepreneurship) with similar tools, which leads to Reforms wasteful replication and adds to institutional clutter. Current (public) aspects of the system are an out- The panel takes a strong stance for the university re- come of an evolution of several decades. The sys- form and encourages it to go further than what is cur- tem has grown complex to both access and adminis- rently being suggested (Chapter 9). The panel calls ter. Thus, the evaluation calls for a reform of the cur- for a continuation of the higher education reform: rent research and innovation system, including its ra- Polytechnics are important actors in the system with tionales and goals as well as its organizations and in- their strong regional and applied role and emphasis on struments. The provided outline (Chapter 10) should bachelor-level education. In the course of the 2000s, not be taken as a blueprint or an organization chart however, there seems to be an increasing tenden- but rather as a guiding principle. It is nevertheless cy to make them more like nationally- and globally- the case that the desired outcome cannot be reached orientated research universities.1 In the panel’s view without touching existing organizational boundaries. this does not serve the interests of the system.2 There Taken individually, most new policy measures should be a clear division of labor between universi- are consistent with the Strategy. Taken jointly, they ties and polytechnics. appear piecemeal solutions the Strategy warns against. The panel is cautiously optimistic about the na- The panel calls for pre-screening of new actions in or- tional Strategic Centres for Science, Technology and In- der to prevent duplication and overlaps (Chapter 3). novations (SHOKs) but suggests limiting public re- Several sub-panels touch upon the issue of using sources devoted to them (Chapter 4).3 In the panel’s tax incentives and on the role of the Ministry of Fi- view SHOKs are mostly about incrementally renew- nance more generally (Chapters 3, 4, and 7), which in ing larger incumbent companies in traditional indus- innovation policy has been tolerating but remote. The tries. panel urges for consideration of all possible innova- The true reform of sectoral research (public re- tion policy tools: Knowledge and human capital as well search organizations, PROs) remains in gridlock as enablers of innovative activity are important, but (Chapters 4 and 9). Even if the PROs make a worthy so- 10
  • 13. cietal contribution as well as provide quality research have a negative overall impact in the relatively dis- and services, the panel believes that they have consid- advantaged regions (Chapter 8). While direct cost is erable upside potential that could be unleashed. The not very large, the total cost becomes considerable in panel recommends moving their academically-orien- terms of hampered regional development and fore- tated research to universities and organizing the re- gone growth. The panel’s proposal is to make the sys- maining tasks into 4–5 units in accordance with larger tem transparent and not to make regional imbalanc- societal needs (as opposed to the ministries’ adminis- es a concern for national direct support of private in- trative boundaries). A long-term binding action plan novative activity.5 is needed to implement the reform. The panel calls for a clarification and coordina- tion of national, regional, and local innovation pol- Final remark icies as well as their links to other (non-innovation) policies (Chapter 3 and 8). Local and regional actors The Finnish system is at a crossroads due to both in- have grown important also in innovation policy mat- ternal and external factors. Innovation (policy) is in ters. They have, e.g., assumed similar tasks as TE- turmoil worldwide. While Finland is quite well-po- Centres.4 Currently national innovation support has sitioned to meet future challenges, there is a unique an ‘unspoken’ regional bias. Primarily through the opportunity for further reforms. Furthermore, both previously ignored re-allocative elements, nation- structural challenges and the financial crisis bring al direct support for private innovative activity may about a sense of urgency that should not be wasted. 11
  • 14. 1. Evaluation Task Premises The brochure prepared by the Ministry of Education and Ministry of Employment and the Economy for the open- The evaluation is based on the basic choices of the ing press conference on 11 December 2008 outlines the National Innovation Strategy: evaluation as shown below (Sections Evaluation, Objec- • Innovation activity in a world without borders. tives, Premises, and Task are direct copies from the bro- chure; italics as in the original; additions in parenthesis). • Demand and user orientation as a basis for innova- tion activity. • Individuals and communities create innovations. • Systemic approach – interdependence of success factors. Evaluation In August 2008 the Ministry of Employment and the Task Economy issued a contract notice on a public procure- ment regarding an International Evaluation of the Finn- Given the short time and broad coverage of the task, ish National Innovation System. The Ministry selected the innovation system is mostly evaluated as a whole; the project through a group of international panelists thus the focus is less on individual actors, organiza- (the members of the panel: Page 1 of this Report) co- tions, and instruments. The evaluation is less about ordinated by Etlatieto Oy, a subsidiary of ETLA, The history or current structure and more about coming Research Institute of the Finnish Economy. The work up with proposals for enhancing the system to meet will be completed in September 2009. future challenges. The main points of view in the The evaluation is headed by a panel of interna- evaluation are defined by the six sections in the fig- tionally acknowledged experts. Each foreign panelist ure above (see Exhibit 1 in the Preface of this Report); works with two Finnish panelists. The panelists will the basic choices of the strategy underlie each of the draw their overall conclusions in part based on these sections. sub-projects. The project is overseen by a Sounding Board pri- marily consisting of state secretaries in various min- Remarks istries (the members of the board: Page 2 of this Re- port). The panel commissioned about a dozen supporting studies and conducted an extensive structured sur- Evaluation of the Finnish National Innovation System vey. It interviewed and heard over one hundred ac- Objectives tors and experts. It received nearly two thousand survey responses. All available information was ana- The objectives of the evaluation are: lyzed both qualitatively and quantitatively. To the ex- • To form an outside view of major drivers of change tent possible, the panel’s aim has been an evidence- in the system, as well as to evaluate how well they based evaluation. are addressed in innovation policy. As touched upon in the Preface of this Report • To identify ways of addressing the current and fu- – with some gaps in scholarly knowledge, limited ture challenges. budget/time, and a constantly evolving surround- • To point out needs for institutional and policy ad- ing world – analysis will not provide solid guidance justments and reforms. in all issues. In these cases the panel has understood • To draw conclusions and recommendations for the that it is specifically requested to provide its informed policy governance and steering. opinion and judgment. On some issues there is neces- sary and welcomed diversity in these opinions, which is not forcefully ironed out in this Report. 12
  • 15. Finland is in a position to lead innovation policy thinking globally. On several accounts the evaluation has proceed refining the proposals, and overseeing their imple- in the spirit of the two most important innovation mentation. policy documents in Finland – the new innovation strategy (Aho et al., 2008) and the subsequent Gov- ernment’s Communication to the Parliament. One Structure choice is the panel’s inclusive definition of innova- tion, even if insufficient theoretical and empirical This Report is divided to three main parts and ten backing on occasion forces it to resort to the prevail- chapters: ing convention. • This first part provides an overview of the evalua- This Policy Report is accompanied by the Full tion and its general conclusions (Chapters 1–3). Report, which provides further details and elabora- • The second part contains the summaries of the tion. With these two reports, the work of the evalu- contributions by the six sub-panels (Chapters 4–9). ation panel is complete, even if many panelists have • The third part briefly elaborates on the longer- already volunteered for disseminating the findings, term future of the system (Chapter 10). Exhibit 3: Plenty of international interest on the evaluation. Upon introducing the project on 11 December 2008, the web vant documentation. Towards the end of September 2009, the site www.evaluation.fi was launched. The site provides general site had attracted around 2,500 visits of 1,600 unique visitors information on the evaluation process as well as links to rele- from 52 countries worldwide. Evaluation Task 13
  • 16. 2. Future Challenges and Ongoing Reforms • Pioneering in innovation does not lend itself to di- This chapter provides the context of the evaluation in a rect measurement, but for instance Finland’s share nutshell by first reviewing some aggregate innovation- of the applications at the European Patent Office has related indicators and then summarizing its actors’ opin- been on a continuous rise up until the new millen- ions on the Finnish innovation system. nium (Exhibit 4, right). While it is true that this is in considerable part attributable to Nokia, if also other countries’ most influential company with re- spect to patenting is removed, Finland’s relative Catching up and forging ahead? position does not change drastically (Exhibit 5). Finland’s relatively brisk economic growth in the Productivity improvement and pioneering in inno- early 2000s hid the fact that its strongholds – forest- vation are the two foremost policy goals according to and ICT-related businesses as well as industrial ma- the Proposal for Finland’s National Innovation Strategy chinery and equipment – were facing structural chal- (Aho et al., 2008). On both accounts, Finland’s post- lenges (Rouvinen, 2009). In innovative activity this war track record is rather admirable, at least if the was manifested by the fact that R&D working hours latter goal is understood to include catching up with declined somewhat in 2005 and considerably in 2007 the leading economies: (Exhibit 6) – for the first time in the postwar era. • According to the broadest measure of productivity Also the composition of the R&D hours worked we can reasonably compare across countries (Ex- conducted within the Finnish national borders is hibit 4, left), Finland has almost caught up with the changing towards more challenging coordination, con- United States, which is typically considered to be ceptual design, and managerial tasks, while routine the global productivity leader. tasks (such as basic technical drawing) as well as Exhibit 4: Catching up with the US produc- Labor productivity level Finland’s patent share tivity – Pioneering in innovation. 40 1.5% Finnish and US labor productivity of non-financial 35 corporations in 2004 Euros (left). Finland’s share of 30 the annual European Patent Office applications right). USA 25 1.0% Log scale Finland has almost reached the US labor productivity Finland 20 level (left). Finland’s share of the applications at the European Patent Office has been rising up until the 0.5% Evaluation of the Finnish National Innovation System new millennium (right). 15 Sources: Left – calculations by Nevalainen and Maliranta (2009) with the data of Statistics Finland and the US Bureau of Labor Statistics. Right – ETLA calculations with OECD data. 10 0.0% 1975 1980 1985 1990 1995 2000 2005 1977 1981 1985 1989 1993 1997 2001 2005 Exhibit 5: Nokia accounts for much of Patents by country Patent share Patents by country Finnish patenting, but so does the lead- of the top firm w/o the top firm ing corporation in some other countries. Applications at the European Patent Office, 2000–6. Nokia Netherlands Netherl. 42,722 48% 24,952 (Finland) (w/o Philips) Note: Refers to simple counts and is thus not adjusted for Sweden Sweden 21,679 Philips 15,470 the size of the country. Only those patent applications of 42% (w/o Ericsson) the top firm that were applied for from the location of the (Netherlands) country in question have been included in that firm’s and Ericsson Austria country’s data. Patent applications have been collected Austria 12,557 29% 12,301 (Sweden) (w/o Voestalpine) from the database based on the applicant’s country code, and firm name (top firms). Finland 12,226 Novo Denmark 12% 6,767 (Denmark) (w/o Novo) Source: ETLA calculations on the basis of the OECD PATSTAT database. Denmark 7,757 Voestalpine Finland 2% 6,284 (Austria) (w/o Nokia) 14
  • 17. Globalization is inducing a qualitative change in innovative activity. T&k-henkilöstön tutkimustyövuosien vuosimuutos sektoreittain Exhibit 6: R&D working hours in Finland declined in 2005 and 2007. Annual change of all R&D working hours done in Finland (%). Structural challenges have put downward pressure on R&D hours worked in Finland. For the first time in the postwar era, hours dropped in 2005 and again in 2007. Source: Statistics Finland.6 6 3 3 6 6 5 5 7 7 8 8 6 5 4 4 2 2 2 2 5 5 11 10 13 9 4 2 3 4 2 1 1975 1980 1985 1990 1995 2000 -1 -3 2005 market adaptation and customization are increasing- tion seems to be a long-term trend in Finland (Exhib- ly being located overseas, also in the case of predomi- it 7, bottom). The changing task-by-task composition nantly Finnish-owned and -operated companies (Ali- of innovative activity in many developed countries Yrkkö & Tahvanainen, 2009). Becker, Ekholm, and is more recent; it reflects the exploitation of global Muendler (2009) echo this for Germany; they note opportunities for cost and talent arbitrage and thus that off-shoring is associated with a shift towards the changing locus of specialization across countries more non-routine and more interactive tasks in Ger- (and even across individuals). many as well as with a labor-composition shift to- The changing locus of specialization in the provi- wards highly educated workers. Their last observa- sion of goods and services does not imply that every- Exhibit 7: Most R&D hours worked are R&D labor hours carried out in the business sector – hours are increasingly done by more Business sector Higher education Public sector educated R&D workers. (incl. polytechnics) (incl. private non-profit) Evolution of total R&D hours worked in Finland by sector (top) and the composition of hours by work- ers’ educational level (bottom). Source: Statistics Finland.6 4,942 15,028 30,090 31,940 2,308 7,662 15,596 16,503 2,994 6,884 7,738 7,800 1971 1991 2001 2007 1971 1991 2001 2007 1971 1991 2001 2007 Educational composition of R&D labor hours Future Challenges and Ongoing Reforms Business sector Higher education Public sector (incl. polytechnics) (incl. private non-profit) 30% 23% 24% 28% 29% 22% 28% 37% 48% 0% 5% 56% 48% 63% 1% 3% 6% 30% 5% 29% 41% 36% 37% 36% 3% 18% 2% 42% 38% 10% 34% 42% 30% 30% 36% 24% 35% 35% 32% 35% 21% 25% 3% 5% 5% 6% 12% 16% 1971 1991 2001 2007 1971 1991 2001 2007 1971 1991 2001 2007 Above master Master Bachelor Other 15
  • 18. Finland’s traditional locomotives of growth have either vanished or reached a level, at which major jumps are unlikely. thing would move to China or to other off-shore lo- the transition Acemoglu et al. describe. In the 2000s cations. It does, however, mean that innovation and some of the aggregate productivity growth in Finland other business activities will become more geograph- is attributable to intensifying creative destruction and ically dispersed. In principle each narrowly-defined renewal – now particularly in services (the same proc- activity will seek its globally optimal location. While ess was intense in manufacturing from the mid-1980s many supply chains remain quite local, it is neverthe- to the mid-1990s) – and new micro-dynamism, i.e., less worthwhile to consider what the great second un- slowly emerging more entrepreneurial Finland. bundling (Baldwin, 2006) implies for innovation and Finland is nevertheless facing a double chal- other business activities. lenge: The old welfare trajectory – and industries as- Finland is currently in a situation where tradition- sociated with it – should not lose steam too fast; at al locomotives of economic growth – expanding quan- the same time new sources of welfare should emerge. tity and quality of available skills and competences of There is a strong desire among policymakers to learn its citizens, deepening of tangible and intangible cap- where the next leading companies and industries ital, catching up with the global leaders, intensify- might be found. While this desire is understanda- ing productivity-enhancing creative destruction (and ble, global business, and Finland as a country, has market competition driving it), as well as improv- evolved in such ways that it is increasingly doubtful ing institutions – are either out of the game or have that the question could be answered to any relevant reached a level at which major jumps are unlikely. degree of accuracy. The future of the country is less Given that old strongholds are no longer expanding, on a few leading industries and companies and more Finland is actively seeking new sources of welfare. on widespread entrepreneurial activity. This poses a A considerable part of the Finnish success in the challenge to traditional Finnish policies, which have past decades is attributable to increasing openness of a (successful) history of national missions and target- the economy as well as to the long-term commitment ed programs, even if the system is not – and never to (and volume-wise expansion of) education and re- was – a top-down planning system. Finland’s struc- search. While this policy mix is still held dearly in tural challenges were present well before the ongo- Finland, increasing openness, R&D intensity, or edu- ing financial crisis, which only heightens the sense of cational attainment are in themselves insufficient for urgency in addressing them. reaching the desired growth rates. In the context of the current crisis, much of the Policies that supported the accumulation of Finnish stimulus is passive or automatic, i.e., fun- wealth in the catching up phase are not the same as neled via its extensive social safety nets. Finland is the policies needed to support prosperity in a leading nevertheless making considerable active stimulus as Evaluation of the Finnish National Innovation System economy in the current global environment. Acemo- well and with that – like in its great economic slump glu, Aghion, and Zilibotti (2006) note that countries at of the early 1990s – again signaling its sustained com- early stages of development pursue an investment-based mitment to innovation. As compared to 2008, govern- strategy – maximize investment but sacrifice selection. In ment R&D expenditure will increase 7–10% in 2009. the postwar era Finland made heavy tangible and in- As for 2010, a further 5–10% increase is being consid- tangible investments in part at the expense of selec- ered, along with possible tax incentives for venture tion. Due to its past success, Finland should move on: capital and business angel investment as well as with Acemoglu et al. note that closer to the world technology a general R&D tax incentive scheme.7 frontier an economy should switch to an innovation-based strategy with short-term relationships, younger firms, less investment, and better selection of firms and managers. How its actors see the Finnish When Finland was far from the global productivi- innovation system ty frontier, it could advance by adopting technologies and ways of conduct that were already established The survey conducted to support the evaluation (Ko- elsewhere. Imitation and incremental improvement tiranta et al., 2009) covers a wide range of actors and were good strategies. Finland is on its way to make provides new insights. In the survey the national in- 16
  • 19. The current performance of the Finnish innovation system is quite satisfactory. novation system (NIS) refers to the totality of private grade for 2014 is 8-. The representatives of public re- and public actors producing and applying knowledge and search organizations constitute the only group believ- information to promote the welfare of Finnish citizens.8 ing that the performance of the system will deteriorate The respondents of the survey were asked to in coming years. The representatives of national pub- grade the overall performance of the system on the lic education support organizations (comprised of Finnish school grading system from 4 (fail) to 10 (ex- the Ministry of Education (ME) and the Academy of Fin- cellent) in three points of time: five years ago, current- land) are the most optimistic about the system’s future ly (spring of 2009), and in five years. Most groups of performance – perhaps reflecting the upside poten- respondents think that the system has been improv- tial of the ongoing reforms in their core domain – fol- ing in recent years, its current performance is quite lowed by associations (including labor market partic- satisfactory, and that its performance will improve in ipants on both sides) as well as national public inno- the coming years (Exhibit 8). The average grade goes vation support organizations (comprised of the Min- from 7 in 2004 to 7½ in 2009; the average (expected) istry of Employment and the Economy (MEE) and Tekes, Exhibit 8: Most stakeholders think that 9- the Finnish national innovation system has been improving and will continue to Gov't: Education support org's do so – its current performance is quite satisfactory. 8½ The past, present, and future school grades by group. The past, present, and future average grades are 7 8+ Other: Associations (2004), 7½ (2009), and 8- (2014). The representatives Gov't: Innovation support org's of public research organizations constitute the only group believing that the performance of the system Gov't: Other nat. public org's will deteriorate in coming years. The representatives 8 Educ.: Polytechnic rectors of national public education support organizations Sectoral: Public research org's are the most optimistic about the system’s future performance; smaller innovative firms are the Other: Municipalities least optimistic. Overall private actors consider the 8- Intermediaries: Other performance worse than public ones. Finance: Business angels, VCs Note: The respondents of the survey were asked to grade Educ.: University rectors the overall performance of the system on the Finnish school grading system from 4 (fail) to 10 (excellent). 7½ Intermediaries: TE -centres Groups: Gov’t: Education support org’s – The Ministry of Education (ME) and the Academy of Finland. Gov’t: Innova- Gov't: Other ministries tion support org’s – The Ministry of Employment and the Sectoral: Other research org's Economy (MEE) and Tekes. Gov’t: Other ministries – All be- sides ME and MEE. Gov’t: Other nat. public org’s – Includes, 7+ Firms: Non-innovative Future Challenges and Ongoing Reforms for example, Sitra, Finnvera, and Finpro. Intermediaries: Firms: Larger innovative Other – Includes, for example, regional development centers and companies and science and business parks. Educ.: University dep't heads Firms: Smaller innovative – Firms employing less than 50 Firms: Smaller innovative employees that have had innovative activity in the past 7 three years. Firms: Larger innovative – Firms employing at least 50 employees that that have had innovative activity in the past three years. Firms: Non-innovative – Firms that have not had innovative activity in the past three years. Other: Associations – Several interest groups such as the 7- Confederation of Finnish Industries EK and the Federation of Finnish Technology Industries. More information on the respondent groups in the survey report. Source: Kotiranta et al. (2009). 6½ 6+ 2004 2009 2014 17
  • 20. The system has grown complex to both access and administer. the Finnish Funding Agency for Technology and Innova- universities, as well as to support the international- tion). Smaller innovative firms are the least optimistic ization of universities. about the future performance. Overall private actors Given the importance and extent of the reform, it consider the performance worse than public ones. is comforting to note that for all objectives across all The respondents were asked to consider the en- groups – with the exception of teaching quality in the tity of public bodies in the system as well as the (pub- case of university department heads – the reform is con- lic) promotion of private innovative activity on a scale sidered to be an improvement over the current state from very complex to very simple. Exhibit 9 summa- of affairs (Exhibit 10). The divergence of the views of rizes the results. As to the public aspects of the sys- university rectors and department heads is notewor- tem (left), with the exception of education support thy and indeed a problem requiring attention. organizations (ME, Academy) having a virtually neu- In enterprise innovation policy the establishment tral position, all groups of respondents lean towards of the Strategic Centres for Science, Technology & Inno- considering the system complex rather than sim- vation or SHOKs is the most significant new policy ple. As to the promotion of private innovative ac- instrument in the 2000s. SHOKs are viewed rather tivity (right), it is interesting to note that the sys- positively (Exhibit 11, left), especially by the repre- tem appears the most complex to the TE-Centres, sentatives of the national central administration. private business angels and venture capitalists, as The possible reform of public research organi- well as other intermediaries (comprised of public or zations (PROs or sectoral research, as they are collec- publicly-supported regional/local competence, ex- tively referred to in Finland has been on the agen- pertise, innovation, and technology centers) that are da in Finland for several decades with little visible supposed to be the frontline in assisting businesses in progress to date. The respondents were asked how maneuvering the system especially when it comes to they would see a possible reform of PROs. All re- growth-seeking entrepreneurial startups. spondent groups believe that a reform would im- The ongoing university reform is the system’s prove the performance of PROs, which arguably re- most important change in several decades. Its ob- flects the belief that there is considerable unrealized jectives are to improve research quality, to improve potential in them that is currently held back by ad- teaching quality, to enhance the societal impact of ministrative hurdles. Exhibit 9: The system is viewed as being Complexity of entirety of Complexity of promotion quite complex. the system’s public actors of private innovation Complexity of the national innovation system as Gov't: Education support org's Evaluation of the Finnish National Innovation System a whole (left) and of the promotion for private in- Gov't: Innovation support org‘s novative activity (right). Gov't: Other ministries Gov't: Other nat. public org's Virtually all groups of actors considered the system rather complex. The national public education sup- Educ.: University dep't heads n/a port organizations stand out as the only group that Educ.: University rectors n/a deems the system to be simple rather than complex Educ.: Polytechnic rectors n/a (even if their position is virtually neutral). Sectoral: Public research org's n/a Note: Illustrates deviations from a neutral position. See the Sectoral: Other research org's n/a survey documentation (Kotiranta et al., 2009) for details. See the note in Exhibit 8 for definitions of the groups. Intermediaries: TE-centres Source: Kotiranta et al. (2009). Intermediaries: Other Firms: Smaller innovative Firms: Larger innovative Firms: Non-innovative Finance: Business angels, VCs Other: Associations n/a Other: Municipalities n/a Very Very Very Very complex simple complex simple 18