A Cry From A Country In Structural Change

While this isn't exactly startup related news per se, it relates to entrepreneurship very closely. Furthermore, it's quite Finland centric, but I apologise for that, but I feel it applies to other countries in the region as well. Yesterday, one of the large paper machine companies in Finland, UPM-Kymmene, announced that it will shut down its Myllykoski factory in Kouvola. This will effectively cut the region of another 645 jobs. This is a lot for city of 88 000 that has also seen the loss of some 900 jobs through previous paper factory closures in the area. It's a difficult issue on a national level, but a very tragic issue on a personal level for those who lose their jobs.

The Finnish Minister of Employment, Lauri Ihalainen, was quick to state after the news came out that they are already looking for ways to improve the use of wood materials in building as well as starting new companies in the region. The increase of wood material use in construction is expected to create demand in the market and thus create more opportunities for companies working such an industry. Jyrki Katainen, Finnish Prime Minister, also stated that the government has good possibilities in helping the newly unemployed as the region is part of a high support area for sudden structural change.

While I understand that it is important to support people in these situations as the outcome is most likely better in the short run than in situations where the government did not interfere, I cannot but look in frustration how the Ministers are handling the situation. Their actions in effect underline their inability to understand how to build jobs and enterprises and through those create more tax payers into the Finnish economy. The actions stated above are nothing more than popularity votes with tax payer money.

In many of the Nordic countries, governments are in full reactionary mode when it comes to structural change in economies. While Finland is suffering from change especially through the paper industry, Sweden has its own challenges with the likes of Saab. Based on my own experience and understanding, I can say that only Estonia has been proactively building ways to improve entrepreneurship in the last 15 or so years.

Why is that? The reasons numerous, but a few noteworthy items are that online services are plentiful in the country. Not only can people vote electronically, but also submit their taxes through online services. This of course cuts down on bureaucracy and the need to artificially inflate the public sector. In addition to this, their corporate tax rate is built in such a way that the government supports companies in their investments, by not taxing corporate income if it is kept in the company. This way companies have a lot more to invest into the society. Almost certainly too, companies can do a lot more with the same amount of money than governments can.

Back to Finland though. I don't think anyone will be surprised that the downpour of bad news will continue through out the next 5 or so years as the older, bigger and more established companies look to keep themselves profitable in the global economy. This will continue to cut jobs in industries that the Finnish welfare system has been built on.

As long as the government is only reacting to news such as this, instead of proactively seeking ways to improve grassroots level entrepreneurial activities and supporting small, but growing companies - Finland won't be able to build anything sustainable and market driven in the near future. The government can't create demand in the market and then fill that with goods and services produced by companies supported with government grants, ie. tax payer money. It might work for a few months, but it won't create new thriving industries that increase the tax pool.

As a summary to this somewhat of a rant of a post for this morning, I can only conclude that countries going through structural change in their economies can only improve their situation in a sustainable way once they begin to diversify and support entrepreneurs through different industries and giving them incentives to grow their businesses.

Image by Kheel Center, Cornell University

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deltorode September 02, 2011

Brilliant!!!! Mikael

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Timo Ahopelto September 02, 2011

The latest US statistics showed that of the new jobs 50% were created by small & midsized companies.

Another note -

I read a recent post by Steve Blank (who is conveniently visiting Finland, brought in by Aaltoes, the most valuable organization in Finland working for startups at this stage) his idea was very clear: for the government to support new company growth and thus job creation, they should foster entrepreneurial culture and ensure that a vivid private funding infrastructure (i.e. PE and VC funds) are created.

Very good post by the way, Antti!

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deltorode September 02, 2011

http://steveblank.fi/

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mmarjala September 02, 2011

This post just sparked another thought related to the interplay between start-up ecosystem and a few large corporations we have here in Finland, which could both renew themselves through innovative start-ups and their new approaches while offering a more solid path to market for these startups.

We have very few large corporations in Finland that could possibly act as a stepping stone, and more importantly the diverging cultures of small and large corporations combined with Finnish envy, don't really offer good mix.

Just a thought. I think Finland is the best test bed in the whole world if your product/service is based on envy. And this particular advantage is highly sustainable. :)

,,Mika

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Teppo Hudson September 02, 2011

Brilliant post. I think the key here is the entrepreneurial culture.

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Ville Miettinen September 02, 2011

Hear, hear!