Innovations | Finland strives to be a top country in product development – ​​immigration policy can threaten the goal

In Finland has been an ambitious goal for a long time: R&D investments should rise to four percent of gross domestic product (GDP) by 2030.

R&D investments refer to investments in research, development and innovations. Investments in R&D are one answer to many basic problems gnawing at the Finnish economy, as new innovations and the development of existing business are typically good means of creating economic growth and improving productivity.

That’s why investments in tki activities are widely considered a good idea.

The problem is that so far we are far behind the goal.

The highly educated the labor market center organization Akava has been following the development of Finnish R&D investments for years. In recent years, what it would take to achieve the four percent goal has also been calculated.

So far, the calculations have not been particularly promising.

“Although there is a broad parliamentary consensus on the goal, the schedule has fallen behind every single year. The realized development has always been more modest than what a flat schedule to four percent would have required,” says Akava’s chief economist who made the calculations. Pasi Sorjonen.

Last year, tki investments were made for a total of 8.3 billion euros. Companies accounted for 5.6 percent of the amount, universities 2.0 percent, and the public sector 0.7 percent. The ratio of investments to gross domestic product remained at exactly three percent.

The idea of ​​the four percent goal is that about two-thirds of the tki investments would come from companies and about one-third from the state.

There is enough to tighten up if the four percent goal is to be reached. According to Sorjonen’s most recent calculation, according to the target, R&D expenditures should be as much as 13.8 billion euros in 2030, i.e. 5.5 billion more than last year.

It would mean that tki expenses would have to increase by 780 million euros every year until the target year 2030, in order to reach the calculated target level.

On the other hand, it must be remembered that the forward-looking calculation is constantly changing. Sorjonen’s most recent calculation is based on the forecast for the development of Finland’s GDP published by the Ministry of Finance in June.

If the GDP forecast is cut down in the future, a slightly more moderate increase in R&D expenditures will be required to reach the four percent target. If the GDP forecast is gridded upwards, the situation is the opposite.

The calculation there is also good news in the background. According to Sorjonen’s calculations, the government’s R&D investments, i.e. the increase in R&D expenses of higher education institutions and the public sector, should be 250 million euros annually in order to reach the four percent goal within the deadline.

This year, the government will invest EUR 280 million in additional money for R&D activities and, according to the Ministry of Finance’s budget proposal, plans to make the same increase next year as well. It covers the growth rate required from the state.

Companies’ investments in tki, on the other hand, should increase significantly in order to achieve the goal.

Last year, companies spent 5.6 billion euros on R&D activities. According to Akava Sorjonen’s calculations, the amount should increase to 9.4 billion by 2030. That would mean an increase of more than 530 million euros in tki expenses every year.

Target is tough. According to Sorjonen, in the early 2000s, Finland was very close to four percent, but as a result of the decline of Nokia, the figure fell well below three percent.

“If we get to that four percent, we will be a pretty strong tki country,” Sorjonen estimates.

At the same time, it is good to remember that raising R&D expenses to four percent of GDP is a government goal, of which companies bear the largest part. They, on the other hand, make decisions based on their own starting points.

“Companies don’t do tki for fun, but with business goals. In other words, they must also see the opportunity to get business from R&D activities”, says the head of knowledge and innovation affairs of the Swedish Confederation of Finnish Industries (EK) Riikka Heikinheimo.

According to Heikinheimo, the companies and EK’s member unions have wanted to commit to the four percent goal, even though they know it will be challenging.

The weak tribe companies now have an exceptionally good toolkit in Finland for doing R&D activities. According to Heikinheimo, the parliamentary process on the boundary conditions for supporting R&D activities, which was already started during the previous government term, has worked and was necessary.

In practice, its fruits include, among other things, the temporary research and development financing act, which stipulates the target level of research and development investments in 2030. According to Heikinheimo, there are now “reasonable amounts” of public funding for tki activities distributed through Business Finland and the Academy of Finland.

In addition, companies were given a two-tier tax reduction for R&D activities, one part of which came into force at the beginning of last year and the other at the beginning of this year.

The immigration policies of the current government, on the other hand, do not receive praise from the experts interviewed by HS.

“Not everyone can do technical work. It requires competent people with a strong educational background. Both domestic and foreign,” says Akavan Sorjonen.

EK’s Heikinheimo says that the planned immigration policy changes are also damaging to Finland’s reputation. According to him, during the current or previous government, Finland has not sent such a message abroad that employees are genuinely wanted in the country.

“It wasn’t said in Marin’s government either, although in principle the policy was different. Somehow it is terribly difficult for us to think of different people as part of this society of ours. It’s probably a mental issue that we have to overcome,” says Heikinheimo.

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“It is terribly difficult for us to think of different people as part of our society.”

Eventually the most important question is what tki investments can truly achieve.

“Increasing investments in tki is not an automatic way to get new information and technology and increase productivity. We certainly won’t have the desired effectiveness if we don’t have enough experts to produce and utilize new information with the research and development money,” says the research director of the Institute of Economic Affairs (Etla) Heli Koski.

Another key issue is the targeting of government development subsidies. That is, in practice, whether the tki money is in the right place. According to Koski, studies have shown clear evidence that development subsidies have also been given to companies with low productivity.

“With the help of those subsidies, at least some kind of group of low-productivity companies that have been close to exiting the market have been maintained.”

Therefore, even achieving the calculated goal of four percent is not necessarily enough in itself.

“If it does not produce so much new information that can be used on a large scale in society that it would be possible to raise productivity growth, then it is not as useful a measure as it suddenly seems.”