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Silicon Valley and Finland 69The state has also encouraged a culture of innovation through its policy of anopen regulatory environment. The Finnish state actively pushed the Finnishmobile telecommunications companies to develop an open transnationalmobile phone network (first NMT, then GSM). From the beginning, the statealso maintained an open market so that, unlike in most other countries, theequipment manufacturers had to compete with each other, which resulted infast, competitive development. The state also liberalized mobile service provisionearlier than other countries and thus also created rapid, competitive developmentin mobile phone services.Although the state has played an active role, it has not led all the developments.Rather, the Science and Technology Policy Council, which consists oftop representatives from government, industry, labor, and the university world,represents a wider Finnish view of technology needs and is thus also the visionof industry. For example, pressure from industry in the Council is also behindthe growth of human talent in Finnish universities, and the close cooperationbetween business and the universities is at a higher level than the average forthe advanced economies. In this way, information about new areas of innovationflows both ways, as well as the work and teaching talent.Business is also the primary financier of innovation. In fact, businessinvestment in R&D has grown even faster than investment by the state basedon its own interests. Thus, the share of national R&D investment by the businesssector is more than 70 percent, which is slightly more than in the “business-driven”United States. After the initial public push, the capital needed tofinance the turning of innovations into products has come almost entirely fromwithin companies and from private venture capitalists, which comprise 85percent of Finnish venture capital investments.Of course, ultimately, innovation turns into business through an entrepreneurialculture, which is the final element to be added to the Finnish field ofinnovation. Entrepreneurialism includes both start-up entrepreneurialism andthe entrepreneurial spirit within a large company, as was witnessed in Nokia’srise from the brink of bankruptcy in the early 1990s. In Finland, the latter formof entrepreneurialism has been especially strong as we shall see.However, the real core of the Finnish model is a virtuous circle between thewelfare state and the information economy. The welfare state produces highlyskilled people to continue to create growth in business and this growth makesit possible to continue to finance the welfare state, as well as the state and businessinvestment in innovation. Another way of putting this is to say that thewelfare state contributes a sustainable basis for growth (as shown in figure2.9), both in an economic and in a social sense: the welfare state makes developmentsocially more inclusive, and, as people feel more protected, they aremore ready for the social restructuring that the information economy requires.Inclusion generates trust, which is ultimately the main requirement for the
70 Pekka Himanen and Manuel Castellsfinancial markets to prosper. In fact, in a highly socially contradictory world,people lose their faith in the future, and this undermines positive expectationsabout the future, which is the fundamental driver of the financial markets.Thus, the state can have a positive impact on expectations in the financialmarkets through the trust it generates when most people can see themselvesincluded as beneficiaries of economic growth.Let us analyze these connections in more detail. At the center of the Finnishmodel is innovation, growing in a “field of innovation.” The key elements ofthis field are highly skilled people, finance, and the culture of innovation.The Process of InnovationTalented peopleThe Finnish Science and Technology Policy Council has always emphasizedinvestment in human talent. Here, it has represented the view of the state,industry, and the education system itself. As a result, Finnish investment inR&D rose from a low 1 percent of GDP in the early 1980s to a leading 3.6percent of GDP in 2001, which is almost double the average for the advancedeconomies (see figure 2.8).The basis of the Finnish innovation system is a public, free, and high-qualityeducation system. In the OECD PISA comparison of the performance ofstudents, Finnish students topped all of the measured topics, from literacy tomathematics and science. The proportion of “excluded” or those who performat a functionally uneducated level is the lowest in the world. In Finland, studentperformance is the least dependent on the school that the student attends.The university system is also highly inclusive. The state has invested in apublic, free, and high-quality university system, where students receive astudent grant. Since the 1960s, the university system has expanded considerablyto 56 institutions which now include 70 percent of the young generation.Financing has pushed education toward the technology fields and, as a result,27 percent of Finnish university students graduate in mathematics, science, orengineering – which is about double the average for the advanced economies.In addition, according to the OECD Science, Technology and IndustryScoreboard, there is also very close cooperation between universities and business,which share knowledge about future key areas more effectively than inthe advanced economies in general. Nokia is a case in point that illustrateshow this interaction in R&D works between universities and companies.Figure 2.10 presents the dynamics of one representative project which hasincluded funding from the state (and therefore its information is publicly available).Although Nokia’s R&D network is essentially global nowadays andincludes such nodes as Stanford University, the University of California atBerkeley, the Massachusetts Institute of Technology, the University of Tokyo,
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70 Pekka Himanen and Manuel Castellsfinancial markets to prosper. In fact, in a highly socially contradictory world,people lose their faith in the future, and this undermines positive expectationsabout the future, which is the fundamental driver of the financial markets.Thus, the state can have a positive impact on expectations in the financialmarkets through the trust it <strong>ge</strong>nerates when most people can see themselvesincluded as beneficiaries of economic growth.Let us analyze these connections in more detail. At the center of the Finnishmodel is innovation, growing in a “field of innovation.” The key elements ofthis field are highly skilled people, finance, and the culture of innovation.The Process of InnovationTalented peopleThe Finnish Science and Technology Policy Council has always emphasizedinvestment in human talent. Here, it has represented the view of the state,industry, and the education system itself. As a result, Finnish investment inR&D rose from a low 1 percent of GDP in the early 1980s to a leading 3.6percent of GDP in 2001, which is almost double the avera<strong>ge</strong> for the advancedeconomies (see figure 2.8).The basis of the Finnish innovation system is a public, free, and high-qualityeducation system. In the OECD PISA comparison of the performance ofstudents, Finnish students topped all of the measured topics, from literacy tomathematics and science. The proportion of “excluded” or those who performat a functionally uneducated level is the lowest in the world. In Finland, studentperformance is the least dependent on the school that the student attends.The university system is also highly inclusive. The state has invested in apublic, free, and high-quality university system, where students receive astudent grant. Since the 1960s, the university system has expanded considerablyto 56 institutions which now include 70 percent of the young <strong>ge</strong>neration.Financing has pushed education toward the technology fields and, as a result,27 percent of Finnish university students graduate in mathematics, science, orengineering – which is about double the avera<strong>ge</strong> for the advanced economies.In addition, according to the OECD Science, Technology and IndustryScoreboard, there is also very close cooperation between universities and business,which share knowled<strong>ge</strong> about future key areas more effectively than inthe advanced economies in <strong>ge</strong>neral. Nokia is a case in point that illustrateshow this interaction in R&D works between universities and companies.Figure 2.10 presents the dynamics of one representative project which hasincluded funding from the state (and therefore its information is publicly available).Although Nokia’s R&D network is essentially global nowadays andincludes such nodes as Stanford University, the University of California atBerkeley, the Massachusetts Institute of Technology, the University of Tokyo,
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