In focus: Finland
Background // Triggering stories:
- Reuters: Fitch cuts Finland's credit rating
- Bloomberg: Finland looses AAA rating
- BBC: Finland: The sick man of Euorope?
- FT: Finnish tradition of consensus at risk
- European commission: Note to Finland's Minister of Finance
To understand and be able to analyse the situation we first position Finland in general:
Finland:
Finland is the 43rd largest export economy in the world and the 8th most complex economy according to the Economic Complexity Index (ECI). In 2013, Finland exported $78.1B and imported $75B, resulting in a positive trade balance of $3.2B. In 2013 the GDP of Finland was $267B and its GDP per capita was $39.7k.
The top export destinations of Finland are Sweden ($8.45B), Germany ($7.32B), Russia ($6.69B), the United States ($4.94B) and the Netherlands ($4.53B). The top import origins are Russia ($13.3B), Germany ($9.7B), Sweden ($8.06B), China ($4.9B) and the Netherlands ($4.23B).
Source: The Observatory of Economic Complexity OEC 2016.
Finland as part of Scandinavia, Nordic 5:
Finland on the national intangible capital NIC world / GDP impact map: 3rd best (Rank 3/59) !!
Finland on the European Union / GDP growth map: 2nd worst (Rank 27/28) !!
Full forecasts for Finland's GDP growth 2016 - 2017 Here and EU commission country report for Finland 2016 Here .
Development of intangible capital impact in GDP formation.
Impact growth stagnates for Finland around 2010/2011 when other Scandivavia continue growing:
... and this happens for NIC human (HNC), market (NMC), process (NPC) and renewal (NRC) capital groups alike:
... and as international trade (MTFP = Global market and global trade linked TFP) positive spillover growth effects deteriorate also domestic market positive spilloves (DTFP = Domestic market and business activity linked TFP) turns neagtive:
What we havn't noticed: Long term declining build up of potentials for future growth!
Throughout 2001 - 2014 the build up of Finland's over all intangible capital NIC has steadily declined:
... also positive growth of process capital has leveled out. Combine this with facts, how NIC build up impacts come with time lags, and we have a clearer picture:
Summary:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
This is a developing story: Next update 12:00 CET 15/03/2016.
Up Next: Finland national intangible capital NIC SWOT in detail with some notes on global trade and domestic structural issues.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Declining impacts worrying
Recap:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
Impacts of national intangible capital NIC on productivity, NIC share in GDP per employed
One way to analyse NIC impacts is by calculating NIC impact share in GDP per employed, e.g. NIC impact in labor productivity. Focusing on labor productivity the pictuere for scandianvia and USA looks like this:
Dependency on oil can be seen for Norway (NO) and impacts of financial crisis for Iceland (IS). However: The general picure is stady growth. For Finland (FI) this positive trend is disrupted around 2011. To find the underlying reason in mare detail we make a Tipping point analysis for Finland.
Finland and NIC Tipping points
We define a NIC Tipping point as a point on a time line (future) where NIC impacts in GDP per employed ceases to grow, i.e. NIC impact in labor productivity stagnates on a certain level.
In order to estimate the existance of a tipping point (in near or far future) we calculate a NIC TP value for each driver (indicator) = annual projected increment on impact in GDP. This is performed by analysing near past and far past behavior of the driver (i.e. we perform trend analysis of drivers impact). As in SWOT analysis we acknowledge intrinsic, NIC trade values and global development related impact factors for each driver.
Schematically a positive TP value granting growth looks like this:
As you notice the projection is then calculated using best performer as a target / optimal value for impact (strenghtend by 10 %). All values are calcualted on a year to year basis starting 2001. Schematically a negative TP value causing negative growth (declining impacts) looks like this:
Finally we add together (aggregate) the net cumulating effect(s) of all drivers and come to a NIC Tipping point projection for each country.
The bad news for Finland from projections made 2014:
Made projections 2014 forecasted a down turn of NIC impacts in labor productivity (and GDP) at the end of the decade, 2018 +/-. Practically this means that there are more weakening drivers than strenghtening in Finlan's NIC palette.
As analysis is made for each driver we can pin point drivers growing stronger (strenghts, positive TP value) and drivers growing weaker (weaknesses, negative TP values). We here present 3 strongest / weakest for each NIC capital group:
NIC drivers "strenghtening" positive impacts:
Alarming for Finland is that human and market capital have lost all positive (boosting) impact drivers! And also renewal (innovation) capital is on a worryingly low level. This all already impact output drivers negatively.
NIC drivers loosing positive impacts:
Looking on weaknesses "expenditure on education" and "R&D researchers (per employed)" in human capital together with "cooperation between corporations and university" in renewal (innovation) capital is a dangerous combination (when on the weakening side)! This all has very negative effects on output performace - already present.
If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC.
In addition: Finland has a second challenge, when compared to other Scandinavia: Improve its trade structure
Trade is also trade in positive NIC spillovers
Trade is not only exchange of goods, exchange of services as goods. All trade is also exchange of values and happens always both ways: When importing or exporting both parties always benefit values as spillovers.
To get a crude measure for this positive spillover strenghtening NIC we calcualte a NIC trade value = Weighted average of export/import trade partners NIC * share of trade. I.e. when you trade you benefit your trade partners values (NIC).
Comparing NIC trade values for export and import it turns out that in general NIC export value is some 5-10 % higher than NIC import value. This is a reflection of a simple fact: We import and add value and then we export. This is a basic mechanism. More intresting, however, is the question: Do we trade with high or low NIC partners? Trading with high NIC partners yield higher positive spillover effects.
Looking at the picture for Finland:
Spillovers are significantly lower compared to other Scandinavia as Finland's NIC trade values for both import and export are well below average for other Scandinavia:
NIC spillovers via trade benefiting other Scandinavia is notably weaker for Finland which to some extent explain good performance for Denmark and Sweden.
Summary:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
- Past strenghts are at risk especially within human and market capital, but also within renewal capital. If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC. Comparing trade structures in Scandinavia Finland is on a side way which notably weakens its possibilities to benefit from NIC trade spillovers.
This is a developing story: Next update 12:00 CET 16/03/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Short term / present NIC strenghts and weaknesses for Finland
Recap:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
- Past strenghts are at risk especially within human and market capital, but also within renewal capital. If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC. Comparing trade structures in Scandinavia Finland is on a side way which notably weakens its possibilities to benefit from NIC trade spillovers.
Estimating strenghts and weaknesses
Calcualting strenghts and weaknesses and trying to present a compact (short) list we need to observe NIC index values as potential for sustained future growth, impacts of driver as present economic value of driver and efficiency as a measure of cost and investment returns. In addition we need to observe intrinsic and global dimension.
For each driver (indicator) we therefore calculate:
- Distance to group average, i.e. D1 = value - average(group) with a weight = 1. Motivation: Internal weaknesses and strenghts need to acknowledge intrinsic differences between different NIC capital groups.
- Distance to world average for driver, i.e. D2 = value - average(world) with a weight = 2. Motivation: Internal weakness / strenght does not automatically imply that this is true when compared to world averages.
- Distance to NIC trade value, i.e. D3 = value - NIC trade value with a weight = 3. Motivation: Strenghts and weaknesses need to be measured in the economic realm of production and trade as country specific.
- Weighted distance, i.e. WD =(D1*1 + D2*2 + D3*3)/6
Weights are here chosen to reflect what matters: What matters more than just high values (in group) is that the value is competitive (vs world) and generates economic activity (competitive trade).
We believe this is a more true picture of how strenghts in national intangible capital is distributed. Still, we ask once more:
When looking for strenghts and weaknesses: are drivers potential (index values), impact (as percentage shares in GDP formation and growth) and efficiency (as output/input ratio for economic impacts) equally important?
One can argue that they are equally important and should be given equal weights and analysed separately. This is OK and is certainly done. However, if we seek a compact list of weaknesses and strenghts combining potential, impact and efficiency (dynamically) we could give impact greatest weight followed by efficiency and potential. The rationale is that focusing on improving any (weak) driver will innevitably also strenghten its efficiency and its potential, but benefits in impacts will be fastest and strongest when initially impact has highest SWOT selective power.
Giving impact, efficiency and potential weights 3, 2 and 1 (and calculating Doubble Weighted Distance DWD) we can picture how strenghts and weaknesses is distributed over the various NIC capitals in Finland:
Finland's present strenghts: Renewal capital, but no clear strenghts in market capital!
More closely:
- Strenghts in human capital (HC) rely heavily on past build up of HC capacity (high index values) whereas present impacts and efficiency is minor and less impressive.
- Process capital (PC) strenghts are balanced whereas for renewal (innovation) capital (RC) present impacts and efficiency out-balance its potentials for future growth (build up).
- Total lack of market capital (MC) impact strenghts alarming.
Weaknesses are mounting up within Finnish NIC process and human capital, but also for renewal capital build up
More closely:
- Worryingly weaknesses for human and renewal capital weaknesses are dominated by weakening potentials for future growth (NIC index values weakening).
- Market and process capital weaknesses are dominated by wek impacts (MC) and weak efficiency (PC).
Finland's present NIC SWOT in detail combined with (Tuesday) Tipping point analysis results:
More closely:
- Great number of strenghts have declining (negative) TP values indicating that major strenghts are on a negative trend.
- Low numer of input strenghts sets future potentials at risk.
- Human and renewal capital (HC and RC) at grave risk when taking NIC Tipping point projections into account (cmp. Tuesday).
- Mounting process capital (PC) weaknesses worrying.
Summary:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
- Past strenghts are at risk especially within human and market capital, but also within renewal capital. If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC. Comparing trade structures in Scandinavia Finland is on a side way which notably weakens its possibilities to benefit from NIC trade spillovers.
- Ignoring financial investments and value based efforts to sustain and further develop Finland's high human and renewal capital levels securing increasing potentials for future welfare and economic growth will ultimately lead to the deterioration of these strenghts, most likely with severe economic consecuences as their present economic value for Finland is significant.
This is a developing story: Next update 12:00 CET 17/03/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
The magic of national intangible capital NIC spillovers: A personal perspective
We here just refer to the magic of spillovers from high national intangible capital levels in your everyday surrounding:
Original data: World Bank and World Economic Forum / Human Capital Report 2015.
Graph: Mika Pirttivaara / Founding Partner, CEO. Rapid Action Group Oy. RAG.
... And two initiating stories suggested by our readers:
Click to read: WEF / Why your nation’s IQ matters more than your own
Click to read: QUARTZ / Having smart neighbors could mean a higher income for you
... And World Economic Forum / WEF / Human Capital Report 2015 On Line and PDF
Summary:
- Human capital spillovers: National spillovers - from high human capital levels - tend to strenghten long term planned behavior, create a win-win, pie-growing, pro-social behavior and enhance team performance and productivity.
- If you’re around more productive people, you’ll be more productive yourself. ... if you want to raise your long run economic well-being, you should care a lot about your country’s average test scores. The effect is about three times at the cross-country level (than at the US state level) ...
- High human capital immigration policies, ..., tend to make a nation’s economic future brighter.
NIC on the week: Next update 12:00 CET 18/03/2016.
Up Next: Future success for Finland
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Missing link in national competitiveness package: Strenghten national IC by 1 %
Recap:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
- Past strenghts are at risk especially within human and market capital, but also within renewal capital. If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC. Comparing trade structures in Scandinavia Finland is on a side way which notably weakens its possibilities to benefit from NIC trade spillovers.
- Ignoring financial investments and value based efforts to sustain and further develop Finland's high human and renewal capital levels securing increasing potentials for future welfare and economic growth will ultimately lead to the deterioration of these strenghts, most likely with severe economic consecuences as their present economic value for Finland is significant.
The "Finnish pay model" to improve competitiveness
To tackle competiveness challenges Finland is working on a grand reform of labor market agreements and accord. And the strategy: To cut labor unit costs with 5 %. OK: Main components to increase competitiveness is based on:
- "The Finnish model" (once human capital, now ...) to improve competition and secure growth: Union confederation accepts
- Wages are put on a stand and in the future wage raises are determined by open (trade) sector: Exports led wages deal
- Working hours for full time employed increased by 24 hours / year without monetary compensations: Labour market pact is born
- Social and pension benefit bureden increases for workers: Finland's "social contract" explained
- Shorter vacations (for public servants / employed) and social security benefit cuts: Reduce ... to boost ...
Austerity: Reduce ... to boost? There is something wrong, missing.
Competitiveness is not about being cheap, competitivenes is not only about cheap labor and low labor unit costs. It is a mix of utilizing national financial and intangible capital NIC potentials in a smart and effective way. Tuesday (cmp. Tuesday) we focused on Finland's NIC Tipping points = The point on a time line where NIC impacts on labor productivity seases to grow. We found it to be near 2018 +/- for Finland:
Compare this to Sweden:
... and say: This is only a result of Sweden's more favorable low labor unit costs.
Wrong: This is the missing link
The result of smart and efficient high-level NIC constantly boosting GDP formation towards the knowledge economy structure and boosting GDP growth sustaining increasing welfare - and no tipping point in near future.
To analyse this in more detail we made a NIC Tipping point projection for Finland based on a one percent (1%) increase of Finland's national intangible capital NIC. The projection changes drastically:
- No NIC Tipping point for Finland in near future.
- Impact of NIC in GDP grows from 1.02% to 2.68%, improving by 1.66% (= 162 percentage growth!) and surpassing even Sweden.
- Acknowledging Finland's NIC efficency ratio (5.01) estimated costs for this "competitiveness leap" is around 0.07% +/- 0.07% of GDP (+/- depending on how present government fiscal budjet is just restructured prioritizing NIC in new ways). However: Increasing Finland's (present forecasted) GDP debt ratio from 63,10% to 63.24% don't seem to be that a great gamble - not even affecting the credit ratings - when GDP impact returns are 1.62%. In fact: The ratio would decline to 62.45% (drop 0.65%/year) - and continue declining year by year!
Future success for Finland: Focus on strenghtening NIC, not on efficiency via austerity measures
1. Build NIC human capital potentials for future success: Weak drivers to medium level and medium to strong, e.g. build NIC human capital strenghts (to where they once were in the beginning of the millenium):
2. Enhance NIC renewal (innovation) capital efficiency: Weak drivers to medium level and medium to strong, e.g. build NIC renewal capital strenghts (to where they once were in the beginning of the millenium):
Summary:
- Impacts of national intangible capital NIC on GDP formation and growth remains high, but growth is stagnated and may start to decline. This is the result of a long term gradually declining build up, strenghtening of NIC during 2001 - 2014. Future strenghts are here at risk as also renewal (innovation) capital is on a stagnated (negative) path.
- Past strenghts are at risk especially within human and market capital, but also within renewal capital. If not acted upon Finland is at risk of significantly loosing benefits from "a past" strong national intangible capital NIC. Comparing trade structures in Scandinavia Finland is on a side way which notably weakens its possibilities to benefit from NIC trade spillovers.
- Ignoring financial investments and value based efforts to sustain and further develop Finland's high human and renewal capital levels securing increasing potentials for future welfare and economic growth will ultimately lead to the deterioration of these strenghts, most likely with severe economic consecuences as their present economic value for Finland is significant.
- "The Finnish model": Finland's past (1995 - 2008) success was built on national intangible capital NIC: This is also the formula for Finland's future succsess. Austerity measures abridging investments (and annual expences) in national intangible capital NIC for Finland should be seriously reassesed. Just being cheap won't solve the problems.
NIC on the week: Next update 12:00 CET 21/03/2016.
Next week story line pending. Have a suggestion? Contact.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Story line pending
NIC on the week: Next update 12:00 CET 21/03/2016.
Next week story line pending. Have a suggestion? Contact.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.