Photo: Ivo Corda

Published May 12, 2012

Could Finland survive shocks to its system?

Writer
Leading Specialist, Strategic Research, Sitra

What do Aleksandr Solzhenitsyn’s Gulag Archipelago and the new Linux operating system have in common? Both are created as very complex systems in such a way that even if one of its parts were lost, the whole project would not collapse. Solzhenitsyn wrote and kept the manuscript in separate batches so that the KGB could never get a hold of the entire work. Linux developers, in turn, safeguarded the fast and secure development of the operating system by splitting the process into “semi-independent” sections.

Such decentralised solutions are more important than ever in today’s world, which favours specialisation, interdependencies, is more insecure than before and in which unpredicted natural disaster or social crises can rapidly paralyse profoundly integrated systems.

The rapid changes in the processes and the operating environment in society calls increasingly for resilience, by which we mean the ability to adapt, renew and recover. The International Institute for Applied Systems Analysis (IIASA) has studied societal resilience through seven hypothetical shock scenarios in its Seven shocks and Finland project. These shocks include the breakdown of the European monetary union, the collapse of the Internet and the demise of the pulp and paper industry in Finland.

IIASA’s research findings were interesting from Finland’s perspective. Sectors relying on a few large international corporations are vulnerable. An adaptable economy is based on a versatile economic structure, so that rapid changes in the operation environment will have a very different impact on companies in different sectors.

Private and public sector operators must be prepared to adjust their established operating models and roles as the environment around them evolves. Economies will be more agile if they are able to creatively combine and exploit existing knowledge, technologies, products and services across sector boundaries. The uncertainty element in innovation activity works in favour of several small experiments instead of a few major projects. The most sustainable of solutions are not borne out of the maximum efficiency of the system; rather, they are borne out of an optimal balance between efficiency and diversity.

Efficiency and productivity form the current political paradigm in Finland that permeates throughout issues ranging from competition policy, municipal reform and European monetary union. Efficiency has also been gained through a highly specialised production structure. However, the risks of a narrow economic structure have in recent years begun to materialise with negative effects. The new phase of globalisation has led to the internationalisation of traditional clusters and a partial disappearance of production in Finland. Unfortunately, no new growth areas have emerged in the Finnish economy since the mid 1990s to replace the production transferred abroad.

In terms of economic sustainability, diversifying should be at the heart of policy making. This would require a new set of operating models for business and innovation policy. Alongside traditional policies strengthening the wider framework for clusters and companies, more radical strategic choices are necessary to safeguard the long-term development of entirely new business areas. Identifying these areas requires extensive, systematic grassroots experiments in the new business areas.