The Nokia Economy

Policymakers these days trek to Finland from all corners of the globe. The question is always the same: How did Finland, land of pulp and paper, become a tech powerhouse, home to a global champion like Nokia?

Rewind to the early 1980s. That's when Finns, worried that the economy was too dependent on the USSR, set up the National Technology Agency to finance cutting-edge industries. Research spending rose from 1.1% of gross domestic product in 1982 to 3.4% in 2002.

The economic effects were dramatic. In the late 1990s, growth topped 5% a year, productivity boomed, and unemployment was halved. Massive telecom technology investments transformed old economy conglomerate Nokia Corp. (NOK ) into the world's No. 1 maker of mobile handsets, accounting for more than 20% of Finland's $54 billion annual exports.

Call it the Nokia economy. The company's $3.5 billion annual spending on R&D, together with supplier contracts and outsourcing, has helped nurture hundreds of startups, including successful software maker Digia Inc. "The entire university system has been fine-tuned to serve the needs of technology companies," says founder Pekka Sivonen. Digia is hiring dozens of software experts. It's just a growth dividend from Finland's investment in R&D.

By Gail Edmondson in Frankfurt

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