FINLAND 2015: BALANCED DEVELOPMENT

Transcription

1 COMMITTEE FOR THE FUTURE PARLIAMENT OF FINLAND REPORT BY THE COMMITTEE FOR THE FUTURE ON THE GOVERNMENT'S REPORT FINLAND 2015: BALANCED DEVELOPMENT TuVM 1/2002 vp VNS 4/2001 vp

2 Further information: Researcher Ulrica Gabrielsson Committee for the Future Parliament of Finland FIN Helsinki Tel (0) Fax +358 (0) Translated from the Finnish original by Käännös-Aazet Oy, Helsinki.

3 To the Reader The Council of State and the Parliament have practiced a political dialogue on the long term future of the nation since The Government submitted in the autumn 1993 on the basis of a parliamentary initiative the first report on the future of the nation. The Parliament founded a special ad hoc-committee to evaluate it. The Parliament decided in 1994 that the Government should submit such a futures report at least once in the election period. The Committee for the Future was an ad hoc-committee until 2000 and since then it has worked like other committees on the permanent basis. This publication is a complete translation of the report, which the Committee for the Future decided on 11 th of December 2002 and the Parliament in its plenum on 8 th of January The report evaluates the futures report of the Government titled Finland 2015: Balanced Development submitted in November I hope that this publication gives to the interested public a picture of the political dialogue, which the Finnish Government and Parliament have had on the future of the nation since Paavo Löppönen Committee Counsel Committee for the Future

4 TuVM 1/2002 vp VNS 4/2001 vp Table of Contents PREAMBLE 1 Instigation 1 Experts 1 PRINCIPAL CONTENTS OF THE GOVERNMENT REPORT 2 THE COMMITTEE'S OPINION 3 Grounds 3 I Finland on the global scene changes in the environment Global dynamics Economic globalisation and Finland Development of a knowledge-based economy and challenges to Finland Finland's competitiveness and challenges thereto Development and enlargement of European Union 12 II Future trends and effects of population development Global population development An ageing Europe and immigration Finnish demographic trends 20 III Regional development in Finland: Trends and prospects Regional diversification Nordic trends in regional development Regional competitiveness Challenges in various types of regions Helsinki Metropolitan Area National sub-centres Other urban sub-regional centres Rural areas Increasing the level of expertise In defence of a working society The future of work The future of Finland's population The public policy of an ageing population Immigration and building a multicultural Finland Reinforcing regional success factors Means of regional development Promoting regional innovation activities Democracy and participation The future of regional development Breaking vicious cycles in regional development Quality welfare services for all A policy for diversified regional development 47 V The Committee's strategies for the future 49 Starting points for the balanced Finland of Information society 49 Increasing the level of expertise 50 Work and employment 50 Supporting entrepreneurship 51 Population and the status of family 51 Immigration policy and a multicultural Finland 51 Regional development 51 Structures of regional administration 53 Reinforcing futures policy and the futures programme 53 Draft resolution 54 The Committee's draft statement 54 IV The future of the Finnish welfare and information society: key issues Reinforcing Finland's success factors Information society a work in progress 36

5 REPORT BY THE COMMITTEE FOR THE FUTURE 1/2002 vp Government report Finland 2015: Balanced Development PREAMBLE Instigation On 13 November 2001, Parliament sent the Government report "Finland 2015: Balanced Development" (VNS 4/2001 vp) to the Committee for the Future for preparatory consideration. Experts The Committee has heard the following - Mr. Timo Korva, Member of Parliament - Mr. Rauno Saari, Secretary of State, Prime Minister s Office - Mr. Martti Korhonen, Minister of Regional and Municipal Affairs, Mr. Veijo Kavonius, Director-General and Ms. Ulla-Maija Laiho, Project Manager, Ministry of the Interior - Mr. Markku Linna, Permanent Secretary, Ministry of Education - Mr. Eero Uusitalo, Counsellor for Rural Development, Ministry of Agriculture and Forestry - Mr. Antti Kohtala, Director of Unit for Networks and Competition, Ministry of Transport and Communications - Mr. Markku Lehto, Permanent Secretary, Ministry of Social Affairs and Health - Mr. Pekka Tiainen, Consulting Officer and Ms. Tuulikki Petäjäniemi, Project Director, Ministry of Labour - Mr. Eino Siuruainen, Governor, Province of Oulu - Mr. Jaakko Kekoni, Director, Employment and Economic Development Centre for North Savo - Mr. Veli-Pekka Saarnivaara, Director General, National Technology Agency Tekes - Mr. Mauri Nieminen, Senior Adviser, Statistics Finland - Mr. Martti Launonen, Programme Director, Oulu Region Centre of Expertise Technopolis - Ms. Raija Volk, Research Director, Pellervo Economic Reasearch Institute PTT - Mr. Aatto Prihti, President and Mr. Antti Hautamäki, Research Director, Finnish National Fund for Research and Development SITRA - Mr. Matti Kamppinen, Director, Finland Futures Research Centre - Ms. Eva-Riitta Siitonen, Mayor, City of Helsinki - Mr. Pekka Kettunen, Mayor, City of Jyväskylä - Ms. Elina Lehto, Mayor, Lohja town - Mr. Veikko Guttorm, Chairman, Municipal Executive Board, Utsjoki municipality - Ms. Outi Torvinen, Planning Manager, Finnmark fylkeskommune, Norway - Mr. Jaakko Ylitalo, Senior Counsellor, Regional Council of Lapland - Mr. Aimo Lempinen, Executive Director, Uusimaa Regional Council - Mr. Juhani Kuusi, Senior Vice President, Nokia Research Center VNS 4/2001 vp Versio 2.1

6 - Ms. Kaarina Laine-Häikiö, Chief Executive Officef, Finnish Rheumatism Association - Mr. Pekka Himanen, PhD, Helsinki Institute for Information Technology, Helsinki University of Technology - Mr. Kari Pitkänen, Professor, University of Helsinki - Mr. Raimo Sepponen, Professor, Helsinki University of Technology - Mr. Kauko Sipponen, Chancellor - Mr. Markku Sotarauta, Professor, University of Tampere - Mr. Krister Ståhlberg, Professor, Åbo Akademi University - Mr. Asko Suikkanen, Professor, University of Lapland - Mr. Perttu Vartiainen, Rector, Professor, University of Joensuu - Mr. Esko Riepula, Rector, Professor, University of Lapland. PRINCIPAL CONTENTS OF THE GOVERNMENT REPORT The Government report on the longer-term future of Finland concentrates on regional development. Particular areas of consideration are the prospects of population, production and employment over the next fifteen years. The Government has included in its report a population prognosis as proposed by Parliament (EK 10/2001 vp). The Finnish economy has developed well since the recession. Despite a long period of economic growth, unemployment nevertheless remains high. Overall ageing of the population will have a significant impact on Finnish society in the next few decades. The next few years will already see the number of those leaving working life surpassing that of those entering it, and the number of pensioners will rise sharply. These social trends have diverse effects, depending on region. In recent years, regional development in Finland has been characterised by internal migration. The ensuing concentration of population and production, combined with ageing, is likely to give rise to increasingly acute problems not only in areas with a net migration outflow, but throughout the nation. Upon examination of this changing environment, the Government addresses globalisation, Finnish competitiveness, the Finnish information society, closer cooperation within the EU and EU enlargement, population growth and the workforce, diversifying regional development, and the environment as a competitive factor. The Government reviews development in growth centres, other urban sub-regional centres and rural areas and assesses changes in the nation's regional and community structure. In its report, the Government presents its strategies concerning labour supply, readiness for an ageing population, immigration and promoting employment among foreigners living in Finland, education, cultural and sports services as regional attractions, support for enterprise, research and development, municipal economies, regional development programmes, the coherence of community structure, housing production, the transport and communications network, and the regional accessibility of welfare services. To provide a background for the report, studies were conducted on trends in population, employment and production as well as trends in regional population and workforce figures. These have been published by the Prime Minister's Office in Finnish under the title "Väestön ja työllisyyden kehitysnäkymiä" (Future population and employment prospects). 2

7 THE COMMITTEE'S OPINIONS Grounds I Finland on the global scene changes in the environment Changes in the environment create the framework within which both national and regional players have to determine future threats and opportunities and against which their own strengthsand weaknesses will be assessed Global dynamics Significant global dynamics include changes in economic activity, cooperation and conflict among world cultures, demographic changes, technological development, changes concerning international security, and ecological and social trends related to the sustainability of development. With regard to the Government report, the most central of these are changes in economy, technology and population (see Chapter II), which are reviewed in greater detail whilst on the others, viewpoints consequential in terms of the themes of the report are presented. Trends emphasising cultural identity have strengthened in recent years. Such trends can be construed as a counterforce to the characteristics of globalisation emphasising mobility, and they manifest especially as stronger local, national, ethnic and religious commitment. In light of the report's themes, these trends have weight particularly with respect to international migration flows and new challenges to immigration policy. The international security outlook remains uncertain and is characterised by the potential of increased tension. With regard to the themes of the report, an essential issue is increased risk awareness in all economic, social and political activities resulting in higher risk management costs, which may have a marked dampening effect on economic growth. Conflicting trends are evident in the realisation of the three dimensions of sustainable development - economic, social and ecological. The widening gap in economic and social development over the past decade is clearly an overall trend. The long-awaited implementation of worldwide measures to address global environmental issues, most recently global warming, is essential with regard to the future of the ecological dimension. Another focal future concern is the ability to implement the decisions of the Johannesburg World Summit on Sustainable Development to eradicate poverty, alter consumption habits and methods of production, utilise natural resources in a sustainable manner and strengthen the role of the UN through national commitments. The world's leading nations are in transition from an industrial society to an information society, which according to several experts is now leading to the third Industrial Revolution with the proliferation of the internet. As a combination of information and communication technology (ICT), the internet will transform society in the 21st century as profoundly as the steam engine in the 19th and electricity in the 20th century. The third wave of revolution brought about by ICT will continue for decades to come as the internet becomes an increasingly common tool in industry and services. Work will undergo great changes both in terms of society and the individual, transforming and emphasising expertise, learning, new knowledge and innovation. The culture of work has experienced a fundamental shift in the form of networking, and the globalisation of labour markets is underway. This turning point for the global economy has resulted in extreme phenomena, such as the 'new economy' bubble, and in unusual opportunities as evidenced by Nokia, a small company rooted in a small country rising to the position of market and technology leader in mobile phones Economic globalisation and Finland. As a consequence of globalisation, not only economic and industrial relations, butalso knowledgerelated and civic activity are getting interdepen- 3

8 dent, and economic core processes are being organised on a worldwide basis. People, capital, products, services, knowledge and images all move regardless of borders, as do the ensuing risks. Networking founded on communications, the internet in particular, will continue. The development of a global economy is characterised by the increasingly closer integration of economic activity and geographical areas on a worldwide scale. The creation of a global market has, to a certain extent, rewritten the rules of economic activity, allowing both companies and individuals vastly greater opportunities for action on the global level. Businesses are experiencing fiercer competition with respect to costs and prices. Competition in the global market calls for substantial resources, which only raises the threshold of market entry to small companies. Small nations, on the other hand, benefit from globalisation as their technology-intensive businesses gain access to the global market-place. Companies also find small nations attractive locations if the nations have succeeded in creating environments recognised for their expertise and excellence. The liberalisation of financial markets and trade and the deregulation of communications services, energy production and services have been and continue to be a significant part of a political trend aiming at removing barriers. The deregulation of movements of capital combined with the introduction and development of ICT equipment has resulted in a dramatic increase in the quantity and speed of global capital flows; capital now seeks out the most promising investment targets globally. Direct foreign investment has been highlighted in a world of freely moving capital. In the 1990s, global production increased by ca. 60 per cent and trade by ca. 100 per cent. The rate of increase in direct foreign investment was a staggering 600 per cent. Especially since the late 1990s, the prevalent form of investment has been mergers and acquisitions, which now account for over 80 per cent of all foreign investment. Approximately 75 per cent of direct foreign investment takes place between industrialised nations. The share of developing nations has fallen from the 40 per cent of the mid-1990s to the current 25 per cent. These developments originated in industry but are, at increasing speed, spreading also to the service sector. Knowledge-intensive operations and companies are becoming more concentrated. The supply and development of services always requires a sufficient population base, as the key component of services is human interaction. With the global population concentrating in certain regions, also services are becoming concentrated, putting areas with negative population development at risk of diminished service quantity and quality. Several factors in the operating principles of the world economy have been conducive to centralisation, which over the past decades has been evident at least in terms of wealth, production and population. One such factor worthy of particular note is the operation of the knowledgebased economy. It is obvious that the production of new knowledge and development based thereon, especially high technology development, has benefited from the constant, close interaction between units representing different fields. Migration to these regions of concentration creates demand for services and subsequent growth in service provision, which may be considered paradoxical in an increasingly networked information society enabling at least in the technical sense global access to all types of information. Increasingly international business activities have caused nations, regions and towns to compete for investment, business enterprises and skilled people. One European nation that has reaped particular benefits from such competition in the 1990s is Ireland, whose recent history is noteworthy with regard to certain themes central to the Government report, especially population development. Between 1993 and 2000, the GDP of Ireland grew at an annual rate of 8.9 per cent, GDP per capita by 8.0 per cent, employment by 4.9 4

9 per cent and employment rate (employed/population) by 3.8 per cent. The growth rate of employment in particular is exceptional and resulted in unemployment falling from over 16 per cent to less than 4 per cent. The rise in living standards can, almost in its entirety, be attributed to the increase in employment rate. Whereas in 1993 there were 21 non-employed persons for every ten employed, the comparable ratio in 2000 was 14:10. Several explanations have been offered for this development: a fairly well educated workforce, a highly advantageous dependency ratio, the creation of the Common Market and wise utilisation of EU structural funds, overhauled public finances, success in attracting foreign corporations to the nation, and tri-partite cooperation resulting in tax breaks and moderate wage increases. Recent research has shown that the most significant factors were the advantageous dependency ratio and especially Ireland's ability to attract foreign businesses and investment, mainly from the United States. With regard to the future, it can be stated that population development in Ireland will continue along economically and socially advantageous lines; for instance, the nation will in coming decades have the slowest population ageing rate of all EU Member States. The price of the positive development enjoyed by Ireland is the fact that today, foreign business enterprises account for 76 per cent of Ireland's industrial production and approximately half of all jobs in industry. These jobs are concentrated in production instead of R&D, which would raise the overall level of knowledge in the nation. In 1999, the Irish government decided on an extremely extensive development programme, which aims to put the nation among top contenders in high technology. The internationalisation of Finland's economy has in the main proceeded along lines similar to that of other industrialised nations. Finnish investment abroad has increased significantly since the mid-1990s, amounting to over 25bn in In 1983, the ten largest Finnish corporations generated 58.5 per cent of their net sales outside the nation's borders in 2001, the figure was 89 per cent. In a similar vein, 14.4 per cent of the employees of Finland's top ten companies were located outside Finland in 1983 whilst in 2001 the figure was 61.2 per cent. Employees located outside Finland account for ca. 45 per cent of total personnel of Finnish industrial companies. In line with knowledge-intensive development, Finland's development since the early 1990s has been characterised by a fall in the share of investment in fixed assets and an increase in the share and significance of direct (foreign) investment and R&D investment. This reflects both the internationalisation of the Finnish economy and a change in its development model: in the 1990s, Finland's growth became driven by innovation instead of investment. (Committee statement no. 3) Development of a knowledge-based economy and challenges to Finland. A lion's share of the growth of the Finnish economy in the latter half of the 1990s can be explained by investments in knowledge and the development and production of knowledge-intensive technology. Thanks to this, Finland succeeded over a fairly short period of time in changing its developmental model and acquiring a new status in the international division of labour. That is why it is important to examine the developmental characteristics of the global knowledge-based economy and the challenges it presents to Finland. The knowledge intensiveness of the economies of developed OECD nations is growing rather rapidly. Investment in knowledge (measured by investment in tertiary education, R&D and software) increased by an average 3.4 per cent annually in the 1990s while investment in fixed assets over the same period of time increased by an annual average of 2.2 per cent (OECD, 2001). The proportion of knowledge-based hightechnology industries has increased in developed economies and they have significantly contributed to growth. Over the past decade, ICT in particular has been at a dynamic developmental stage. It has played a central role in the econo- 5

10 mic growth of many nations and its effect on employment, especially since the mid-1990s, has been double that of overall employment growth. Without favourable developments in ICT, the employment rate also in Finland would have been several percentage points lower. Productivity growth is central to performance of the national economy, and here in the more efficient use of capital and labour knowledge and innovations play an increasingly important role. Technological develop-ment and especially the introduction and proliferation of ICT add momentum to overall productivity growth. Furthermore, it must be noted that, from a historical perspective, productivity has developed exceptionally favourably in the production of these particular technologies. ICT has enabled the United States to increase its productivity rapidly for the past decade while the effect of ICT on productivity in EU Member States has been markedly weaker: current labour productivity amounts to less than 80 per cent of that in the United States. Total productivity in Finland has increased at exceptional speed since the mid-1990s. This growth almost in its entirety is attributable to ICT productivity growth which, on a more alarming note, has slackened in the past two years and is now at the same level as in An OECD estimate makes Sweden the world's most knowledge-intensive economy, followed by the United States, the Republic of Korea and Finland. The tools used in measurement are investment in tertiary education and R&D, and the extent of the ICT industry. In addition to the Nordic countries, also Austria and Ireland have experienced rapid growth in knowledge intensiveness. Higher numbers of students in universities and polytechnics have resulted in a markedly higher level of education among those of working age. The number of students graduating from tertiary education institutions is set to rise by nearly fifty per cent from 1995 to 2005 and will in 2005 total ca. 1,100,000. Figure 1: University and polytechnic (college) graduates (Source: Ministry of Education statistics) PEOPLE OF WORKING AGE 1,500,000 1,000,000 UNIVERSITY DEGREES 500,000 POLYTECHNIC DEGREES YEAR 6

11 Finnish investment in R&D began to rise sharply in the mid-1980s and continued to rise in the early 1990s, at which time investment in many nations fell due to recession. In 2001, investment amounted to 3.4 per cent of GDP, a rate second only to that of Sweden. Business enterprises accounted for over two thirds of this investment. Figure 2: R&D investment as a proportion of GDP in certain OECD countries (Source: OECD and the National Technology Agency Tekes) % of GDP 4 SWEDEN 3.5 FINLAND 3 JAPAN USA In recent years, Finland has been considered a leading information society nation. More detailed analysis of the current situation shows reason to alter certain essential aspects of this assumption. Finland is at the top in terms of ICT production and the extent of R&D, and also places rather well when measuring investment in the quantity and quality of ICT employee education. Finland is also among world leaders in mobile phone penetration (OECD, 2002; the Research Institute of the Finnish Economy ETLA, 2002). However, when the developmental level of an information society is measured in terms of the nation's ability to use and utilise ICT, the view is fundamentally transformed. An index of technology use and proliferation among 47 na- GERMANY OECD FRANCE DENMARK UNITED- KINGDOM CANADA NORWAY A closer analysis of Finnish development reveals the growth of a single corporation Nokia underpinning Finland's knowledge-intensive success. Nokia accounts for nearly one third of total Finnish investment in R&D and its R&D carried out in Finland for half of all R&D in the Finnish business sector. Without the Nokia figures, Finnish investment in R&D would fall below OECD average but remain above the average level of investment in EU Member States. Nokia's position is central in the Finnish innovation system. It influences not only flows of finance but the entire system through education, proliferation of know-how, R&D carried out by other companies, and learning. (Committee statement no. 3) 7

12 tions has Finland in 17th place, only slightly above average. This can be considered mediocre performance from a nation that has attempted to become "the European Union information society laboratory". Finland ranks especially poorly among OECD nations in home computer penetration (52 per cent of homes) and household internet connections (32 %; in Sweden, 65 %); the figures for 2002 have risen only slightly, to 56% and 41%, respectively (Statistics Finland, 2002). In terms of ICT penetration in schools, Finland also fails to reach top ranks but is above OECD average, as also in computer penetration in the workplace (computers per employee). Obtaining household internet connections was clearly more dependent in Finland on income levels than in other Nordic countries: when in Finland ca. 65 per cent of the wealthiest quarter of the population and ca. 10 per cent of the poorest had in 2000 obtained internet connections, similar figures in Denmark were ca. 55 and 40 per cent, respectively. The figures for Finland in July 2002 were, respectively, 70 and 20 per cent (Statistics Finland, 2002). Internet use is clearly linked to age: according to a survey conducted in July 2002, over 95 per cent of Finns aged had used the internet in the past three months, while the corresponding figure for those aged was ca. 65 per cent and ca. 10 per cent for the age group The impact of schools and libraries is clearly evident in these figures (Statistics Finland, 2002). Upon regional examination, the highest prevalence of internet connections is found in the Helsinki Metropolitan Area at 54 per cent and the lowest in eastern Finland with 35 per cent. The leading regions are Uusimaa and Ostrobothnia with 44 and 43 per cent, respectively. The lowest penetration is found in Kainuu (21%) and Kymenlaakso (25 %) (Statistics Finland, 2002). The European Union faces major challenges if it intends to achieve the Lisbon Strategy objective of being in 2010 "the world's most dynamic and competitive knowledge-based economy". This would require e.g. a new growth surge in productivity, which in turn can nowadays only be accomplished by significantly improved innovativeness and greater utilisation of technology information and communications technology in particular in industry, services and society at large. The core challenges to Finland's information society are the same. In its report to the Government in June 2001, the Information Society Advisory Board emphasised as key challenges the efficient utilisation in society of opportunities provided by ICT and making accessible to all the services and possibilities of the information society. In the introduction of electronic public services, Finland has enjoyed average progress. Communication between the authorities and citizens in particular is still at an embryonic stage. Producing content for the public sector's internet services has proved to be a more demanding process than expected, and the use of information society services in the development of regions has yet to take hold. (Committee statement no. 1) It is obvious that without Government intervention, Finland will continue to fall behind in information society development and remain unable to utilise the tools of technology to increase welfare by heightening productivity or improving services. (Committee statement no. 5) Finland's competitiveness and challenges thereto. The competitiveness of national economies their ability to attract businesses and investment should be reviewed continuously both from the viewpoint of being a target of location and that of factors influencing future growth of the economy and productivity. Certain international organisations especially the World Economic Forum (WEF) and the International Institute of Management Development (IMD) have for several years reviewed the competitiveness of national economies. WEF is a non-profit organisation established in 1971 and operating in Geneva. It enjoys NGO status with the United Nations and is funded by the membership fees of the 1,000 foremost global companies. Lausanne-based IMD was created in 1990 when the training units of the Swiss 8

13 Alcan and Nestlé were united, and it is renowned as a leading business school. Finland has placed extremely well in these reviews for the past few years. In 1993, a year of recession, Finland was ranked 25th. Table 1: National economy rankings in certain competitiveness indices in 2000, 2001 and 2002 IMD World Competitiveness Scoreboard WEF Growth Competitiveness Index WEF Current Competitiveness Index United States Finland Singapore Netherlands Sweden Canada Hong Kong Ireland Switzerland Germany Moreover, it must be noted that Finland ranked first in the UNDP (Human Development Index) report for 2001 in respect of technology utilisation and in the 2001 WEF report on sustainable development. Competitiveness assessments carried out in 2001 with the backing of the Government deter- 9

14 mined the following strengths and weaknesses in Finland's competitiveness. Table 2: Finland's economy in 2001: competitiveness (Source: compiled from Ministry of Finance and Economic Council publications, 2001) Strengths Close to international average Weaknesses Good basic education and a high level of education Availability of venture capital Future labour supply Labour market stability Cost of electricity to businesses Structural unemployment High level of investment in R&D Social security expenditure Ageing population Active research cooperation (both nationally and globally) Level of national debt Early retirement age Information society infrastructure, equipment and its utilisation Highly successful ICT industry Well functioning traffic systems High-level energy technology Low poverty rate Comprehensive, technologically advanced healthcare system Finland as a promoter of environmental protection and sustainable development Great regional disparities High overall tax rate A short of 40,000 50,000 companies (compared to the EU average) International competitiveness reviews should be taken with a pinch of salt. Firstly, the factors measured in these reviews need to be defined. The IMD measures the ability of nations to provide an environment that sustains the competitiveness of enterprises operating in that nation. The main input factors are economic performance, government efficiency, business efficiency and infrastructure. The broad categories of variables employed in the WEF Growth Competitiveness Index are technology, public institutions and the macroeconomic environment, with technology alone given a 50 per cent weight. The indices are largely based on questionnaires, allowing even slight changes in subjective evaluations clearly to influence the results. Secondly, it must be stated that the definitions of competitiveness employed in the comparisons differ to a certain extent from generally accepted ones. Their 'American values' differ from Nordic ones, which put greater emphasis on issues such as equality and social cohesion (ETLA, 2002). This emphasis is clearly evident in Finnish competitiveness assessments. It must also be taken into consideration that the indices have a very low prognostic value. Despite these reservations it must be stated that the indices recount parallel tales: Finnish 10

15 competitiveness has markedly improved over the past 8 9 years. With regard to the themes of the Government report, it is justified to emphasise the following factors related to Finland's competitiveness: Finnish success has been underpinned by investment in education and R&D. The quantity and quality of education is continually being upgraded. In the early 2000s, nearly 60 per cent of the age group is enrolled in polytechnics and universities. Vocational education is available for all who are interested. Towards the end of the 1990s, the intake of technology students both in polytechnics and universities was increased. Over 23 per cent of all students at the tertiary level study technology, a rate significantly higher than in other EU Member States. Figure 3: University intake trend for certain disciplines, (figure prepared on the basis of the KOTA database of the Ministry of Education) NUMBER OF STUDENTS 5,000 4,000 TechnologyT (21 % TOTAL) Natural sciences 3,000 Humanities 2,000 Economic sciencest Total Education 1,000 Medical sciences YEAR The provision of education has been developed to enable structural change, fostering in particular fields enjoying strong growth therein. This approach has brought about good results especially with regard to ICT, as the number of graduates has risen almost in accordance with demand. The challenge lies in the resources of universities to provide teaching and conduct research not rising in accordance with demand. (Committee statement no. 7) Another future educational challenge concerns basic vocational education. As the baby boomer generations retire, a great number of jobs will become available to people with basic vocational training, especially young people. This involves securing and improving conditions for production in various parts of the 11

16 country, but also preventing a serious threat, namely widespread exclusion. (Committee statement no. 8) The third challenge with regard to education is for Finland, after extensive preparations, to introduce a comprehensive and effective system of adult education and lifelong learning. This is an urgent task, as due to population development, the number of those leaving working life will exceed that of those entering it. Updating the knowledge and skills of the population at all educational levels is an essential concern due to the rate of change prevalent in the economy and in society. (Committee statement no. 10) A sharp rise both in public and private investment in research has been a focal characteristic of innovation-driven growth. State investment in research has remained at a standstill since 1999 no new funding has been allocated to the Academy of Finland or the National Technology Agency Tekes but investment in R&D by Finnish enterprises has continued to increase significantly. However, preliminary data on development in 2002 indicates that growth in research investment by enterprises is increasingly directed to locales outside Finland and investments in certain fields are falling. There may be many reasons for this, but it is justified to ask to what extent these developments have been influenced on the one hand by the stagnation of public investment and the availability in Finland of skilled labour on the other hand. Whatever the case, we are seeing a major turning point. (Committee statement no. 3) Investment into Finland has fallen far short of investment from Finland. Finland is especially lacking in green field investment entailing the initiation of new business instead of acquiring businesses already in operation. The challenges ensuing from Finland's weaknesses are primarily related to Finland's ability to cope with population changes in the coming few decades while simultaneously dealing with the burden on public finances incurred as a result of the crisis of the early 1990s. These are themes central to the Government report and are addressed in the various chapters of this report by the Committee for the Future. With respect to certain issues, especially amending the pension system, the Government has already taken action but most weaknesses reported especially structural unemployment and problems in the development of regions are set to become central planks in the next Government's platform. The sections of the report concerning challenges and measures (IV and V) also present strategies for these issues Development and enlargement of the European Union At present and in the near future, the European Union is facing one of the most difficult and momentous phases in its history. The introduction of the euro at the beginning of 2002 marked the completion of a project agreed ten years ago at Maastricht. The future of the EU depends on two interlinked processes, enlargement of the Union and intra-union reform and deeper integration. Major concerns involving the democratic nature of decision-making and political leadership are being addressed by the Convention for the Future of the Union so that decisions on these matters could be taken at the first Intergovernmental Conference of an enlarged Union in At the same time, the European Union's common foreign and security policy is under intense pressure generated mainly by changes in the foreign policy of the Unites States, the prospects of European security policy and the underdeveloped nature of decision-making related to a common foreign and security policy. With regard to the themes of the Government report, core issues related to the future of the European Union are improved implementation of the Lisbon Strategy an agenda of social and economic renewal for Europe enlargement and the ensuing reform of common regional and structural policy, and outlining a European immigration policy, which falls within the scope of creating a European area of freedom, security and justice. The objective set by the European Union in its Lisbon Strategy is to make the EU "the most 12

17 dynamic and competitive knowledge-based economy in the world, capable of maintaining sustained economic growth, creating new and better jobs and increasing social cohesion". The integration of economic, employment and social policy is a prime concern in a future shaped by uncertain economic development, continuous high unemployment rates especially among young people, and the rapid ageing of the population and the workforce. The formulation of the Lisbon Strategy may be considered an accomplishment in itself but its slow rate of implementation and the lack of long-term strategic decisions or even debate on the economy and society in Europe, in support of the strategy, are alarming trends for the future. As shown in the most recent European Competitiveness Report (ECR 2002, May 2002), Europe is once again losing ground to the United States in terms of competitiveness, after several decades of narrowing the gap. As was stated above, productivity in Europe now stands at less than 80 per cent of that of the United States, and the income level of Europeans at less than 70 per cent of that of Americans (GDP per capita). Raising productivity must be made a central long-term objective. In the short term, a focal means is raising the employment rate as rapidly as possible even in excess of the 70 per cent goal in 2010 and deploying human resources currently unutilised. Each coming year in Europe will see a reduction in the type of work for which basic education suffices. In the past 7 8 years, the number of jobs requiring only low-level education has fallen by an annual average of three per cent while over the same period the number of jobs calling for at least secondary level education has risen by four per cent annually and the number of jobs requiring tertiary level education, by five per cent. Education is one of the few areas in which Europe is developing at a fairly healthy rate but on-going investment in raising educational levels remains an important issue with respect to employment. The service sector is increasing its relative share of all developed economies. Knowledge Intensive Business Services (KIBS) are especially central to knowledge-based economies. Europe has a long way to go in successfully integrating human knowledge and expertise with organisational developments, which may result in substantial user-related performance and productivity benefits. Innovativeness in the entire service sector is a factor of great consequence with regard to the future of Europe. Despite a few European Union Member States, most notably Sweden and Finland, accounting in relative terms for the greatest investment worldwide in R&D and innovation activities in general, the gap between Europe and the United States continues to grow. Nevertheless, of all long-term strategic investment this is the most significant factor improving welfare. The European Research Area (ERA) initiative introduced in 2002 attempts to increase cooperation and networking but does not include truly noteworthy new investment. The EU objective approved in Barcelona in 2002 of increasing investment in R&D to three per cent of GDP is significant but its achievement requires more focused policies than employed at present. EU enlargement in the near future by ten, perhaps as many as twelve new Member States will create an economic area and community with a population of nearly 500 million. Over the next decade, the Union will continue to enlarge. With regard to the themes of the Government report, immigration, agriculture and a common regional and structural policy are areas where enlargement will have major effects. Some 44 per cent of the EU budget (0.8 per cent of GDP) is allocated to agricultural subsidies. Over the next decade, the Union will double its agricultural population and land area devoted to agriculture. Within the next three years, the WTO will provide a framework for negotiations on ways to remove barriers from global agricultural trade and to facilitate market entry for produce from developing nations. These challenges underscore the need for a renewed common agricultural policy as of the new financing and programme period beginning in

18 This will have significant consequences to the competitive standing of Finnish agriculture and subsequently also the conditions for regional development. Some 40% of common Union funds are allocated to subsidise a common regional and structural policy. These subsidies are of great consequence in balancing developmental disparity between regions and of great political weight to many current Member States and to new ones in particular. It is obvious that subsequent to enlargement, if current criteria are employed, expenditure will get out of hand unless programmes and criteria are renewed. It has already become evident that subsidies payable to Member States will be curtailed and regional subsidies will fall far short of current levels: an approximate reduction of 30 per cent may be expected. In terms of Finnish regional development, the central issue is how well geographical coverage can be maintained in a land of long geographical distances. (Committee statement no. 30) In the creation of a European Area of freedom, security and justice, immigration and asylum policy has to date been almost solely dependent on very short-term decisions taken in response to topical political pressures. It is highly likely that in future, the merging in political strategies and in people's minds of issues such as legal and illegal immigration, migration, asylum-seeking and criminal trafficking in humans will produce results detrimental to all parties involved. A challenge central to the future of the Union is to create an active common migration policy. Continuation over a longer period of time of the status quo undermines the legitimacy of the Union among citizens, conflicts with EU principles (e.g. human rights) and in the long term will also impair the activities of national economies in an ageing Europe. (Committee statement no. 21) II Future trends and effects of population development 2.1. Global population development Recent estimates have markedly altered our view of the development of global demographics. World population in 2000 was 6.1 billion and, under UN estimates, is expected to reach 9.3 billion in However, recent demographic estimates say the 9-billion barrier will be broken around 2070, after which the population will gradually go into decline. In general, world population prognoses can be said to have fallen radically by as much as over 50 per cent from those made in the 1970s. Current prospects offer markedly better starting points for efforts to attain sustainable development on a global scale. Average annual population growth (%) started to fall in developed nations as far back as in the 1950s, throughout the world and in developing nations in the 1970s and in the least developed nations, in the 1990s. The world's average annual population growth has fallen from the two per cent of the 1970s to the current ca. 1.3 per cent and is expected to fall to ca. 0.4 per cent by The fertility rate has fallen from the record high of five in the 1950s to 2.8 and is expected to fall to ca. 2.2 by With regard to the future of Europe and Finland, it should be noted that population figures have taken or are taking a downward turn in Western and Eastern Europe and in Russia. Regions that will experience especially intense population growth include Northern Africa (80 % by 2050), sub-saharan Africa (120 %), the Middle East (115 %), Central Asia (90 %) and Southern Asia (70 %). It is foreseeable that these regions will continue to experience major famines and other humanitarian disasters resulting in extensive refugee flows also to Europe; many of these regions are under constant population pressure and an ensuing predisposition to migration, which targets mainly Europe (incl. 14

19 Russia), due both to a shared history through colonisation and geographical proximity. AIDS is a significant uncertainty factor in world population development. It is currently spreading most rapidly in Eastern Europe, particularly in Russia and the Ukraine, but in social and economic terms the region to be hit most heavily will be sub-saharan Africa with an HIVpositive population of over 28 million and 17 million deaths from AIDS thus far. These figures are three times the total for all the rest of the world. In many nations, per cent of the adult population are infected with the HIV virus, which has lowered life expectancy in these nations by years. Nations such as Malawi, Zambia and Uganda already have a life expectancy below 40 years An ageing Europe and immigration The wider Europe the Council of Europe's Member States plus three non-members had a population of ca. 810 million in early Europe's share of the global population has fallen in thirty years from 18 to 13 per cent. The number of nations undergoing natural population decrease (birth rate lower than mortality rate) has risen to seventeen: the former Soviet Union and CEE nations as well as four EU Member States: Germany, Sweden, Greece and Italy. All Eastern European nations except Russia have a negative population migration balance; Russia, however, is able to compensate its substantially decreasing population with immigration. The EU Member States now have a population of ca. 379 million, which will rise to ca. 454 million after the ten-nation enlargement. Population growth is substantially lower than in the 1960s but higher than in the 1980s due to immigration, which currently accounts for approximately two thirds of the annual increase in population. The natural population growth of the European Union will come to an end around , at which time the mortality rate will surpass the birth rate. Should net immigration be assumed to remain at the current level (slightly over 600,000), EU population will continue to grow until approximately 2023, after which population will decline steadily and fall to the current level before Great regional changes are a new feature in European population development. The population is becoming centralised, leaving an increasing number of regions with declining populations. This development will be especially intense in Germany and the Mediterranean countries over the next fifteen years. In addition to the forecast population decline, another characteristic of the future of Europe is the rapid ageing of the population. The number of children, young people and people in prime working age (aged 25 54) will fall while the share of people aged will rise by 20 per cent within the next fifteen years, that of people over the age of 65 by 22 per cent and of people over the age of 80, by 48 per cent. 15

20 Developments in the elderly dependency ratio depict the rapidity of ageing in Europe. Table 3: Development of the elderly dependency ratio (i.e. population aged over 65 as a percentage of working age population) in EU Member States (%) (Source: Eurostat) Change Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom EU The table shows that certain EU Member States especially Ireland will continue to enjoy an economically and socially advantageous population age structure, while simultaneously the population of Finland will clearly age at the most rapid rate. Ageing of the population of Europe has significant consequences on future policies in at least four sectors: 1. Labour policy: Economic growth will be hindered by labour shortages if the participation rate cannot be raised or productivity growth falls short of expectation. The objective of the Lisbon Summit increasing the employment ratio to 70 per cent by 2010 cannot be achieved without the elderly workforce being employed. This calls for a wide range of social policy measures: improving the employability of ageing workers, increasing the quantity and quality of adult education and further training, and incentives for taking retirement in a flexible and individual manner at a higher age than at present. 2. Pensions policy: The pensions system will be under constant pressure. In order to maintain even the current ratio of pensioners to workers, their numbers should increase at the same rate. During the current decade, the Lisbon Strategy is based on this objective (annual employment growth 1.2 per cent) and should be reasonably achievable. However, between 2010 and 2030 the situation will become markedly more problematic: it would require an employment rate in excess of 83 per cent in the age group It should also be mentioned that currently the highest employment rate among EU Member States in this age group is found in Denmark, 76.5 per cent. 16