When the High Road Becomes the Low Road:
The Limits of High-Technology Competition in Finland
Darius Ornston
Assistant Professor
Department of International Affairs
University of Georgia
ornston@uga.edu
Over the past three decades, economic internationalization has endangered the
solidaristic bargains that characterized postwar capitalism in many countries. While
predictions about the demise of the state appear to be overstated , increasing capital
mobility has limited deficit spending (Mosley 2000) and shifted the burden of taxation
from capital to labor (Swank and Steinmo 2002). These constraints are particularly acute
in Europe, where monetary integration formally constrains fiscal policy, eliminates
monetary policy and prevent countries from devaluing their currencies. In short, the Euro
is perceived to shift the burden of adjustment to the labor market, sparking growing
interest in “competitive” reforms including fiscal austerity, wage restraint, tax
concessions and market-oriented regulatory reform (Rhodes 2001).
As a result, scholars have developed an increasing interest in how countries can
reconcile postwar commitments to social solidarity with the need to bolster economic
efficiency. One such approach focuses on rapid, technological innovation as a pathway
to prosperity (Breznitz 2007; O'Riain 2004). Economically, technology-intensive
industries benefits from rapid expanding demand and generate positive technological,
managerial and social externalities that may spill over to the rest of the economy.
Politically, rapid, technological innovation reduces a nation’s dependence on cost
competition or market-oriented reform. In fact, technology-intensive firms may support
significant public investment, as they benefit from collective goods such as research and
education. In other words, rapid, technological innovation is not only a pathway to
prosperity, but a way to reconcile efficiency and equity. High-technology growth is, if
anything, even more highly regarded by policy-makers, embraced by both the right
(Augustsson 2005) and the left (Wise 2005).
This paper reassesses these claims by highlighting the risks associated with hightechnology competition. In addition to acknowledging the formidable challenge of
facilitating innovation in rapidly evolving, high-technology industries, the price of
success is higher than many scholars and academics recognize. Economically, the essay
illustrates how certain high-technology industries, particularly electronics, may be more
vulnerable to outsourcing and, by extension cost competition. To the extent that rapid
innovation-based competition insulates producers from downward wage pressures, it
heightens their vulnerability to disruptive new technologies.
More importantly, the paper identifies two political risks associated with rapid,
technological innovation that undermine its credentials as a “high road” to growth. First,
rapid, technological innovation strains inter-class relations. High-technology growth not
only widens income differentials between low-skill and high-skill workers, but generates
a political constituency that lobbies for inequality-enhancing policies, from more flexible
wage setting institutions to lower capital taxation. Second, high-technology growth also
1
transforms intra-class relations. Increasing reliance on international resources and
growing dependence on intellectual property reduce the benefits and increase the costs of
inter-firm coordination. High-technology growth thus undermines the inter-firm
cooperation that buttressed social policies and supported investment in collective goods.
After outlining the benefits and risks associated with rapid, technological
innovation, the essay analyzes Finnish movement into new, high-technology markets.
Finland represents a “critical case” in the literature on high-technology competition and
economic adjustment more generally. Not only did Finland successfully enter new, hightechnology industries, but competition was based on knowledge-intensive R&D rather
than low-end assembly work, and Finland has been specifically extolled for its capacity
to reconcile efficiency and equity (Castells and Himanen 2002). In other words, we
would expect high-technology growth to be most unambiguously positive in Finland. In
practice, however, rapid-technological innovation threatened postwar commitments to
social solidarity and, paradoxically, the cooperative relationships that initially facilitated
movement into new, high-technology markets.
The final section of the paper generalizes the argument by identifying parallel
developments in other, high-technology leaders such as Israel and Ireland and contrasting
these cases against countries that were slower to enter high-technology markets, such as
Austria and Denmark. The essay concludes by acknowledging that while this strategy
may have helped Finland grapple with acute structural problems during the 1990s,
policy-makers should be cognizant of the risks associated with this route and may be
better off using science, technology and innovation policies to advance different
objectives. Analysis is based on 104 interviews with Finnish policy-makers, experts and
industry representatives conducted between 2005 and 2012.
References
Augustsson, Fredrik (2005), They Did IT: The Formation and Organisation of Interactive
Media Production in Sweden (Stockholm: National Institute for Working Life).
Breznitz, Dan (2007), Innovation and the State: Political Choice and Strategies for
Growth in Israel, Taiwan, and Ireland (New Haven, CT: Yale University Press).
Castells, Manuel and Himanen, Pekka (2002), The Information Society and the Welfare
State: The Finnish Model (Oxford: Oxford University Press).
Mosley, Layna (2000), 'Room to Move: International Financial Markets and National
Welfare States', International Organization, 54 (4), 737-73.
O'Riain, Sean (2004), The Politics of High Tech Growth: Developmental Network States
in the Global Economy (Cambridge, UK: Cambridge University Press).
Rhodes, Martin (2001), 'The Political Economy of Social Pacts: Competitive Corporatism
and European Welfare Reform', in Paul Pierson (ed.), The New Politics of the
Welfare State (Oxford: Oxford University Press), 165-94.
Swank, Duane and Steinmo, Sven (2002), 'The New Political Economy of Taxation in
Advanced Capitalist Democracies', American Journal of Political Science, 46 (3),
642-55.
Wise, Peter (2005), 'Portugal's Socialists on Course for a Big Election Win', Financial
Times.
2
3