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THE FUTURE OF REGIONS IN THE PERSPECTIVE OF GLOBAL CHANGE
How to use the Finnish inspiration to develop the RegioFutures Programme?
Warsaw, June 9, 2008
Valtteri KaartemoPan-European Institute
Turku School of Economics
Finland 2050
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Presentation outline
• Aim of the presentation
• Global change
• Future challenges of Finland
– Demographic change– Service sector
• Concluding remarks
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AIM
Dear Mr. Kaartemo,
Welcome to the June conference. Please consider in your presentation the question - how to use the Finnish inspiration to develop the Regio Futures Programme.
Please accept my best regards,
Antoni Kuklinski
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AIM elaborated
• The perspective of global change– Changes in the global division of labour– Demographic changes– Implications on the industry
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China and India keep on growing (CIA´s Long Term Growth Model)
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Projections of Finland and BSR
The role of China in the global change
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Global division of labour
Flow of low-competence jobs to low-cost and close-to-the-market countries likely to continue
Competition on knowledge-intensive sectors increasing
Global companies create new models for education
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Ennakointikulttuuri ja Suomi (World Economic Forum 1998-2005)
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Global crises (Oxford Analytica)Rank Global Stress Point
1 CHINA/TAIWAN: Armed hostilities (x)
2 US/IRAN: US strike on Iran (x)
3 INTERNATIONAL: Human avian flu pandemic (x)
4 UNITED STATES: Deep recession (x)
5 INTERNATIONAL: Oil price shock (x)
6 PAKISTAN: State collapse (x)
7 INTERNATIONAL: Return to protectionism (x)
8 INTERNATIONAL: Terrorist dirty bomb (x)
9 IRAQ: Collapse of state institutions (x)
10 INTERNATIONAL: Chemical/biological attack (x)
11 INDIA/PAKISTAN: Armed hostilities (x)
12 INTERNATIONAL: Commodity price bust (x)
13 RUSSIA: Return to regional ascendancy (x)
14LATIN AMERICA: Disruption to hydrocarbons sector (x)
15 LEBANON: Civil war (x)
16 ARGENTINA: New sovereign default (x)
17 NORTH KOREA: Military conflict (x)
18 NIGERIA: Large-scale disorder in the Delta (x)
19 HORN OF AFRICA: Regional conflagration (x)
20 CENTRAL ASIA: Risk of major disorder (x)
21 BALKANS: Return to serious disruption (x)
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Finland has three major challenges ahead:
• Globalisation • Competence competition• Ageing
Requires creativity, dynamic willingness and capability to reshaping
(SITRA 2006)
Finland’s challenges
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Key publications on the future of Finland and BSR
Finland:• Labour 2025• FinnSight 2015• Services 2020
Baltic Sea Region (BSR):• VASAB 2010 + 2030
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Strategic basic optionsfor Finland
1. Development through crisis
2. Decline without huge crisis
3. Controlled renewal process by exploiting future opportunities and by preventing future threats
SITRA (2005)
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Opportunities and threats can be found by analysing the changes in the operating environment
1. Trend analysis2. Scenario analysis3. Weak signals/wildcards
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Three basic methodsin foresight research:
Trend analysisOne or several dominating development process analysed
Scenario analysisSeveral alternatives described and analysed
Weak signal analysisUncertain but potentially high impact
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Globalistion
Technology waves
Social fragmentationAnd polarisation trends
Demographic changes
Challenges of sustainable development
Multilayered decision-makingin polictics andinternational politics
Economy globalises
Resource allocation changes andthe importance of economies of scale increases
Regional and social system: hierarchical, multi-centred or networked?
Changes in interaction between cities and rural areas (inner-city rural areas, peripheries)
Changes in the shape of cities
Changes in welfare state
Changes in social life
Risk society or ecological modernisation?
Megatrends and development processes
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Weak signals and wild cards
Weak signals may develop new opportunitieswhich other operators have not yet noticedin “the noise”
Affects companies directly or indirectly viabusiness environment
May provide opportunities and threats
Often underestimated by people who areaware of the phenomenon
Takes time before turns into “mainstream”
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Global megatrends
1. Economic changes as a result of globalisation and economic integration (impact of network economics)
2. Technological changes (ICT, biotechnology, and nanotechnological revolution as a result of technological convergence)
3. Social and cultural changes (social polarisation, subcultures, mobility, multicultural societies, ”woman power” -movement)
4. Demographical changes such as ageing and migration
5. Environmental changes and challenges
6. Political changes (increasing importance of international decision- making and security policy)
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Globalisation and economic change
• Hierarchical world cities
• Cross-border growth regions
• Development corridors (e.g. Northern Dimension Growth Triangle, E18, Tallinn-Helsinki)
• Importance of capital region in networking
• Global localisation
• Strategic importance of the growth of network economics
• EU’s region and development policies
• Global institutions and networks
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4 basic scenarios for Finland
A1: Globalising Finland: Rapid EU enlargement
A2: Finland as an unlimited resource exploiter: Breakdown of semi-federalist EU
B1: Finland of sustainable development:Slow EU enlargement
B2: Finland of local governance: Neglection of EU enlargement
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What if…
Globalising Finland
Unlimitedresourceexploiter
SustainabledevelopmentFinland
Local governanceFinland
Population
Migration
Labour force
R&D expenditure
Educationexpenditure
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What if…
GlobalisingFinland
Unlimitedresourceexploiter
SustainabledevelopmentFinland
Local governanceFinland
Population concentration
Mobility of people
Equality
Industrialconcentration
Entrepreneurship
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What if…
GlobalisingFinland
Unlimited resourceexploiter
SustainabledevelopmentFinland
LocalgovernanceFinland
Unemployment
Regional polarisation
Company taxation
Income taxation
Public health expenditure
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What if…
GlobalisingFinland
Unlimitedresourceexploiter
SustainableDevelopmentFinland
LocalgovernanceFinland
Socialexpenditure
Securityexpenditure
Public debt
Usage of renewing energy sources
Voting activity
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What if…
Globalising Finland
Unlimited resourceexploiter
Sustainable developmentFinland
LocalgovernanceFinland
Share of women in labour
Labour participation rate
Networking of people
Coal taxation
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Finland in structural change
• Structural change is not over after 15 years of drastic changes
• In 2020 less than 25% of labour force in industry, while in 1990 the share over 30%
• The share of service sector as an employer will climb up to 73% in 2020, while in 1990 the share about 60%
• Employment grows in electronics, business services, hotels and restaurants, private services, and health care and social services
• Employment continues to decrease in agriculture, manufacturing industry (apart from electronics), wholesales, finance, and public administration
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Important pointDecrease in employment is caused also by structural changes in the modes of companies which affects statistics
”Number employed in industry has not decreased significantly when outsourcing to service sector is counted”
”This development is different from may other countries”
Hannu Piekkola, ETLA
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Wild cards
Events and processes with low probability (often 10-20 %) of occurance but high impact (economic, social, political, ecological) on society and organisations
The following ten wild cards on Finland’s future were presented by Research Director Jari Kaivo-oja in August 2007
www.tse.fi/peiDM 24092204-2007 Copyright © Tekes
10 wild cards affecting Finland’seconomic and political environment
1. Sub-prime crisis into global depression
2. Fast accumulating crises from climate change
3. Russia’s new foreign policy
4. Ecological breakdown of China
5. Chaotic crisis of Pakistan and the involvement of India
www.tse.fi/peiDM 24092204-2007 Copyright © Tekes
10 wild cards affecting Finland’seconomic and political environment
6. Pandemias
7. Acute shortage of labour in Europe and uncontrolled immigration to Europe
8. Global recession caused by speculative money
9. The end of Nokia’s success
10. Crisis of welfare services
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NOTICE!
There may also be positivewild cards!
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Demographic change
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Global and regional competition for talents
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Decline in young population - loss of dynamic forces
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Age pyramids in Finland in 2003 and 2030
2003 2030
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Dependency ratio by 2050
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Demographic changeand its implications
• Where do aged population settle – cities or rural areas, Finland or migration
• Challenge of securing services for the aged – need for social and technology innovations
• Need for migrant workers in 2010s
• The future of welfare cluster
• Who takes care of the elder and the babies if shortage of labour in Finland?
• Competition for talents
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Social, health and educational costs
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Crisis coming before 2050?
The Ministry of Finance’s 2006 Stability Programme:
pensions- related expenditure rises from 11% of GDP in 2010 to 14% in 2030 and stays there until 2050
Public expenditure as a percentage of GDP will increase from 48% in 2010 to 58% in 2050
GDP growth rate that is expected to decline from 2.2% in 2010 to 1.4% by 2030 and stay there until 2050
public debt will rise from 35.8% of GDP in 2010 to an unsustainable 117.5% in 2050.
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McKinsey’s recipe
survival of the welfare system requires policies that will generate annual economic growth of “well over 2% – closer to 3%”
It is essential to strengthen . . . Finnish companies’ global competitiveness by improving productivity.
Action must be taken to create new jobs in growth sectors.
Financing of the country’s welfare services must be secured by raising the rate of employment.
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Growth in megacities
Lähde: CIA 2003
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Population centres in the Baltic Sea Region
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European engine cities
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Scenarios for regional structure in Finland
Deeply polarised: Development in favour of large centres and the zones between them. Death of small and mid-sized centres and rural areas
Multi-centred and balanced: More balanced than hierarchically strongly concentrated network of large and mid-sized cities. Successful regions in rural areas concentrate around these various centres
Decentralised regional structure: Activities and people move into small centres and periphery
Mustikkamäki and Viljamaa (2001)
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Change of population 2003-2030 by region in Finland
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Labour 2025
• “Full employment, high productivity and good jobs will provide the foundation for well being as the working age population diminishes”
• economic growth rate will slow down – but growth will continue, rise in the standard of
living
• employment in service sector will continue to increase– further decrease in primary production and
industry
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Labour 2025
• the most important objectives of economic and social policy are to maintain a high employment rate and a low unemployment rate
• balance of labour supply and demand
• in the 2010s the question will not be whether enough jobs can be created for a growing workforce, but whether new jobs can be created elsewhere in the economy as vacancies created by retirement remain unfilled in some businesses or other work communities.
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Change in labour market until 2050
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Strength of Europe? (World Bank 2007)
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Where will the workers come?
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Population development in Eurasia
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FinnSight 2015
• project examined the global and social change factors that have impact on Finnish business and society
• also aimed at identifying the future challenges of innovation and research activity
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FinnSight 2015
• The dynamics in the global division of labour are about to impact all the countries which have opened up to the global economy.
• In traditional industrialist states, the share of conventional industries on production and employment diminishes, and the role of service sector increases.
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Finnsight 2015
• the market for skilled workers is strongly globalising– possibilities to attract skillful workers to home country – but also raises the threat of braindrain to the countries
with the best working and living environment.
• balance of power within science and technology is shifting towards the emerging economies– the growth in emerging economies is likely to outpace
that of Europe and the United States.
• These issues have significant impact on Finland’s employment and international competitiveness.
• Already by 2015
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Services 2020
• “to anticipate the changes that will take place in the private service industry and the operational environment of the individual sectors, and to examine how these changes will be reflected in the competence requirements in the sectors being evaluated”
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Changes in the consumption pattern in Finland in 1900-2002: Towards service economy
59.2
12.9
6.42.9
12.45.3
46.0
8.6
10.2
5.5
19.6
7.3
16.0
28.7
28.7
14.7
3.44.9
0.0
20.0
40.0
60.0
80.0
100.0
1900 1913 1925 1938 1950 1964 1975 1990 1998 2002
Terveys
Huonekalut jatarvikkeetVaatteet ja jalkineet
Liikenne
Sekalaiset tarvikkeetja palvelutAsuminen ja energia
Ruoka ja juoma
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Trend towards service economy
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Challenges of service sector in Finland…
the share of services in GDP is lower than developed country average
Productivity in services is lower than European average
Less competition in service sector than European average
Higher prices in service sector than European average
Lower level of internationalisation than European average
Lower impact on employment than European average
-Productivity could be improved by developing services-Currently only 12% of R&D investments in services
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Dilemmas of innovation policy in Finland (service perspective)
Concentration on benchmarking ideas and one model in innovation processes
Technology needed in service innovations before taken seriously
No clear model on cross-border innovations
Not enough market research analysis in the phase of commercialisation
Too slow processes in support and administration
Research and knowledge in immaterial rights poorly developed on int’l level
Service design –knowledge is not on high level
Lack of capability in combining knowledge in franchising and logistics
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Special challenges (and opportunities) in franchising-business in Finland
Development of high-level research and competence
Combination of technological expertise in franchising
High-level competence in brand strategies
Specialisation in service innovations in franchising
Government support for development of expertise in marketing and customer service
Development of E-commerce models to support Finnish companies
www.tse.fi/peiDM 24092204-2007 Copyright © Tekes
Innovation challenges of service economy in Finland
• Need for regional service sector strategies
• Lack of innovative service firm clusters
• Lack of respect for service culture and service development
• Acceptance for the idea that technology not always needed for service innovation
• Problems in commercialisation of high tech and services
• Internationalisation of service companies must be improved
• Digitalisation and e-commerce should need more attention
• Also services should be able to brand and market
• Global market research should be more used in development of science and technology parks (tech push vs. market pull)
• Lack of understanding on service innovations in the eyes of financers (compared to Sweden and Denmark)
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Total entrepreneurial activity in 2004
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Co-operation in Nordic innovation policy
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1. Consumer Kids
2. Millennials at Work
3. Heteropolitans
4. MABYs
5. Boomers – branding to 60-100 year-olds
Lähde: Anterior Insight 2007
Trends in consumer market
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Challenges fromthe emergence of new technologies
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The development of Finlandin the future
• Even more innovation-driven society: vision of large campus – considered the best justified vision
• Finland as a network of science and technology parks,which is linked to global centres of competence
• Technological and social innovations in focus
• Increasing transparency of state borders and the development of the EU towards a federal state
• Finland becoming more multicultural society
• Climate change makes the climate in Finland warmer, more humid and more extreme weather conditions occur –change needed in agriculture and forestry to match the needs, growth in climate and environment business
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• Level of education further increases
• A part of Finland focuses on recreational services –whereas some focuses on a competence in certain sector
• Russia and the Baltic Sea Region remain important for the economy of Finland
• The development of the EU is crucial for Finland
• If entrepreneurship is not improved nationally, Finland as ”remote desktop”- and ”subsidiary”-economy
• Connections to globalising world increasingly important
• Current welfare state-model changes dynamically towards emphasis on the public-private -partnership
• Competence on nanotechnology and space science are important on a long-term
The development of Finlandin the future
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Finland is mostly unable to compete in low cost level
Possibilities are in innovation and competence
Finland remains as a home for most demanding goods and services
Finland produces what others can not
Competitiveness of business environment remains crucial to attract new investments
The development of Finlandin the future
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Summary of key statements in foresight publications
• With the current trend, the question on global division of labour is likely to become even more crucial for Finland.
• Need for RFP from the perspective of global change
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The importance ofasking the right question
• What is the question we aim at finding the answer?
• Finland 2050:– Economy
• Labour• Services
– Technology – Healthcare– Environment
+ Slovenia 2050 + Italy 2050 + Poland 2050…
• Interrelated but vast!
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Questions to be solved in the planning process
• Streamlined problematisation with a common vision
• What is the role of comparative studies internal to the study?
• What is the role of comparative studies external to the EuroFutures Programme?
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Concluding remarks
• What comes beyond service sector?
• We should concentrate on the issues which are likely to matter in 2050and present the ideas clearly
• Imagination needed from 2025 onwards– How can we deploy the best imagination
in Europe?
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Finnish inspiration for project outcomes
• regional centres for foresight research until 2025
• regional foresight forums (www.ennakointifoorumi.fi)(http://nff.risoe.dk/index.htm)until 2050
• Inter-regional co-operation in resource allocation
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Loop system
Europe 2050
region 2050 country 2050
region 2050 country 2050
region 2050 country 2050 world 2050
Europe 2050 world 2050
world 2050 Europe 2050
Loop between regions
Loop between methodologies
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Suggestions for next steps
• Funding instruments• Selection of partners• Concrete research plan
with measurable outcomes• Realistic budget and schedule
WE HAVE AN IMPORTANT PROGRAMMEAND WE SHOULD START ITBEFORE WE LOSE OUR MOMENTUM