Monday, November 07, 2005

Innovative Economy II

I was about to write the next piece on Innovative Economy and I found this article on the Nordic countries' success.

My initial interest in Thinking Economy or Innovative Economy was actually inspired by Finland's (a Nordic country) success in overcoming its economic difficulties back in early 1990s when its dependency on trade with its Russian neighbour was disrupted by USSR's disintegration.

Most people would only know Nokia in Singapore but not many people know Nokia comes from Finland. In fact, Finland's economic model is always termed as "Nokia Economy".

The following article has crafted out correctly the few aspects of an Innovative Economy. It is "socialist" in nature which helps to prevent brain drain. Secondly, it is the education system as well as REAL political consensus making structure (they have truly multi-party system) that created the necessary dynamic social atmosphere that allow creativity and innovation to take root. Third, they understand the need to maintain a good herd of local SMEs without crowding them out with Government controlled companies. Ultimately, it is the PEOPLE of the country that matters, not MNCs or just tax structures.

Of course, nothing is perfect in this world. A socialist model is open to abuses and excess.

However, the article has missed out one important crucial point, the effect of European Union. EU has provided these relatively small Nordic countries the critical mass market for their products. In Singapore's context, it is the integration of ASEAN economies that matters for us. We will need to re-adjust our foreign policies and strategies. American-centric form of economic-diplomatic strategy may not work well for us in this rapidly globalized world.

As the General Elections is coming soon, I may be busy with alot of preparation work. However, I will try to write more articles on election-related issues in the coming weeks.

Goh Meng Seng

The secret of Nordic success
The Danish model emphasises the quality of human resources, from kindergarten level to life-long learning


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THE recent World Economic Forum report on global competitiveness listed all five Nordic countries among the top 10. Finland was ranked one, Sweden three, Denmark four, Iceland seven and Norway nine.

In most countries, kindergarten is a place where parents park their children while they are at work. But in the Nordics, a wide spectrum of measures and teaching aids are used to ensure that children learn how to learn, work with themselves, with other children and with adults, and to take initiative.
This cannot be a coincidence. So what is the secret? First of all, the report demolishes the myth that high taxes and high social welfare are necessarily an impediment to growth, innovation and competitiveness: the same five countries would be in the top positions on lists of social welfare providers and high taxation.

To my mind, there are two lessons. The first is that countries like the Nordic ones - and this also applies to Singapore - cannot compete on prices and costs. Any country with high cost levels must produce something nobody else can offer. This calls for innovation, creativity and imagination. A variant of this is to offer goods and services of a higher quality and/or performance to more than compensate for price differentials vis a vis low-cost producers. In the global economy, the possibility of imitation means that constant and continuous innovation is required.

Second, the Nordic countries have managed to persuade their best and most creative minds not to move abroad - non-economic societal links override the lure of higher post-tax salaries elsewhere. The Nordic experience shows that the quality of life, in a broad sense, plays a major role in creative people's decisions on where to live.

Another reason for the Nordic success has to do with their industrial structure and institutions. The Nordic countries' shift, around 1980, from manufacturing to the service economy emphasising infocomm, entertainment and knowledge-related industries, worked dramatically in their favour.

Moreover, all of the Nordics were dominated by small and medium sized enterprises, which were highly adaptable. They had the benefit of a malleable workforce that had emerged from education systems that had been finetuned for 200 years. Thus, while many countries had to grapple with painful restructuring of their industries, the Nordics were spared that task. They were well placed from the beginning.

But the most important reason for the success of the Nordic countries lies in their emphasis on the quality of human resources.

This starts at kindergarten level. In most countries, kindergarten is a place where parents park their children while they are at work. The children are taken care of - full stop.

But in the Nordics, a kindergarten is much more than that. A wide spectrum of measures and teaching aids are used to ensure that children learn how to learn, work with themselves, with other children and with adults, and to take initiative.

At kindergartens, every day is supposed to be an eventful day where the human being inside the child is 'unwrapped'. As almost all children go to kindergarten and the costs are affordable - thanks to the generous welfare state - the large majority of children go through this tremendous confidence-boosting process from about the age of two to the age of six. They develop intellectual skills, respect for others, an ability to adjust to others and teamwork.

The staff at a typical kindergarten consists of teachers that have gone through 3 1/2 years of training, leading to a bachelor's degree. The ratio of teachers to children is about one to 15-18. University-level tuition is also free and every student gets a monthly lump sum from the state - enough for basics. Thus, nobody who wants to enter university in Denmark is prevented from doing so by financial constraints. Studies show unequivocally that a large part of the present elite, in fact, had parents with only rudimentary education.

After entering the labour market - regardless of their position and/or sector - almost all Danes go through constant skill upgrading. Danes are considered the 'world champions' in life-long learning.

Denmark spends about 4 per cent of its gross national product (GNP) on life-long learning and as much as half of the Danish labour force at one stage or another goes through some kind of learning every year. While some other countries have embarked upon life-long learning programmes, Denmark is unique in having launched special education for those who teach at life-long learning institutions. It takes two years for such teachers to graduate. More than 5,000 teachers have gone through this education.

The Danish tradition of life-long learning reflects a deep understanding that people will often not be doing the same job in a couple of years' time and if they are, they will be doing it better, or differently. Moreover, as with kindergarten, Denmark realises that without qualified and specially trained teachers, the objectives of life-long learning may not be achieved.

Across the Nordic countries, the mentality inculcated since kindergarten has led to a workforce with a high degree of self confidence, independence and respect for others - and a capacity to combine creativity, individualism and teamwork. Subordinates do not ask superiors for guidance or orders merely because they are superiors, but only if they feel the superior can add some value. The ambition is, wherever possible, to settle any issues on the spot rather than refer them upward. In a fast-changing knowledge economy, it is easy to see how this attitude leads to higher productivity because of savings in time, energy, financial and administrative resources. The Nordic economies have also honed to a fine art the ability to provide not just products in isolation, but accompanying services that enable a product to satisfy buyers' needs for a long period of time. Thus, for example, if some machinery is provided, it will also be accompanied by guarantees that it will work, that it will be repaired quickly if it fails, that staff will be trained to use it, and that it will be upgraded regularly.

As most machinery now runs on software, the ingenuity put into the software takes over as the decisive competitive parameter from the machinery itself - the hardware. In developing this software, 'soft' human skills often override technical skills. This explains why the Nordic countries, despite high costs, are still able to succeed in manufacturing.

So what can other countries learn from the Nordic experience? To be sure, what works well in one country may not work so well in others. The American model, for instance, would lead to a disaster in the Nordic countries, while the same fate undoubtedly would befall the Nordic model if tried in the US.

But that said, there are some lessons. First, the shift from manufacturing to knowledge intensive sectors reverses the relevance of old competitive parameters - costs become less important while the quality of services and human resources become more important.

Second, competitiveness nowadays is primarily determined by long term factors such as educational standards, how people work together and the quality of human and social capital - a result of many years of investment. Turning around a country's competitiveness is only partly a question of managing economic parameters such as tax rates, depreciation allowances, etc. Instead, microeconomic considerations like labour market reforms, life-long learning institutions, the education system and a culture of innovation are increasingly important. This calls for long term and strategic thinking.

Third, a country has to analyse its own strengths compared to other countries and concentrate on them.

What are the drawbacks of the Nordic model? The major drawback is social waste. Some people cannot resist the temptation to abuse a generous welfare system. Students may go to university, benefit from the free tuition and receive their monthly cheque without really pursuing their studies. Some of the unemployed may try to dodge work. Some of these abuses do happen in Denmark. However, they are part and parcel of the system, and in the end, the pros and cons have to be weighed.

Danes have chosen to live with the disadvantages of a social welfare system to reap the considerable benefits. Any tinkering with the model risks undermining the fine balance and unsettling the institutions and arrangements that have turned Denmark into one of the strongest, most vibrant and most buoyant economies in Europe.

The author is visiting senior research fellow, ISEAS, and adjunct professor at Copenhagen Business School. He was the former ambassador of Denmark to Singapore. His website is


LuckySingaporean said...

Our GLCs and Temasek holding are very good at buying innovative companies:

1. Micropolis.
2. Global Crossing.
3. Optus.
4. etc etc.

Why build an innovative company when our elite scholar investors can acquire one.

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