Will Finland’s big spending on R&D buy it the gift of growth?

Home to the world’s only Moomin museum, more than 50 public saunas and a vibrant death metal scene, Tampere has the offbeat charm and civic vibrancy only found in a university city.

Located between two vast lakes 110 miles north of Helsinki, Finland’s second city is also regarded as the country’s happiest – quite an achievement given that the Nordic country was ranked first in the UN’s Happiness Report for the seventh consecutive year in March.

But Tampere – whose 19th-century manufacturing prowess led to it being labelled the “Manchester of Finland” – has also endured grim times in recent years. The closure of its textile mills and factories in the 1970s and 1980s was offset by the runaway success of the Nokia Corporation in the 1990s and 2000s, when it was the world’s largest supplier of mobile phones. But the company – named after the neighbouring town in the Tampere metropolitan area where it was founded as a paper mill in the 19th century – saw its fortunes go rapidly into reverse in the early 2010s amid the rise of the iPhone and cheaper Asian smartphones. By 2013, Nokia’s telecoms wing, once worth £110 billion, had been sold off to Microsoft for £4.6 billion and some 4,000 product development staff in Tampere had been made redundant.

“It was very hard times – the city was so down,” recalls Pauli Kuosmanen, director of research and  innovation at the University of Tampere. “But we’ve really recovered since then,” he adds on Tampere’s reinvention as a technology cluster, noting the “experience of the ex-Nokia staff has been very important” in that recovery.

With Nokia’s success in building 5G data networks, it remains a significant player in Tampere, along with the city’s tech-focused university. But Finland is not resting on its laurels. In fact, the Nordic state is launching arguably Europe’s most ambitious research investment project with the aim of reinventing the whole country’s economy. Under a strategy initiated in 2019 by Sanna Marin – a star of the European centre-left, who served as prime minister for four years until 2023, Finland is seeking to use research to power high-tech economic activity in sectors where the country excels – including clean energy, pharmaceuticals, digital technology and ship-building.

There are clear parallels with the UK’s industrial strategy, the recent Green Paper on which identified eight sectors ripe for growth, including life sciences, clean energy and advanced manufacturing. But while Sir Keir Starmer’s government has yet to spell out how university research will contribute to these goals, Finland’s strategy is well advanced. Crucially, there is a commitment to increase research and development (R&D) spending from 2.9 per cent of GDP to 4 per cent by 2030 – a level currently exceeded only by Israel and South Korea. Indeed, most countries are struggling to reach the 3 per cent target agreed by the European Union (the UK spends just below that figure, while Canada and Australia spend less than 2 per cent, according to Unesco figures).

About two-thirds of R&D spending is forecast to come from industry, thanks to new tax incentives, but the government is not shirking its own research-funding role: from 2024 to 2030, public R&D spending will increase by €280 million (£233 million) every year, with total state spending rising by a massive 80 per cent, from €2.4 billion in 2023 to €4.3 billion by 2030. Significantly, this funding trajectory is enshrined in law after both major political parties backed an R&D funding act that came into force last year.

“There was talk about this 4 per cent [of GDP] goal for many years, but it never happened,” reflects Anita Lehikoinen, permanent secretary of Finland’s Ministry of Education, Science and Culture. “But there was a very strong sense that we had to do something different as we hadn’t had any significant economic growth since the financial crisis, and we had tried everything else.”

The cross-party consensus for 4 per cent, reached in 2022, was important, but the legislation that followed was even more so, insists Lehikoinen. “There will always be critical voices saying we cannot afford this, or that it’s mistaken, but now if a government wants to change this goal, they will need to change the legislation.”

Subsequent geopolitical instability – most notably, Russia’s invasion of Ukraine in February 2022 – has strengthened the case for Finland’s bold research strategy, says Lehikoinen. “We share a 1,320km border with Russia and used to have many tourists from Russia, but this isn’t the case any longer,” she reflects. “We have to build other industries, which will mean more high-quality research in both our universities and companies.”

For a golden period in the 1990s and 2000s, at least a third of Finnish private R&D investment came from Nokia. Yet the company’s sobering fall has underlined why relying on a single private funding source is fraught with danger. Instead, greater efforts are being made to establish and support tech start-ups, whose R&D budgets may eventually become nationally significant.

“There isn’t really one big company delivering in my field,” explains Juha Toivonen, professor of photonics at Tampere. “But the potential is huge – everything requires photonics, even if it is just a standard display screen for an appliance,” he explains, noting that light-based technologies are transforming everything from solar energy and health diagnostics to welding devices.

New research-led spin-outs from the university may be Tampere’s best hope, many believe. Companies like Liquid Sun, which converts carbon dioxide into jet fuel, is one promising example. Another is advanced semiconductors, where Tampere’s university and tech cluster is well ahead of European players, explains Kuosmanen, whose own expertise is in electrical engineering. “We’re putting hundreds of millions of transistors on a single chip – no other universities are close to us in that respect. They’re operating in the tens of thousands,” he says.

With this obvious advantage, Tampere has already won several major grants, including a recent five-year €40 million award, co-funded by the Finnish government and the European Commission, to establish a pilot production line for the chips. With the EU earmarking €11 billion in public funds for semiconductor research as part of its answer to the US’ $280 billion (£220 billion) Chips Act (industry will add a further €32 billion), more major research awards seem likely not just in Tampere but across Europe.

That would represent an important shift after decades of under-investment in academic semiconductor research, says Tampere University’s provost, Jarmo Takala, also an electrical engineering professor. “For about 10 to 15 years, I visited international conferences and it was only the Taiwanese scientists presenting papers on semiconductors,” he says. Taiwan heads Asia’s commercial dominance of this market, producing 22 per cent of the world’s chips – just ahead of South Korea (21 per cent), Japan and China (both 15 per cent).

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Chip manufacturing is not the only high-profile research project under way at Tampere. Backed by eight years of funding, a number of industry-academia “ecosystems” are being funded, with the aim of upgrading tech in key markets.

The investment has been accompanied by reform of how researchers are trained and interact with industry. From this year, some €250 million will be invested to train an extra 1,000 PhD students, with the proviso that they finish in three years rather than the usual six or seven. The lowering of requirements for credits and publications has proved controversial, but the reforms are needed, according to Erja Heikkinen, science policy director at the Ministry of Education and Culture. She notes that the average age of a PhD graduate is 37 in a country that keeps its young people in secondary education until the age of 19 and then obliges them to undertake up to a year of national service.

“At the age of 36 or 37, these graduates may already have a wife, husband or children, so they might want to stick to academia whether there is a good salary there or not – it’s what they are familiar with,” she says. “Meanwhile, our 100 biggest exporters are heavy industry, but most do not have a tradition of R&D. If we want them to become more R&D-led, we need to get these young researchers involved with industry sooner. It’s about changing the mindset of students but also the mindset of employers.”

More Finns are also being encouraged to pursue undergraduate studies, with the country targeting a 50 per cent participation rate by 2030, compared with the current 40 per cent. Undergraduates will be incentivised to finish their fees-free studies on time, with partial forgiveness of maintenance loans for those who complete their first degree within three-and-a-half years.

Finland’s science and technology strategy also encompasses far younger cohorts, with significant funding provided for university outreach projects to engage schoolchildren as young as five with STEM subjects – known in Finland as LUMA subjects. Coordinated by the LUMA centres located at 13 Finnish universities, children are invited to visit science and engineering facilities, with undergraduates also volunteering to run classroom workshops. About 60,000 children participate in LUMA sessions each year, with further training reaching about 5,000 teachers annually.

Those endeavours may sound similar to the school outreach work undertaken by UK universities, but there is a crucial difference, says the LUMA network’s director, Marija Aksela, professor in science education at the University of Helsinki. “LUMA is integrated into the education system here in Finland – it’s not just an add-on for schools,” she explains. “Every student is invited to be a science ambassador and build their own clubs and science programmes.”

The highly structured LUMA initiative kicked off in the 1990s, but it was arguably a more underground form of networking in the 1980s that led to one of Finland’s great tech strengths: computer gaming. “Being on the edge of Europe, there was a strong culture of pirating video games,” explains Niklas Nyland, a researcher at the Finnish Museum of Games in Tampere, of the hordes of teenagers in the 1980s who, after illegally sharing games for the wildly popular Commodore 64 computer, began creating their own. Inadvertently, a major export business was born.

Some domestic hits in the 1990s – such as ProPilkki, an ice-fishing simulation capitalising on the popularity of Finland’s winter pastime – led to breakout success for Finnish gaming companies in the 2000s, including the Max Payne shoot-’em-ups. That was followed by global hits such as Angry Birds, a franchise now reportedly worth $1 billion.

Finland’s success in the era of mobile gaming is perhaps even more impressive: the Helsinki-based firm Supercell has made more than $10 billion from its flagship game Clash of Clans, becoming Europe’s most valuable tech company prior to its $8.8 billion buyout by China’s TenCent in 2016.

Supercell’s genius for addictive gameplay within distinctive visuals also underlines that Finland – whose Moomin brand is still worth £700 million a year in retail sales – has many talents and would therefore be foolish to focus exclusively on pure tech research. Nor is this point lost on Martti Kauranen, dean of Tampere’s Faculty of Engineering and Natural Sciences.

“It’s very unusual for a university with a strong science and engineering focus to have a theatre school, but we do – and located in the same faculty as information technology,” he notes, reflecting on the potential research synergies of that co-location.

One worry that academics may have is that Finland’s desire for research to drive economic growth via more industrial collaborations risks turning its universities into glorified corporate R&D hubs. Yet while recognising the “political pressure for research to produce ‘useful’ results quickly”, Kauranen says he is “optimistic that basic research will not be compromised”. This is because most research funding comes from two very distinct funding agencies: the Research Council of Finland (RCF), which funds basic research, and Business Finland, which supports industrial R&D. Both are expected to see their budgets “increase significantly”, he explains.

That separation of funding streams has served Finland well over the past few decades, Kauranen continues. One example is in photonics, where tech clusters have drawn directly on nearby academic research. “Finland has one of the strongest photonics ecosystems in Europe, [but] the origins of the ecosystem go back to the research done at universities over the past 30-40 years,” he says, noting that Tampere’s current flagship photonics scheme is funded by the RCF.

Others, however, are less certain that blue-skies research will continue to be a priority. One troubling harbinger, they say, is the waning influence of Finland’s Research and Innovation Council (RIC), a government advisory body credited with maintaining the historical balance between basic and applied research. The council – which ran from 1987 to 2014 – was re-established in 2016 but without its own independent secretariat or subcommittees; as noted in a 2021 OECD study on Finnish innovation policy, that potentially makes the voice of its chair, Finland’s prime minister, more powerful.

“The only sensible path forward is to aim for balance among all players in the innovation ecosystem,” says Arno Suominen, research professor of strategic foresight at VTT Technical Research Centre of Finland and one of the report’s authors. “It is crucial to ensure that the entire chain, from idea to invention to innovation, is properly supported.”

Despite his criticisms, he believes that the new RIC “presents an excellent opportunity to make strategic choices that respect the balanced need for public investments”. Research investments should be made on the basis of “data-driven impact assessments”, he says. “Even more importantly, however, we need a vision, patience and strong leadership,” he adds. “The outcomes of research and innovation activities, by their very nature, remain uncertain.”

Two hundred years ago, British industrialists recognised the potential of Tampere’s fast-flowing river – the result of an 18m drop between the lakes Näsijärvi, to the city’s north, and Pyhäjärvi to its south-west – to drive factories and textile mills. Those buildings are now upmarket apartments and office blocks, but that same spirit of technological reinvention seems to have been embraced by Finland once again.

Nowhere encapsulates this spirit more than the LUMI supercomputer. Funded to the tune of £210 million by 10 smaller European countries, including Sweden, Norway and the Netherlands, the continent’s largest and fastest exascale computer is seen as a crucial investment to ensure those countries do not fall behind larger nations on research – particularly relating to artificial intelligence, where the costs are huge. The facility is housed in a former sawmill in Kajaani, a small town 350 miles north of Helsinki and one of the last train stops before the line enters the Arctic wilds of Lapland.

In Helsinki, meanwhile, the grand columns of Finland’s parliament building are visible from the train as it pulls into the station. But on the day Times Higher Education visits, they are covered in blood-red paint sprayed by environmental activists. The protest is a reminder, say activists, of the damage caused by the Finnish state-owned peat mining company Neova, which operates in the wetlands of Sweden and Finland.

“This cannot go on,” explains a protester.

But while Finland’s prime minister, Petteri Orpo, condemned the paint attack as “unacceptable vandalism”, the activists’ call for radical change is perhaps more in tune than he may care to admit with the economic reinvention project his government is pursuing. And, in pouring so much money into it, Finland is setting a very high bar for other countries pinning their hopes on research and innovation to revive economic growth and propel their economies out of the red.

The world will be watching closely to see whether the country of Santa Claus gets the present it is hoping for.