No 141

ETL^A

ELIN KEINOELÄMÄN TUTKIMUSLAITOS THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY

ERIPAINOS REPRINT

No

141

Timo Myllyntaus THE FINNISH MODEL OF TECHNOLOGY TRANSFER

Reprint from Economic Development and Cultural Change 1990, Vol. 38, No. 3, pp. 625-643

lssN 0358-5875

The Finnish Model of Technology Transfer*

Timo Myllyntaus Helsinki University

I.

Hypothesis

In the early nineteenth century, Finland was one of the poorest and most agrarian areas in Europe. Its inhabitants lived in more modest conditions and subsisted on a much poorer diet than people in the countries bordering the northern Mediterranean. Its standard of living was also below the average of east-central Europe-far behind Bohemia and Moravia, the regions with the highest per capita income in the area. I Today Finland is, by contrast, the most affluent country in the geographical zone between Scandinavia and west-central Europe, on the one hand, and the Soviet Union, on the other. In fact, its GDP per capita is now about 2.5 times higher than the average for east-central Europe and the Balkans.z Even compared to Western countries the

economic growth

of Finland

has been extraordinarily rapid and in

terms of the GDP per capita, it is ranked among the top 20 countries in the world.3 During the 1980s, its standard of living surpassed that of various countries on the Continent-France and the Netherlands, for example-and approached that of the United States.a How can the extraordinary development of Finland be explained? Why was it that Finland leapfrogged in the race of economic growth and not some other country in the same peripheral zone? My hypothesis is that a special, nationally oriented approach to industrialization and to the efficient transfer of technology has had a great impact on the economic development of the country. In line with this approach, domestic human and material resources were mobilized in Finland in order to modernize the economy. The national movement aimed at a developed society where all possible sectors, from culture to trade, were to be controlled and ì-un by Finns. In this article, I concentrate on the events of last century, because I view the developments in Finland during this century as a continuation of the strategy created in

the nineteenth century. @ 1990 by The

University of Chicago. All rights reserved.

00 l 3-0079/90/3803-0023$0 1.00

626

Economic Development and Cultural Change

II.

Channels for Technology Transfer Countries setting out to industrialize generally can create only a small fraction of the new technology they need. Therefore, they have to obtain technology from abroad in order to modernize their economies. Considering the economic and social consequences ofthe process,

the specific forms of technology and channels by which this transfer is accomplished are of crucial importance. If it is obtained in such a way that the recipient country can control neither transfer nor utilization, there is a risk of dependence on the supplier of technology. Some types of technological know-how are available without any obligation, or at little cost. But if the recipient is not able to exploit these acquisitions, the result will be an unworkable technological unit. Technology can be transferred in a kind of "guaranteed package," such as in machinery and equipment. In such a case, the recipient can expect to receive new technology that works. Each vintage of capital stock, however, gets old and obsolete over time. A country that imports machinery is not necessarily able to update and improve such imports as they become obsolete. New technology can also be adopted in forms such as ideas or human capital. Updating this kind of know-how becomes a continuous process leading to a more meaningful adoption of technology. The mastery of various aspects of a specific technique may lead to avoiding dependence on a few oligopolistic suppliers. In practice, machinery and expertise supplement each other, and they tend to appear together. Which type of technology transfer a country utilizes most seems to depend on its prerequisites and goals as well as its relations with foreign countries. In the eighteenth and nineteenth centuries, the innovation ofnew technology was concentrated in a few major industrial countries: Britain, France and, later, Germany and the United States. A great many other countries attempted to follow the example of these forerunners and to adopt their modern technology. The channels that transmitted innovations from industrial centers to the peripheries of the world can be classiûed in many ways. I argue that the following six channels, depicted in table 1, were the most important during the nineteenth century. It is often claimed that the efficiency of the channels mentioned in table I decreases from number I to number 6; in other words, knowhow successfully transferred through the top channels will boost the economy of the recipient country in a shorter period of time than know-how brought in through the bottom channels.s The channels of table I were utilized all over the world. If, however, an international comparison is made to determine to what extent various countries used these channels, some clear differences in emphasis can be observed. Discrepancies can also be found in how the

Timo Myllyntaus

627

TABLE I Tr¡¡

l.

Mltt

CgtnNnr-s

or TEcnNoI-ocv Tnn¡rsren rnou l¡¡pustmlL CrntEns Pnrupnsny rN rHs NlNsr¡s¡{rH CnNruny

ro rne

lmporting foreign machinery and equipment

2. Receiving direct foreign investments 3. Acquiring foreign licenses and patents

4. Recruiting skilled workers, artisans, engineers, teachers, and consultants from abroad or permitting mass immigration

5. Encoirraging and supporting journeys abroad by nationals for studying at foreign 6.

schools and universities, training in factories and offices, or visiting trade fairs, congresses, and other places where technological knowledge was exchanged Utilizing natural and low-cost diffusion: the spread of know-how through trade and scientifrc publications, analyzing foreign products, establishing research and educational institutes to spread modern technological expertise, etc.

Souncrs.-Stanislaw Gomulka, Inventive Activity, Diffusion, and the Stages of Economíc Growth (Aarhus: Aarhus University, Institute of Economics, l97l); Ole Börnsen, Hans H. Glismann, and Ernst-Jürgen Horn, Der Technologietransfer zwischen den USA und der Bundesrepublik, Kieler Studien no. 192 (Tübingen: Mohr, 1985),pp.32-70.

governments favored or discouraged the use of certain transfer channels.

In the case of the United States, mass immigration played the central role in the transfer of European technology into the country in the nineteenth century. Machinery imports and natural diffusion took only second and third place, respectively. It was only at the very end of the last century that imports of licenses and patents developed into an important transfer channel of technology.6 The Russian Empire, in turn, trusted primarily foreign investments and immigration of skilled labor. Russia's official policy after the Crimean War (1853-56) was to attract foreign direct and portfolio investments in railroad construction, mining, and manufacturing.T Foreign investments were, by contrast, not significant in the transfer of technology into Japan. The Japanese acquired Western technology first through natural diffusion and machinery imports and, then, by the selective recruitment of foreign technical specialists and by sending their nationals on study tours abroad. The importance of the latter channel grew after the 1880s when Zaibatsu groups started to control the foreign trade. According to Erich Pauer, the most important agents of technology transfer into Japan were "man, machine and written information."s The common feature of Russia and Japan was the active involvement of the central government in technology transfer. Sweden achieved very high GNP growth rates by utilizing, broadly and evenly, all channels except direct foreign investments. The role of the state was not as central as in Japan. Private Swedish firms and individuals were active in adopting foreign technological know-how, as were the Germans.e Germany had the additional advan:

628


tage that, owing to a high level of education and highly developed industry, it was able to legally or illegally exploit foreign inventions and patents much more effectively than any other country. In some cases, foreign inventions were developed into commercial products earlier in Germany than in the country where the inventions were originally created.r0 By the active utilization of other channels, Germany adopted all kinds of foreign technology efficiently and therefore industrialized rapidly.

III.

The Finnish Model

The Basics of the Finnish Economy \iy'hat was the Finnish method for adopting technology from abroad?

One might assume that Finland, an autonomous grand duchy (18091917) under the rule of the Romanov tsars, applied the same model as Russia did. On closer examination, however, we find that nineteenthcentury Finland did not imitate the tsarist model of technology transfer. On the contrary, so many unique features may be observed that we may refer to the Finnish model of technology transfer. Finland had a small population. It was not more than2.l million in 1900, even though population growth was not insignificant-on average nearly l.4Vo anntally between 1801 and 1850 and just under 1% between 1851 and 1900.rr Some characteristics of the people confirmed the peripheral, isolated location of the country in the northeastern corner of Europe. For example, the majority of the population spoke a Finno-Ugric language that was not related to the Indo-European lan-

guages. t2

The economy of the grand duchy was poorly developed: most (e.g., still 74% in 1880) of the people lived by primitive farming, fishing, and hunting in almost self-sustaining households or villages in the countryside. Barely 5% of the total population lived in towns in 1810. A century later, the urban population had risen to only l5%. No country in Europe had a smaller percentage of urban population at that time.13 Because of the inhospitable climate, the low productivity of labor, and prirnitive agricultural technology, malnutrition and even famines were not rare.r4 Poor communication and transport systems severely impeded opportunities to alleviate even local crop failures, which occurred at least once a decade. The climate set strict limits for agriculture in nineteenth-century Finland. Because the mean annual temperature was low (+4.6'C in Helsinki and + 2.0'C in central Finland) and summers were short, only few grains and other plants could be cultivated.15 For instance, wheat could be grown only in the southern provinces. Only one crop was harvested annually as snow covered the ground from 3 to 7 months a year.

16

7-Timo Myllyntaus

629

The range of natural resources was narrow; the country had only timber, waterpower, and some iron ore deposits. Quantitatively, only timber resources were plentiful; they ranked second in Europe.rT The Importation of Machinery and Equipment Like other countries, Finland imported capital and consumer goods in which the technology of the time was embodied. However, the importation of modern machinery for manufacturing and agriculture was substantially hampered by external factors, especially during the first half of the nineteenth century. First, the importation of British machines-the very best machinery at the time-was obstructed by the export prohibition in force in the United Kingdom, which was not revoked until 1843.18 Second, poor communication and transportation facilities between western Europe and Finland impeded the acquisition of foreign machinery. Moreover, tight censorship restricted even the inflow of technical and business information, and ice closed Finnish sea ports for at least 3 months a year. The difficulty of importing machinery stimulated the rise of the Finnish engineering industry between 1830 and 1890. The external factors changed only slowly, and it was not until the 1880s that Western machinery imports began to rush into the Finnish market and became the major source of supply for many kinds of machinery. Owing to its special geopolitical circumstances, Finland managed to create and preserve a more versatile engineering industry than one might have expected on the basis of its level of economic development. A full range of machinery and other technical equipment could not, however, be manufactured in the small grand duchy. Therefore, imported products critically supplemented the domestic supply and transferred badly needed modern technology into the country. Germany was the most important machinery supplier for Finland in the nineteenth century, with the United Kingdom ranking second. The Scandinavian countries were also of significance, especially in the field of prime movers and wood-processing equipment. American technology gained a foothold in Finland from the 1880s onward. Thus, the grand duchy attempted to import its equipment from the countries that had the technological lead at the time. Finnish firms, as a rule, aimed to obtain the most modern technology-not intermediary technology-if they had access to it and could afford it. The adoption of technology had an essential impact on the success ofvarious industries. Those, such as pulp and paper manufacturing, that managed to introduce an up-to-date, capital-intensive technology thrived, but industries that failed in applying modern technology, such as metallurgy, stagnated and began losing their markets to foreign competitors.

630


Foreign Investments Foreign investments have been very important for many developing countries, such as those in South America, and they also had an important role in the transfer of technology into Russia. Compared to Russia and eastern Europe, Finland received only modest direct foreign investment. The share was largest in the sawmill industry in which Norwegian, Russian, British, and Swedish merchant houses invested their capital. In 1913 about a quarter of the sawmill output in Finland was produced by foreign-owned firms,re while in other industries foreign investors controlled a much smaller proportion of the total output. In total, the proportion of foreign ownership in manufacturing was probably well under lÙVo in Finland in the early l9l0s, whereas in Bulgaria, for example, it was 20% in 1909, and in Russia it rose from 16% to 44Vo between 1881 and l9l4.2o The Finnish figure was also low compared to that of today's developing coúntries.2r Why did foreigners make only minor investments in Finland? Those Western investors who were attracted to northeastern Europe were generally interested in the extensive market of Russia, not in the tiny economic potential of Finland. Although the grand duchy was an area under the tsar's rule, it did not provide the most favorable location for factories that were planned to supply the Russian market. The comparative advantages found in Finland-such as a free, literate labor force, fairly abundant timber resources, and hydropower-were more than leveled out by such factors as the grand duchy's separate administrative system and customs tariffs for imports from Finland to Russia. Consequently, it was more practical to build a factory in western Russia or the Baltic Provinces and benefit from duty-free access to the imperial market and, moreover, from various concessions, loans, and other forms of financial support granted by the tsarist government. Another barrier to direct foreign investment in Finland was that the Russian government was reluctant to allow Western companies to take advantage of the Finnish autonomous economic status by trading extensively in the imperial market. Finally, the Senate, the central government of the grand duchy, did not attempt to attract direct foreign investments as did the Russian government to its own territory. The Senate's nationally oriented economic policy and political calculations concerning Russo-Finnish relations perhaps led to some caution regarding direct foreign involvement in the economy of the grand duchy. Therefore, the major participants did not favor direct foreign investments in Finland on any large scale. Most of the few direct foreign investments made in nineteenthcentury Finland introduced unprecedented technology into the country. Quite often foreign entrepreneurs, however, gave up their factories before their new technology had proved its preeminence. Many of them found that it was difficult for foreigners to run an industrial plant

-Timo Myllyntaus

631

successfully in Finland. Owing to their short life span, foreign-owned industrial plants were not a principal route of technology transfer into the grand duchy of Finland. Direct foreign investments in sawmilling became the most successful and long-lasting. This might have been due to the fact that sawn timber enjoyed the highest demand of the Finnish

manufactured goods exported to \¡/estern Europe, and foreign companies possessed efficient marketing networks. Finland received some portfolio investments as well; for example, the construction of railroads was partly financed by state bonds issued abroad. But the scale of foreign financing was in no way comparable with the Russian case. Moreover, Finnish exporting firms received short-term credits from abroad. As a whole, however, the volume of capital import was not large and it was not a critical channel in the transfer of technology into Finland. Industrial investments were carried out by Finnish entrepreneurs with domestic capital. The banking system in the grand duchy was quite undeveloped, but the rate of saving was, nevertheless, surpris-

ingly high in the economy. Both the export and the import trade, controlled by domestic merchant houses, were important sources of capital.

Alexander Gerschenkron maintains that the more backward the country concerned, the more active and more extensive a role the state tends to play. By contrast, in the more developed countries, the market forces are able to create a basis for industrialization.zz In the Finnish case, the state undoubtedly promoted industrialization in many ways. Nevertheless, while the government of the grand duchy concentrated on building up the infrastructure to support economic growth, it set up only a very few industrial plants of its own. It invested heavily in the development of transportation systems, primary education was gradually modernized, and some progress was made in vocational technical schooling and higher education. In the 1850s, economic laws and regulations were liberalized and also industry, especially metallurgy, twas promoted with favorable loans. The efforts of the Finnish government were not as extensive as the measures of the Russian, Japanese, or German governments. Although the industries that substituted imports were supported with a protective customs policy, all the available methods were not utilized on the same scale or with the same determination as in the other countries. Unlike Japan, the Finnish government lacked a clear plan for the transfer of technology. It did not set up pilot or model factories as did its Japanese counterpart. It did, however, subsidize experiments in new technology in some private metallurgical companies, such as the Siemens-Martin furnace at the Värtsilä ironworks.23 During the last decades of the grand duchy, the Senate pursued a fairly orthodox liberal economic policy. At the time, the state owned only a small

632

Economíc Development and Cultural Change

number of industrial plants including the engineering works of the state railroads and half a dozen sawmills. While the Russian government willingly granted various concessions to foreign businessmen for exploiting its natural resources, the Finnish Senate was nationally oriented and as a rule preferred to rely on domestic entrepreneurship. The Importatíon of Licenses and Patents The Finns purchased foreign licenses to some extent, but the low level oftechnology in the country did not allow any great transfer oftechnology through this channel before the twentieth century. The same factor also hampered the natural diffusion of technology. Some degree of technical expertise is required for the adoption and imitation of even easily accessible technical know-how. Less developed countries, as Finland was during the previous century, generally lack the necessary educational standards and the basic industrial prerequisites.

Immigration The number of foreigners has always been very low in Finland. Nowadays, Finland is the only western European country where aliens account for less than 05% of the total population. In the nineteenth

century, the relative proportion of foreigners was slightly higher, but even then it was not comparable to the situation in Sweden or Russia, for instance. If Finland did not attract foreign investors, neither did it attract potential immigrants. The foreigners' share of the total industrial labor force never rose above 3Vo-4Vo.24 Ody a few thousand artisans, engineers, businessmen, or other specialists arrived to work in the country. Despite their small numbers, however, they had a vital importance in the transfer of technology into Finland. Very few foreigners moved into the grand duchy on their own initiative. Most of the foreign technical experts were brought in by Finnish businessmen or others. The Finnish government did not favor immigration. The tsarist regime, in turn, opposed the immigration of west Europeans into the grand duchy-especially in the early nineteenth century. The statutes of 1835 and 1848 restricted the recruitment of immigrant craftsmen and technical experts. The tsarist regime considered that accommodating larger groups of Western workers might prove to be politically risky in this sensitive atea.2s As individuals, foreigners from various countries were valuable transfer agents for the outlying grand duchy. Swedish technicians contributed substantially to the development of almost all the major industries; British immigrants pioneered the textile and engineering industries; Germans influenced the growth and technological change of the engineering, glass, and printing industries; Russians promoted beverage and foodstuff production; Norwegians the sawmill and pulp indus-

Timo Myllyntaus

633

tries; Danes and Swiss dairy production; and so on. Foreigners acted in many key posts as entrepreneurs, technical directors, foremen, or other experts in industry. At the turn of the century, foreigners also constituted a fairly large share of teachers at the polytechnics.26 Work training and formal technical education under foreign experts formed a vital part of the Finnish model in eliminating the severe shortage of native skilled workers and engineers.

Natural Diffusion One of the factors that limited the chances of deriving benefits from natural diffusion was the language problem. The great majority of adult Finns could read; that group increased from aboltT\Vo to 98.5% during the second half of the nineteenth century.2T However, most Finns could read only Finnish and very little technical literature was published in that language. From the viewpoint of technology transfer, it was important that about a quarter of the adult population could read Swedish in the late nineteenth century, since basic technical literature was quite readily available in Swedish. Nevertheless, the most modern know-how was, as a rule, not published in any Scandinavian language. Often, detailed information about the significant innovations in science and technology were available only in French, German, or English, and only a small percentage of Finns could read those languages. Consequently, that small percentage, most of whom were native speakers of Swedish, became a transmitting group, which informed their countrymen about new foreign technological achievements abroad through translations into Swedish or Finnish. Nineteenth-century Finns were aware that modern technology adopted from abroad also brought about negative social and cultural changes. Although Arghiri Emmanuel believes that "national cultural authenticity is only an alibi for backwardness," the Finns attempted to resist the negative consequences of foreign technology and to adapt it to their own culture on their own terms.28 The Finns wished to strengthen their economy with rapid industrialization but without losing their national and cultural identity. For them, these goals were not conflicting. In adopting foreign technology, one ofthe first tasks was to change its language to Finnish. Because for centuries Finnish had been a language only of the peasants, its vocabulary for culture as well as for science, technology, and other fields of higher education was extremely limited. Therefore, engineers and their organizations had to invent Finnish equivalents for foreign technical terms. In the late nineteenth century, domestic professional and trade journals frequently contained glossaries that listed newly invented words in Finnish with their established counterparts in both German and Swedish.

634


In addition to the cultural goal, the construction of a native technical terminology also aimed to promote the acceptance and adoption of new technology. Ubiquitous loanwords, such as "telegraphy," "telephone," or "electricity," said nothing to a Finn without knowledge of any Indo-European language. By contrast, their ne'ü counterparts in Finnish, deliberately derived from ordinary native words, at least hinted at the function of these techniques even to a simple backwoodsman. When the function of a new technology was easily understood, the innovation was accepted more smoothly. Finnish has remained one of the purest languages in Europe; it contains relatively few modern loanwords from other languages. For the Finns, adopting foreign technology did not mean accepting foreign terminology or switching completely to a nonnative language. Although Swedish had traditionally been the lingua franca in technology and in the sphere of the educated classes in Finland, it was Finnish that gained ground in both the societal and cultural life of the grand duchy. Nonetheless, the fairly widespread knowledge of Swedish enabled Finnish engineers to utilize all forms of natural diffusion for adopting expertise from and through Sweden. Books and journals from Sweden were frequently read; the sea-lanes over the Gulf of Bothnia, which connects the two countries, were used more often than other routes abroad from Finland; information and expertise were transferred through numerous personal contacts; Swedish experts were approached with many practical problems, and they were even recruited for long-term tasks in the grand duchy. By keeping a keen eye on the modernization of its Western neighbor, an intensive activity developed in Finland, which gradually led to a tendency to imitate almost every reform that Sweden carried out in its society. From the 1880s, the inflow of German scientific and technical literature in Finland expanded. Besides Sweden, Germany and Switzerland served as model countries in the academic fields. The system

of higher education in Finland (as in other Nordic countries)

was

adopted from Germany. The basic literature of technology was translated from original books in German, while German concepts of and standards in science took root. Consequently, in the sphere of science and technology Finland looked in two directions: to Germany for answers to theoretical questions and to Sweden regarding practical problems.

Journeys Abroad by Nationals Foreign firms that controlled modern technology in the nineteenth century saw Finland as an unattractive and insignificant market area on the periphery, isolated behind the barriers of ice, language, and bureaucracy. For these reasons, foreign technology did not begin to flow into the grand duchy spontaneously-the Finns had to acquire it for them-

Timo Myllyntaus

63s

selves. Therefore, various kinds of study tours abroad became the central channel for the transfer of technology in the Finnish case. The sluggish development of technical education in Finland was another reason why many students chose to go abroad to study. Technical schools in Germany and Sweden were the most popular, and the studies were often supplemented by training in some well-established foreign factory.

With regard to the popularity of studying at foreign technical schools, Finland fitted the Scandinavian and east European pattern well. Universities of technology in Germany experienced a remarkable expansion during the 50-year period prior to World War I, but even more rapid was the increase in the number of foreign students enrolled in them. Scandinavian (Swedish, Norwegian, and Danish) students were well represented at the German institutions of higher education between the 1850s and 1930s. Students from the Russian Empire and the Balkans, however, formed the largest group of aliens during that period, accounting for 30%-60% of all foreign students in the German universities of technology.2e Political conflicts and discrimination in their own country drove a great many students from Russia to enroll at German educational institutions. It was estimated, for example, that at some German universities of technology, as many as 80Vo of the Russian students were Jews, a group persecuted for their religious beliefs in Russia.3o In the case of Finnish students, motives for studies abroad were mainly educational. As a rule, native Finns did not leave their fairly tranquil country because of political oppression but, rather, to become highly qualified in their professions. After graduation and, often, practical training, the great majority of the Finnish technical students returned from abroad and received high-ranking posts in their own country. Unfortunately, the nineteenth-century statistics on the enrollment of students at German universities do not specify the number of Finns. Until World War I, Finns are included in the figures for Russia. When technological education in Finnish schools and universities improved in the first quarter of this century, the number of Finnish students at German universities fell drastically. Only after Finland gained political independence in l9l7 were Finnish students classified as a separate category in the statistics for German universities.3l Artisans and many skilled workers received training abroad as well. In 1883 Viktor von Wright, the pioneer of the Finnish labor movement, wrote that tours abroad were the best way to learn higher craftsmanship and catch up with foreigners.32 While technical students traveled to the West, the majority of workers traveled to the East to improve their skills. St. Petersburg was a large city where many types of artisan trades, such as goldsmithery, metal working, shoemaking, tailoring, carpentry, and bookbinding, were highly developed.33 Besides students, artisans, and workers, members of other social

636


groups made journeys abroad. The government financially supported the trips of officials, artists, engineers, and factory owners. Businessmen also traveled, mainly at the expense of private companies, for the purpose of formulating decisions on which machines or licenses should be purchased by their companies. On these trips, businessmen also tried to make new contacts and recruit qualified experts for their factories.

Consequently, study and business tours had a very important role in the development of the Finnish economy. They helped compensate for an insufficient domestic technical and vocational education, poor international communication facilities, the lack of a spontaneous inflow of foreign technology, unsatisfactory natural diffusion, and other drawbacks.

IV.

Some Results of the Finnish Model In the early nineteenth century, the Finnish economy began to develop by gradually commercializing its self-sustaining economy and by exporting sawn timber, tar, firewood, and some other unrefined products. The first mechanized factories in the textile, engineering, and paper industries were founded in the 1830s and 1840s. Industrialization slowly accelerated, and in the 1870s the average annual growth rate of industrial output rose over 5%o. In agriculture, between 1870 and l9l4,dairy production expanded at the expense of growing grain. The country started to exploit extensively its ample timber resources, which were the largest in Europe on a per capita basis. The sawmill, pulp, and paper industries developed as the front-runners and key exporting sectors. Butter and sawn timber were shipped to Western Europe, while paper, metallurgical, and engineering products were exported to Russia. Finland imported grain from Russia, coal from Britain, and iron ore from Sweden. Machinery and other capital goods were imported primarily from Germany, but also from Britain, Scandinavia, the United States, and other countries. Even before its independence in 1917, Finland was quite rapidly developing toward an open economy that was closely connected with the world market. Imports of capital goods, raw materials, and con-

sumer goods \¡/ere greatly increasing, and they played

a

much

more important role in the economic life of the grand duchy than of the Russian Empire: "In 1897 goods were imported into Russia of the value of about 59 millions of pounds sterling, and into Finland of the value of some 8 millions, or, per head of inhabitants, for less than 10s. in Russia, against f3 5s. in Finland. The sum paid in customs dues in Russia amounted in the same year to nearly 22 millions of pounds, or about 3s. 3lzd. per head; in Finland the corresponding figures were fl,260,000 or 10s. per head."3a The difference in customs revenues per capita in Russia and Fin-

YTimo

Myllyntaus

637

land is explained by the milder customs policy of the grand duchy' Nevertheless, by implementing selective tariffs, the Finnish customs policy was designed to promote and protect native industry according lo the same principles as those adopted in Germany and the United States.35

Because the industrialization of Finland started from a very low level, high growth rates could be achieved right from the beginning. In the 1850s, industrial output increased on average by 3.5% annually. Between 1860 and 1913 this growth rate rose to 5.lvo annually. A striking fact is that although the variety of exported staple products

contraõted during the first third of the twentieth century, the growth rates of industrial output accelerated up to the outbreak of world war II, as shown in table 2. According to Paul Bairoch, Finland's economic growth between 1860 and 1910 ranked fourth in Europe, after that of Sweden, Denmark, and Germany. His estimate for the annual growth rate of Fin-

having been for centuries a peripheral peasant society with a subsistenceincome level, by quickly assimilating industrial skills, it managed to jump over some phases of development and create a dynamic modern sector amid an archaic economy' The composition of Finnish exports was rather nafrow. The whole TABLE

Avsmcr ArNu¡l R¡rEs

on Gnowrn rN

2

tsn Ftlt.trss EcoNouv,

1860-1980

(Compound Annual Growth Rates)

1860-1913

1920-38

1948-80

r9l3-80

1860-1980

(%)

(%)

(%)

(%)

(%)

Population: 1.0

9

.E

26

.6 3.5

7

2.9

2.6

2.8

5.1 3.0

7.9

5.7

5.0

3.4

1.5

2.1

5.1 2.5

Total

2.8

4.5

4.4

Per capita

1.7

t- t

3.8

3.3 2.6

2.2

Total Urban Industry: Output volume Employment GDP at constant pnces:

3.1

(Helsinki: Central StaHjerppe, Kai Hoffman, Handicraft in Finland, i E. Niitamo, "National

of the 1980s," Finnish Journal of Business Economics 29, no.

I

(1980): 25-38.

Economic Development qnd Cultural Change

638

growth process of manufacturing was mainly based on only two natural resources, timber and hydropower. It was not until after World War II

that the country's exports diversified. Between 1900 and 1939, the proportion of iron, engineering, textile, and chemical products shrank to an insignificant figure of the total exports. These products were manufactured for the home market. Despite a limited output mix, which is quite typical of developing countries, Finland continues to catch up with the industrialized coun-

it

surpassed Britain in terms of GDP per capita, and in the next decade it overtook New Zealand, while in the early 1980s it caught up with such countries as Belgium, France, and Australia.3s tries.37

V.

In the late

1960s,

Conclusion

To sum up, we can compare which chahnels of technology transfer Finland and other countries favored most. By selecting the four or five most important channels of six countries, we get six different models for technology transfer, as shown in table 3. Comparing the combination of important transfer channels in various countries, we can observe some distinctive features of the Finnish case. According to table 3, the Finnish model \ilas more like a diluted version of the Swedish model than a copy of the Russian or east European model. It was shaped by the special geopolitical position, cultural life, and economic characteristics of the grand duchy. The model was forced on the Finns partly by external factors and partly imposed on themselves purposefully. The model emphasized the conventional machinery imports, on the one hand, and the transfer of expertise through skilled individuals, both nationals and foreigners, on the other. The rest of the channels were underused and one of them, direct foreign investment, was even TABLE

3

Mosr Iuponrl¡r CnlnNns or TecuNolocv TnÂNsrsn rN Snr-rcte¡ Cou¡lrru¡s rN rnn NrNerpnNrn CnNrunv

Country United States Russia Germany

Machinery

Direct Foreign Invest-

Import

ments 't+

Nationals' License Imports

Study Tours

Immigration

t

Ì+

t

Sweden

Finland

* An important channel for private entrepreneurship.

t

Natural Diffusion

tt

Japan

1

Abroad

A channel particularly favored by the central government The most important channel.

*+

I

tt

Timo Myllyntaus

639

deliberately eschewed.3e The measures taken by the Finnish government also remained halflrearted, although the state substantially improved the economic infrastructure. Among the government's failures was its dilatoriness in modernizing economic regulations as well as in developing technical and higher education. From the modern viewpoint, the Finns chose rather slow-moving, roundabout, and uncertain channels for technology transfer. In the beginning, these choices probably delayed the industrialization of the country. However, in the long run, this approach had at least two important advantages that might explain the later success of the Finnish economy. First, the model greatly stressed the initiative and activity of native people, both of individuals and private companies. It pushed nationals to follow closely technological change abroad, assess it, adopt it, and, if necessary, modify it. The Finns managed to create a functioning subculture of imitating foreign innovations. At least in one respect, Finland resembled Japan. Despite long isolation, pronounced nationalism, and an agrarian production structure, both countries possessed a high cultural receptivity that facilitated the introduction of western technology. Great interest in tech-

nology and the willingness of both countries' nationals to adopt innovations proved to be a valuable factor for economic growth. Furthermore, in both countries the capability to absorb modern technology increased very rapidly toward the close of the nineteenth century. As in Japan, foreign engineers were used in key posts in Finnish industry until the nationals trained at home or abroad became capable of replacing them.ao The second advantage was that the model led to a rather sound

economic nationalism, which was, in fact, a goal of the nationalist movement. Finland did not become a semicolony' an oppressed supplier of raw materials exploited by foreign capital. The situation was clearly different from that in Bulgaria or Rumania, for example. Finnish nationalism supported a fairly equal distribution of income, education of the masses, social mobility, and hard work; all of these were factors that tended to spur economic growth. The Finnish model promoted an entrepreneurial spirit. The persistent cultural contradiction between an inferiority complex and national pride motivated the Finns to prove to themselves and to others that they were capable. Thus, the steadily accelerating industrialization of Finland should be attributed not only to favorable economic and technological factors, but to affirmative cultural factors as well. In the nineteenth century, political dependence on Russia stimulated a striving for economic independence. Although the grand duchy was subordinated to the rule of the Romanov tsars, it was not a Russian province as it had a certain amount of political and economic autonomy. The Finns capably adopted the market economy' but they made a

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clear distinction between mononational and transnational capitalism. In the Finnish model, ownership of industry and decision making concerning technology transfer were concentrated in the hands of nationals. consistent economic nationalism created the basis for Finland's rising confidence in its own resources and capabilities. Although Finland was poor, it was an organized and disciplined society. It had at least some features of a developed institutional infrastructure, such as a functioning hierarchical administration. As early as in the early nineteenth century, the country had ajuridical system of European standards, a population registration system, some primitive social security services, a few hospitals, a modest primary educational system, etc.al There was a tradition of the participation of peasantry in decision making in the diet, and in provincial and municipal administration as well as within the Lutheran church alongside the nobility, clergy, and bourgeoisie. Class divisions were not very sharp, perhaps partly because the nobility was small and needed the support of the peasantry and because there had never been actual feudalism in Finland. All people were free members of society and that enabled great social mobility. Despite some similarities in socioeconomic conditions, the institutional and societal frameworks in eastern Europe and Finland did not parallel one another; the latter was organized in a more egalitarian and democratic way.42 Not even in theory did the Finnish model exploit the available collection of transfer channels as efficiently as the German, Swedish, or Japanese models (see table 3). Nor was the model applied as effectively in practice as it might have been in theory. Nonetheless the model contributed to steady economic growth in Finland. A positive feature in the Finnish model is that it emphasizes the role of the native people in the technology transfer and the application ofthe technology under local circumstances. The Finnish model did not open a shortcut to success. In many respects, it meant the choice of a long and roundabout way in building a modern industrial base for society. The Finnish model, the transfer of technology controlled by the recipient country, led only slowly to the diversification of the economic structure. On the other hand, the country gradually became capable of bridging the technological gap significantly. Coupled with some fortunate coincidences, the Finnish model brought some exceptionally good returns in the interwar years, and in the postwar period it led to a welfare state of the Nordic type, which still relies on some of the nationalist principles of the late nineteenth

century. Notes *This article stems from a research project, "History of the Energy Economy in Finland," that was funded by the Research Council of the Social

-

Timo

Myllyntaus

641

Oxford

slavia, Al-

Z. bania, world

Central Statistical Office of Finland,

h' P'

307;

[Helsinki: 19861).

190). 'lJune5.19881: Edwin lriansfield et. al., Technology Transfer, Productivity and Eco-

19871,

p. 3).

l4'37o was tSAo, 85.2% of the population was Finnish-speaking' or other Lapp' German' Russian, spoke SweÁish-speatiíg, and the rest,'1.57o,

iz. tl


642

languages as their native tongue (Official Statistics of Finland tOSFl, Ser.6:45, Population de la Finlande au 3l décember 1910 [Helsinki: Central Statistical Office of Finland, 19151). 13. Sundbärg, p.2l; Statistical Yearbook of Finland 198ó (Helsinki: Central Statistical Office of Finland, 1987). 14. During the worst famine of the century, in the years 1866-68, about 100,000 or 5.5Vo of the total population died as a result of epidemics and from malnourishment (OSF, Ser. 6:29, I. Eléments démographiques principaux de Ia Finlande pour les années 1750-1890 [Helsinki: Central Statistical Office of

Finland, 15.

18991).

In the early twentieth century, the mean annual temperature

was

+9.9"C in London, +9.I"C in Chicago, +5.5'C in both Montreal and Oslo, and + 3.6'C in Moscow (Fínland: Diagrams of Economic Conditions [Helsinki: Government Printing Office, 19251, p. 4). 16. rbid. 17. Sundbärg (n. 1l above), p.3; Annuaire statistique de Finlande 1929 (Helsinki: Bureau central de statistique de Finlande, 1929). 18. Jeremy (n. 6 above), pp.36-49. 19. Timo Myllyntaus, "Sahateollisuus" (The sawmill industry), in Timo Myllyntaus, Karl-Erik Michelsen, and Timo Herranen, Teknologinen muutos Suomen teollisuudessa, i,885-1920 (Technological change in Finnish industry, 1885-1920) (Helsinki: Finnish Society of Sciences and Letters, 1986), p. 59. 20. Nolte (n. 7 above), p.324; Alexander Gerschenkron, Economic Backwardness in Hístorical Perspective (Cambridge, Mass.: Harvard University

Press, 1966), p.231. 21. Measuring by value-added, the share of foreign ownership in manufacturing was 13 3% in South Korea (1979), 23 .0% in Indonesia (197 4), and 56.3% in Malaysia (1974) (Hal Hill and Brian Johns, "The Role of Direct Foreign Investment in Developing East Asian Countries," Weltwirtschaftlíches Archiv l2l, no.2 [1985]: 369-74).

22. Gerschenkron, p. 228. 23. Erkki Pihkala, "Rautateollisutemme murrosvaihe vv. 1880-1913, Erityisesti huomioonottaen vientimahdollisuudet Venäjälle" (Our iron industry in transition, 1880-1913, with a special reference to the export opportunities to Russia) (Licentiate's thesis, Helsinki University, 1964), pp.26, 136-38 Timo Herranen, "Metalliteollisuus" (The metallurgical and engineering industries), in Myllyntaus, Michelsen, and Herranen, pp. 2l-22. 24. This is quite a modest percentage. In the United States, new immigrants might have met as much as 25%-50% of the growing demand for textile

workers during the 1820s (Jeremy, p.256). 25. Timo Myllyntaus, "Suomen talouspolitiikka

ja valtiontalous, 18091860" (Economic policy and the state finances, 1809-1860), in Suomen taloushistoria, vol. l, Agraarinen Suomi(Aneconomic history of Finland, vol. l, Agrarian Finland), ed. Eino Jutikkala, Yrjö Kaukiainen, and Sven-Erik Aström (Helsinki: Tammi, 1980), p. 358. 26. Runar Urbans, "Britons Pioneering Finnish Industry," Finnish Trade Review, no. 100 (1957), pp. 156-57, 174. 27. OSF, Ser. 6:37, Population (Helsinki: Central Statistical Office of Finland, 1905). 28. Arghiri Emmanuel, Appropriate or (Jnderdeveloped Technology? (London: Wiley, 1982), pp. 104-5. 29. The number of foreign students in all German universities rose from 735 to 8,012 and, as the proportion of all students, from6.lVoto 103% between the 1870-71 session and summer term of 1914. In the technological universities, the share of foreign students was much higher than in other institutions

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Timo Myllyntaus

of higher education. For example, in the 1900-1901 winter term it accounted for ñ .8% of technical students (l I ,3 I l), while the students from Russia and the Balkans accounted for 44%o ofall foreign students (Hochschul-Nachrichten no. 8 ü9011: 178-79', Karl Remme, Die Hochschulen

Verlag des Akademischen Auskunftsamts,

ll,

19261,

Hochschulstatistik Bd. 5 [Berlin: Verlag von Struppe 10).

30. Hochschul-Nachrichtenll, no.8 (1901): 178, and 12, no' I (1901): l0'

engaged

in the Russian capital (Max Engman, S:t Petersburg och Finland,

Ulerat¡o, och influens, 1703-1917 [Helsinki: Finnish Society of Sciences and Letters, 19831, pp. 307-87). 34. "Russian Customs Tariffs in Finland," Finland Bulletin, no'

4

(Febru-

lHelsinki: Bank of Finland, 19751, pp. 4l-46). 38. National Accounts Statisiícs: Analysis of Main Aggregates,

19831

220; Evangelia Dokopoulou, "Foreign Investment in Manufacturing in Greece: Linkages ãnd Spatial Impacts" (Ph.D. diss., London School of Economics, 1985).

40. Ryoshin Minami, The Economic Development of Japan (London"

86-94.