Finnish research and innovation policy takes a giant leap forward

Finnish parliamentary commitment to raise R&D intensity to 4 percent by 2030.

Antti Pelkonen, Science Specialist, The Finnish Prime Minister’s Office

During the last decade or so, R&D investments have been declining in Finland. Especially after the financial crisis, the country’s R&D intensity1 dropped substantially. While in 2009 R&D intensity in Finland was 3,73 percent, in 2019 it had gone down to 2,8 percent. Between 2009 and 2018, R&D intensity in both public and private sectors declined in Finland while in most EU-countriesprivate R&D intensity increased and manycountries experienced growth also in public R&D investments.

Short-sightedness and fluctuation of public R&D funding has been widely recognized as a problem with a clear distinction to developments in the 1990s and early 2000s. For instance, during the severe economic recession of the early 1990s Finland increased R&D investments in the midst of severe budget cuts.

Later in the 1990s and in the early 2000s R&D investments tended to be sheltered from cuts, but that changed around the financial crisis. Finland has seemed to abandon its previous recipe for success!

In search for parliamentary commitment

In 2019, Prime Minister Sanna Marin’s government set the target of R&D intensity to 4 percent by 2030, reiterating the target that most governments have embraced already since 2005.

In spring 2021 the government decided to set up a parliamentary working group to find a solution for the over a decade long problem of declining R&D investments. It was seen that a parliamentary agreement would be needed in order to avoid fluctuations in R&D budgets in the future and to reach long-term growth and stability in R&D funding that will carry over electoral terms.

The task of the working group was to find ways for a parliamentary commitment to increase public R&D funding until the end of 2030 and explore mechanisms through which the rise in public R&D investments could be implemented.

In practical terms, the latter implied that the working group seeked to find a budgetary procedure that would allow for maximum guarantee for growing state R&D investments in the long-term whilebeing acceptable for all parliamentary groups.

In order to lay ground for a parliamentary commitment, the working group decided in the beginning that it needed to establish a common view of the current state of the Finnish RDI system. It also decided to draw up a list of key principles for developing the system in the near future.

The ten principles – including issues like predictability, leverage, comprehensiveness, freedom of science and quality of research and education, effectiveness, collaboration, internationalisation, identification of global challenges and technology neutrality – were jointly approved by the working group and represented a common understanding of the cornerstones for future advancement of the system.

In the course of its work, the working group identified six potential ways through which the increase in state R&D funding could be made. The group evaluated the feasibility and impacts of the alternatives from a wide variety of perspectives.

In the analysis, some of the alternatives appeared not to secure stability and certainty in terms of increasing state R&D funding. Others, in turn, appeared to face judicial challenges with respect to implementation. In particular, the option of establishing a R&D fund external to the state budget, an option widely discussed in the public, was found to be challenging with respect to the Finnish Constitution.

Bringing light into the future of R&D and Finland – R&D funding law chosen as the mechanism

The working group published the results of its work on December 13, the day known as the day of Lucia (Santa Lucia, “luciadagen” in Swedish), celebrated traditionally in Finland – and other Nordic countries – as a day when Santa Lucia brings light into the darkest days of the year. Symbolically, one can see the group’s report bringing light into the Finnish research and innovation scene – and the future of Finland as a whole.

In the report, all parliamentary groups committed themselves to the target of increasing research and development expenditure to four per cent of GDP by 2030. Furthermore, they committed themselves to increasing state R&D funding in a way required by the 4 percent R&D intensity target.

This implies that public R&D expenditure is increased to 1,33 percent of GDP based on the assumption that the public sector will cover 1/3 of all R&D investments and private sector will cover 2/3. In practice, it implies a huge increase in R&D expenditure during the 2020s.

In terms of means of implementation, the working group ended up with opting for enacting an R&D funding law to secure the growth of state R&D investments. Among the studied options, the law was found to be the mechanism that allows for maximum certainty over the stability of growth of funding while being judicially feasible and a mechanism to which all parliamentary groups were able to commit themselves.

R&D funding acknowledged having crucial significance for future success of Finland

The decision was made upon a very careful and thorough consideration. This is manifested in the working group’s acknowledgement that “the R&D funding law is a very exceptional procedure which can only be justified by the crucial societal significance of R&D”.

Furthermore, it was strongly underlined that it is essential that private sector R&D investments grow in parallel with public funding. Achieving the leverage effect of public funding on private funding will be one of the key issues in implementation. A number of other key conditions for successful implementation were highlighted, such as strengthening the competence base and securing the availability of skilled work force.

In addition to the R&D funding law the working group proposed drawing up a statutory plan for R&D funding extending beyond the budget planning period. This longterm plan would be drafted parliamentarily and would further strengthen the commitment to R&D funding.

Moreover, it would outline and specify agenda and allocation of resources over the long-term. In this regard, the current government has drawn up a National Roadmap for Research, Development and Innovation to 2030, which, among other things, identifies strategic development targets for national research and innovation policy.2 Finally, the working group also proposed introducing a permanent and more extensive tax incentive for R&D activities. Up until now, specific tax incentives for R&D have been used in Finland only to a very limited extent.

Upon release, the Finnish R&D community received the working group’s report positively. As one indication of this, Technology Industries Finland, an organisation representing the country’s technology industry companies, announced commitment of 57 of its member companies to increase R&D investments in Finland if the proposals of the parliamentary working group were implemented.3 The organisation estimated that this would correspond to an annual increase of 200 million euros in R&D investments and a total increase of 10,5 billion euros by 2030 if all companies in the sector will join the effort.

The working group’s proposals are currently taking steps towards implementation: the Ministry of Finance has set up a working group that will prepare the R&D funding law by September 2022. Furthermore, the parliamentary working group has made a proposal to the prime minister for continuation of parliamentary R&D work including drafting the long-term R&D funding plan. It now seems that Finland is strongly on its way to return to its “old” strengths – solid and growing investments in research, development and innovation!

See also: “The state’s crucial role in stimulating innovation in Finland and Sweden»

1 R&D intensity refers to gross expenditure on R&D as a percentage of gross domestic product (GDP).

Hovedbilde: Mads Claus Rasmussen, Ritzau Scanpix.