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Innovation Policy and Workplace Development in Finland – A Short Look at the Current Situation and a Possible Future

Nordic Conference Labour Market Parties and New Innovation and Regional Policy, Oslo, 23 January 2003

Tuomo Alasoini
Project Manager
Finnish Workplace Development Programme
tuomo.alasoini@mol.fi

– A Short Look at the Current Situation and a Possible Future

Technological and social innovation – a happy couple?

Finland is now considered one of the most competitive industrial countries in international comparison. Finland’s performance in innovation activity also enjoys a high reputation. According to the EU Innovation Scoreboard 2002, for instance, Sweden and Finland are the two innovation leaders measured by 14 indicators among the EU Member States.

The Science and Technology Policy Council of Finland, which is chaired by the Prime Minister, adopted its sixth triennial review ‘Knowledge, Innovation and Internalisation’ on 12 December 2002. The review examines the main challenges facing research and innovation funding and it contains a list of policy recommendations for the future. One of the main conclusions is that technological development and technological innovation have been the strongest area in Finnish innovation activity so far, whereas in the field of social innovation development has been weaker and must be deliberately strengthened. The review states, "Alongside technological innovation, systematic input into social innovation is needed to prevent societal and social development from diverging from economic and technological development. This extensive set of measures will form the core of the national strategy in the near future."

From the point of view of workplace development policy the unbalanced development of technological and social (workplace, organizational) innovation can be seen as follows:

· The relatively favourable overall growth of productivity in Finnish economy in recent years hides the fact that there are remarkable sectoral differences in productivity development. The rapid productivity growth in ICT-producing sectors such as the electrical and electronics industry is contrasted with slackened growth in most other industries. Finnish companies’ overall record in turning the new technological opportunities permitted by advanced ICT into gains in productivity has been relatively poor. This indicates that many companies have not managed to implement sufficient improvements in their work and human resource management (HRM) practices to achieve synergistic effects of combined use ICT, new forms of work organization and improved employee skills.

· There is no clear evidence indicating a positive association between the extent of the use of ICT and the improvement of quality of working life (QWL) at company or workplace level. The new technological opportunities have been so far insufficiently utilized as a means to deliberately develop work processes, work organization and work designs from the QWL point of view.

Why does this matter so much?

In the long term, unstable trends in productivity in Finland are a threat to national competitiveness as a whole and thus also to economic prosperity in a situation where both the population in general and the workforce are growing older. The change in Finland’s demographic and workforce structure over the next few years will be exceptionally sudden compared with many other west European industrial countries. It is estimated that a million people will leave the workforce between 2000 and 2015; this is equivalent to almost half the present workforce of 2.4 million people. There is a danger that this may cause a considerable labour shortages, as the new age groups entering the labour market will be considerably smaller than those retiring from it. It is estimated that the average shortfall will be over 10,000 people a year at the present average age for retirement, which is only 59.

Labour shortages have an impact on the potential for economic growth, as this derives from labour input, capital investments and total factor productivity. Public policy measures have some potential for slowing the fall in labour input in Finland over the next few years, but they cannot prevent it altogether. The main way of compensating for falling labour input is to boost productivity. In fact, the growth in productivity should be speeded up. The risk here is that in a situation where labour shortages are threatening to put a damper on economic growth, clumsy attempts to boost the rate of productivity growth may have a negative impact on individual employees’ work ability, well-being at work and motivation. Specifically, this is a risk when changes designed to boost productivity are planned and implemented without giving proper attention to employee needs and views. In a worst-case scenario, efforts to accelerate productivity growth rate designed to compensate for a fall in labour input may cause a further deterioration in the labour supply in a specific sector or occupation. As a result, ageing people are no longer able to cope in the sector and occupations in question. It also becomes increasingly difficult to attract young people to take their place, as young people have more choices than ever, due to the falling labour supply on the market.

The challenge in such a situation is to find solutions which make it possible to speed up productivity growth while also ensuring employees’ work ability and well-being and encouraging people to stay on at work. Finding such solutions could be described as the challenge of raising productivity in a sustainable way. Essentially, a company’s ability to deal with this challenge depends on its potential for producing innovations – i.e. product innovations, service innovations and management and organizational innovations. Companies which are unable to effectively generate innovations to raise their productivity are forced to respond to competitiveness problems arising from their slow productivity growth rate by using other methods which are usually far harsher from the employee’s point of view (e.g. rationalization, close-downs, staff and pay cuts). This means that public policy should not be indifferent to how smoothly and how fast companies can adopt new work and HRM practices.

The institutional basis of programmatic workplace development – current situation

The institutional basis of programmatic workplace development in Finland can be divided into three entities of activity by their source of funding: The Finnish Work Environment Fund receives its funding from statutory accident insurance premiums, the four government-initiated programmes from the State budget and the European Social Fund (ESF) from the European Union and different national sources.

The main institutional sources of support for workplace development in Finland.

The four government-initiated programmes have somewhat different aims, methods and groups of participants. The Workplace Development Programme and the National Productivity Programme are coordinated by the Ministry of Labour, which also coordinates the two other programmes together with the Ministry of Social Affairs and Health. The Ministry of Education was the third responsible coordinator in the case of the National Programme on Ageing Workers. The central labour market organizations take part in all these programmes at management and expert group levels.

The total annual funding of workplace development is difficult to estimate. The biggest individual source is the Objective 3 Programme, which is split into four areas of emphasis. For instance, the annual budget for the entity ‘Promotion of staff skills and well-being at work’ alone is about EUR 50 million. It is not possible, however, to compare this sum as such to the budgets of the other sources, because the share of project funding by the participating companies themselves is not included in their figures, unlike in the case of ESF activities.

A look at a possible future – two new initiatives

All the three ongoing government-initiated programmes will terminate by the end of 2003. The Finnish Ministry of Labour, together with the central labour market organizations, have been planning a new umbrella programme for the period of 2003-09, which would cover most of the current activities of the Workplace Development Programme and the National Productivity Programme. The working title for the new umbrella initiative by the Ministry of Labour is ‘TYKES’ (workplace development programme for the improvement of productivity and the quality of working life).

Simultaneously, the Ministry of Social Affairs and Health has been planning another new national initiative based on the experiences of the two other government-initiated programmes. This latter initiative, which is intended to last from 2003 to 2007, is called by a working title ‘VETO’ (national action programme for the continuation of staying on at work, employee well-being and rehabilitation). The ‘VETO’ Programme is intended to focus on developing activities of those institutions, which help workplaces cope with these issues, such as occupational safety and health inspectorates, occupational health service providers and rehabilitation institutes, whereas ‘TYKES’ is intended to focus directly on funding development activities at workplace level.

The basic premises of the ‘TYKES’ proposal, which was adopted by the tripartite management group of the Workplace Development Programme on 15 January 2003, are as follows:

· There is a need to speed up the growth of productivity at Finnish workplaces.

· Accelerated growth of productivity should be combined in workplace development with improvements in employees’ work ability and well-being at work.

· The most powerful pressures of developing work organization focus on the health care sector and SMEs.

· The role of learning networks as a generative mechanism is growing in importance as new practices are created and knowledge on new practices is disseminated.

· The idea of triple helix constitutes the backbone of programmatic workplace development, meaning that a solid cooperation between workplaces, R&D institutes and policy makers (public authorities and labour market organizations) is the backbone of an efficient national innovation system. This basic premise implies that workplace development is an integral part of innovation policy and national innovation system.

· Labour administration in Finland should give more emphasis on programmatic workplace development in its strategy and see that the links between workplace development and employment policy at large are ever closer as Finnish labour market is constrained with a rapid change in age structure, which will lead to decreased supply of labour in the forthcoming years.

The goals of the new initiative can be conceptually divided into the following four levels of analysis:

The new ‘TYKES’ initiatives is built mainly on the experiences of the Workplace Development Programme and its further planning will reflect also results of the assessment study of the programme, which will be finished by March 2003. This study is carried out by the Social Development Company (a well-known Finnish consultancy and development agency) in cooperation with the Work Research Centre at the University of Tampere, the Helsinki University of Technology and a group of Swedish, Norwegian and German experts. The assessment study focuses on the following questions:

Major questions

· What are the programme’s major effects on profitability, the quality of working life and employment at project and workplace level?

· What is the profile of the programme in comparison with other corresponding Finnish and foreign working-life and work organization development programmes?

Supplementary questions

· How do the premises and goals of the programme look like in the context of Finnish innovation policy and in relation to different domains of innovation policy?

· How do different stakeholder groups of the programme (workplaces, R&D institutes, labour market organizations and regional authorities) assess its significance, activities and success?

· What are the biggest challenges for programmatic workplace development in Finland mirrored through the experiences of the programme?

The interim report of the assessment study submitted to the management group of the programme on 13 January 2003 raises five general observations concerning the role of the programme in the context of innovation and workplace development policy. These following five observations constitute a sound basis for further planning of the new initiative as well:

· By focusing on social innovation and with an emphasis on network building and companies’ ability for learning and innovation, the programme has acted as a kind of a front-runner in the technology-dominated Finnish innovation policy.

· The goals and the development concept of the programme reflect modern development trends in working-life, workplace and work organization development even in international comparison.

· The programme has kept its actuality and its ability for strategic targeting is still high.

· The programme enjoys a high legitimacy among its stakeholder groups.

· The programme has a sufficiently high profile with respect to its goals, development concept and modes of operation.