The Zig Zag

Will Small Economies Experience More Variable Growth?

Interesting article in the NY Times today:-

“ In the late 1990's, Finland sprinted ahead of rivals and neighbors, propelled by the runaway success of Nokia in the mobile phone industry and reveling in a newly minted image as the world's leader in Internet and cellphone use. But now, this land on Russia's flank seems to be pondering whether it has lost its competitive inventive edge.

Last May, an authoritative study of global competitiveness bounced Finland down from the top three to No. 8, countering other polls that gave Finland top marks for literacy, lack of corruption and care of the environment. Nokia itself has stumbled this year, losing some of its share of the booming cellphone market to rival manufacturers. And in a survey of 70 Finnish executives that will be published soon, "all of them said Finland is no longer No.1 “

Finland had done well in the 90s by specializing in a product it produced very well – mobile phones. But mobile phones are now commodity products that can as easily be designed and manufactured in developing countries - and thus any absolute advantage is likely to be lost very quickly in a world with more industrializing countries.

“State” sized countries (Finland’s population is about the same as Minnesota’s) may therefore only be likely to experience the occasional spurts of high growth followed by periods of stagnation while new industries are developed. Perhaps this Schumptarian pattern of export growth will become more prevalent ?

The catch is that Finland is on the crest of a demographic wave with a large 50-60 year boom generation now looking forward to a comfortable retirement. This downswing in Finland’s technological wave is therefore badly timed. The question is whether the next innovation can be expected to randomly occur or whether in some way depends endogenously on the Finland’s population structure.

The zig zag is whether the soon to be retiring generation was in a sense “exceptional”; the data from this wage age profile suggest that they may have been. There is a peaks in the 35-39 age group in 1980, which was repeated in 1996 in the 50-60 cohort i.e. the same generation and the generation that managed companies such as Nokia.

That’s the sort of question the academic economists will be asking themselves. The armchair economist will, however only need to look at the pictures to deduce the real explanation - prats + hats = low GDP growth. And they’d be right.

Posted by wardx107 at September 4, 2004 07:13 PM