Competitiveness is Now Promoted Through Industrial Policy
The international economic environment has changed significantly in recent years, affecting the competitiveness of Finnish companies and industries in global markets. Finland's long-dominant market-driven system seems to have hit a wall to some extent, as state-led industrial policy has made a comeback in Asia, America, and Europe. China has long supported its industries with massive state aid packages, while the United States has countered with Joe Biden's administration's IRA package and now Donald Trump's protectionist measures.
The same challenges have been recognized not only in Finland but also more broadly at the European Union level. Former European Central Bank President Mario Draghi’s much-discussed competitiveness report highlighted the urgent need for action in the EU: Europe must close the innovation gap with the United States and China, align climate policies with competitiveness, enhance self-sufficiency, and reduce dependencies to improve security.
Both in Finland and the EU, industrial policy has been identified as a key tool to address these challenges. The OECD defines industrial policy as “measures aimed at structurally improving the performance of the domestic business sector.” Traditionally, industrial policy has referred to public measures that support struggling companies, improve the business environment, promote the adoption of new technologies in companies, or guide industrial development through planning. In the 21st century, industrial policy has largely been reduced to regulating the business environment, primarily through innovation policy, but recent developments and crises have reignited the need for reconsideration.
Industrial policy is seen not only as a means of supporting businesses but also as a crucial tool for implementing climate policy. Carbon trading, taxation, and new legislation are needed to reduce emissions, but the state can also play an active role in supporting green investments, procurement, and technology.
New Industrial Policy Initiatives at National and EU Levels
On February 26th, the European Commission published a new clean industry program, the Green Industrial Deal, aimed at supporting the competitiveness of European industry and achieving climate goals. The program seeks to strengthen the autonomy and resilience of EU industry by increasing investments, lowering energy costs, and supporting the EU’s energy transition while creating quality jobs and better conditions for business success. The program focuses particularly on energy-intensive industries and clean technology. Circular economy investments are also central to optimizing limited resources and reducing dependencies.
At the EU level, industrial policy has gained momentum, and Finland has followed suit. The government of Petteri Orpo has decided to draft a long-term industrial policy strategy, which the Ministry of Economic Affairs and Employment published in December 2024. The strategy aims to support the growth of ambitious, job-creating, and export-oriented companies while ensuring jobs remain in Finland. It promotes sustainable business growth, internationalization, and broader economic restructuring, particularly concerning technological transitions and the global wave of clean transition investments. The strategy includes familiar measures, such as improving the investment environment by increasing incentives and ensuring predictable regulation. A newer focus is encouraging companies to make more intangible investments, an area where Finland lags behind its peers. The strategy also states that public funding should be used more efficiently to foster the growth of new industries and diversify the economic structure.
The published plans strongly indicate a return to selective industrial policy, aiming to respond to intensifying international competition, the challenges posed by Europe’s regulatory surge, and the failures of energy policies in many European countries.
Although the plans share many similarities, one particularly concerning aspect for Finland is the EU’s proposal to relax state aid rules. Escalating state aid competition could harm the healthy functioning of the EU's internal market, and the temporary relaxation of rules during the COVID-19 pandemic did not help the situation. For a small open economy like Finland, this poses a significant challenge, as the country cannot compete in state aid with the EU's larger member states. However, state aid is just one part of the overall plan.
More important than the plans themselves is their implementation, which remains to be seen. At the EU level, more detailed sector-specific plans and legislation are expected later this year, though the new budget framework could influence these plans. In Finland, solutions may come sooner, as the government’s mid-term review in April will focus on measures to boost economic growth. It remains to be seen whether industrial policy measures will effectively address Finland’s and Europe’s challenges or if the plans will remain toothless paper tigers.
Salli Heiskanen
The author is a Blic trainee who still has faith in the future.