Digitalisation brings huge productivity gains

Finland will keep up only by making use of new forces of economic change, argues Professor Matti Pohjola.

Information technology is now everywhere – thanks to rapidly decreasing prices. Matti Pohjola's example is striking: the same computing power that can be found in a €800 iPad would have cost €4 million using the technology available in a Commodore 64.

Finland's economic growth was for long time among the fastest in the world. Wood was turned to paper and metal into machines; work productivity rose, increasing wages and living standards.

'Finland benefited from two large forces of change: industrialisation and nationalism. Once these were no longer global driving forces, the problems began', summarises Aalto University Professor of Economics Matti Pohjola.

Manufacturing industry's importance for Finland's Gross Domestic Product is of course still significant, but its relative importance has dropped rapidly: ten years ago it still accounted for 25% of GDP, but now only 15%.

'Now the global driving forces are globalisation and digitalisation, along with the technology which empowers these forces: cheap and universally available information technology. Computer data has no regard for commercial or geographical boundaries, and for this reason we are able to, and forced to, do things in a new way.'

Conditions set for productivity boom

Despite the gloomy tone in the business media, Mr Pohjola sees a bright future for Finland, because the preconditions for success are already present.

'We are among the top five, or at least the top ten, countries in the world in terms of citizens' internet usage and businesses' digital capacities, so we have excellent opportunities to benefit from the changes taking place', points out Mr Pohjola, although he also concedes that turning digital capacities into results is not simple, as the multiplier effects of digital business are not as large as those of manufacturing. Finland also does not have the same kinds of IT businesses or commercial giants as, for example, Sweden does. Growth potential can be found, however, in many sectors.

'One must remember that, although manufacturing industry has been continually decreasing, the service sector have been growing all the time. We also have businesses experiencing levels of success comparable to the gaming industry and, in addition, a lot of health technology, which comprises half of all high-tech exports.  When material growth reaches a certain level, people are willing to invest a great deal into their own well-being. For this reason health technology and its digitalisation is a big opportunity for us. Even Nokia, which is considering a return to the consumer products sector, is following very closely the development of remote health care', Mr Pohjola explains.

However, longings for a restored Nokia are, in Matti Pohjola's opinion, best forgotten.

'In Finland we have this problem that we have been waiting for big things, when in fact we can all create small life-enhancing services. Often these are not sold directly to the consumer, because in our digital world we are purchasing services more and more from platforms such as Facebook. Therefore everything that can be digitalised, must be digitalised', he emphasises.

A world of riches

Self-proclaimed 'digital believer' Matti Pohjola explains how his eyes were opened while working as a researcher in the United Nations University at the end of the 1990s. His task was to find out how information technology could eliminate world poverty.

'In the beginning it seemed a ridiculous thought in comparison to issues such as clean water and sufficient nutrition', he acknowledges.

'But then I realised that the digital world is in fact a world of riches, where one single copy of a product can be multiplied for everyone's use'.

Mr Pohjola sees music as a excellent example of this. The amount of music listened to has increased at the same time as the amount of money spent on it has clearly decreased.

'The purpose of music is to produce pleasure and well-being, so this is a wonderful thing for consumers.'

But what about music producers? And what of all the people whose work will become obsolete in the coming decades as digitalisation progresses? Mr Pohjola refers to research carried out in the US which estimated with an 80% likelihood that a number of jobs, including taxi driver, catering chef, and cleaner, will disappear over the next few decades. But this is no cause for lament – quite the opposite in fact.

'In terms of productivity benefits, the winning combination is people and machines working together and a new work distribution: people focus on what they are good at and leave the boring routine work to the machines. After all, machines only know how to count', he says with a smile, and points out that, in addition to huge productivity gains, digitalisation most of all brings increased well-being.

'As transport changes more and more to become a service, we will no longer need to own a car. And although research has shown that teleworking, when implemented well, is a very productive solution, its significance for well-being and the environment is even greater.'

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