Industrial Transformation, Innovation, and the Enabling Roles of the Nordic Welfare State

While it is necessary to improve the productivity of welfare services, transform industrial structure, and create new industries to make a welfare state economically sustainable, how the institutional features of the Nordic socio-economic model can contribute to this transformation process remains unclear. By examining the recent drastic industrial transformation in Finland, this chapter sheds new light on this important question. This study focuses on the case of industrial transformation in the Oulu region following Nokia’s exit from the mobile phone business and the subsequent creation of the digital healthcare industry. This chapter aims to demonstrate two points. First, welfare state institutions and their reforms can promote the creation of new industries and innovation by creating new demand for innovative new industries. Second, local governments and intermediary organizations can play active roles as catalysts for stimulating and shaping innovation. Previous studies discussing the economic significance of the Nordic model, including the “social investment” thesis, have mainly focused on investments in education and training for individuals, emphasizing the implications of the Nordic model that effectively influence the supply-side of individual and collective capabilities. However, experience in advanced economies since the 2000s showed that the expectations of supply-side policies were too optimistic. By contrast, this chapter focuses on how the institutional features of the Nordic model affect the demand for these capabilities, shifting the emphasis to the potential for promoting industrial transformation and innovation from the demand-side.