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How Finland's economy became hooked on Nokia

Nokia launched its long-awaited Windows phone in London on Wednesday, a device seen as crucial to reversing the firm's precipitous decline.

Back in Finland, where Nokia casts a long shadow, fingers will no doubt be crossed for the telecom giant. Indeed, there are few countries with fortunes so tightly tied to the success and failure of a single company.

Consider: in 2000, Nokia produced 21 per cent of Finnish exports and paid €1.1-billion or 20 per cent of all corporate tax revenue. Then the smart phone wars began, prompting the rapid loss of market share to Apple's iPhone and Google's Android platform. In 2010, Nokia generated 13 per cent of Finnish exports and paid out just €100-million in taxes.

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"I don't think you can find any other developed industrial economy where one company has played such a big role," said Pekka Yla-Anttila of the Research Institute of the Finnish Economy. "Nokia was extremely important for this country and this economy."

Obviously, such singular dependence isn't a good thing, particularly when times are tough. Yet past efforts to promote entrepreneurship in the nation of 5.4 million have produced less than stellar results, a phenomenon that Professor Erkko Autio has called "the Finnish paradox."

"Finland should be producing many more high-quality start-ups if one considers its excellent national framework conditions and its world-leading investment in R&D," said Mr. Autio, chair in technology transfer and entrepreneurship at London's Imperial College Business School. "For some reason, this investment has not fully translated into high-growth ventures. This is Finland's problem."

At 3 per cent of GDP, Finland's investments in research and development are among the highest in the world and the country has long been a leader in innovation policy. Finns have a positive attitude toward entrepreneurship and show a high level of respect for the profession, according to the Global Entrepreneurship Monitor.

Still, Finland's rate of high-growth entrepreneurial activity lagged significantly behind most of its European and all of its Scandinavian counterparts, according to a study by Mr. Autio. Though some have put this down to a culture that fears failure, research suggests this is a myth. Finland's main obstacle, Mr. Autio suggests, is an "aspiration deficit."

In other words, Finland has struggled to turn positive attitudes and investments into entrepreneurial activity.

"People's willingness to invest effort is the key," he said. "For Finland, aspiration is the bottleneck in the system."

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Establishing an entrepreneurial culture takes time and with the success of gaming companies like Rovio, maker of the wildly successful Angry Birds, Finland's efforts may finally be paying off, Mr. Autio said.

"it is too early to say, but the prospects are quite positive."

And though a healthy Nokia is still essential to the country, it's diminishing importance has one silver lining.

"Nokia was growing so fast in the 1990s and was absorbing so many graduating engineers that it may have crowded out other companies," said Mr. Yla-Anttila. "Now these experienced people are finding new jobs and starting new companies. This is a great opportunity for Finland's economy to transform."

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