How can a small country like Finland succeed?
Putting aside national security considerations, how can a small country like Finland succeed in the future? In a liberal democracy, citizens' quality of living is primarily determined by the country's economic prosperity. Economic prosperity, in turn, is determined by the success of the companies the nation can create and attract. To succeed, companies need skilled employees, and startups need ambitious founders.
A small country like Finland, with some six million people, has a limited pool of skilled workers compared to giants like the United States, China, India, or Germany. On top of this, there's a de-population bomb slowly going off. The whole world is heading toward negative population growth. Here's another take on why that's happening.
In Finland, the fertility rate is 1.46 children per woman. The replacement rate is 2.1 children per woman, so the Finnish population is shrinking along with almost every other country in the world.
The red graph visualizes Finland's Economic Dependency Ratio (EDR) from 2021 to 2060. The EDR represents the proportion of dependent individuals (both young and elderly) relative to the working-age population.
The graph starts with an EDR of 38% in 2021. The EDR experiences a gradual decrease, reaching its lowest point in the mid-2030s. After reaching the lowest point in the mid-2030s, there's a gradual increase in the EDR over the years, with the ratio reaching around 43% by 2060. This means for every 100 working-age individuals (typically those aged 15 to 64), there are 43 dependents. The dependents could be children, elderly, or others who are not part of the labor force for various reasons.
The blue graph visualizes the proportion of Finland's working-age population (defined as ages 15 to 64) from 2021 to 2060. The graph starts with a working-age population percentage of 62% in 2021. There's a gradual increase in this proportion, peaking in the mid-2030s. After reaching the peak in the mid-2030s, there's a decline in the working-age population percentage, with the percentage reaching around 57% by 2060. This trend indicates that the working-age population proportion will experience growth until the mid-2030s, after which it will decline.
The two graphs show the changing age structure of Finland's population over the next few decades. The decreasing proportion of the working-age population and the increasing Economic Dependency Ratio suggest we’ll face challenges in labor supply, economic productivity, and the sustainability of our social support systems.
By looking at the two graphs, we're in trouble. We're running out of kids and there's no easy fix to revert the trend. Along with free child care and parental leaves, making everyone wealthier might get people to have more kids.
We could also invest in childcare technologies like artificial wombs, create child-friendly communities, and even whole cities for families wanting more children, but that's for another post.
In the short to medium term, the demographic trend underlines the importance of skilled immigration. This trend should worry small and big countries alike. For small countries like Finland, which don't have large populations to start with, succeeding in attracting foreign talent is that much more important.
The latest population projections in the graphs above by Statistics Finland assume that Finland's migration gain from abroad will be around 15,000 people yearly. This is not a lot, especially if a big portion of that should be top talent to start new successful companies and make existing ones successful.
Making it easy to enter and stay in the country (think working permits, passports, opening bank accounts, finding an apartment, schools for kids, etc.) does not win the race; it's table stakes tactics, and a country needs to have a red carpet welcome for the top talent just to compete. Every country that is even remotely aware of what matters for their country's medium and long-term success is competing for the best talent.
Not the best, different
How do you win when everyone wants the best talent? The trick is to refrain from competing entirely. One should not strive to be the best but unique. Just as when starting a company or thinking about how to personally succeed in building a successful career, being singular is more effective than trying to compete to be the best. Helsinki will lose every time trying to be better than London, San Francisco, or New York in what they are great at. We shouldn’t try to become something we see someone already being great at. Instead, we should invent a new definition of success. What singular thing could we be uniquely good at?
For a small European country like Finland, this means doing something others won't or can't. As a country, you can't choose your weather, but you can decide how you regulate companies that operate in your country. Large countries are not as agile, nor can they pass innovative policies as easily as small countries where decision-making is faster, bureaucracy thinner, population more unified, and there’s less money at stake.
Optimize your country for easy adaptation to groundbreaking technology and science, and you'll attract the most ambitious companies pushing on what's possible. If your country is the only place where the most ambitious companies in a given sector can operate, the companies will immigrate along with the most ambitious people in that sector. This sort of talent created the Silicon Valley as we know it. These are the most ambitious and talented people on the planet. If you boldly redesign your regulatory environment, it will send out a strong signal worldwide, and you will be rewarded with economic growth. It's not a mystery which areas of technology can potentially lead to radical leaps in human progress—Biotech, AI, computing, energy, aerospace, transportation, defense, and maybe a few others. All you have to do is choose what you want to deregulate. But isn’t regulation there to protect the consumer, and society is better for it? Turns out regulatory capture is real. In many cases, regulation is a net loss for society and our future prosperity.
All in or nothing
Unlike lowering taxes to attract talent, designing your country's regulatory framework does not cost anything. You just need to make it legal for cutting-edge companies to pilot their products in your country. If they are not allowed to operate in other countries, or the regulatory burden is 10x lighter in your country, the startups will relocate.
But there’s a catch. Marginally better is not enough. Just as when building products, it needs to be ten times better to get people to take action. To make this work for your country, you need to go all in and be bold. Being ‘reasonable’ won't cut it.
For Finland and the other 26 European Union member states, crafting a unique regulatory environment means working with the EU to make it possible. Currently, the EU wants to harmonize most regulations across member states, but for the sake of the continent's economic future, the EU would be wise to step back and allow member states to design their national regulatory environments. Assuming the EU won’t block it, for a small country like Finland, strategically redesigning its regulatory environment and choosing to deregulate specific sectors is a lot easier than it is for one of the giants like the United States. This would remake Europe into an economic archipelago of specialized high-tech islands of world-leading science and engineering, where each country would lead in a specific mix of industries. In such a future, not only would the individual nations thrive, but humanity would benefit as global progress and scientific advancement accelerate.