3.1 Rapid growth and recession
3.2 Forests and brains as natural resources
3.3 Change in corporate structure
3.4 Internationalization
3.5 From tar to printing paper
3.6 A small, open economy
3.7 Standard of living

3.2 Forests and brains as natural resources

Looking back to the mid-nineteenth century, the rapid industrial growth was based on the dramatic rise of the sawmill industry and then the paper industry. This phase was preceded by exports of wood tar, the use of charcoal in iron works, and the primitive manufacture of sawn goods for both domestic and foreign markets. The forest sector has developed from tar to planks to fine paper.

The sector remains one of the most important clusters in the Finnish economy. Most other industrial operations have been spawned as indirect results of it. At first, the industry's growth was based almost entirely on natural resources: trees, hydro-power and waterway transport. Nearly all the machinery, equipment and technology was imported. Gradually domestically produced machines took over, and in turn became export products.

Finland's first paper machine was built in 1905 at the Vyborg machine shop, under licence from an American company. The first paper machine to be exported went to Czechoslovakia in 1949. Today Finland is a leading paper machine manufacturer, controlling about one third of the world market. Combining know-how of paper manufacturers and machine producers -- often within the same company -- has been a crucial factor in this development.

The paper machine industry is not, however, the endpoint of the development process that began with wood raw materials. The forest industry has spawned many sectors of the chemical industry and, later on, electronics and automation industries linked with forest-industry process control. Similarly it has spawned logging machinery and technology, areas in which the Finns are world leaders. The other end of the forest cluster includes services, forest-sector consulting and planning. Knowledge-intensive business services are the fastest growing part of the forest cluster. The growth of services is based increasingly on information and communications technology.

Metals industry and mechanical engineering have followed a similar path. Initially growth was based on raw materials with imported machinery and technology. Then imported machines were replaced by domestic models. These then became export products with new applications added to basic products. High-tech manufacturing and systems know-how was developed and consulting services were expanded. Developments were increasingly based on domestic resources and know-how. Most of Finland's mineral deposits have been depleted. Now, though, the mining machine industry, the manufacturing of metals and the necessary equipment, as well as the associated electronic and technical design have all become significant sectors.

The latest stage of industrial development, the move toward manufacture of information and communications technology (ICT) and industrial automation, reduces the relative share of the traditional forest and metals industries. The dependence on traditional raw materials and other tangible inputs has been drastically reduced.

The growth of the electric and electronics industries is based almost entirely on intangible inputs and global markets. In these markets, the only options open to companies from a small country are to specialize and form alliances. Finnish industry has made great strides toward reaching the upper ranks of the technology field. The nation's industrial structure seems to have changed permanently in the direction of the new digital economy.