Over the past years, Finland has enjoyed many a great success story in entrepreneurship. Many recognise the leading mobile gaming companies such as SuperCell (author of the hugely successful Clash of Clans game) and Rovio (heard of the Angry Birds?). These successes should not blind us to disconcerting trends, however.

According to the Global Entrepreneurship Index (GEI) data, Finland’s entrepreneurial ecosystem will reach its lowest score this year: Finland’s projected GEI index figure is 62.1 (maximum being 100). This represents a 15% drop from year 2008 and nearly 10% drop from year 2012. For comparison, Sweden’s GEI index score for 2013 was 71.8 and USAs 85.0.

In particular, Finland’s ’Entrepreneurial Ability’ sub index score has collapsed. In 2008 Finland scored 71.3 for this sub-index, and in 2014 52.7 – a whopping 25% drop. In addition, the Entrepreneurial Aspirations index score is modest 61.1, a 10% drop since 2008.

What explains these dismal figures? Many have heard of the misfortunes of Nokia (former world leader in smart phones as late as 2008, Nokia sold its mobile phone business to Microsoft in 2014), collapse in demand for paper induced by the smartphone revolution (Finland is a major pulp and paper producer), and, most recently, the hit taken by Finland due to EU sanctions against Russia (Finland being a major exporter of high-value goods to Russia). However, there are also deeper reasons.

Finland has been unfortunate enough to have been saddled with a dysfunctional government after 2008, when the global recession hit. Finland’s rainbow government (a coalition of six parties representing pretty much all political persuasions) was ineffectual and entrepreneurship policies drifted. This has hampered Finland’s ability to effectively address the structural imbalances caused by Nokia’s loss of momentum.

What should be done, then? Over the past two decades, Finland has made major investments in infrastructure supporting entrepreneurship. As a result, there are many healthy elements in the Finnish entrepreneurial ecosystem. However, one may question whether all these elements work together as well as they should. I suggest that to move forward, Finland needs to transition from an entrepreneurship policy to an entrepreneurial ecosystem policy. This means that instead of working with individual policies, a more coherent and comprehensive approach is required, one which addresses the entrepreneurial ecosystem as a whole.

There are some cautiously positive signals that such a transition may be possible. The ongoing government negotiations following Finland’s parliamentary elections late April look like they may be able to break the political deadlock that has long inhibited decisive action in the country.

In the 1990s Finland was a world leader in adopting a ‘systems of innovation’ approach to innovation policy – a hugely successful approach that laid the foundations for Nokia’s future success, for example. It remains to be seen whether Finland is able to similarly pioneer an entrepreneurial ecosystem approach to redressing its sapping entrepreneurial potential.

Erkko Autio
Erkko Autio
Erkko Autio is professor of technology venturing at Imperial College Business School. He blogs about entrepreneurial ecosystems. You can follow his tweets at @eautio.