Finns riding on the shoulders of giant offspring

The village of Sarkisaloin in south-west Finland has more reason than most to be grateful to Nokia, the world's biggest maker of mobile phones and Finland's largest company.

The local tax paid last year by a single Nokia employee who happened to live in the village was enough to fund a much-needed water purification plant as well as buy land for new housing.

"This shows that the wealth created by Nokia is benefiting not just its employees but whole communities," says Kari Lehtinen, Sarkisalo mayor.

The question, though, is whether Finland is becoming too dependent on Nokia. The company accounts for well over 20 per cent of Finland's exports, about a third of research and development expenditure, and is predicted to have generated about a quarter of the country's economic growth of nearly 6 per cent in 2000. Moreover, nearly all of Finland's biggest taxpayers work at Nokia and the company accounts for a staggering 70 per cent of the market value of the Helsinki Stock Exchange.

Given this impact, it is not surprising that Finnish economists now spend almost as much time analysing "the Nokia effect" as they do studying more traditional indicators such as interest rates and oil prices. And Nokia is important not just in itself but for its impact on a whole range of subcontractors and other Finnish IT and electronics companies.

"Nokia exports as much by value today as the whole of the pulp and paper sector, Finland's traditional industry," says Tarmo Korpela, deputy director-general of the Confederation of Finnish Industry and Employers.

So, on the face of it, a downturn for Nokia would mean a downturn for Finland as a whole. Some recall the days when Finland became over-dependent on another source of income - trade with the Soviet Union - and the crash in the Finnish economy in the early 1990s when the USSR collapsed. But Markku Kotilainen head of forecasting at the Research Institute of the Finnish Economy (Etla) says Nokia and the companies that depend on it, only account for 5 to 6 per cent of GDP. "This is not excessive," he says.

Moreover, Finland was frequently said to be too dependent on pulp and paper and metal engineering in the past. At least Nokia and the electronics industry have given the country a third industrial leg on which to stand. But many small and medium-sized companies depend on Nokia's continued success. With slowing growth in demand for mobile phones and uncertainties surrounding the development of the mobile Internet, Nokia is going to have to work hard to maintain its pre-eminence. "We have to hope that Nokia has made the right decisions on technology," says Mr Kotilainen. But the debate about Nokia is taking place at a time when it is expanding much faster outside Finland than within it.

"We will continue to grow a bit here also in the future. But most of the growth will be outside Finland," says Jorma Ollila, Nokia chief executive.

Mr Ollila is sensitive to the importance attached to Nokia's continued success. "It's always a danger when a business enterprise goes very large in a community. It tends to start being regarded as an institution.

"We are being expected to solve problems which business enterprises are not meant to solve. It's politicians who should solve social problems," he says.

In fact, the problem of over dependence is already correcting itself. Skills shortages in Finland and the company's desire to locate some production closer to its main markets mean Nokia's importance to Finland is unlikely to increase much further.

For the moment, though, the fortunes of the Finnish economy and the fortunes of the country's electronics sector will continue to be closely entwined. Etla is predicting a slowing in Finnish economic growth to 4.5 per cent this year from 5.7 per cent. It expects growth in the electronics sector output to shrink from 30 per cent to 18 per cent.