BRUSSELS (Reuters) - Finnish Prime Minister Jyrki Katainen is determined to overhaul his economy, and cites Israel's success as a "start-up" nation brimming with high-tech innovation as his model.
With just 5.4 million people, a world-class education system and an international mindset, Finland can be more nimble than many of its competitors at a time when its industrial output is in decline and productivity falling.
"We have to reinvent our country," Katainen told Reuters, discussing Finland's tendency for 20-year economic cycles, the end of the last marked by Nokia's (NOK1V.HE) decline after a decade of global domination.
"The world market has changed. The products we have been producing aren't sold that much any more," the 42-year-old said in an interview last week.
Katainen is banking on several high-tech sectors, in at least one of which Finland has already made a name for itself - the gaming industry, where companies such as Rovio, the designer of Angry Birds, are reknown.
The others are less colourfully consumer-oriented but no less in demand: next-generation biofuels such as algae and natural waste, technology around water use, and digital development in the healthcare and welfare industries.
In broad terms, Katainen refers to it as green-tech and clean-tech, industries the world will increasingly rely on as populations rise, renewable energy becomes more important and new levels of efficiency are demanded by businesses.
"Clean technology will be one of our main clusters which will bring in lots of jobs and tax money," he says with the conviction of a leader who knows Finnish growth will suffer if a new direction and increased competitiveness cannot be found.
The country is already a leader in biofuels, and exports some of its next-generation bio-energy products to the United States, but is keen to ensure it stays ahead of the curve.
"A LOT LIKE ISRAEL"
Israel's success over the past two decades has in large part been built on connecting venture capital with sharp young people emerging from specialist military units with skills in telecommunications, surveillance and technology.
The country has broken new ground in Internet security, wireless communications and chip design, attracting investment from global leaders such as Intel (INTC.O). It has more companies listed on Nasdaq - 60 at last count - than any other country outside the United States apart from China.
Asked if Finland is looking to achieve something similar, both Katainen and his chief adviser nod in unison: "Yes, it's a lot like Israel," says the prime minister.
Finland does not have the same military talent pool for its entrepreneurship. But it has reformed its universities in recent years, moving away from educating for professions such as law and focusing on training in new technology.
"Universities are like magnets for entrepreneurial people and venture capitalists," said Katainen. "It's the first time in our history where research and entrepreneurship are shaking hands and creating something new."
Over the past five years, he says, several universities have become more like innovation hubs, and have attracted venture capital from the United States and Russia, while also building close links to small-and-medium-sized businesses.
"This will be a turning point in our economy in the longer term," he said. "This is something really special."
While the bedrock may be there, Katainen also knows that Finland cannot afford to waste any time. While it is a triple-A rated economy, its competitiveness and productivity have been in decline since early 2010 after Europe's debt crisis struck.
With big welfare costs - it has one of Europe's most generous systems - and high taxes, cutting-edge technology may be critical for the investment and jobs needed for growth.
(Additional reporting by Mike Peacock and Paul Taylor; Editing by Louise Ireland)
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