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Nobel laureate prescribes focus on universities, entrepreneurship for Finland’s economic woes

Finnish economist and professor Bengt Holmström was jointly awarded the Nobel Prize for Economics with British-American professor Oliver Hart on Monday. Earlier this year, Holmström had expressed surprise at Prime Minister Sipilä’s proposed defunding of education and research.

Bengt Holmström
Bengt Holmström. Image: Yle

Speaking to Yle after being awarded this year’s Nobel Prize for Economics, MIT professor Bengt Holmström said that the decision by the Juha Sipilä government to cut hundreds of millions of euros in funding for education and research reflects contempt for higher education.

"The decision was a vote of no confidence and also strongly reflected contempt for the university world. Not only did the government cut funding from the universities, it also took the money and began to manage it through other channels. I don’t see that they have any great expertise in this area," Holmström said.

He said a better approach would have been to reform the division of labour among universities to eliminate the problem of overlap among institutions.

"Research universities should be centralised, in other words in those [institutions] that have doctoral programmes and significant research [activities]. There aren’t many research universities in the US either. There are a couple hundred out of a total of a few thousand institutions," Holmström pointed out.

Economist: Steer young people towards entrepreneurship

He added that it would be enough for Finland to have about a dozen more robust and well-funded research universities.

Overall, though the Nobel laureate said that the government had performed well in terms of its overall fiscal policy – however he said there is still much to be done. He called for more flexibility in the labour market, more local collective agreements and more apprenticeship training to help right the course of the economy.

The MIT professor was one of a trio of economists who had penned a report for the government at the request of Finance Minister Petteri Orpo at the beginning of autumn. The report proposed adopting a tiered system for earnings-based unemployment benefits and reforming the university system.

Previously, one year ago, Holmström told Yle that policy makers should set to work encouraging young people to take up entrepreneurship. Although startups are still small, they have the capacity to grow to assume importance in the economy, he said. Holmström also predicted that digitalisation would be a major driver of change.

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