war, the economic linkages again became significant. finland had to pay war reparations to the soviet union. these were to be paid mostly in the form of products of engineering and shipbuilding industries, in effect forcing the development of this sector. until then, finland's exports had consisted largely of the products of the wood - processing industry. however, when reparations ended, in the early 1950 ’ s, finland had an engineering industry the products of which were much in demand in the soviet union, willing to pay for these products mainly with energy and other raw materials. the finnish - soviet trade was carried out in barter terms, with a bilateral clearing arrangement. engineering products remained important in finland's export to the soviet union, but in the 1970s finland also carried out large construction projects in the soviet union. in the 1980s more than half of the export to the soviet union consisted of consumption goods. the bulk – about 80 per cent – of imports from the soviet union was crude oil. the barter arrangement facilitated finland's adjustment to the oil shocks of the 1970's and the early 1980's, because the increased oil bill could be paid for with finnish industrial products. however, the barter arrangement also made some finnish industries very vulnerable to the fate of the soviet economy. in 1991, the soviet system was no more, the barter trade had suddenly disappeared, and the trade relationship with russia had to be rebuilt almost from scratch. in the early 1990s, after the collapse of the soviet trade, finland encountered a severe economic crisis, with gdp declining by some 15 per cent in only two years'time. this was followed by a fast recovery, and by the year 2000, finland's output per capita has again exceeded the average level of eu - 15. now, russia emerging as one of the fastest growing economies of the world, finland's russian trade is booming again and russia is, once more, one of our biggest trade partners. in addition to producing a variety of goods of the russian market, finland has also become a significant channel of transit trade for russian imports. this has been facilitated by our excellent port and transportation facilities close to the russian border. investment in human capital and educated labour force entering a phase of innovation - driven development has presupposed the interplay of several fundamental factors, including an efficient education system, a consistent and predictable policy environment, and a sound basic infrastructure. most of these preconditions were in place before the

in demand. at the same time, estimates indicate that the return on investment in education has remained high, implying that the demand for educated labour has kept pace with the rapid increase in supply. investment in research and development a very important feature of the finnish “ miracle ” of the 1990 ’ s and thereafter has been the spectacular rise of the ict industry, especially mobile telephony. the large share of the ict sector in finnish exports and the economy as a whole explains an important part of the country ’ s rapid productivity growth since the 1990s. the rise of the finnish ict sector has attracted a lot of attention from many countries and governments which would like to enjoy a similar positive transformation. an important milestone in the rise of the ict cluster was the early liberalisation of the telecommunication sector in finland, which heightened competition, drove prices down, and led to the growth of mass markets for wireless communication, providing a test laboratory for the equipment industry. standardisation among the nordic countries, in particular the common nordic nmt standard of mobile telephony, gave an early start for the internationalisation of the mobile telecommunication industry. the later gsm standard was a result of a european research and standardisation effort, and opening of the telecom market in europe gave access to new entrants in telecom services. as a consequence, integrated and technologically advanced mass market for wireless communication was created in the whole of europe. as early starters, the nordic telecom equipment manufacturers were well positioned to respond to the growing demand. a necessary condition for success is that there has been in finland, at least since the 1980s, a consistent commitment by decision makers, private and public, to foster an innovation - driven economy. successive governments have invested in a lot research and development. as a result, the total research and development expenditure in finland is 3. 5 % of gdp, highest in europe after sweden, and higher than in the united states. the government has contributed a third of the total while private sector has answered for two thirds of the finnish r & d outlays. an important part of the research has focused on the ict. public agencies, foundations and universities have promoted open r & d cooperation with private companies. finland and the finnish companies have also been active participants in eu research programs. the ict sector is not the only one to improve its productivity in a big way, however. banking is another industry worth of attention. it is actually a lesson on the connection of competition with productivity. finland had a major banking crisis in