Why is Finland Europe's technology leader? The prime minister explains

Although it's on the fringe of Europe geographically, Finland has for years been at the center of the continent's tech industry.

The country gave birth to cell phone leader Nokia and has emerged as a place where multinationals like to recruit and erect labs. The government and local entrepreneurs are now moving into clean technology.

It can be traced back to policies set up in the early 1980s, said Matti Vanhanen, the country's prime minister, during an interview with CNET News.com on Wednesday afternoon. The country saw the dawning of globalization and realized it would have to dig out a high-end niche in the industry.

Finnish Prime Minister Matti Vanhanen

(Credit: Courtesy of the E.U.)

"Because we cannot compete with Asian companies with low wages, our only possibility has been to stay a few steps forward," he said. "Of course, we also invested in education."

Funding for research and development has also consistently remained fairly high, he added.

"As a nation, around 3.5 percent of our gross domestic product goes into R&D. There are only two or three nations that spend that much," he said. The E.U. as a whole wants to raise the figure for member states to 3 percent.

"But we (the E.U.) are far away from that. Most members are at 2 percent, but Sweden and Finland are already there," Vanhanen added.

Roughly two-thirds of the R&D funds in Finland come from the private sector, but one-third comes from the government. "There is a good relationship between private and public funding, but it is not the state's role not to determine where the money should go. It has to be very market oriented," he said.

Vanhanen is traveling around the U.S. this week to promote Finland as a technology hub as well as highlight the issue of climate change. Earlier in the week he met with Vice President Dick Cheney and California Governor Arnold Schwarzenegger. Today, he's in Seattle with Bill Gates. Next, it's off to France to visit Nicolas Sarkozy. (The finance minister, meanwhile, was dispatched to China.)

Last year, the government set up an organization in Silicon Valley called FinNode to encourage cross-border cooperation. (It functions in a similar way to Japan's Jetro.)

An outspoken critic of nuclear power and proponent of energy conservation, Vanhanen outlined his views on climate change. In short, governments need to start acting.

"I'm a little pessimistic about what we can achieve in the short term, but the answer can't be that we can't do anything," he said. "If we don't do anything, it will be a disaster."

The next major milestone for the world lay in coming up with new emissions standards to follow the Kyoto Protocol. A summit to hammer out these issues will take place in Copenhagen toward the end of 2009.

Because of its northern location, Finland actually consumes more energy, per capita, than most other nations. As part of an effort to curb emissions, a law was passed a few months ago imposing carbon taxes on cars. Cars that get better mileage pay far lower taxes than high emission, lower mileage cars. The range of taxes goes from 10 percent of the car's value to 40 percent.

"Small cars now cost about $10,000 less than last year, and big passenger cars that pollute a lot can cost $50,000 more than last year," he said. "We will see in the next months what kind of changes in consumer behavior this causes."

Despite the pessimism of getting anything done in the short term, Vanhanen added that he's somewhat optimistic when it comes to technological breakthroughs.

"Twenty years ago, you couldn't imagine what we have now with information technology," he said.