Some years ago I was flying back to Helsinki from somewhere in Europe, and was seated next to a person from the R&D department of a large Finnish paper mill. I would name the company but I cannot recall any more which one it was. All the same, the company could have been bought, sold or merged and changed the name since then anyhow.

Having worked in the R&D at Nokia, I was of course very interested in hearing their plans for all kinds of fascinating innovations around intelligent paper or novel uses for wood products, like e-paper, rfid and other uses of technology, various upcoming use cases for adhesives like building houses out of paper, replacing plastic with wood etc.

My usual mahcine-gun like interrogation method understandably confused the guy a bit, and all he could mutter was that "we just study how we can make paper better". I managed to disguise my shock&awe and asked how much the company invests in R&D. The answer was something between 0.3 and 0.4 percent of sales. My comparison point was of course Nokia which invested way more than 10% at that time . I decided there and then not to buy any shares from the paper industry, and I have no regrets (not that the Nokia share would be any success case recently, either...).

I annoyed the poor guy further by asking him wether he thinks he is in the paper making business or in the wood processing business, but he sincerely could not see the difference between these two and kept repeating "we make paper out of wood" so many times that we ended talking about airline catering.

This episode came back to me now that the paper industry is constantly in the headlines with their massive problems. First, Russia announced that they will introduce an export duty on wood exports from Russia to Finland. The Finnish paper industry has been using Russian wood from accross the border because its cheaper and easier to get than Finnish wood. The reason for this is that Finnish forest owners tend to be city people who inhereted the woods from their parents, and no longer see the forest as production material but rather as a long term investment and even as a recreational area.

Well, the government went into panic and announced a 50% reduction in the sales taxe of wood to encourage people to sell wood to paper mills. This means hundreds of millions of transfer of income from Finnish tax payers to forest owners in the name to save the paper mills. The paper industry soon thanked tax payers by announcing to gove notice to some 2000-3000 persons in Finland. This will destroy the livelihood of 2-3 cities in eastern and northern Finland, which are dependent on their paper mills. The government has no choice but to announce support packages to the unemployed and their families.

The tax payers end up supporting twice private enterprises that have not been able to keep up with the changes in their industry and hard-headedly continue to make paper out of wood and not invest in new opportunities.

Now, of course things are not so black and white, and I may be exaggerating a bit. Nevertheless, it is clear for anyone who reads newspapers that the demand for paper is not increasing, and that paper mills have over invested in paper production. The situation with North-American paper mills and wood production is now worst in decades. In 5 years Canada has lost 50.000 jobs, and since 2005 US has given notice to 100.000 people from this industry which represents 20% of the industry's work force (source Kauppalehti Sept 12). Even a paper engineer should see that getting help from the government is not the thing to do in this situation.

Here's my plead:

"Mr. Paper Engineer,

please invest the money that I as a tax payer am going to give to you over the next two year in out-of the box thinking R&D, and continue to steadily increase your R&D levels until your industry has found a way to compete without tax payers' support.

Thank you."

For those who are interested, I went through the annual reports of UPM and Nokia, and dog out the R&D investment numbers. Here they are:

UPM:
2007: 0.5% of sales (50 million euros)
2006: 0.4% of sales (44 million euros)
2005: 0.5% of sales (50 million euros)
2004: 0.5% of sales (47 million euros)

Nokia:
2007: 11.1% of sales (5 647 million euros, incl. NSN)
2006: 9.5% of sales (3 897 million euros)
2005: 11.2 % of sales (3 825 million euros)
2004: 12.9% of sales (3 776 million euros)