The objective of this "backgrounder" is to better understand the contributions of universities to innovation in Finland, as a means of widening the consideration of policy options in Australia. Finland is a small but advanced industrial economy with limited resources and markets, dependent on external trade and the internationalisation of research and innovation. A major policy shift in the 1990s saw the Finnish state become an active player in innovation, which changed the research-innovation nexus substantially. This shift was characterised by the introduction of differentiated tertiary education qualifications (polytechnics and universities), the consequences of which were remarkable achievements in Finland's higher education and innovation sectors. The innovation policy developed by the Finnish parliament aims at keeping a highly skilled workforce satisfied through an active role by the state as an investor in emerging technologies. The Finnish example of a functioning university-innovation nexus demonstrates that the framework conditions are set in an appropriate way, closely linking the policies and funding opportunities. This framework is supported by the European Union through its programs. The responsibility for improving a nation's level of innovation, with the consequent benefits it brings to global competitiveness, jobs and enhanced productivity, is a task that the Finnish government shares with the private sector and the higher education sector. Within such a framework and focus, nations can make choices about where to allocate resources in a way which most potently enhances their industrial capability, their economic prosperity and their social wellbeing. (Contains 33 footnotes.)