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March 2013

Looking up north: a brief perspective on Finland and its unique position

By | Economic Analysis | No Comments
Even though Finland is part of the Nordic countries, its context has not always been the same as its Nordic neighbors. Finlands geopolitical position has made the country more prone to be involved in wars and forced it to adapt its economy to its own particularities. This divergence from other Nordic states is particularly noticeable in the labor market and the economic relations of the country.
Finnish economy has always been more susceptible to crises. While the industrial sector was already strong in other countries of the region, Finland still based its economy mostly on agriculture. It wasn’t until the thirties that there was a rapid growth in industry, construction, and service sectors in Finland, which completely changed the situation. As a consequence, the country transformed its GPD, and while agriculture is almost irrelevant nowadays, the services, industry, and construction sectors are still prominent. One main underlying factor of this transformation is the famous Finnish education system. As early as in the thirties, 70% of the population was able to both read and write. At the time, there were technical institutes for students that wanted to obtain an intermediate level technical training, as well as business schools and technical universities. Already back in those days it was equally important to have a university degree or a vocational training, which strongly contributed to the decrease of elitism in the educational system. Nowadays all educations in Finland is free, enhancing the country’s economic and social position.
 
Over the years Finland has established a fiscal system of high taxes. However, this was not always the case. In the inter-war period the Finnish government applied so-called ‘qualified liberalism’; seeking to promote individual innovation and entrepreneurship, by decreasing or avoiding state intervention. This resulted in poorly regulated labor and capital market. Later on, the role of the state became more prominent by supporting the industrialization of the country and promoting export of the goods obtained by industrial production. After World War II, the Finnish government had to spend around 15% of its budget on war reparations, while there was an ongoing battle of ideologies in the country: West vs East. This dispute was sorted out when Finland signed the Bretton Woods agreement in 1948, becoming part of the western bloc.
 
It is also important to highlight that the female workforce, as well as the unions’ roles, constantly increased until Finland entered the so-called ‘Tupo’ era in 1968 (tulopoliittikka). At that time, the Government took an active and prominent part in the labor market, even mediating between companies and workers. We could even say that Finland has led the way for other countries in the region in terms of conciliation of working and private life, by providing favorable working conditions such as extensive parental leave policy for mothers and fathers (11 months and 7 weeks, respectively). Another aspect to be highlighted is that 70% of the deputies in the Finnish Parliament are women, which also represent 50% of the working force overall.
 
After a decade of constant devaluation of the former Finnish currency, the country joined the European Union in 1995 and adopted the Euro in 2002. Although this was initially interpreted as an attempt to strengthen ties with the Western world, it allowed the country to not only collect, but also spend high amounts of public expenditure on social protection. Yet, in recent years, Finland has embraced a more liberal system and started a process of privatization. However, the State still owns a large number of companies, including 6 of the 10 largest companies in the country.
 
The Finnish example proves that those who see things as a consequence of a certain ideology or predetermined system are denying themselves the creativeness and innovation of a system that seeks results over ideological debates. Finland is the example of working around obstacles to end up with a win-win situation. The question that arises is: is the Finnish model sustained by deep cultural values and the wealth and stability of its Nordic neighbors, or could it in fact be exported to other parts of the globe?