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FINLAND
Economic Freedom Score
25
Least
free
World Rank: 17
inland’s economic freedom score is 73.8, making its economy the 17th freest in the 2010 Index. Its score declined by
0.7 point as a result of modest reductions in monetary freedom, property rights, and freedom from corruption. Finland
is ranked 8th out of 43 countries in the Europe region, and
its overall score is well above the world average.
The modern and competitive Finnish economy has long
benefited from high levels of economic freedom. The economy remains a world leader in business freedom, trade freedom, property rights, and freedom from corruption. Private
enterprises continue to blossom and promote innovation in
an efficient regulatory and legal environment. With prudent
and sound banking practices, the financial sector has weathered the global financial turbulence relatively well.
Finland’s overall high level of economic freedom is curbed
by high government spending and the rigidity of the labor
market. As in many other European social democracies,
high government spending (close to half of Finland’s GDP)
supports an extensive welfare state. Restrictive labor regulations undermine employment and productivity growth.
Background: Finland joined the European Union in 1995
and adopted the euro as its currency in 1999. The country is
sparsely populated, with about one-fourth of its land mass
above the Arctic Circle, but boasts a modern, competitive,
and transparent economy with vibrant information and
communications technology sectors. Previously robust economic growth slowed in 2009 due to the global recession,
and Finland, like many other European nations, faces demographic challenges in the form of an aging population and
shrinking workforce that could threaten future growth and
the government’s ability to maintain generous social spending programs. Finland became a member of NATO’s Partnership for Peace program in 1994 but has not pursued full
NATO membership because of its neutral military status.
75
Most
100 free
0
73.8
Regional Rank: 8
F
50
100
100
Country’s Score Over Time
Most free
8080
World average
6060
4040
Finland
2020
00
Least free
1995
1998
2001
2004
2007
2010
Quick Facts
Population: 5.3 million
GDP (PPP): $188.2 billion
0.9% growth in 2007
3.2% 5-year compound annual growth
$35,427 per capita
Unemployment: 6.4%
Inflation (CPI): 3.9%
FDI Inflow: –$4.2 billion
2008 data unless otherwise noted
Data compiled as of September 2009
How Do We Measure Economic Freedom?
See page 457 for an explanation of the methodology or visit the Index Web site at heritage.org/index.
195
finland’s Ten Economic Freedoms
Business Freedom
Trade Freedom
Fiscal Freedom
Government Spending
Monetary Freedom
Investment Freedom
Financial Freedom
Property Rights
Fdm. from Corruption
Labor Freedom
It also imposes artificially low prices on pharmaceutical
products. Ten points were deducted from Finland’s monetary freedom score to account for measures that distort
domestic prices.
95.0
87.5
65.4
32.9
78.9
75.0
80.0
90.0
90.0
43.8
INVESTMENT FREEDOM — 75
0
0
least
free20
40
50
60
= world average
100
100
most free
80
BUSINESS FREEDOM — 95
The overall freedom to start, operate, and close a business
is strongly protected under Finland’s regulatory environment. Starting a business takes an average of 14 days,
compared to the world average of 35 days. Obtaining a
business license requires much less than the world average
of 18 procedures and 218 days. Bankruptcy is straightforward and not costly.
TRADE FREEDOM — 87.5
Finland’s trade policy is the same as that of other members
of the European Union. The common EU weighted average
tariff rate was 1.3 percent in 2008. However, the EU has
high or escalating tariffs for agricultural and manufacturing products and its MFN tariff code is complex. Non-tariff
barriers reflected in EU and Finnish policy include agricultural and manufacturing subsidies, quotas, import restrictions and bans for some goods and services, market access
restrictions in some services sectors, non-transparent and
restrictive regulations and standards, and inconsistent regulatory and customs administration among EU members.
Ten points were deducted from Finland’s trade freedom
score to account for non-tariff barriers.
FISCAL FREEDOM — 65.4
Finland has moderate tax rates but a relatively high level
of overall taxation. The top income tax rate is 30.5 percent,
with municipal rates between 16.5 percent and 20 percent.
The top corporate tax rate is 26 percent. Other taxes include
a value-added tax (VAT), an inheritance tax, and a flat 28
percent tax on capital income. In the most recent year, overall tax revenue as a percentage of GDP was 43.1 percent.
Finland is open to foreign direct investment. Certain acquisitions of large companies may require follow-up clearance
from the Ministry of Trade and Industry. Non–European
Economic Area investors must apply for a license to invest
in security, electrical contracting, alcohol, telecommunications, aviation, and restaurants. Regulation is relatively
transparent and efficient. There are no exchange controls
and no restrictions on current transfers or repatriation of
profits, and residents and non-residents may hold foreign
exchange accounts. Restrictions on the purchase of land
apply only to non-residents purchasing land in the Aaland
Islands.
FINANCIAL FREEDOM — 80
Finland’s sophisticated financial system provides a wide
range of services, guided by sound regulations and prudent lending. There are more than 300 domestic banks,
but three bank groups (Nordea, OP Bank Group, and the
Sampo Group) dominate the system. The government
owns about 14 percent of the Sampo Group. Banking is
open to foreign competition, and about 60 percent of assets
are foreign-owned. Capital markets determine interest
rates, and credit is available to nationals and foreigners.
The stock exchange is part of a Baltic–Nordic exchange
network. Merger of the Financial Supervision Authority
and Insurance Supervisory Authority came into force in
January 2009. The impact of the global financial turmoil on
the banking sector has been relatively muted.
PROPERTY RIGHTS — 90
Property rights are well protected, and contractual agreements are strictly honored. The quality of the judiciary and
civil service is generally high. Expropriation is unlikely.
Finland adheres to numerous international agreements
concerning the protection of intellectual property.
FREEDOM FROM CORRUPTION — 90
Total government expenditures, including consumption
and transfer payments, are high. In the most recent year,
government spending equaled 47.3 percent of GDP. State
ownership of productive assets is considerable.
Corruption is perceived as almost nonexistent. Finland
is tied for 5th place out of 179 countries in Transparency
International’s Corruption Perceptions Index for 2008. Finland is a signatory to the OECD Anti-Bribery Convention.
The Council of Europe’s Group of States against Corruption has recommended that Finland sharpen its controls
over political financing and increase the transparency of
donations to political parties and election candidates.
MONETARY FREEDOM — 78.9
LABOR FREEDOM — 43.8
Finland uses the euro as its currency. Between 2006 and
2008, Finland’s weighted average annual rate of inflation
was 3.1 percent. As a participant in the EU’s Common
Agricultural Policy, the government subsidizes agricultural
production, distorting the prices of agricultural products.
Burdensome labor market regulations hamper employment opportunities and productivity growth. The nonsalary cost of employing a worker is high, and dismissing
an employee can be costly. Restrictions on work hours are
rigid.
GOVERNMENT SPENDING — 32.9
196
2010 Index of Economic Freedom