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Europe should look to Finland for economic
inspiration
Matti Aaltola
The Ottawa Citizen
Wednesday, July 05, 2006
There is no doubt that Finland -- Nokialand -- has gained from globalization.
Since 2000, the World Economic Forum's annual competitiveness comparison has ranked
Finland No. 1 three times and No. 2 three times. The forum's forward-looking growth
competitiveness index has place Finland in top spot four times, second once and sixth
once. Finland also scores well in education and in other public services, as well as in
taking care of the environment.
Last month, the Organization for Economic Co-operation and Development noted that
Finland's growth performance has been among the best in the OECD area, underpinned
by a strong innovation performance and high educational attainment. Especially
noteworthy is that, for several years, Finland has been running budget surpluses, in
anticipation of future claims on the budget associated with the aging of its population.
Given Finland's northern location (between the 60th and 70th latitudes) and its small
population (5.3 million), these are remarkable achievements.
To be fair, many other smaller European Union countries -- such as Finland's Nordic
neighbours Denmark and Sweden, as well as Ireland -- have also shown the same kind
of dynamism.
Rapid growth rates in new member states such as Estonia, Hungary, Slovakia and
Slovenia prove that they know how to catch up.
Despite wars and other disruptions, Finland's economy has maintained a relatively high
growth rate for a very long time. According to economist Angus Maddison of the OECD,
Finland was among the top performers globally throughout the 20th century. Long-term
investment in education, research and well-functioning, corruption-free government
institutions, not just in equipment and machinery, has paid off handsomely.
The EU has had a hugely positive influence on Finland's extraordinary economic success
over the past decade. Full participation in European integration, including adoption of
the euro, has helped to diversify Finland's economy and make it more competitive.
Finland has come to be seen as a country that is investing heavily in future growth -- by
way of human capital and innovation --while relying on free trade and fighting for even
freer trade.
A key objective for Finland's six-month presidency of the EU, which began on Saturday,
is to enhance Europe's competitiveness.
In general, Canadians do not fully understand the EU's economic performance. The
image is one of stagnation, strongly coloured by the relatively poor performance of
major continental member states. In reality, the EU continues to be the world's largest
common internal market and the biggest trader. The problems of some overshadow the
successes of others.
Globalization requires nimble adaptation to change. In general, small countries tend to
accept change better than large ones, as they have less choice. In Finland, globalization
is viewed as an opportunity rather than as a threat.
For Finns, the country's wartorn history has taught that to adapt is to survive. Finns
have also learned the hard way that sudden and drastic change can happen in
peacetime. In the early 1990s, the Finnish economy was hit by a banking crisis at home,
recession in the West and the collapse of the Soviet trade to the East. Finnish GDP fell
more than 10 per cent in three years and unemployment rose from three per cent to
nearly 20 per cent.
In hindsight, however, the severe recession of the early '90s turned out to be a
necessary and long overdue shakeup that forced Finland to adapt and to find new
products and markets. By 2000, information and communications technology had
become the driver in an economy previously dominated in manufacturing by the lumber,
pulp and paper, metal and engineering industries.
A key to the willing acceptance of change by all stakeholders is close co-operation
among government, employers and employees. Multiyear incomes and policy
agreements at the national level are negotiated between the Confederation of Finnish
Industries and the Central Organization of Finnish Trade Unions, with the government
providing tax breaks or other inducements to facilitate agreement.
This typically Nordic model of consensus-building may sometimes work slowly, but
constant dialogue among the labour market partners and the government has
undoubtedly led to better and more predictable labour relations than would otherwise be
the case. Admittedly, this kind of centralized system has its weaknesses, including that
real wages often fail to adequately reflect productivity differentials at the company level.
A recent report by the Brussels-based European Policy Centre concludes that the Nordic
countries have successfully challenged the mainstream economic dogma that high tax
rates, a large public sector, moderate wage levels, a more egalitarian distribution of
incomes and generous social services and benefits are harmful to economic growth.
For the European publics, acceptance of the economic change wrought by globalization
hinges on maintaining an acceptable level of social protection. And such protection can
only be afforded in the long term if economic change is embraced, not rejected.
Europe must achieve a better balance between flexibility and security in the labour
market. Ideally, combining the two ("flexisecurity") could mean mutual inclusiveness
with no trade-off between, as has traditionally thought to be the case.
One size does not fit all, in Europe or anywhere else, but the Finnish model certainly fits
a small, open and innovation-minded economy in the far north of Europe -- even if
Finland's unapologetic embrace of globalization has meant that its shoe industry has
long gone the way of the dodo.
Matti Aaltola is deputy head of mission of the Embassy of Finland in Ottawa. Before
joining the Finnish foreign service, he was senior economist in the Ministry of Finance in
Helsinki.
© The Ottawa Citizen 2006
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