By Aapo Markkanen: Tampere
If Joseph Schumpeter still lived, he would like
Like other European market economies,
The boom and bust cycle came to an end around 1991, hence coinciding with the collapse of the
Luckily, in the 1980s there had been some other issues that Finnish policy-makers had actually got right. As this paper (PDF) stresses, the policy of innovation underwent a healthy overhaul during that decade. The traditional public approach had been one of picking winners and investing money in them, whereas the Finnish government had understood - for reasons unknown, considering everything they did not understand - that innovation has more to do with micro than macro, and can merely be enabled, rather than directed. Following this vision, and along with the other Nordic nations,
So if the water is already boiling, the frog (indeed, the Finnish parliamentary race isn't
First of all, it should be as awake as possible. Finland's median age is the world's fourth highest, exactly at 41 years. Total fertility is at Nordic levels, at 1.8 children, so the long-term situation is not as alarming as in most parts of Europe, yet the large number of baby-boomers will make it sure that roughly from 2010, and at least until the 2030s, Finns will have to live with the idea of constant austerity and growth levels on par with inflation, at best. If perceived in merely relative terms, the country's current public debt, presently 38% of GDP, may provide some relief - being rather modest by pan-European standards, and down from the 60% recession levels - but this, unfortunately, doesn't make its own straightjacket any looser. The debt level remains after all rather high, owing its shrinking largely to GDP growth rather than to actual debt settling. Hence spending the upcoming decades away won't be an option, and the next four years will be the last "normal years" for governing.
And if you use the mandate that is ending as a yardstick, the normal years have been good years. In 2006, the Finnish GDP grew by 5.5% (approx one per cent is a statistical mirage, due to a 2005 lockout in the paper industry) and is now $32.800, above Belgium and nearly even with Australia. Households saw their real income rise by 1.6%, which is partly thanks to some (arguably generous, considering the future) tax cuts introduced by the incumbent coalition. The overall taxation, in terms of GDP, is now at 43.5% and, if you listen to the OECD's advice, there's no fiscally sustainable way to push it lower; all decreases should be balanced by equal cuts in expenditure. As the safe margin has been exhausted, the OECD suggests instead that Finland should move from taxing incomes towards higher taxes on property (currently among Europe's lowest), yet such a maneuver wouldn't go down well among the electorate. It is a land where seven out of ten own their own homes - and, as you might guess, the remaining three that don't, have no political clout either.
The keenness of Finnish to own their homes, and the government's keenness to sponsor it, have also had their consequences for the labour market. The official, and somewhat fiddled, figures put the unemployment rate close to 7%, yet the regional disparities are dramatic. The prospering south and south-west regions, specifically the one surrounding Helsinki, are already suffering from a chronic labour shortage whereas declining areas in the east and north-east parts of the country sometimes have more than a fifth of their population jobless; and moving is, naturally, difficult if one has to sell property in a place where demand is low and then move to the booming capital.
Housing policy is definitely the only rigidity troubling the Finnish labour market. One myth about the so-called Nordic model is that of flexicurity, i.e. low job protection but high unemployment security. It may certainly be valid in Denmark, but Finland, or Sweden, are rather different cases, as you can see for example in this paper (PDF); in terms of hiring and firing Finland is more or less your average EU country - one that, moreover, has a long tradition of setting wages through collective agreements and universal pay raises. This has arguably contributed to containing inflation, and maintaining low income differences, but - by ignoring varying productivity levels - has also priced many low-skilled workers out of jobs altogether. Generally speaking, all these rigidities have not only led to a high-unemployment rate but also to an increasingly two-tier labour market, where a majority is enjoying well-protected permanent contracts and the worse-off minority has to combine one short-term or part-time post after another; as you can see from this PDF (and Chart 2.6), among OECD's EU members only Spain and Portugal have a bigger share of their workforce under temporary contracts.
Finland's total participation rate is nevertheless 70%, and has been on the rise since the government reformed the pension system in 2005. Prior to the changes, pensions were defined by the final salary of the retiree; in the new system it's the whole career that matters, and the working years from 63 to 68 have been made particularly lucrative. As concluded in this paper (PDF warning, again), for example, the reform can be considered a comparative success (namely in comparison to failed reforms e.g in France or Austria) but even then, it still left many problems unsolved - being "a new-entrant reform" and thus leaving the existing handouts untouched. (It is exactly cases such as this that made Peter Drucker to predict that intergenerational conflicts of interests will bring chaos to the increasingly obsolete political systems everywhere.) So the system has been tinkered with, but not fixed.
You can say the same about the education system, no matter how hard it has been benchmarked after the PISA results. To sum it up: the primary level does a good job with the young minds, the secondary level starts to waste their skills, and the tertiary level provides an equal distribution of mediocrity to everyone whose skills haven't been been wasted so far. You can read about the secondary level here, whereas the main problem of higher education is pretty simple: lack of money.
Universities were still adequately funded about ten years ago, but since then Finland has run into the same trouble as every other country that doesn't charge for tuition; if you don't allow the universities to collect their own money you must increase their public support by sums equal to inflation rates - and do it while the other services are also claiming for more money. It's nearly impossible. Also, if university revenues have no direct link to their own funding they will never get a true incentive to specialise or start competing with each other or, above all, their peers abroad. In other words, Finland has plenty of faculties that are "okay" or "good" but very little pockets of excellence. It can't make knowledge a business.
That is, unless it can learn some new tricks. The true lesson for Finland has been, after all, one of letting go. If Finns turn out to be as willing (or as forced) to change their ways as they have been before, they should do alright - assuming that their memory has not begun to fail them once they've grown older. If it indeed has, and Finns have grown complacent, then the future won't be too bright. The next four years will tell a lot.