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Government and ministries

The nature of Finland

Government Communications Department 25.2.2014 11.35
Press release 72/2014

Finland has not recovered from the industrial collapse that began in 2008 and led to the loss of a significant part of the country’s economic base. The structural crisis in industry is widely reflected in Finland’s economy and its prospects, states an expert assessment of three professors submitted to the Economic Council on Tuesday.


Professors Bengt Holmström (MIT), Sixten Korkman and Matti Pohjola (both Aalto University) have written a memorandum on Finland’s economic crisis, which is an expert assessment of the nature of the crisis and the prerequisites for growth. The objective of the assessment is not a comprehensive list of detailed measures, of which several have been proposed in recent years.

According to the professors, the present crisis is very different from the recession of the 1990s. The present crisis is in some respects even more difficult, because productivity growth has stopped in an unprecedented way and there is a lack of ideas to improve the situation – the “recipe” for growth has been lost. Achieving new growth will require time and exceptional efforts.

Briefly, the professors’ assessment of the crisis can be summed up as follows: the success of the Nokia-led ICT cluster maintained favourable, even deceptively favourable, economic growth in Finland for a long time. The budget surpluses were large and unemployment was on a downward path. As is now apparent, these conditions created a setting in which wages rose more – and public spending grew faster – than was desirable in terms of sustainable development.

With the collapse of the electronics industry, exports and output have declined sharply at the same time as the contraction of the paper industry has continued and metals processing has suffered from low market prices. All this has been reflected in a deterioration of industrial profitability.

In the good years, Finland accumulated a high level of general-purpose expertise and international experience, which the country should be able to utilise in future. Finland has the prerequisites to return to the pre-crisis growth path – if the crisis provokes an adequate response. There is no single and fast way, however, to recover from the crisis and return to rapid growth. In economic policy, a goal-directed, long-term and patient approach is required.

The Government can make a real contribution to economic growth by improving general operating conditions for business, promoting labour mobility and supporting research and innovation. The professors also underline the significance of growth companies in economic renewal and the public sector’s role in encouraging such companies.

Anticipated public spending cannot be sustainably funded at the current tax rates. The growth objective means that there is no scope for increasing taxation. The target level (services, income transfers) of the welfare state must therefore be set in accordance with financial sustainability. Restating the promise of the welfare state would clarify both public and private decision-making. It is important to try and improve the productivity of public services and to raise the labour participation rate.

This time, the main reasons for Finland’s economic plight lie largely outside its borders; corrective measures, however, must be found at home. Raising productivity and accelerating economic growth is an imperative of Finland’s economic policy. Based on good preparation, economic policy must make painful choices, set targets in order of importance and act in accordance with priorities.

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