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Finland INDUSTRY
Although industrial development began later in Finland
than
it did in many other European countries, by the 1950s
manufacturing and processing had replaced agriculture and
forestry as the leading sectors of the economy. By the
late
1970s, the service sector had surpassed industry in total
production and employment, but industry remained the main
export
earner, allowing the country to pay for needed imports of
energy
and raw materials. Labor efficiency was greater in
industry than
it was in the economy as a whole--the one-third of the
work force
employed in industry produced about 40 percent of GDP--and
it
continued to grow at a higher rate here than it did in
other
sectors. In turn, industrial wages tended to be higher and
to
rise faster than the national average, making industrial
jobs
attractive. Thus, although some observers categorized
Finland as
a postindustrial society, the Finns strove to maintain
industrial
competitiveness, which they saw as the foundation for
their high
standard of living. By the early 1980s, however, as a
result of
the oil crises of the 1970s and the increased competition
in
world markets for manufactured goods, Finnish industry
faced
serious challenges. Many observers argued that to maintain
industrial exports, the Finns would have to shift from
heavy
industry to high-technology products.
The geographical distribution of industry had been
strongly
influenced by the relative shortage of raw materials
(other than
lumber) and by the small size of the domestic market. The
woodprocessing industries had grown up on rivers near the
coast of
the Gulf of Bothnia and the Gulf of Finland, in locations
that
offered sources of both lumber and hydroelectric power as
well as
access to foreign markets. As many raw materials were
imported
and most industrial production was exported, other
industries had
grown up in the four southern provinces, especially near
Finland's main harbors along the southern coast. Although
the
government had implemented policies that favored
development in
the north during the postwar period, in the late 1980s
more than
70 percent of industrial jobs were still located in the
south. In
the long run, the development of high-technology
industries, less
dependent on transportation and energy supplies, might
facilitate
efforts to decentralize industry, but such development
would be
gradual.
Once dominated by the forest industries, Finnish
industry
underwent rapid structural change after World War II. A
boom in
metalworking began in the immediate postwar years in
response to
the need to ship capital goods, including machine tools,
ships,
rolling stock, and chemicals, to the Soviet Union
(see The Effects of the War
, ch. 1). By the mid-1950s, heavy
industry had
taken over the leading role traditionally held by wood
products.
Beginning in 1957, Finland began to liberalize its trade
policies, forcing domestic industry to compete in world
markets
and bringing new industries to the fore, especially
metalworking
and engineering, but also petroleum refining, chemicals,
plastics, and high-technology goods (see
table 18,
Appendix A).
Guided by domestic and foreign tastes and by fierce
international competition, industrial firms had developed
a wide
range of products and had maintained quality standards
that were
often higher than those typical of industry in the United
States.
Aware of the relatively small size of their industry,
industrial
leaders and government officials aimed successfully for
technological leadership in narrowly defined subsectors in
which
Finland enjoyed comparative advantages. Since the 1950s,
Finnish
firms have been able to dominate world markets for
products such
as icebreakers, wood-processing and paper-processing
machinery,
and environmental protection equipment. Buyers of such
products
were often less sensitive to price increases than they
were to
technical innovations, quality, and durability. At the
same time,
Finland had avoided some of the structural weaknesses,
such as
excessive investments in declining product lines, that
plagued
the other Nordic economies.
Finland's industrial structure traditionally was
polarized
between large and small firms. In the early 1980s, the
vast
majority of Finland's 15,000 industrial firms each
employed fewer
than 100 people. These small firms accounted for only
about onefifth of the industrial work force and for slightly more
than
one-fifth of the value of industrial output. The
approximately
130 firms that employed more than 500 people apiece
commanded
about 60 percent of the labor force and produced about
two-thirds
of industrial output. During the mid-1980s and the late
1980s, a
wave of mergers further reduced the market share of small
firms.
Although industry was thus quite concentrated, the
flexibility
and innovativeness of small firms had often proven
crucial, and
observers believed that small firms would continue to
serve
important entrepreneurial functions.
Despite many notable successes, industry faced new
difficulties in the 1970s and the 1980s, in addition to
increases
in world energy prices. By the late 1970s, industrial
firms faced
tougher foreign competition and had to scramble to
maintain their
shares of export markets. To ensure competitiveness,
industry
needed to renovate existing plants and to increase sharply
investments in high-technology product lines that could
supplement traditional specialties.
Industrial capital formation was a major priority.
Although
Finland's relatively recent industrial development meant
that
many industrial facilities were still relatively new and
efficient, the drive to develop high-technology production
required massive investments. Industrial firms carried a
debt
load that averaged about 80 percent of total assets,
making
further investment difficult. In the late 1980s, however,
a
number of developments promised to improve industrial
financing.
Helsinki's financial markets were becoming more
innovative, and
informed observers expected that the state would cut taxes
on
corporate profits, would eliminate taxes on industrial
energy
consumption, and would increase tax credits offered for
research
and development expenditures
(see Banking and Finance
, this ch.).
Despite these positive developments, however, industry
needed to
attract more resources from abroad if it were to remain
competitive in world markets.
Finland's industry had long depended on world markets,
but
until the 1980s direct foreign investment in Finland had
played
only a minor role. The country hosted significantly fewer
foreign
firms than its Nordic neighbors, partly as a result of
limitations on foreign ownership of Finnish assets. Such
regulations had been relaxed after 1980, but foreign firms
still
controlled only about 5 percent of industrial capacity.
Finnish
firms likewise began to invest abroad in the 1970s. Thus,
whereas
in 1970 only 5 Finnish firms had invested in the United
States,
by 1987 about 250 had done so. By the late 1980s,
internationalization had begun to supplant the traditional
strategy of specialization, as more and more firms entered
joint
ventures with foreign partners and built plants in
countries to
which they exported. The trend toward internationalization
offered the prospect that Finland would be able to attract
additional capital and up-to-date technologies.
Data as of December 1988
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