Finland

The Economy

Finnish ice-breaker at work

FINLAND'S ECONOMY PERFORMED WELL during the 1980s, allowing the Finns to enjoy widespread prosperity. After suffering the effects of depression and war during the 1930s and the 1940s, the economy started to show steady gains in about 1950. During the 1980s, the country enjoyed above-average growth, stable prices, and relatively low unemployment. Nevertheless, Finland did experience many of the problems found elsewhere in the industrial world, including high unemployment among youth, expensive agricultural surpluses, and declining industrial sectors. Moreover, certain aspects of the country's economic performance, such as serious cyclical instability, endemic industrial conflict, and difficulties in foreign trade, may have troubled Finland more than such situations disturbed other countries. Despite these problems, which required attention from policy makers and from businessmen, economists could point with pride to Finland's strong work ethic and pragmatic tradition.

In a country lacking many raw materials, the tenacious Finns had learned to make the most of scarce natural resources. Although most of the country was not arable, farmers worked hard to keep the country self-sufficient in staple foods. The country's forests, carefully managed to increase long-term yield, provided raw materials for the wood-processing industries, the largest earner of foreign exchange. Metals and minerals were scarce, but the country had established competitive enterprises in basic metals and in chemicals. The metalworking industry, developed largely to meet reparations payments to the Soviet Union, continued to expand during the postwar period. This industry specialized in sophisticated products, such as icebreakers and paper-making machinery, in which the Finns enjoyed a comparative advantage. Faced with a serious energy shortage after the oil crisis of 1973, the Finns embarked on a comprehensive conservation program and shifted investments toward less energy-intensive, high-technology products.

Effective policies deserved much of the credit for the country's economic successes. In the early years of the republic, the government had carried out extensive land reforms, a precondition for agricultural modernization. State-owned enterprises channeled investments into key industries, allowing the country to process its own raw materials. The crises of the depression, war, and reconstruction led to government controls that provided an essential framework for production. By the late 1950s, once wartime bottlenecks had been eliminated, the government chose to pursue trade liberalization and deregulation. Following this basic orientation, Finland's leaders agreed to free trade in industrial products, thus forcing the country's industries to compete and to modernize. By the late 1970s, macroeconomic policies gave priority to fighting inflation and to dampening cyclical instability. During the 1980s, government policies pursued export competitiveness, in part through favoring industrial rationalization and financial deregulation. By the mid-1980s, some economists saw Finland as the most capitalist country in Europe.

To pay for needed imports, the Finns depended on export markets in Western and in Eastern Europe. To protect those markets, Finland had pursued economic integration with both Eastern and Western Europe. The Finns maintained good commercial relations with the Soviet Union, a strategy that had paid off handsomely in the 1970s, when rising petroleum prices increased the value of trade with the East, compensating Finland for declines in Western markets. After the mid-1980s, however, as world oil prices declined, the Finns shifted toward the West, especially toward the European Community (EC--see Glossary). Although balancing close economic relations with both marketoriented and planned economies posed special challenges, Finnish traders proved adept in both environments. In the late 1980s, industry and finance sought to build on earlier successes by internationalizing their operations, often in partnership with foreign firms.

In the late 1980s, the most important economic challenge was to keep both production costs and product quality competitive in international markets. This challenge would require hard work, as well as close cooperation among government, business, and labor. The government, industry, and the universities needed to increase spending on research and the development of new technologies. The Finns would also have to limit inflationary wage increases and improve labor flexibility without worsening labor conflict. Many economists believed, however, that the prevailing consensus in favor of modernization and stable, steady growth was strong enough to allow the country to face the future with optimism.

Data as of December 1988

Finland - TABLE OF CONTENTS