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Finland ROLE OF GOVERNMENT
As in most European countries that were late in
industrializing, the Finnish state played an important
role in
sponsoring economic development. Thus, in the interwar
years, the
government carried out crucial agricultural reforms and
established pioneering industrial enterprises. During
World War
II, the government imposed comprehensive economic controls
to
support the defense effort, many of which remained in
force
during the reconstruction years. Starting in the 1950s,
however,
as economic growth overcame production bottlenecks and
shortages
of consumer goods, the government gradually relaxed the
regulatory framework. Nevertheless, wartime intervention
in the
economy had left institutional legacies that influenced
later
economic policies.
The need to maintain export markets in Western Europe,
itself
engaged in a process of economic integration by the late
1950s,
led the government to decide to liberalize trade in
industrial
products. Free trade, in turn, undermined the government's
ability to isolate the domestic economy from world market
conditions. Increasingly tied to the economies of the
Nordic area
and Western Europe, Finland was constrained to adopt
policies
similar to those in force elsewhere. Although the policy
packages
varied in response to domestic political developments and
international market shifts, they all took into account
Finland's
position as a small, relatively open economy, in which
fluctuations in raw material exports had a significant
impact on
the business cycle. By the late 1980s, when exports and
imports
each accounted for about one-quarter of GDP, export
competitiveness had become the dominant policy concern.
Some analysts saw in Finnish economic management a
liberal,
noninterventionist variant of the economic polices of
other
Nordic states. Thus, Finland, less prosperous than its
Western
neighbors, did not develop a comprehensive welfare state
until
the late 1960s, and it held benefits below the
Scandinavian
average
(see Growth of the Social Welfare System
, ch. 2).
Like
other Nordic states, Finland had institutionalized wage
and
benefit negotiations, but the Finnish system of industrial
relations involved substantially more conflict than the
systems
in the Scandinavian states
(see Human Resources
, this
ch.). Along
the same lines, Finland protected domestic agriculture,
but
generally avoided bailing out declining industrial
concerns,
favoring measures to facilitate structural adjustment.
Finnish
politicians, some of whom saw Sweden as a model, claimed
that
their neighbor's mistakes had taught them to avoid
excessive
welfare programs and industrial subsidies that would slow
adaptation to new market conditions. Foreign analysts
noted,
however, that special factors, such as Finland's
relatively late
industrial development and the role of Finland's trade
with the
Soviet Union, also helped to explain deviations from the
general
Nordic pattern. By the 1980s, as austerity policies spread
throughout the region, aspects of Finnish policy seemed to
lead
rather than to follow Nordic developments.
Despite the laissez-faire slant of Finnish economic
policy,
direct state intervention strongly influenced operating
conditions in many sectors. In agriculture, for example,
years of
government support and tariff protection had sustained a
relatively large rural population that expected continued
aid
regardless of the need to cut farm surpluses
(see Agriculture
, this ch.). Similarly, the state had established
enterprises in
capital-intensive, high-risk sectors, including energy,
minerals,
basic processing, and manufacturing in which private
investment
had proven inadequate. By the mid-1980s, private capital
markets
were relatively well-developed, but the twenty state
enterprises
still accounted for some 21 percent of industrial
production, and
they included many of the country's leading firms, such as
the
Kemira Group in chemicals, Enzo-Gutzeit in wood
processing, the
Valmet Group in engineering and shipbuilding, and Valvilla
in
textiles. Yet industrial policy no longer depended on
state
ownership, and these enterprises functioned much as
private
companies. Indeed, starting in the early 1980s, the
Ministry of
Trade and Industry, which was responsible for state
enterprises,
began to demand that they earn profits. The state
maintained
monopolies in alcoholic beverages, energy (Neste and
Imatran
Voima), and minerals (the Outokumpu Group and Rautaruukki)
for
political reasons, but divestment in other sectors was a
possibility. In 1988 the government decided to allow
certain
state enterprises to sell shares. The Valmet Group was the
first
state firm to announce plans for a stock offering, and
observers
reported that Outokumpu, Kemira, and Neste were also
candidates
for partial privatization, depending on how well the
Valmet
stocks sold. The government planned to retain controlling
interests in the companies for at least several years, but
some
politicians favored complete privatization.
Privatization and deregulation were ways to dismantle
the
relics of earlier economic policies and to release public
resources for other purposes. In the late 1980s,
government
interest concentrated on speeding rationalization and
restructuring, even at the cost of higher unemployment and
greater industrial concentration. Industrial policy sought
to
foster a shift away from heavy engineering toward
electronics and
high-technology production. The state sharply increased
expenditures for research and development, and it helped
coordinate efforts among universities, private industry,
and
government research centers
(see Industrial Policy
, this
ch.).
The government and the Bank of Finland (BOF), Finland's
central
bank, gradually deregulated the financial sector in an
effort to
improve the efficiency of capital markets
(see Banking and Finance
, this ch.). Thus, although the state continued to
control
certain key sectors, such as agriculture, forestry,
minerals, and
energy, overall economic policy had shifted from sectoral
intervention toward efforts to improve productivity and
market
efficiency.
Data as of December 1988
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