Finland entered in 2012 in an alley that seems to have no way out. That year, the ‘exemplary’ Nordic country entered a recession from which it has been unable to escape. Helsinki’s economy has frozen and the unemployment rate has far exceeded that of its neighbors Sweden and Denmark. It seems that to abandon this path, Finnish economists and politicians are willing to copy Sweden to return to growth and create net employment.
Less than four years ago, Finland boasted of being the Nordic country (except for the exceptional case of Norway) with the lowest unemployment rate. Sweden and Denmark showed unemployment close to 8%, while in Finland the unemployment rate seemed to have stabilized at 7.5%.
However, four years later unemployment has climbed in Finland to 9.4%, while Sweden and Denmark show unemployment rates below 7%. To all this must be added the imbalance in the country’s public finances. A permanent public deficit and a growing public debt.
What happened?
As Matti Pohjola, professor of economics at the Aalto University Business School in Finland, explains, “almost all of Finland’s problems are caused by the ills of industry. That’s amazing,” the economist explains in the magazine ‘International Social and Labor News’.
Some experts believe that the strength of the euro over the years may have helped make this situation more serious. However, as Simon Nixon explained in The Wall Street Journal, it would be too easy and false to blame the euro for Finland’s problems. An important count of factors can be made for which the Finnish economy does not start and in which the euro has had little to do. The first of all is called Nokia, the company with the most employees in the country. On the other hand, the collapse of raw materials and with them the paper is affecting another of the large sectors of Finland, the wood industry.
As if the internal problems were not enough, Helsinki’s main trading partner, Russia, is experiencing a major crisis as a result of the collapse in the price of oil and gas. This situation has been aggravated by the sanctions imposed by the European Union, which have damaged the Russian economy, but also and much that of Finland.
All these factors have eaten up a third of Finnish exports compared to 2008. Now a country that has been running strong current account surpluses since the 1990s is running constant deficits.
Copy to Sweden
Matti Tuomala, professor at the University of Tampere, explains that “Sweden could be taken as an example to learn from how its economic growth has been based more on internal demand and on an increase in the disposable income of agents”.
It is true that Sweden has control of its currency, but it is also true that from Stockholm they have made major reforms to improve their competitiveness, “it has reduced public spending from 60% of GDP to 50%, in addition to reducing the marginal rate of personal income tax from 85% to 56% from the 1980s to today, a way of attracting talent. Sweden’s success is due more to reforms aimed at making its markets more flexible than to the devaluation of the krone,” explains Simon Nixon in The Wall Street Journal.
However, Finland remains ‘trapped’ in a thicket of outdated regulations, in a very generous social benefit system. In addition, the working-age population is shrinking in the face of rapid population ageing.
The Government of Finland has taken note and has begun an arduous path to improve the country’s economy. The country is experiencing the biggest strikes in its history after the government has proposed a labor reform that contains strong cuts in civil servants’ rights, in an attempt to increase the country’s competitiveness and reduce public spending. Among the most striking measures is the elimination of eight days of vacation for public employees in the country.
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