Economy of Finland

Template:Economy of Finland table Finland has a highly industrialised modern economy with a per capita output in par with the United Kingdom, France, Germany, Sweden and Italy. The main economic sector is manufacturing, centering around the wood, metals, engineering, telecommunications, and electronics industries.

Similarly to its Nordic neighbors, Finland has achieved an excellent standard of living through the so called Nordic model, which stresses a model of education, lifelong learning, and research for economic growth purposes.

Finland constantly ranks high in terms of measures ranking countries global competitiveness, with World Economic Forum Global Competitiveness Report ranking Finland 2nd out of 125 countries for 2006-2007. ^[1]

History

Finland started out as a relatively poor country that was vulnerable to shocks to the economy such as the great famine of the 1860s. Until the 1930s, the Finnish economy was predominantly agrarian, and, as late as in the 1950s, more than half the population and 40 per cent of output were still in the primary sector. Yet by the late 1970s, Finland had become a mature industrial economy. After World War II, the Finnish State played a powerful indirect and direct role in the economy, pacifying the trade unions and employers’ organisations and investing heavily in the manufacturing industries. Centralized wage bargaining was widely adopted in the late 1960s coupled with social policy reforms that intended to reduce social risks. This led to the management of economic growth that also resulted in very equal outcomes. In fact, even today, the inequality of income distribution, as measured by the Gini coefficient, is one of the lowest of OECD countries. Finland reached the same level of GDP per capita as the UK in the 1980s and the same level as Sweden in the 1990s. However, the 1990s recession led to a temporary relative decline in Finland’s economic position.

Crisis of the 1990s

In 1991, Finland experienced an economic collapse and fell into a severe depression caused by economic overheating, depressed foreign markets and the dismantling of the barter system between Finland and the former Soviet Union. Although the period saw economic crises in Finland's major trading partners as well, the recession was more severe in Finland due to the fact that more than twenty percent of Finnish trade was with the Soviet Union before 1991, and in the following two years the trade practically ceased. Much of the economic growth in the 1980s was based on debt financing, and the debt defaults led to a restructural changes in the banking sector. The Finnish version of a Savings and Loan crisis, was relieved as the Bank of Finland and the Finnish government supported financially stressed Finnish banks for a total of over 10 billion euros over the crisis period ^[2]. Also, the economic downturn increased unemployment from a virtual full employment to roughly 16% unemployment rate in a very short period of time. However, civil order remained and the state alleviated the problem of funding the welfare state by taking massive debts. 1991 and again in 1992, Finland devalued the markka to promote export competitiveness. This helped stabilise the economy; the depression bottomed out in 1993, with continued growth through 1995.

Since then the growth rate has been one of the highest of OECD countries, and national debt has been reduced to 37.7 percent of GDP (fulfilling the EU's Stability and Growth Pact requirement).

Current economic outlook

The current economic outlook for both the near-term and long-term future look positive, based on assessments made by The World Economic Forum that has declared Finland to be the most competitive country in the world for three consecutive years (2003–2005) and four times since 2002.

In recent years there has been national focus on innovation and research and development, with special emphasis on information technology. Finland was ranked 3rd most innovative economy in 2006 by the European Innovation Scoreboard (EIS), with scores well above that of the EU25 average and the United States.^[3]

Nokia, the telecommunications company, is generally regarded as the single most significant cause of Finland's success.

Also, in January 2004, on the initiative of the Finnish Prime Minister Matti Vanhanen, the government started a Suomi Maailmantaloudessa (Finland in World Economy) project, which charted the gaps in the competitiveness of the Finnish economy in face of increasing global competition.

The results of this project^[4], which provided insights into how the innovation systems and education of the workforce can be enhanced, are being implemented by the current government.

Internationally, Finland has been increasingly noted as a gateway to Russia, underlined by the fact that Helsinki, capital of Finland, is situated only 3 hours journey by train from St Petersburg, Russia's second largest and Europe's third largest city, after the planned high speed train link has been completed. ^[5] ^[6] As a measure of the increased cross-border economic activity, in 2006 about 389,000 trucks crossed from Finland to Russia, compared with 348,000 in 2005. The growth has continued, with the transit traffic from Finland to the eastern neighbor increasing by 26 percent in January-June 2007 to 1.6 million tonnes. ^[7]

Tourism is one of the fastest growing areas of the economy, with tourist stays in Finland growing at a rate of 11,2% 2006/2005. ^[8] The biggest group of tourists to Finland are Russians, but tourism from China, India and other Asian countries are among the fastest growing groups, as the geographical location of Finland is such that it takes only 6.5 hours to fly to Helsinki from Delhi, for example. ^[9] ^[10]

Government

Due to the financial crisis in the 1990s, the government relied heavily on increased levels of debt financing until 1999, after which the levels of public debt have come down rapidly, propelled by continued economic expansion and decreased levels of unemployment.

The public finances have been in good shape ever since and for the Government budget year 2007, the budgeted finances are at an surplus of 163 million euros, which will be directed at further reducing the public debt levels. ^[11]

Economic and Monetary Union

Finland was one of the 11 countries joining the third phase of the Economic and Monetary Union of the European Union, adopting the euro as the country's currency, on 1 January 1999. The national currency markka (FIM) was withdrawn from circulation and replaced by euro (EUR) in the beginning of 2002.

The stability that the monetary union has bought to the Finnish economy has been largely welcomed as one of the cornerstones of continued economic expansion. However, some of the biggest EU trading partners, notably Sweden and UK, have not joined the monetary union, which has left the export sector vulnerable to currency changes.

Unemployment

In 1990, the unemployment rate stood at a 3.2%, but the subsequent economic crisis led to rapid growth in unemployment in a very short period, peaking at an unemployment rate of 16.6% in 1994. Since then, the rate of unemployment has been on a decreasing trajectory, standing at 5,9% of workforce as of August, 2007, down from 6.9% a year earlier.

As a welfare state, the unemployment security benefits for those seeking employment are high, d the labor administration also funds labor market training for unemployed job seekers, which is often vocational. The aim of the training is to improve the channels of finding employment.

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