Economy of Finland
Encyclopedia
Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

 has a highly industrialised, mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...

 with a per capita
Per capita
Per capita is a Latin prepositional phrase: per and capita . The phrase thus means "by heads" or "for each head", i.e. per individual or per person...

 output equal to that of other western economies such as France
Economy of France
France is the world's fifth largest economy by nominal figures and the ninth largest economy by PPP figures. It is the second largest economy in Europe in nominal figures and third largest economy in Europe in PPP figures...

, Germany
Economy of Germany
Germany is the largest national economy in Europe, the fourth-largest by nominal GDP in the world, and fifth by GDP in 2008. Since the age of industrialisation, the country has been a driver, innovator, and beneficiary of an ever more globalised economy...

, Sweden
Economy of Sweden
The economy of Sweden is a developed diverse economy, aided by timber, hydropower and iron ore. These constitute the resource base of an economy oriented toward foreign trade...

 or the United Kingdom
Economy of the United Kingdom
The economy of the United Kingdom is the sixth-largest national economy in the world measured by nominal GDP and seventh-largest measured by purchasing power parity , and the third-largest in Europe measured by nominal GDP and second-largest measured by PPP...

. The largest sector of the economy is services at 65.7 percent, followed by manufacturing and refining at 31.4 percent. Primary production is 2.9 percent. With respect to foreign trade
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...

, the key economic sector is manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...

. The largest industries are electronics
Electronics
Electronics is the branch of science, engineering and technology that deals with electrical circuits involving active electrical components such as vacuum tubes, transistors, diodes and integrated circuits, and associated passive interconnection technologies...

 (21.6 percent), machinery, vehicles and other engineered metal products (21.1 percent), forest industry (13.1 percent), and chemicals (10.9 percent). Finland has timber
Timber
Timber may refer to:* Timber, a term common in the United Kingdom and Australia for wood materials * Timber, Oregon, an unincorporated community in the U.S...

 and several mineral and freshwater resources. Forestry
Forestry
Forestry is the interdisciplinary profession embracing the science, art, and craft of creating, managing, using, and conserving forests and associated resources in a sustainable manner to meet desired goals, needs, and values for human benefit. Forestry is practiced in plantations and natural stands...

, paper factories, and the agricultural sector
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

 (on which taxpayers spend around 2 billion euro annually) are politically sensitive to rural residents. The Greater Helsinki
Greater Helsinki
Greater Helsinki and the smaller Helsinki Metropolitan Area or Capital Region refer to two regions of different size surrounding Helsinki, the capital of Finland...

 area generates around a third of GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

. In a 2004 OECD comparison, high-technology manufacturing in Finland ranked second largest after Ireland. Knowledge-intensive services have also ranked the smallest and slow-growth sectors – especially agriculture and low-technology manufacturing – second largest after Ireland. Investment was below expected. Overall short-term outlook was good and GDP growth has been above many EU peers. Finland has the 4th largest knowledge economy
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...

 in Europe, behind Sweden, Denmark and the UK.

Finland is highly integrated in the global economy, and international trade is a third of GDP. The European Union makes 60 percent of the total trade. The largest trade flows are with Germany, Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

, Sweden, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

 and China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

. Trade policy is managed by the European Union, where Finland has traditionally been among the free trade supporters, except for agriculture. Finland is the only Nordic country to have joined the Eurozone
Eurozone
The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

; Denmark
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...

 and Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 have retained their traditional currencies, whereas Iceland
Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...

 and Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...

 are not members of the EU at all.

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 percent of output were still in the primary sector.

After World War II

Property rights were strong. While nationalization committees were set up in France and the United Kingdom, Finland avoided nationalizations. After failed experiments with protectionism, Finland eased restrictions and concluded a free trade agreement with the European Community in 1973, making its markets more competitive. Local education markets expanded and an increasing number of Finns also went abroad to study in the United States or Western Europe, bringing back advanced skills. There was a quite common, but pragmatic-minded, credit and investment cooperation by state and corporations, though it was considered with suspicion. Support for capitalism was widespread. Savings rate hovered among the world's highest, at around 8% until the 80s. In the beginning of the 1970s, Finland's GDP per capita reached the level of Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

 and the UK. Finland's economic development shared many aspects with export-led Asian countries.

In 1991 the Finnish economy fell into recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

. This was caused by a combination of economic overheating
Overheating (economics)
Overheating of an economy occurs when its productive capacity is unable to keep pace with growing aggregate demand. It is generally characterised by an above-trend rate of economic growth, where growth is occurring at an unsustainable rate...

, depressed markets with key trading partners (particularly the Swedish and Soviet markets) as well as local markets, slow growth with other trading partners, and the disappearance of the Soviet barter system
Barter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...

. Stock market and housing prices declined by 50%. The growth in the 1980s was based on debt, and when the defaults began rolling in, GDP declined by 13% and unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 increased from a virtual full employment to one fifth of the workforce. The crisis was amplified by trade unions' initial opposition to any reforms. Politicians struggled to cut spending and the public debt doubled to around 60% of GDP. Much of the economic growth in the 1980s was based on debt financing, and the debt defaults led to a savings and loan crisis
Savings and Loan crisis
The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...

. Total of over 10 billion euro were used to bail out failing banks, which led to banking sector consolidation.
After devaluations the depression bottomed out in 1993.

Liberalization

Like other Nordic countries, Finland has modified its system of economic regulation since late 1980s. Financial and product market regulations were modified. Some state enterprises were privatized and some tax rates were altered. However, unlike Denmark, Finland has not adopted polices such as a basic income
Basic income
A basic income guarantee is a proposed system of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households, groups, or nations, in order...

 or negative income tax
Negative income tax
In economics, a negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Such a system has been discussed by economists but never fully implemented...

.

European Union

Finland joined the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 in 1995. The central bank was given an inflation-targeting mandate until Finland joined euro zone. The growth rate has since been one of the highest of OECD countries and Finland has topped many indicators of national performance.

Finland was one of the 11 countries joining the third phase of the Economic and Monetary Union of the European Union
Economic and Monetary Union of the European Union
The Economic and Monetary Union is an umbrella term for the group of policies aimed at converging the economies of members of the European Union in three stages so as to allow them to adopt a single currency, the euro. As such, it is largely synonymous with the eurozone.All member states of the...

, adopting the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

 as the country's currency, on 1 January 1999. The national currency markka (FIM) was withdrawn from circulation and replaced by the euro (EUR) at the beginning of 2002.

Agriculture

Finland's climate and soils make growing crops a particular challenge. The country lies between 60° and 70° north latitude - as far north as Alaska - and has severe winters and relatively short growing seasons that are sometimes interrupted by frosts. However, because the Gulf Stream and the North Atlantic Drift Current moderate the climate, Finland contains half of the world's arable land north of 60° north latitude. Annual precipitation is usually sufficient, but it occurs almost exclusively during the winter months, making summer droughts a constant threat. In response to the climate, farmers have relied on quick-ripening and frost-resistant varieties of crops, and they have cultivated south-facing slopes as well as richer bottomlands to ensure production even in years with summer frosts. Most farmland had originally been either forest or swamp, and the soil had usually required treatment with lime and years of cultivation to neutralise excess acid and to develop fertility. Irrigation was generally not necessary, but drainage systems were often needed to remove excess water.

Until the late nineteenth century, Finland's isolation required that most farmers concentrate on producing grains to meet the country's basic food needs. In the fall, farmers planted rye; in the spring, southern and central farmers started oats, while northern farmers seeded barley. Farms also grew small quantities of potatoes, other root crops, and legumes. Nevertheless, the total area under cultivation was still small. Cattle grazed in the summer and consumed hay in the winter. Essentially self-sufficient, Finland engaged in very limited agricultural trade.

This traditional, almost autarkic, production pattern shifted sharply during the late nineteenth century, when inexpensive imported grain from Russia and the United States competed effectively with local grain. At the same time, rising domestic and foreign demand for dairy products and the availability of low-cost imported cattle feed made dairy and meat production much more profitable. These changes in market conditions induced Finland's farmers to switch from growing staple grains to producing meat and dairy products, setting a pattern that persisted into the late 1980s.

In response to the agricultural depression of the 1930s, the government encouraged domestic production by imposing tariffs on agricultural imports. This policy enjoyed some success: the total area under cultivation increased, and farm incomes fell less sharply in Finland than in most other countries. Barriers to grain imports stimulated a return to mixed farming, and by 1938 Finland's farmers were able to meet roughly 90 percent of the domestic demand for grain.

The disruptions caused by the Winter War and the Continuation War caused further food shortages, especially when Finland ceded territory, including about one-tenth of its farmland, to the Soviet Union. The experiences of the depression and the war years persuaded the Finns to secure independent food supplies to prevent shortages in future conflicts.

After the war, the first challenge was to resettle displaced farmers. Most refugee farmers were given farms that included some buildings and land that had already been in production, but some had to make do with "cold farms," that is, land not in production that usually had to be cleared or drained before crops could be sown. The government sponsored large-scale clearing and draining operations that expanded the area suitable for farming. As a result of the resettlement and land-clearing programs, the area under cultivation expanded by about 450,000 hectares, reaching about 2.4 million hectares by the early 1960s. Finland thus came to farm more land than ever before, an unusual development in a country that was simultaneously experiencing rapid industrial growth.

During this period of expansion, farmers introduced modern production practices. The widespread use of modern inputs—chemical fertilisers and insecticides, agricultural machinery, and improved seed varieties—sharply improved crop yields. Yet the modernisation process again made farm production dependent on supplies from abroad, this time on imports of petroleum and fertilisers. By 1984 domestic sources of energy covered only about 20 percent of farm needs, while in 1950 domestic sources had supplied 70 percent of them. In the aftermath of the oil price increases of the early 1970s, farmers began to return to local energy sources such as firewood. The existence of many farms that were too small to allow efficient use of tractors also limited mechanisation. Another weak point was the existence of many fields with open drainage ditches needing regular maintenance; in the mid-1980s, experts estimated that half of the cropland needed improved drainage works. At that time, about 1 million hectares had underground drainage, and agricultural authorities planned to help install such works on another million hectares. Despite these shortcomings, Finland's agriculture was efficient and productive—at least when compared with farming in other European countries.

Forestry

Forests play a key role in the country's economy, making it one of the world's leading wood producers and providing raw materials at competitive prices for the crucial wood-processing industries. As in agriculture, the government has long played a leading role in forestry, regulating tree cutting, sponsoring technical improvements, and establishing long-term plans to ensure that the country's forests continue to supply the wood-processing industries.

Finland's wet climate and rocky soils are ideal for forests. Tree stands do well throughout the country, except in some areas north of the Arctic Circle. In 1980 the forested area totaled about 19.8 million hectares, providing 4 hectares of forest per capita—far above the European average of about 0.5 hectares. The proportion of forest land varied considerably from region to region. In the central lake plateau and in the eastern and northern provinces, forests covered up to 80 percent of the land area, but in areas with better conditions for agriculture, especially in the southwest, forests accounted for only 50 to 60 percent of the territory. The main commercial tree species—pine, spruce, and birch—supplied raw material to the sawmill, pulp, and paper industries. The forests also produced sizable aspen and elder crops.

The heavy winter snows and the network of waterways were used to move logs to the mills. Loggers were able to drag cut trees over the winter snow to the roads or water bodies. In the southwest, the sledding season lasted about 100 days per year; the season was even longer to the north and the east. The country's network of lakes and rivers facilitated log floating, a cheap and rapid means of transport. Each spring, crews floated the logs downstream to collection points; tugs towed log bundles down rivers and across lakes to processing centers. The waterway system covered much of the country, and by the 1980s Finland had extended roadways and railroads to areas not served by waterways, effectively opening up all of the country's forest reserves to commercial use.

Forestry and farming were closely linked. During the twentieth century, government land redistribution programmes had made forest ownership widespread, allotting forestland to most farms. In the 1980s, private farmers controlled 35 percent of the country's forests; other persons held 27 percent; the government, 24 percent; private corporations, 9 percent; and municipalities and other public bodies, 5 percent. The forestlands owned by farmers and by other people—some 350,000 plots—were the best, producing 75 to 80 percent of the wood consumed by industry; the state owned much of the poorer land, especially that in the north.

The ties between forestry and farming were mutually beneficial. Farmers supplemented their incomes with earnings from selling their wood, caring for forests, or logging; forestry made many otherwise marginal farms viable. At the same time, farming communities maintained roads and other infrastructure in rural areas, and they provided workers for forest operations. Indeed, without the farming communities in sparsely populated areas, it would have been much more difficult to continue intensive logging operations and reforestation in many prime forest areas.

The Ministry of Agriculture and Forestry has carried out forest inventories and drawn up silvicultural plans. According to surveys, between 1945 and the late 1970s foresters had cut trees faster than the forests could regenerate them. Nevertheless, between the early 1950s and 1981, Finland was able to boost the total area of its forests by some 2.7 million hectares and to increase forest stands under 40 years of age by some 3.2 million hectares. Beginning in 1965, the country instituted plans that called for expanding forest cultivation, draining peatland and waterlogged areas, and replacing slow-growing trees with faster-growing varieties. By the mid-1980s, the Finns had drained 5.5 million hectares, fertilized 2.8 million hectares, and cultivated 3.6 million hectares. Thinning increased the share of trees that would produce suitable lumber, while improved tree varieties increased productivity by as much as 30 percent.

Comprehensive silvicultural programmes had made it possible for the Finns simultaneously to increase forest output and to add to the amount and value of the growing stock. By the mid-1980s, Finland's forests produced nearly 70 million cubic meters of new wood each year, considerably more than was being cut. During the postwar period, the annual cut increased by about 120 percent to about 50 million cubic meters. Wood burning fell to one-fifth the level of the immediate postwar years, freeing up wood supplies for the wood-processing industries, which consumed between 40 million and 45 million cubic meters per year. Indeed, industry demand was so great that Finland needed to import 5 million to 6 million cubic meters of wood each year.

To maintain the country's comparative advantage in forest products, Finnish authorities moved to raise lumber output toward the country's ecological limits. In 1984 the government published the Forest 2000 plan, drawn up by the Ministry of Agriculture and Forestry. The plan aimed at increasing forest harvests by about 3 percent per year, while conserving forestland for recreation and other uses. It also called for enlarging the average size of private forest holdings, increasing the area used for forests, and extending forest cultivation and thinning. If successful, the plan would make it possible to raise wood deliveries by roughly one-third by the end of the twentieth century. Finnish officials believed that such growth was necessary if Finland was to maintain its share in world markets for wood and paper products.

Industry

From the 1990s, Finnish industry, which for centuries had relied on the country's vast forests, became dominated by to a larger extent by electronics and services, as globalisation lead to a decline of more traditional industries. Outsourcing resulted in more manufacturing being transferred abroad, with Finnish-based industry focusing to a greater extent on R&D and hi-tech electronics.

Electronics

The Finnish electronics and electrotechnics industry relies on heavy investment in R&D, and has been accelerated by the liberalisation of global markets. Electrical engineering started in the late 19th century with generators and electric motors built by Gottfried Strömberg, now part of the ABB Group. Other Finnish companies – such as Instru, Vaisala and Neles (now part of Metso) - have succeeded in areas such as industrial automation, medical and meteorological technology. Nokia
Nokia
Nokia Corporation is a Finnish multinational communications corporation that is headquartered in Keilaniemi, Espoo, a city neighbouring Finland's capital Helsinki...

 is a world leader in mobile telecommunications.

Metals, engineering and manufacturing

Finland has an abundance of minerals, but many large mines have closed down, and most raw materials are now imported. For this reason, companies now tend to focus on high added-value processing of metals. The exports include the production steel, copper, zinc and nickel, and finished products such as steel roofing and cladding, welded steel pipes, copper pipe and coated sheets. Outokumpu is known for developing the flash smelting process for copper production and stainless steel.

The manufacturing industry is a significant employer of about 400,000 people

Chemical industry

The chemical industry is one of the Finland's largest industrial sectors with its roots in tar making in the 17th century. It produces an enormous range of products for the use of other industrial sectors, especially for forestry and agriculture. In addition, its produces plastics, chemicals, paints, oil products, pharmaceuticals, environmental products, Biotech products and petrochemicals. Biotechnology
Biotechnology
Biotechnology is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and other fields requiring bioproducts. Biotechnology also utilizes these products for manufacturing purpose...

 is regarded as one of the most promising high-tech sectors in Finland and it is growing rapidly.

Pulp and paper industry

Forest products has been the major export industry in the past, but diversification and growth of the economy has reduced its share. In the 1970s, the pulp and paper industry accounted for half of Finnish exports. Although this share has shrank, pulp and paper is still a major industry with 52 sites across the country. Furthermore, several of large international corporations in this business are based in Finland. Stora Enso
Stora Enso
Stora Enso Oyj is a Finnish pulp and paper manufacturer, formed by the merger of Swedish mining and forestry products company Stora and Finnish forestry products company Enso-Gutzeit Oy in 1998. It is headquartered in Helsinki, and it has approximately 29,000 employees...

 and UPM
UPM
-Technology:* Umdrehung pro Minute, German for revolutions per minute .* Unified Performance Management, a network optimization and application acceleration concept* Universal Port Module, SAN Director Module for ESS Fibre Port connections....

 were placed #1 and #3 by output in the world, both producing more than ten million tons. M-real
M-real
M-real Corporation is a Finnish paper and pulp company. It was originally established by G.A. Serlachius, and named Metsä-Serla . The brand Serla is an M-real brand. M-real's slogan is "make it real"....

 and Myllykoski
Myllykoski Corporation
Myllykoski Corporation was a family owned international paper group with manufacturing in Germany, Finland and North America and sales offices around the world...

 also appear on the top 100 list.

Energy industry

Finland's energy supply is divided as follows: nuclear power - 26%, net imports - 20%, hydroelectric power - 16%, combined production district heat - 18%, combined production industry - 13%, condensing power - 6%.
One half of all the energy consumed in Finland goes to industry, one fifth to heating buildings and one fifth to transport. Lacking indigenous fossil fuel resources, Finland has been an energy importer. This might change in the future since Finland is currently building its fifth and approved the building permits for its sixth and seventh reactors.

Companies

Notable companies in Finland include Nokia
Nokia
Nokia Corporation is a Finnish multinational communications corporation that is headquartered in Keilaniemi, Espoo, a city neighbouring Finland's capital Helsinki...

, the market leader in mobile telephony; Stora Enso
Stora Enso
Stora Enso Oyj is a Finnish pulp and paper manufacturer, formed by the merger of Swedish mining and forestry products company Stora and Finnish forestry products company Enso-Gutzeit Oy in 1998. It is headquartered in Helsinki, and it has approximately 29,000 employees...

, the largest paper manufacturer in the world; Neste Oil
Neste Oil
Neste Oil is a Finnish oil refining and marketing company producing mainly transportation fuels and other refined petroleum products. Neste Oil shares are quoted on the Helsinki Stock Exchange.- History :...

, an oil refining and marketing company; UPM-Kymmene
UPM (company)
UPM-Kymmene Corporation is a Finnish pulp, paper and timber manufacturer. UPM-Kymmene was formed by the merger of Kymmene Corporation and Repola Ltd and its subsidiary United Paper Mills Ltd in 1996...

, the third largest paper manufacturer in the world; Aker Finnyards, the manufacturer of the world's largest cruise ships (such as Royal Caribbean's
Royal Caribbean International
Royal Caribbean International is a Norwegian and American cruise line brand based in Miami, Florida and owned by Royal Caribbean Cruises Ltd.. With 42 ships in service under 5 different brands and one more under construction, it controls a 25.6% share of the world cruise market...

 Freedom of the Seas
MS Freedom of the Seas
MS Freedom of the Seas is a cruise ship owned and operated by Royal Caribbean International. It is the namesake of Royal Caribbean's Freedom class cruise ships, and can accommodate 3,634 passengers and 1,300 crew on fifteen passenger decks...

); Rovio Mobile
Rovio mobile
Rovio Entertainment Ltd. or Rovio is a Finnish computer game developer founded in 2003 as Relude, and in 2005 renamed as Rovio, based in Espoo...

, video game developer most notable for creating Angry birds
Angry Birds
Angry Birds is a puzzle video game developed by Finnish computer game developer Rovio Mobile. Inspired primarily by a sketch of stylized wingless birds, the game was first released for Apple's iOS in December 2009...

; KONE
KONE
Kone Oyj , founded in 1910 and headquartered in Espoo, Finland, is an international engineering and service company employing some 32,500 personnel worldwide. The firm is the fourth largest manufacturer of elevators worldwide, a leading manufacturer of escalators, and also provides maintenance...

, a manufacturer of elevators and escalators; Wärtsilä
Wärtsilä
Wärtsilä is a Finnish corporation which manufactures and services power sources and other equipment in the marine and energy markets. The core products of Wärtsilä include large combustion engines...

, a producer of power plants and ship engines; and Finnair
Finnair
Finnair Plc is the flag carrier and largest airline of Finland, with its headquarters on the grounds of Helsinki Airport in Vantaa, Finland, and its main hub at Helsinki Airport. Finnair and its subsidiaries dominate both the domestic and international air travel markets in Finland. The largest...

, the largest Helsinki-Vantaa based international airline
Airline
An airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...

. Finland has sophisticated financial markets comparable to UK in efficiency. Though foreign investment is as not high as some other European countries, the largest foreign-headquartered companies included names such as ABB, Tellabs
Tellabs
Tellabs, Inc. is a telecommunications company that designs and manufactures equipment for service providers.Ranked among the BusinessWeek InfoTech 100, Tellabs is part of the NASDAQ-100 Index, NASDAQ Global Select Market, Ocean Tomo 300 Patent Index and the S&P 500...

, Carlsberg, and Siemens
Siemens
Siemens may refer toSiemens, a German family name carried by generations of telecommunications industrialists, including:* Werner von Siemens , inventor, founder of Siemens AG...

.

Around 70-80% of the equity quoted on the Helsinki Stock Exchange
Helsinki Stock Exchange
The Helsinki Stock Exchange is a stock exchange located in Helsinki, Finland. Since 3 September 2003 it has been part of OMX, referred to as OMX Helsinki . Since NASDAQ's acquisition of OMX in February 2008, the official name of the Helsinki exchange has been NASDAQ OMX Helsinki.- History :The...

 is owned by foreign-registered entities. The larger companies get most of their revenue from abroad, and the majority of their employees work outside the country. Cross-shareholding has been abolished and there is a trend towards an Anglo-Saxon style of corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...

. However, only around 15% of residents had invested in stock market, compared to 20% in France, and 50% in the US.

Between 2000-2003, early stage venture capital investments relative to GDP were 8.5 percent against 4 percent in the EU and 11.5 in the US. Later stage investments fell to the EU median. Invest in Finland and other programs attempt to attract investment. In 2000 FDI
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

 from Finland to overseas was 20 billion euro and from overseas to Finland 7 billion euro. Acquisitions and mergers have internationalized business in Finland.

Household income and consumption

Finland's income is generated by the approximately 1.8 million private sector workers, who make an average 25.1 euro per hour (before the median 60% tax wedge
Tax wedge
The tax wedge is the deviation from equilibrium price/quantity as a result of a taxation, which results in consumers paying more, and suppliers receiving less....

) in 2007. In 2003 residents worked on average around 10 years for the same employer and around 5 jobs in lifetime. 62 percent worked for small and medium-size enterprises. Female employment rate was high and gender segregation on career choices was higher than in the US. In 1999 part-time work rate was one of the smallest in OECD.

Future liabilities are dominated by the pension deficit. Unlike in Sweden, where pension savers can manage their investments, in Finland employer chooses a pension fund for the employee. The pension funding rate is higher than in most Western European countries, but still only a portion of it is funded and pensions exclude health insurances and other unaccounted promises. Directly held public debt has been reduced to around 32 percent in 2007. In 2007, the average household savings rate was -3.8 and household debt
Household debt
Household debt is the debt owed by persons living in households, as opposed to business debts. It includes consumer debt and mortgage loans held by members of households for the homes they live in....

 101 percent of annual disposable income, a typical level in Europe.

In 2008, the OECD reported that "the gap between rich and poor has widened more in Finland than in any other wealthy industrialised country over the past decade" and that "Finland is also one of the few countries where inequality of incomes has grown between the rich and the middle-class, and not only between rich and poor."

In 2006, there were 2,381,500 households of average size 2.1 people. Forty percent of households consisted of single person, 32 percent two and 28 percent three or more. There were 1.2 million residential buildings in Finland and the average residential space was 38 square metres per person. The average residential property (without land) cost 1,187 euro per square metre (without land) and residential land on 8.6 euro per square metre. Consumer energy prices were 8-12 euro cent per kilowatt hour. 74 percent of households had a car. There were 2.5 million cars and 0.4 other vehicles.
Around 92 percent has mobile phone and 58 percent Internet connection at home. The average total household consumption was 20,000 euro, out of which housing at around 5500 euro, transport at around 3000 euro, food and beverages excluding alcoholic at around 2500 euro, recreation and culture at around 2000 euro. Upper-level white-collar households (409,653) consumed an average 27,456 euro, lower-level white-collar households (394,313) 20,935 euro, and blue-collar households (471,370) 19,415 euro.

Unemployment

The unemployment rate was 6.8% and 6.9% in early 2008. The unemployment security benefits for those seeking employment are at an average OECD level. The labor administration funds labour market training for unemployed job seekers, which is often vocational. The aim of the training is to improve the channels of finding employment. Very much like in Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

, the government is often accused (often by foreigners, especially in Anglo-Saxon countries) of "cleaning the unemployment statistics" by vocational training programmes.

Public policy

Finnish politicians have often emulated other Nordics and the Nordic model
Nordic model
The Nordic model refers to the economic and social models of the Nordic countries . This particular adaptation of the mixed market economy is characterised by "universalist" welfare states , which are aimed specifically at enhancing individual autonomy, ensuring the universal provision of basic human...

. Nordics have been free-trading and relatively welcoming to skilled migrants for over a century, though in Finland immigration is a relatively new phenomenon. This is due largely to Finland's less hospitable climate and the fact that the Finnish language shares roots with none of the major world languages, making it more challenging than average for most to learn. The level of protection in commodity trade has been low, except for agricultural products.

As an economic environment, Finland's judiciary is efficient and effective. Finland is highly open to investment and free trade. Finland has top levels of economic freedom in many areas, although there is a heavy tax burden and inflexible job market. Finland is ranked 16th (ninth in Europe) in the 2008 Index of Economic Freedom
Index of Economic Freedom
The Index of Economic Freedom is a series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal. Its stated objective is to measure the degree of economic freedom in the world's nations....

. Recently, Finland has topped the patents per capita statistics, and overall productivity growth has been strong in areas such as electronics. While the manufacturing sector is thriving, OECD points out that the service sector would benefit substantially from policy improvements. The IMD
International Institute for Management Development
IMD - International Institute for Management Development is a non profit business school located in Lausanne, Switzerland.- History & Mission :...

 World Competitiveness Yearbook 2007 ranked Finland 17th most competitive
Competitiveness
Competitiveness is a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market...

, next to Germany, and lowest of the Nordics. while the World Economic Forum
World Economic Forum
The World Economic Forum is a Swiss non-profit foundation, based in Cologny, Geneva, best known for its annual meeting in Davos, a mountain resort in Graubünden, in the eastern Alps region of Switzerland....

 report has ranked Finland the most competitive country. Finland is one of the most fiscally responsible
Balanced budget
A balanced budget is when there is neither a budget deficit or a budget surplus – when revenues equal expenditure – particularly by a government. More generally, it refers to when there is no deficit, but possibly a surplus...

 EU countries.

Product market

Economists attribute much growth to reforms in the product markets. According to OECD, only four EU-15 countries have less regulated product market
Product market
Product market is a mechanism that allows people to easily buy and sell products. Services are often included in the scope of the term. Product market regulation is an economic term that describes restrictions in the market....

s (UK, Ireland, Denmark and Sweden) and only one has less regulated financial market
Financial market
In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...

s (Denmark). Nordic countries were pioneers in liberalising energy, postal, and other markets in Europe. The legal system is clear and business bureaucracy less than most countries. For instance, starting a business takes an average of 14 days, compared to the world average of 43 days and Denmark's average of 6 days. Property rights are well protected and contractual agreements are strictly honored. Finland is rated one of the least corrupted countries in Corruption Perceptions Index
Corruption Perceptions Index
Since 1995, Transparency International publishes the Corruption Perceptions Index annually ranking countries "by their perceived levels of corruption, as determined by expert assessments and opinion surveys." The CPI generally defines corruption as "the misuse of public power for private...

. Finland is rated 13th in the Ease of Doing Business Index
Ease of Doing Business Index
The Ease of Doing Business Index is an index created by the World Bank. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights...

. It indicates exceptional ease to trade across borders (5th), enforce contracts (7th), and close a business (5th), and exceptional hardship to employ workers (127th) and pay taxes (83rd).

Job market

According to the OECD, Finland's job market is the least flexible of the Nordic countries. Finland increased job market regulation in the 1970s to provide stability to manufacturers. In contrast, during the 90s, Denmark liberalised its job market, Sweden moved to more decentralised contracts, whereas Finnish trade unions blocked many reforms. Many professions have legally recognized industry-wide contracts that lay down common terms of employment including seniority levels, holiday entitlements, and salary levels, usually as part of a Comprehensive Income Policy Agreement
Comprehensive Income Policy Agreement
Finnish national income policy agreements or comprehensive income policy agreements are tripartite agreements between Finnish trade unions, employers' organizations, and the Finnish government. They are policy documents covering a wide range of economic and political issues, such as salaries,...

. Some consider these agreements to be bureaucratic, inflexible, and, along with tax rates, a key contributor to unemployment and distorted prices. Possibly it may also slow down structural change as there are fewer incentives to acquire better skills, although Finland already enjoys one of the highest skill-levels in the world.

Taxation

Tax is collected mainly from municipal income tax, state income tax, state value added tax, customs fees, corporate taxes and special taxes. There are also property taxes, but municipal income tax pays most of municipal expenses. Taxation is conducted by a state agency, Verohallitus, which collects income taxes from each paycheck, and then pays the difference between tax liability and taxes paid as tax rebate or collects as tax arrears afterward. Municipal income tax is a flat tax of nominally 15-20%, with deductions applied, and directly funds the municipality (a city or rural locality). The state income tax is a progressive tax; low-income individuals do not necessarily pay any. The state transfers some of its income as state support to municipalities, particularly the poorer ones. Additionally, the state churches - Finnish Evangelical Lutheran Church
Finnish Evangelical Lutheran Church
The Finnish Evangelical Lutheran Church of America was established in 1890.The Finnish Evangelical Lutheran Church of America was defined more by its Finnish ethnic origin than by any specific theological strain. In 1896, the church established Suomi College and Theological Seminary in Hancock,...

 and Finnish Orthodox Church
Finnish Orthodox Church
The Finnish Orthodox Church is an autonomous Orthodox archdiocese of the Patriarchate of Constantinople. The Church has a legal position as a national church in the country, along with the Evangelical Lutheran Church of Finland....

 - are integrated to the taxation system in order to tax their members.

The middle income worker's tax wedge
Tax wedge
The tax wedge is the deviation from equilibrium price/quantity as a result of a taxation, which results in consumers paying more, and suppliers receiving less....

 is 46% (NationMaster) and effective marginal tax rate
Effective marginal tax rate
The effective marginal tax rate is the combined effect on a person's earnings of income tax and the withdrawal of means testing of state welfare benefits...

s are very high. Value-added tax is 23% for most items. Capital gains tax
Capital gains tax
A capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...

 is 28% and corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

 is 26%, about the EU median. Property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...

es are low, but there is a transfer tax
Transfer tax
A transfer tax is a tax on the passing of title to property from one person to another.In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of...

 (1.6% for apartments or 4% for individual houses) for home buyers. Alcoholic beverages are separately taxed and highly restricted. For instance, McKinsey estimates that a worker has to pay around 1600 euro for another's 400 euro service - restricting service supply and demand - though some taxation is avoided in the black market and self-service culture. Another study by Karlson, Johansson & Johnsson estimates that the percentage of the buyer’s income entering the service vendor’s wallet (inverted tax wedge) is slightly over 15%, compared to 10% in Belgium, 25% in France, 40% in Switzerland and 50% in the United States. Tax cuts have been in every post-depression government's agenda and the overall tax burden is now around 43% of GDP compared to 51.1% in Sweden, 34.7% in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

, 33.5% in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

, and 30.5% in Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

.

State and municipal politicians have struggled to cut their consumption, which is very high at 51.7% of GDP compared to 56.6% in Sweden, 46.9 in Germany, 39.3 in Canada, and 33.5% in Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

. Much of the taxes are spent on public sector employees, many of which are jobs-for-life and amount to 124,000 state employees and 430,000 municipal employees. That is 113 per 1000 residents (over a quarter of workforce) compared to 74 in the US, 70 in Germany, and 42 in Japan (8% of workforce). The Economist Intelligence Unit
Economist Intelligence Unit
The Economist Intelligence Unit is part of the Economist Group.It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. company acquired by the parent organization in 1986...

's ranking for Finland's e-readiness
E-readiness
E-Readiness is the ability to use information and communication technologies to develop one's economy and to foster one's welfare.There are several benchmarking indices at the macro level, e.g., those calculated by the UNPAN, World Bank, Economist Intelligence Unit etc.Because what appear on the...

 is high at 13th, compared to 1st for United States, 3rd for Sweden, 5th for Denmark, and 14th for Germany. Also, early and generous retirement schemes have contributed to high pension costs. Social spending such as health or education is around OECD median. Social transfers are also around OECD median. In 2001 Finland's outsourced proportion of spending was below Sweden's and above most other Western European countries. Finland's health care is more bureaucrat-managed than in most Western European countries, though many use private insurance or cash to enjoy private clinics. Some reforms toward more equal marketplace have been made in 2007-2008. In education, child nurseries, and elderly nurseries private competition is bottom-ranking compared to Sweden and most other Western countries. Some public monopolies such Alko
Alko
Alko is the national alcoholic beverage retailing monopoly in Finland. It is the only store in the country which retails beer over 4.7% ABV, wine and spirits. Alcoholic beverages are also sold in licensed restaurants and bars but only for consumption on the premises...

 remain, and are sometimes challenged by the European Union. The state has a programme where the number of jobs decreases by attrition
Attrition
Attrition may refer to:*Physical wear*Attrition warfare, the military strategy of wearing down the enemy by continual losses in personnel and material*Loss of personnel by Withdrawal...

: for two retirees, only one new employee is hired.

Occupational and income structure

Finland's export-dependent economy continuously adapted to the world market; in doing so, it changed Finnish society as well. The prolonged worldwide boom, beginning in the late 1940s and lasting until the first oil crisis in 1973, was a challenge that Finland met and from which it emerged with a highly sophisticated and diversified economy, including a new occupational structure. Some sectors kept a fairly constant share of the work force. Transportation and construction, for example, each accounted for between 7 and 8 percent in both 1950 and 1985, and manufacturing's share rose only from 22 to 24 percent; however, both the commercial and the service sectors more than doubled their share of the work force, accounting, respectively, for 21 and 28 percent in 1985. The greatest change was the decline of the economically active population employed in agriculture and forestry, from approximately 50 percent in 1950 to 10 percent in 1985. The exodus from farms and forests provided the manpower needed for the growth of other sectors.

Studies of Finnish mobility patterns since World War II have confirmed the significance of this exodus. Sociologists have found that people with a farming background were present in other occupations to a considerably greater extent in Finland than in other West European countries. Finnish data for the early 1980s showed that 30 to 40 percent of those in occupations not requiring much education were the children of farmers, as were about 25 percent in upper-level occupations, a rate two to three times that of France and noticeably higher than that even of neighbouring Sweden. Finland also differed from the other Nordic countries in that the generational transition from the rural occupations to white-collar positions was more likely to be direct, bypassing manual occupations.

The most important factor determining social mobility in Finland was education. Children who attained a higher level of education than their parents were often able to rise in the hierarchy of occupations. A tripling or quadrupling in any one generation of the numbers receiving schooling beyond the required minimum reflected the needs of a developing economy for skilled employees. Obtaining advanced training or education was easier for some than for others, however, and the children of whitecollar employees still were more likely to become white-collar employees themselves than were the children of farmers and bluecollar workers. In addition, children of white-collar professionals were more likely than not to remain in that class.

The economic transformation also altered income structure. A noticeable shift was the reduction in wage differentials. The increased wealth produced by an advanced economy was distributed to wage earners via the system of broad income agreements that evolved in the postwar era. Organised sectors of the economy received wage hikes even greater than the economy's growth rate. As a result, blue-collar workers' income came, in time, to match more closely the pay of lowerlevel white-collar employees, and the income of the upper middle class declined in relation to that of other groups.

The long trend of growth in living standards paired with diminishing differences between social classes was dramatically reversed during the 1990s. For the first time in the history of Finland income differences have sharply grown. This change has been mostly driven by the growth of income from capital to the wealthiest segment of the population.

See also

  • Finnish Maritime Cluster
    Finnish Maritime Cluster
    The Finnish Maritime Cluster is a cluster of companies in maritime industries in Finland. In 2001 the total turnover was estimated at 11.4 billion euros with 47,000 people employed in shipbuilding and related industries.-History:...

  • Economy of Europe
    Economy of Europe
    The economy of Europe comprises more than 731 million people in 48 different states. Like other continents, the wealth of Europe's states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. The difference in wealth across...

  • List of Finnish companies
  • List of banks in Finland
  • Current statistics from Statistics Finland
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