Economy of Finland
From Wikipedia, the free encyclopedia
| Economy of Finland | |
| Currency | Euro (EUR) |
|---|---|
| Fiscal year | calendar year |
| Trade organisations | EU, WTO, OECD and others |
| Statistics | |
| GDP (PPP) | $185.9 billion (2007 est.) (51) |
| GDP growth | 4.4% (2007 est.) [5] |
| GDP per capita | $33,500 (2006 est.) |
| GDP by sector | agriculture: 2.5%, industry: 31.7%, services: 65.9% (2007 est.) |
| Inflation (CPI) | 2.7% (2007 est.) |
| Population below poverty line |
11 % below 1200 €/month (2004) |
| Labour force | 2.68 million (2007 est.) |
| Labour force by occupation |
agriculture and forestry 4.4%, industry 17.5%, construction 6%, commerce 22%, finance, insurance, and business services 12%, transport and communications 8%, public services 30.2% (2006 est.) |
| Unemployment | 6.3% (Mar. 2008) [6] |
| Main industries | metals and metal products, electronics, machinery and scientific instruments, shipbuilding, pulp and paper, foodstuffs, chemicals, textiles, clothing |
| External | |
| Exports | $92.62 billion (2007 est.) |
| Export goods | machinery and equipment, chemicals, metals; timber, paper, pulp (1999) |
| Main export partners | Germany 11.3%, Sweden 10.5%, Russia 10.1%, UK 6.5%, US 6.5%, Netherlands 5.1% (2006) |
| Imports | $76.36 billion (2007 est.) |
| Import goods | food stuffs, petroleum and petroleum products, chemicals, transport equipment, iron and steel, machinery, textile yarn and fabrics, grains |
| Main import partners | Germany 15.6%, Russia 14%, Sweden 13.7%, Netherlands 6.6%, the People's Republic of China 5.4%, UK 4.7%, Denmark 4.5% (2006) |
| Public finances | |
| Public debt | 32.9% of GDP (2007 est.) |
| Revenues | $124.2 billion (2007 est.) |
| Expenses | $114 billion (2007 est.) |
| Economic aid | donor: ODA, $850,536,746.49 (2005) |
| Main data source: CIA World Factbook All values, unless otherwise stated, are in US dollars |
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Finland has a highly industrialized, free-market economy with a per capita output equal to that of other western economies such as France, Germany, Sweden or the UK. The largest sector of the economy is services at 65.7 percent, followed by manufacturing and refining at 31.4 percent. Primary production is at 2.9 percent.[1] With respect to foreign trade, the key economic sector is manufacturing. The largest industries[2] are electronics (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, several mineral, and freshwater resources. Forestry, paper factories, and agricultural sector (on which taxpayers spend around 2 billion euro annually) are politically sensitive to rural residents. The highly productive Greater Helsinki generates around a third of GDP, though transfers to rural regions make urban living standard less prominent. In a 2004 OECD comparison, high technology manufacturing ranked the 2nd largest after Ireland. However, knowledge intensive services ranked the smallest and slow-growth sectors - especially agriculture and low-technology manufacturing - ranked the 2nd largest after Ireland. Investment was below expected.[3] Overall short-term outlook was good and GDP growth has been above EU peers.
A sizable number of skilled engineers and other professionals reside in Finland, producing a top patents per capita and world leading companies. Index of Economic Freedom ranking 16th (9th in Europe) reflects Finland's good economic freedom, though job market and taxation affect negatively. [4] While the manufacturing sector is among the world's most efficient, OECD point out that the service sector could benefit substantially from policy improvements.[5] The World Economic Forum report, based on loose opinion polls, has ranked Finland the most competitive country.[6] The more data-based IMD World Competitiveness Yearbook 2007 ranked Finland 17th most competitive, next to Germany and the lowest of Nordics.[7] The central government has officially given many promised such as emphasis on information technology, but critics question the central government's competency to deliver much - for instance, Finland didn't even have Internet-based tax filing system as of 2007.[8] Finland is one of the most fiscally responsible EU countries and inflation has been below eurozone stability limits.
Finland is highly integrated in the global economy and international trade is a third of GDP. European Union makes 60 percent of the total trade. Largest trade flows are with Germany, Russia, Sweden, United Kingdom, USA, Netherlands and China. Trade policy is managed by European Union, where Finland has traditionally been among the free trade supporters, except for agriculture. Finland is the only Nordic country to have adopted euro.
Contents |
[edit] 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.
[edit] After World War II
Property rights were strong. While nationalization committees were set up in France and UK, Finland avoided nationalizations. After failed experiments with protectionism, Finland eased restrictions and made 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.[9] 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 and the UK. Finland's economic development shared many aspects with export-led Asian countries.[9]
In 1991 Finland fell into a Great Depression-magnitude depression caused by a combination of economic overheating, depressed Western, Soviet and local markets, and disappearance of Soviet barter system. Stock market and housing prices declined by 50%.[10] The growth in the 1980s was based on debt, and when the defaults began rolling in, GDP declined by 13% and unemployment 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.[10] Much of the economic growth in the 1980s was based on debt financing, and the debt defaults led to a savings and loan crisis. Total of over 10 billion euro were used to bail out failing banks, which led to banking sector consolidation.[11] After devaluations the depression bottomed out in 1993.
[edit] Liberalization
Like other Nordic countries, Finland has liberalized the economy since late 80s. Financial and product market regulation was removed. The market is now one of the most free in Europe. State enterprises were privatized and taxes were cut. However, unlike in Denmark, trade unions blocked job market reforms, causing persistent unemployment and a two-tier job market. Trade unions also blocked social security reform proposals towards basic income or negative income tax. Finland joined the European Union in 1995. The central bank was given an inflation-targeting mandate until Finland joined eurozone.[10] The growth rate has since been one of the highest of OECD countries and Finland has topped many indicators of national performance.
Since then the growth rate has been one of the highest of OECD countries, and national debt has been reduced to 32.9 percent of GDP.
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 brought 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.
[edit] Income and consumption
Notable companies in Finland include Nokia, the market leader in mobile telephony; Stora Enso, the largest paper manufacturer in the world; Neste Oil, an oil refining and marketing company; UPM-Kymmene, the third largest paper manufacturer in the world; Aker Finnyards, the manufacturer of the world's largest cruise ships (such as Royal Caribbean's Freedom of the Seas); Instrumentarium Imaging, the creator of the Orthopantomograph (Pan X-Ray machine) and world innovative leader of dental imaging systems and software.; KONE, a manufacturer of elevators and escalators; Wärtsilä, a producer of power plants and ship engines; and Finnair, the largest Helsinki-Vantaa based international airline.[12] Finland has sophisticated financial markets comparable to UK in efficiency.[4] Though foreign investment is not high, the largest foreign-headquartered companies included names such as ABB, Tellabs, Carlsberg, and Siemens.[13]
Finland-headquartered companies are quite international, though statistics are affected by the few largest. About 70% - 80% of equity in Helsinki Stock Exchange is owned by foreign-registered entities[14], large Finland-headquartered companies get most revenue abroad, and employ the majority of their workers abroad. Cross-shareholding and other uncompetitive practices have been abolished and there is increasing anglo-saxon style corporate governance. However, only around 15% of residents had invested in stock market, compared to 20% in France, and 50% in the US.[13] As elsewhere in Western Europe, the environment is less favorable to small companies and small shareholders than in the US and UK. Hence ownership is quite concentrated.[13]
Large Finland-headquartered companies tend to be older than 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.[15] Invest in Finland and other programs attempt to attract investment.[16] In 2000 FDI from Finland to overseas was 20 billion euro and from overseas to Finland 7 billion euro. Acquisitions and mergers have internationalized business in Finland.
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) in 2007.[17] In 2003 residents worked a high average of 10 years for the same employer.[18] 62 percent worked for small and medium-size enterprises.[19] Female employment rate was high and gender segregation on career choices was higher than in the US.[20] In 1999 part-time work rate was one of the smallest in OECD.[20]
Unemployment rate was 6.8% and employment rate 68% in early 2008.[21] The unemployment security benefits for those seeking employment are at an average OECD level. The labor administration 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. Very much like in Sweden[22], the government is often accused of "cleaning the unemployment statistics" by vocational training programmes.[23]
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 is funded and pensions exclude health insurances and other unaccounted promises.[24] Directly held public debt has been reduced to around 32 percent in 2007.[25] In 2007, the average household savings rate was -3.8 and household debt 101 percent of annual disposable income, a typical level in Europe.[26]
In 2006, there were 2,381,500 households of average size 2.1 persons. 40 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 meters per person. The average residential property (without land) cost 1,187 euro per sq metre (without land) and residential land on 8.6 euro per sq metre. Consumer energy prices were 8-12 euro per kilowatt hour.[27] 74 percent of households had a car. There were 2.5 million cars and 0.4 other vehicles.[28] 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 euro.[29]
[edit] Business environment
Finnish politicians have often emulated other Nordics and the Nordic model, characterized by strong property rights, openness to globalization, risk sharing and high taxes.[30] Nordic markets have went through a liberalization wave from the late 80s to 90s.[30]
Legal system is clear and business bureaucracy often modest.[31] Property rights are well protected and contractual agreements are strictly honored.[4] Finland is rated one of the least corrupt countries in Corruption Perceptions Index. Finland is rated 13th in the Ease of Doing Business Index. 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).[32]
According to OECD, only four EU-15 countries has more free product markets (UK, Ireland, Denmark and Sweden) and only one has more free financial markets (Denmark). Nordic countries were pioneers in liberalizing energy, postal and other markets in Europe.[30] Nordics have been free-trading and relatively welcoming to skilled migrants for over a century, though in Finland immigration is relatively new. The level of protection in commodity trade has been low, except for agricultural products.[30]
According to OECD, the job market is slightly more free than in France and less than in other Nordics.[30] Finland increased job market regulation in the 1970s to provide stability to manufacturers. Denmark liberalized the system in 90s, Sweden moved to a more decentralized model, and Finnish trade unions blocked most reforms. Finnish law forces all workers to obey the lengthy and bureaucracy-imposing national contracts that are drafted every few years for each profession (copy machinist, metallurgical engineer, etc.) and seniority level, usually in Comprehensive Income Policy Agreement.[30] Along with tax rates, the system is a key contributor to unemployment and distorted prices, and possibly slows down structural change as there are less incentives to acquire better skills.[3][30] Proposals have been made for a free market with basic income, to replace wage-dependent unemployment benefits (up to over 3000 euro per month) that require applicant to remain full-time unemployed, and flat taxes, but trade unions have fought against them. Trade unions have traditionally lobbied for anti-immigrant policies, but Finland has now made some effort to improve the economy's competitiveness and marketing as a destination for skilled workers.
Tax cuts have been in every post-depression government's agenda and total tax burden is now around 43 percent of GDP or around 30,000 euro per household.[33]. A typical employee pays nearly 60 percent tax wedge[30] and effective marginal tax rates are very high.[3] Value-added tax is 22 percent for most items. Capital gains tax and corporate tax are 26 percent, about the EU median. Property taxes are low.[3] For instance, a worker has to pay around 1600 euro for another's 400 euro service[34] - restricting service supply and demand - though some taxation is avoided in the black market and self-service.
Much of the taxes are spent on public service, consisting of 124,000 civil servants in state agencies and 430,000 in municipal civil service, twice as much as in Japan.[3] Also, pension costs are high, affected by early retirement schemes.[3] Spending on core things such as health or education is roughly OECD median.[3] E-readiness is rated 10th and civil service rarely utilizes Internet. In 2001 Finland was behind Sweden in outsourced proportion of spending, but ranked high in Europe, except bottom rankings in child and elderly nurseries.[30] Outsourcing to free market has saved costs and increased customer satisfaction.[30] For instance, Finland's health care is managed more by public service than in most Western European countries (though many use private insurance or cash to enjoy private clinics), but privatization has strong expert and voter support, and reforms toward equal marketplace have been made in 2007-2008.[35] The state has a programme where the number of jobs decreases by attrition: for two retirees, only one new employee is hired.
[edit] References
- ^ Finland in Figures – National Accounts. Statistics Finland. Retrieved on 2007-04-26.
- ^ Finland in Figures – Manufacturing. Statistics Finland. Retrieved on 2007-04-26.
- ^ a b c d e f g Finland Economy 2004, OECD
- ^ a b c Economic freedom: Finland
- ^ [1]
- ^ Global Competitiveness Report. World Economic Forum. Retrieved on 2007-01-22.
- ^ World Competitiveness Yearbook 2007
- ^ Virtual Finland (Ministry for Foreign Affairs of Finland). Retrieved on 2007-01-22.
- ^ a b Growth and Equity in Finland, World Bank
- ^ a b c Inflation targeting: Reflection from the Finnish experience
- ^ Converted
- ^ The largest companies (turnover). Largestcompanies.com. Retrieved on 2007-04-30.
- ^ a b c Onko omistamisella väliä (in Finnish)
- ^ [2]
- ^ [http://www.etla.fi/files/1892_the_nordic_model_complete.pdf by Torben M. Andersen, Bengt Holmström, Seppo Honkapohja, Sixten Korkman, Hans Tson Söderström, Juhana Vartiainen]
- ^ Invest in Finland
- ^ Tehdyn työtunnin hinta 23-27 euroa, Statistics Finland
- ^ Keskustelua suomalaisen työelämän luonteesta ja sen muuttumisesta
- ^ [3]
- ^ a b The Nordic Model of Welfare: A Historical Reappraisal, by Niels Finn Christiansen
- ^ Statistics Finland: Labour Market
- ^ FT.com / World - 'Real Swedish jobless rate 15%'
- ^ Employment vs unemployment rates in the EU - Europe Forum
- ^ Ikääntymisen taloudelliset vaikutukset ja niihin varautuminen
- ^ CIA Factbook: Public Debt
- ^ [4] (in Finnish)
- ^ Sähkön hinta kuluttajatyypeittäin 1994-, c/kWh
- ^ Statistics Finland: Transport and Tourism
- ^ Own-account worker households' consumption has grown most in 2001-2006
- ^ a b c d e f g h i j The Nordic Model
- ^ Finland economy
- ^ Economy Rankings, Doing Business Report 2008, World Bank
- ^ Government Finance
- ^ McKinsey: Finland's Economy
- ^ Three quarters would like to raise private health care KELA reimbursements (in Finnish)
[edit] See also
- OECD's Finland country Web site and OECD Economic Survey of Finland
- Finland
- Finnish Maritime Cluster
- Finland and Globalization
- Economy of Europe
- List of Finnish companies
- List of banks in Finland
- Commemorative coins of Finland
- Current statistics from Statistics Finland
Other links
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