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Inglese/Francese Finland’s economy is thriving, but don’t smile just yet
Inglese/Francese Finland’s economy is thriving, but don’t smile just yet 
Inglese/Francese Finland’s economy is thriving, but don’t smile just yet Diventa un fan di Tribuna Economica su
| Finland’s economy is thriving, but don’t smile just yet |
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| Monday 07 July 2008 | |
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Finland has had two remarkable years of economic success. Growth has been lively, unemployment has fallen, exports have moved quickly and the balance of payments shows a definite surplus. Jyrki Katainen, Finland’s Minister of Finance, may have found it hard not to smile recently when reporting Finland’s economic indicators for the first half of 2008: government revenue has grown by 10% and expenses have fallen by 2%. Katainen has resisted the temptation to gloat about the current state of affairs, however, despite the good feedback that it could bring for the political party he chairs, the conservative Coalition. The global economy is in a precarious state. That means even a Finnish politician preparing for elections cannot bask in the glory of the past, but must prepare for an uncertain future. In the introduction to June’s business cycle survey, Minister Katainen states, “The Finnish economy has weathered the flagging international trend well to date. The boom which has gone on for so long is now showing signs of weakening, however, and economic growth is tapering off.” One would imagine that the Organization for Economic Cooperation and Development (OECD) would compliment Finland on its continued performance, but even they are encouraging restraint. A recent OECD report on Finland begins with praise: unemployment is down, growth is higher than in most other EU countries and the government has collected more tax revenue than it has spent. But the 159-page report finds plenty of scope for improvement in the Finnish economy, offering the government strict instructions to remedy its problems. The OECD reports on each of its member countries biannually. The report on Finland was published on 4 June 2008. In 2010, the working-age population will begin to decrease in Finland. On average, the ageing of the population is a worse problem for Finland than for the other OECD countries, with more people retiring than entering the workforce as new or immigrant labour. The OECD predicts that economic growth in Finland will slip below three per cent next year. Salaries have become too high, and the unemployment rate is expected to stabilize at six per cent. Nokia and the telecommunications industry have brought prosperity to Finland, but it is unlikely that this success will continue indefinitely. The industry that has traditionally been the backbone of Finland’s economy, the forest industry, is beset by problems. The government could do much more to support entrepreneurs, as Finns prefer to work for large employers. Tax tips from the OECD The Finnish Government’s means to control the economy rely primarily on taxation. The OECD offers guidance on how Finland should develop its tax policy in the future. Finland’s 2005 taxation reform lowered the corporate tax rate to 26%, far below the EU average, to make Finland more attractive for large businesses. Among the new EU Member States, however, the average corporate tax rate is still lower, at 19%. Finland should consider introduction of an even lower corporate tax rate in order to lure foreign investment. Like the other Nordic countries, Finland has a comprehensive social welfare system which Finnish citizens maintain with high taxes on their wages. Nevertheless, the OECD encourages lower taxation on wages, particularly for higher income brackets, to avoid an exodus of the highly educated from Finland. The mobility of labour across Finland’s borders has been negligible. The OECD report is in any case confident that workers can be enticed to come to Finland if taxation is adjusted accordingly. The OECD believes that taxation largely dictates labour force mobility and that therefore a lower tax on wages would prevent high earners from leaving and bring new talent to Finland. According to the report, Finland has made it too easy for their unemployed to reject offers for work. It suggests that the unemployed should be required to move to a new location if a job becomes available elsewhere. There are very few foreign workers in Finland. Of all the OECD countries, only Korea, Mexico and Japan have less immigrant labour per capita. Farming subsidies bring no real benefit Finland’s agricultural and regional policies were chastised in the report. The OECD feels that Finland supports its agriculture too heavily, especially when one considers that agriculture is not a growth sector. For this reason, supporting agriculture does not increase overall well-being. Finland has begun to merge its local authorities to create larger municipalities, but there are still over 350, which the OECD feels is superfluous. Small local authorities are not cost-effective and cannot invest appropriately in resources. The municipalities of Finland are responsible for the care of the ill and the elderly, and an efficient organization is necessary if they are to successfully rein in expenses. The age of retirement in Finland is one of the lowest among the Nordic countries. According to the OECD report, the entire retirement programme in Finland should be revamped. The ability to take early retirement at 57 should be phased out, and retirees should be encouraged to stay active and even continue to work part-time. Compliments on the school system The OECD report is full of praise when it comes to the evaluation of Finland’s school system. Finland has consistently performed well in worldwide PISA tests, coming out on top in science and second in reading and mathematics. One would think this is one area where the OECD would leave well enough alone, but a careful analysis finds problems in Finland’s university system. The report on Finland finds faults with the entrance exams to higher education institutions in Finland, blaming them for unnecessary delay in beginning and finishing studies. A good indicator was found: 30% of 27-year-old Finns are students, the largest number of any OECD country. Only 40% of higher education students in Finland finish their studies in less than six years, and the report wonders at the excessively long study periods. Higher education in Finland is currently free. The report suggests that fees should be imposed for some studies, with the financial impediment sure to make the pace of studies improve. Research generates faith in the future Even though there are improvements to be made, the higher education system in Finland has produced a record number of doctoral candidates. Finland places third, after Sweden and Switzerland, in the number of doctoral degrees per capita. The Finnish economy may be doing well, but problems lie ahead. The OECD has taken upon itself to list these problems and offers solutions, just as it does for other countries. Although there may be threats on the horizon, there is something that gives us hope for the future: Finland’s strong investment in research. Some 77,000 people, or 2.5% of the labour force, work in research in Finland. Finland has more people per capita working in R&D than any other OECD country. |
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