Finland has a Reformist Government – At last…

The present Finnish government’s Covid policies have been rewarded with low death rates compared to the rest of Europe and the our economic performance has been one of the best with one of the lowest falls in GDP.

Sweden, our neighbour, has seen ten times more deaths and a larger fall in economic activity. Even though they have had a better economic performance  for the last 7 decades, the Swedes have now made serious mistakes in Covid management with catastrophic results. His name is Anders Tegnell, their pandemic controller who has announced he most unbelievable statements – e.g. 1.2.2020 “this is just like and ordinary flu illness”, or on 6.3.2020 – “we have reason to believe that we have seen the peak of the pandemic”, 16.3.2020., “like the Brits, we have followed a more scientific line!

But Finland, for its part, has not yet implemented all the necessary economic and social reforms that are needed for success in the globe markets, and more needs to be done, according to Mikko Spolander, the Director General of the Economics Department at the Ministry of Finance.

FinnishNews spoke with him just after a press conference this week in Helsinki where he announced the latest economic forecasts for the country. The Ministry of Finance expects that the economy will fall by a small 3.3% but next year should see that figure almost reversed by a 2.5% increase in GDP.

At the interview, Mr. Spolander has expressed his continued concern about our inflexible labour market, the lack of low cost housing in urban centres, a rapidly ageing population, and many other matters that have reduced incentives to find a job.

He was emphatic that Finland urgently needs reforms that will allow resources to be allocated more quickly to where they are needed. Labour is not moving because of the large differences in house prices between rural areas and urban centres, where the latter can be many times more expensive. He recommended changes in unemployment benefits to give workers incentives to work rather than staying at home on unemployment benefits. He pointed out that both Sweden and Denmark have both been more successful than Finland. The faster a person starts looking for a new job the greater chance that he or she will not end up as a long term unemployed person. Early support for retraining is needed, as is proactive assistance from the public sector for finding a new job and for moving costs. These are the three most important policies that will get resources allocated to where they are needed.

Questioned about the OECD’s recent comments regarding the inflexible labour market, he mentioned that paternal leave for women will probably be best reduced by allowing men to take much longer paternal leave instead of mothers, to avoid having only mothers to bear the burden of fewer opportunities in the labour market because they are many years away from their jobs caring for children at home.

The OECD also pointed out that tertiary education is too selective with too few student places. Mr. Spolander pointed out that new government policies have been put in place to open up more university places to ensure that more student get a tertiary education. This is needed, according to the OECD, because we are entering a period of an extremely demanding digital world, where new skills are required for labour. At the same time, the government has now presented a new law to Parliament whereby all young people will be entitled to free secondary and vocational education up to 18 years of age, up from 16 years. This is an important new milestone to increase  basic skills necessary for todays labour markets.

At the other end of the labour market, Finland has also been a poor at keeping older people in their jobs. This pool of hard-working experienced people has been much smaller than in our peer competitors because past governments have made it too easy to retire at 60 years. Older workers are also more expensive to keep than younger ones because of antiquated social security laws and collective labor contracts. He answered by saying that the government is expected to come with an announcement within a few days, and in fact this actually happened the next morning, with the announcement that early retirement age exceptions will be largely removed starting in 2023. This is clearly an excellent piece of news because it will keep good and healthy workers in well paying jobs and reduce the pressure on the pension and healthcare system. When people work in a good environment they generally stay healthier – this is a clear scientific fact from studies in the other Nordic countries.

Mr. Spolander also pointed out that export intensity is low because the economy here is less competitive possibly because there is a small clutch of big companies in a few key sectors of the economy that limits competition.

Small companies have not been growing because banks have turned their backs on them, and as a result, the exporters have lost contracts because they are basically unable to arrange finance for their customers, even when Finnvera is willing to grant a guarantee for there loan. Finland is too small as a market to support growth in investment goods without exports – these products are a particular strength of Finland’s well educated entrepreneurs. If you cannot get access to financing for selling your plants and big pieces of equipment to foreign buyers you might as well stop growing and just sell what you can to the few domestic factories.  As a result we have far too many small exporters. We need to see many more companies growing faster and exporting much larger volumes. Finland has one off the lowest export volumes as a percentage of GDP compared to the other Nordic countries and Germany, our main competitors.

Finnvera, the public sector export finance body for SMEs and exports, has published a new report on the importance of increasing public support for export finance for small exporters since the banks have largely decide to exit what was once a traditional banking activity. This decision by the banks has had a serious negative impact on the Finnish economy, and this report comes with several long-term proposals to start to alleviate the negative impact and put Finland back on a level playing field with our competitors abroad. Here is a link to the report.

Other measures are also being considered by the government and are expected to be launched in the coming months. There can be no question that this government has done far more than many other former governments in reforming the economy. It is only natural in the present circumstances because Covid has clearly increased the sense of urgency to get reforms done by the country’s political leadership.

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