Should Finland Keep Whole Country Lived In?

Geographically Finland is a very large country with a few larger cities, lots of smaller towns and many tiny villages dispersed throughout the whole area. Finland is covered by huge areas of forests, lakes and farmland, and a few geographically small urban areas that are heavily populated. But Finland, as mentioned above is geographically a big country in Europe, the 6th largest with a small 5.5 million population:

There are around 300 municipalities (the 300 municipalities here include the biggest cities to the smallest towns and villages) in Finland that are responsible by law for the basic services – basic local infrastructure, education, social- and healthcare and cultural activities. Policing and security are managed by the state. The municipalities share income tax and corporation tax with the central government as well as receiving fees for various services. The government manages a grant system between richer and poorer municipalities.

Under the constitution every resident has the same right to the basic services and that has effectively meant that many small municipalities get to receive grants because their tax revenues and other local income do not cover their costs.

The government cannot and has never stopped people from moving to remote areas in the countryside. However the present system has resulted in a high number of very small municipalities facing low tax revenues and high, sometimes crippling, healthcare costs. A serious car accident or a debilitating illness of a resident can cause extremely high costs that can never be covered by local resources. This has resulted in a situation where larger more efficient and vital municipalities are actually financing the smaller and weaker ones, especially where there are a disproportionately high numbers of aged residents and very little commercial or industrial activities.  

Another significant problem is that Finland has an ageing population with a falling absolute number of workers. This is a fact that has been known for decades because younger people are having fewer babies and older people are simply getting older in increasing numbers!

The results of these two facts can already be seen in many smaller towns and villages where the value of apartments and houses have fallen dramatically and relative to the bigger urban areas where jobs are readily available. In some places homes just cannot be sold because there is no demand for housing there and younger folk have already left the nest. 

Without the possibility of moving many workers are forced to remain unemployed – daily commuting of more than 2 hours is known to occur but that is not sustainable in the long term. New affordable housing is available in most larger cities but rents have been rising beyond the means of most low income workers. Working folk need affordable homes where they can bring their families. 

With the known sharp increase in retirees there are clear shortages in the supply of labor thus the public sector must take more proactive measures in supporting workers and their families to secure affordable housing, even if it means buying their properties in failing areas at a fair price. Many small towns an villages will be evacuated in the coming decades and that reality must be faced. 

Various measures of population densities exist which shed light on what measures are needed to be implemented by the government. However, very little has been done because the Center Party together with some smaller parties have been unwilling to reduce the number fo small municipalities which are their strongholds. Furthermore some of the Conservative and Social Democrats in the larger cities have been unwilling to take on the costs of the weaker smaller neighbours because they see that taxes on residents would have to be increased – and that is a very unpopular policy! 

Finally the former coalition governments have tried for the last 12 years to move social- and healthcare services to a new level of regional government controlled by the Ministry of Finance, the new counties, but this too has failed to be implemented because of poor planning. This social- and healthcare reform is necessary because of duplication and over-investment by competing municipality groupings. Cutting the number of municipalities in half is still needed whatever the outcome of the healthcare reform. 

In Denmark and Sweden, with 4.5 million and 9 million inhabitants respectively, they manage with around 40% fewer municipalities!

It should be mentioned that a leading municipal expert, Mr. Osmo Soinivaara, from the Greens has proposed one solution, by claiming that around 90% of Finland’s total population is already urban-based. He appears to be proposing a new policy based on municipal cooperation within urban regions. He uses an analysis that rounds up various economic regions in the following manner:

  • 100 km radius around Helsinki – 1,8 million, 
  • 50 km around Tampere, Turku, Oulu – 1,2 million
  • 30 km  radius around Lahti, Jyväskylä, Pori, Kuopio, Seinäjoki, Vaasa, Lappeenranta – 1,2 million 
  • 15 km radius around 2 other smaller urban areas – 600 000 people.

However the problem with his arguments is that the cities are really very and that most urban centres only stretch 15 km to 20 km from the centre of the city in any direction, after which is sparsely populated countryside. 

A more reasonable assumption should breakdown the municipalities into groups by population size in a more granular manner. This can be used to identify significant cost savings.

Just taking the total population from the 10 largest cities you can see that around 41% of Finns live in cities. The next 26 cities that have a population more than 30 000 add on another 23%, giving a grand total of 64% living in urban areas. 

The remaining 36% are dispersed between 275 municipalities of which 63 have populations between 10 0000 and 30 000, while 212 municipalities, a huge number, with populations between 100 and 9 999!

The above figures also include a percentage approximation of the number of personnel employed directly and indirectly by each municipality as a percentage of their population. Exact figures are probably impossible to secure, however, they are based on direct staff numbers plus an approximation based on actual expenditure purchased services assuming similar average wages. Larger municipalities are clearly more efficient in the manner that they are managed. There can be no doubt that small isolated villages and towns cannot compete as effectively for jobs and cultural services that are available in the cities. It is a fact that Finns have been flocking to all of the big urban areas the last 6 decades and that is expected to continue. 

The following approach can be used to calculate the possible cost savings of having the number of municipalities reduced by half 150 by forcing small ones to join larger ones. Assuming that larger municipalities result in these mergers one can estimate that the average number of municipal workers will fall to around 6% for around half of the population. Given an that staff numbers could fall by 3% to 4% and an annual wage cost assumption of €40 000, the resulting cost reduction would be between €2,5 billion and €3 billion. 

Fewer workers in the municipalities would increase the labour supply for the private labour market and improve the productivity of the municipal sector. 

A stable and sustainable welfare state needs to have at least a 75% employment rate. We are currently at around 72% with strong but unmet demand for labour. Workers need to be moved urgently to the urban areas, where both men and women are to be encouraged to join the labour market. Too many women stay at home too long for maternity leave and then find it difficult to rejoin the labour market.

Your correspondent has also proposed that retirees up to the age of 75 should be encouraged to rejoin the job market with some tax breaks for such workers and/or reduced social security costs for employers. These people are a new healthy bunch of able-bodied men and women who already have much useful experience under their belt!

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