Egalitarian Finland most competitive, too

Despite hefty government spending on social benefits, Finland tops global economies. Second in a three-part series.

HELSINKI, FINLAND – Fifty years ago, Finland was known for little more than the wood pulp from its endless forests. A poverty-stricken land of poorly educated loggers and farmers on the edge of the Arctic Circle, few paid it any attention.

Today, this small Nordic nation boasts a thriving hi-tech economy ranked the most competitive in the world, the best educated citizenry of all the industrialized countries, and a welfare state that has created one of the globe's most egalitarian societies.

Envious policymakers from far and wide are beating a path to Helsinki to learn the secrets of Finland's success.

"We have a saying here," chuckles Stefan Nygard, a university lecturer, as he swings his baby daughter gently, soothing her to sleep. "If you are Finnish, you've won the lottery."

But as the leaders of other European countries desperately seek ways to preserve their expensive systems of social protection in a competitive globalized world, Finland's circumstances and mind-set aren't easily copied. "Finland is an exceptional case Europe," cautions Riisto Erasaari, professor of social policy at Helsinki University. "We are a small homogenous country, heavily state-based, and our social model as a whole is so typically Finnish that it won't travel. But parts of it," - such as the government-funded focus on innovation and education, "are exportable."

Mr. Nygard and his partner, Minna Sirelius, have certainly enjoyed the fruits of Finland's exceptionalism.

Neither of them paid a cent for their university education, though they took seven years to complete their respective degrees in history and psychology. Ms. Sirelius enjoyed free healthcare throughout her pregnancy and the birth of their daughter, Emilia, and she plans to stay on leave from her job in IBM's human resources department for 11 months.

She can afford to: The government is paying her 60 percent of her salary to look after her baby. Next year Nygard and Sirelius will choose among the Finnish-, Swedish-, English-, or Spanish-language day-care centers in their neighborhood, and the state will pick up four-fifths of the cost.

If either of them loses their job, they will be able to count on unemployment benefits that range up to 70 percent of their salaries for 18 months. And when they retire they can look forward to generous pensions that amount, for the average Finn, to 60 percent of their last salary.

These benefits come at a cost, of course: Finland levies some of the highest taxes in the world, and if Ms. Sirelius does well in her career, she will pay more than 45 percent of her personal income toward taxes. But she does not object. "I feel that is what keeps our society and country running," she explains. "We can't keep the welfare state running unless everyone pitches in and helps with the costs."

In that she is like most of her fellow Finns, says Petri Rouvinen, research director for ETLA, a business-linked economic think tank. "The Finnish mindset is collectivist, with a very strong sense of fairness," he says. "It's that kind of mindset that makes it possible to have this sort of system."

But what Mikko Kautto, a researcher at the government's Welfare Research Center, calls "universalist thinking," goes further. Finns do not regard social spending as a drag on economic growth and job creation, he says, but as a positive force.

"The merit of thinking socially," he argues, "is that having everybody involved, with all our human capital working for the benefit of society, is part of the reason for our [economic] competitiveness." The World Economic Forum, which runs annual business summits in Davos, Switzerland, has ranked Finland the most competitive economy in the world, ahead of the United States, for four of the past five years.

Nowhere is this approach clearer than in Finland's schools, which at the end of World War II turned out some of the worst educated young people in the industrialized world, and now graduate the best, according to comparative studies by the Organization for Economic Cooperation and Development (OECD).

Making sure that every Finnish child, wherever he lived and whatever his background, could get a decent education had a very deliberate goal, says Riita Lampola, head of international relations for the Finnish Board of Education, which oversees schooling.

"As a poor country with a small population, if we wanted to be a modern society and to develop our country, we needed everybody here," she says. "That meant everybody had to be educated."

High level education is the key to what Pekka Himanen, a brilliant young philosopher who advises the Finnish government, calls his country's "virtuous circle."

"When people can fulfill their potential they become innovators," Dr. Himanen argues. "The innovative economy is competitive and makes it possible to finance the welfare state, which is not just a cost, but a sustainable basis for the economy, producing new innovators with social protection."

Other European countries could copy Finland's efforts to improve its education system, Himanen insists, just as they could emulate Finland's heavy investment in research and development (R&D) - currently standing at 3.6 percent of GDP, the highest level in Europe after Sweden.

It is this approach that has fostered firms such as Nokia, the largest cellphone producer in the world whose spectacular growth has boosted the Finnish economy and carried many high-tech subcontractors on its coattails. The telecommunications superstar singlehandedly accounts for one-quarter of Finland's exports, 4 percent of its GDP, and 35 percent of business sector R&D.

Finland maintained high R&D spending even during the dark days of an economic crisis in the early 1990s that saw GDP fall 13 percent in three years and unemployment climb to 17.9 percent.

The legacy of that crisis disappoints many Finns: for the past 10 years successive governments have grown stingier than they used to be, and though social spending has held steady, services have not improved in the way they used to.

The public health system in Helsinki, for example, is overcrowded with older Finns. "You wait a long time to see a doctor, and then you don't see him for very long," complains Sirelius.

Pensions have risen by only three percent in real terms since 1993 - ten times more slowly than wages. Many jobs lost in the crisis have not been replaced, and unemployment stands at 8.6 percent.

"The cleavage between rich and poor is perhaps widening," says Jouko Kajanajo, the head of social research at the Social Security headquarters. "At any rate, the increase in equality has stopped."

"We are the poor little brothers" of neighboring, more generous Scandinavian countries such as Sweden, acknowledges Dr. Kautto. Indeed, Sweden's social spending, which constitutes 28.9 percent of its GDP - compared to Finland's 24.8 percent, enables it to provide more social benefits. "Finland did not restore social protection to pre-crisis levels... but we have not forgotten our Nordic heritage in our social policy," says Kautto.

That policy enjoys enormous public and political support across the spectrum, founded on the consensual style of Finnish life where governments, employers, and unions are used to making compromises with each other. It helps, of course, that Finland's population of 5.3 million is largely homogenous, with a 6 percent Swedish minority and no significant immigration.

The result is that even the opposition Conservative party supports the country's social model: Its most daring attack on the status quo was a recent suggestion that Finns should be made to pay a token fee for using the public library system.

Indeed, says Mr. Rouvinen, the challenges of globalization mean that "we specifically need our social model. As a small country on the edge of the world we will have steep ups and downs. We have to have mechanisms so that individuals won't suffer from that."

But Finland will have to adapt its model, as it develops what Dr. Himanen calls "the welfare state 2.0."

"It will have to become more innovative, more productive, more customer driven," he argues. And that may mean giving private companies a larger role in providing welfare state services, and encouraging a more entrepreneurial approach.

"Until now we have been a textbook case of how a country should advance," says Rouvinen. "Today we are at a crossroads, because we have been a catch-up economy, and now we are at the global frontier, which is a different ballgame. We have to lead the way."

That, he suggests, demands the sort of businessman who can "come up with radical new ideas and make billions, and the Finnish mind-set does not support that."

He remains confident, though, that so long as Finland can tell success stories like Nokia's in key global industries such as telecommunications, and improve its efficiency in delivering welfare services, it can go on offering economic growth and a social safety net.

After running budget surpluses for a decade, adds Dr. Kautto, "Finland is one of the countries best equipped to meet the challenges of an aging population, globalization, and so on. In economic terms we are doing extremely well."

In the end, says Jorma Sipila, the Chancellor of Tampere University, Finland's inclusive social model is its best guarantee for the future.

"The conditions for a flourishing economy are so demanding that the state has to make social investments to raise competent people and take care of dropouts so that they carry their share of the burden," he argues. "Marrying prosperity and social protection is the only sustainable future."

That said, I love my country. Even though winters might be considered harsh or environment is rural, there are much wonderful things about Finland and finns. Welfare, our government, or system just don't belong in those.

There is a big reason for the decline of Finnish GDP in the early 1990. It has to do with the fall of communism and the Soviet Union. Finland trades a lot with its neighbor in the East. When communism fell Russia fell into chaos for a brief period. That harmed Finland, but now the Russians are doing better and that helps the Finns.

Exactly. During the coldest of cold war Finland sold lots of stuff to USSR and got paid in kind (ie. material goods). Lots of opportunities for small country with western technology base and more-or-less market-based economy (despite constant leftwing drive to "sovietize" Finland) to make lots of money.

Good point, but note that "The main rule is that one can walk, ski or cycle everywhere as long as nothing is harmed and nobody disturbed".

Wilderness can in my opinion considered as unused land, if I haven't plowed fields or used it in any way. I wouldn't see that as a violation of my property in any way.

If I had, I should have the right to bar entry, not that I neccessarily would do so.

I have little love lost towards russians.

Our dictator for 25 years was KGB agent and KGB also practically was the most powerful party in Finland because of recruited politicians even after his reign.

Even now there are such skeletons in our politics that unlike in most of europe, they didn't allow to publish the names of suspected Stasi agents here. Social Democrats hold the power here so it's no wonder, but I am amazed how sheepishly everyone takes this from our humanist president. Not to mention her shadowy past and political history, which was prominently aided by outed KGB agents.

God knows how many were or are in the service of GRU even after the collapse of Soviet Union. I think that when you are recruited, you can't get out. SU might have helped Finland economically, but they invaded and we were on the leach for decades since, even though nominally more independent than Baltic countries. And now it seems Russia wants to intimidate us again.

I wish our military was based more on individual based guerrilla war (not suitable for attack) and system like switzerland and our politicians, if we must have them, would be purged of Soviet era traitors.

> Our dictator for 25 years was KGB agent and KGB also practically was the most powerful party in Finland because of recruited politicians even after his reign.

The dictator of Kekkoslovakia was KGB?

>I am amazed how sheepishly everyone takes this from our humanist president. Not to mention her shadowy past and political history, which was prominently aided by outed KGB agents.

I am discussing with myself here, but I am horrified because she is candidate for re-election. She supported a state (East-Germany) which killed those who tried to escape communist utopia. Then she had a boost for her political career from another outed KGB agent Sorsa (which is silenced in Finland) to be parlamentary secretary.

Her time as president has been quiet, but when shit eventually hits the fan (her socialism nonwithstanding), sooner or later, I wouldn't ever want her to be the president in those times.

"And when they retire they can look forward to generous pensions that amount, for the average Finn, to 60 percent of their last salary."

Kotlikoff. "The Coming Generational Storm". Sorry, the "generous pension" myth is just that; it is not actuarially sound. The government(s) won't be providing generous pensions in anything other than inflated currency.

Finland in 1955 was neither poverty-stricken nor were its people poorly educated.

I worked with some men who had been Mormon missionaries in Finland, probably in the early 70's. They emphasized to me that life was pretty hard economically for people in Finland. However, they also quoted Finns as saying: "You think it is bad here, you should see it in Russia." (an adjacent country) IIRC the Finns had to pay some sort of reparations to the Soviets after their wars and this hurt the Finnish economy.

It's a matter of perspective. In 1955 the UK was just coming off the WWII rations system.

Few people would call the UK back then "poverty-stricken" although life then was definitely harder than now.

Finland had its postwar economic dislocations but was not a place where there was hunger or crippling unemployment.

And saying that the Finns were a poorly-educated people in 1955 is an outrage.

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