What’s up, Finland?

Surely there is not a literate person in Finland who could have avoided the words ‘Finnish economy’, ‘poor competitiveness’, ‘high labour costs’ during the past year or so. It seems Finland is buzzing with these grim readings and it is hard to see any light at the end of the tunnel. So where exactly are we and is there any light at the end of the tunnel?

A good few reasons for the current (worsening) economic situation can be identified. Richard Milne mentioned some in March 2015 in his blog post for Financial Times. First of all, as we have heard from so many sources, labour costs have spiralled. One main thing to remember here is that when looking at the actual labour costs, they are not significantly higher than the rest of Europe, for example. In fact labour costs in Finland are the seventh highest in Europe, same level with Germany. But what makes the difference is the labour productivity, i.e. GDP per hour worked. Here we fall behind the European average and this certainly is causing problems.

The other problem is the age distribution of the population, we are ageing quite rapidly. UN estimates that the proportion of Finnish population that is of working age may fall as low as 58 % of the total population by 2030.

Another significant reason in the woes of Finnish economy is that we are playing with too few cards. The mainstays of our economy are public sector (58 % of our GDP in 2014!), forestry industry and electronics sector. The public sector is not exactly an export engine, and the two latter have been in sharp decline lately. And talking about export, our card hand is very limited there, too. Our main cards are raw materials and production supplies, in which the profit margin is limited.

So, is Finland a lost cause, heading for nothing but more doom and gloom? How can we change the course and start heading towards that little spark of light there at the end of a long and dark tunnel?

There are some cure-promising pills that we can take, although some of them have a very bitter taste. For example, relative labour costs can be decreased either by decreasing the cost itself, i.e. salaries, or keeping the salaries the same but increasing the hours worked. Both options are very unappealing for employees but it may very well be that they are unavoidable.

Changing the age distribution is not an easy task, either. There is no escaping the fact that the Finnish people are reproducing less and less, and upcoming significant baby booms are quite unlikely. We need more people who are in working age, and if we cannot produce them ourselves, we need to bring them in from elsewhere.

But people coming in are no help in our situation unless they will be able to work and therefore pay their taxes. And since one of our evident problems is that there doesn’t seem to be enough work around, where do we find work for these people?

The odd thing about work is that the need for it is actually unlimited. There is absolutely no limit to how much demand there is for work, but the trick is to identify, satisfy and maintain the demand. And to keep the economy flowing, all this work should also somehow be paid for. It is true that there is always a portion of work on the brink of becoming obsolete, but there is also always demand for completely new type of work.  

At the moment, the most promising area in creating new work is digitalisation. Its potential is generally seen enormous, and it could very well be one of our trump cards in the future, if we play our cards right.  Even European Commission has hopped on this particular bandwagon and identified areas where digitalisation is affecting, for example eHealth, smart living, public services, cloud computing. Our IT knowledge is among the top of the world, so this is certainly something we could benefit from.

So let’s take the digi-train and head for that spark of light at the end of the tunnel!