I’ll leave aside the obvious slur about a “former Eastern bloc country”, which was, not surprisingly, apparently made by a countryman. If one wants to look at the historic roots, the problem is actually in the fact that Finland is the only surviving inter-war democracy. On the plus side, the country was able to avoid a good deal of crap after the War; but on the minus side, the continuity and maintenance of the status quo in the face of totalitarianism has made the democratic system rigid, and the country never received any dynamic reboot.

As for the age of the voters which is supposed to make reform more difficult… debatable. With the exception of the Centre, which is currently on a kamikaze trajectory, the entire political party system from Left to Right is safely in the hands of the Generation X. And much like all politicians, they’re quite able to mislead the voters when necessary. The only question is if they’re willing to do it for a noble cause.

Also, as I pointed out, there are other, more immediate issues than “structural problems”.

By the way, Edward, that comment of yours, about how “the clock is now ticking away on Finland”? I declared that same truth to one of your co-bloggers already years ago. According to his own words, he was getting “just the /teensiest/ bit impatient when someone from one of the most advanced and comfortable countries in Europe can’t stop complaining about what a pathetic hellhole it is”.

Cheers,

J. J.

Sorry I’ve taken my time replying. I’ve been away for the last few days.

“True problems are deeper in the structure of Finnish society.”

Well, my intention was to get through to the deeper structural problems in the Finnish economy which I see as being associated with a loss of competitiveness, and a decline in export oriented industrial activity, at a time when domestic consumption is now in more or less inevitable decline due to the rising median age (in conjunction with relatively low male life expectancy). This whole approach may be wrong, but it is my view, and it does go down to the deep structure of modern Finnish society.

“There is basically two realistic reasons for high price level. High level of productivity and knowledge of workforce will lead to a high price level, as the competetion of workforce pushes the wages even of less productive employes. This will lead to a high nominal level of GNP naturally.”

Well, this is the Harrod-Balassa-Samuelson effect, but there is nothing “natural” about this. The tendency of wages in low productivity non tradeable sectors to rise in tandem with high productivity high wage tradeable sector is a political process that needs to be addressed with concrete policy measures. The fact that this phenomenon is also widespread in Southern Europe and Ireland does not make it benign.

“On the other hand the wages of the public sector can signifantly differ from the productivity. This is probably true in all states.”

Well not in all states. Not in Germany, not in Japan (since they run large trade and CA surpluses) and evidently not in Sweden, since this is the explanation you are offering for the long term structural deterioration in the Finnish situation, it quite evidently isn’t happening in Sweden since their external position is following a more normal path for an ageing society – which is the point of my comparison – ergo this process can’t be happening in Sweden. Thus we are not talking about all societies – there are black swans – and there is nothing natural about it.

“The ECB did research the effeciency of public sectors in 2003 and Finland was second to worst among all OECD countries.”

Well, this doesn’t surprise me, since this is what we can see in the underlying data. So what you need is a plan to attract ibvestment in productive manufacturing industry for export, and move a chunk of these people over. That would be a first step.

“Finland is an ex eastblock country with all problems related with this past.”

Well, this may or may not be the case, but whatever the reasons, you need to turn this round quickly and put things straight. The clock is now ticking away on Finland, and with a growing number of voters over 50, every day reform gets more difficult.

GDP is a basic figure which shows our ability to produce. But as the government operations stands for more or less than 50% of our GDP , we have to be sceptical about GNP.
GNP corrected with price level compared with the nominal GNP will give us an important knowledge.
There is basically two realistic reasons for high price level. High level of productivity and knowledge of workforce will lead to a high price level, as the competetion of workforce pushes the wages even of less productive employes. This will lead to a high nominal level of GNP naturally.
The other reason for high price level is uneffective public sector, wich raises the price level by taxes and costs related with public services. If the output of public sector is less what could be expected , it will lead to a smaller PPC GDP .
The wages of the export sector is allways in relation with the productivity. It can`t be any other way , as long as we have export and free trade. The GNP generated trough export sector has to be in correlation with the GNP nominal.
The same applyes to the private domestic sector as they compete on the workforce market with equal terms.
On the other hand the wages of the public sector can signifantly differ from the productivity. This is probably true in all states. If our public sector performs worse than average, it will lead to big difference in nominal and price corrected GNP.

This development comes clearly out in the latest figures. The inflation is record high in Finland , the taxes are record high , the GNP declines and the unemployment increases.
In relation with the declining private sector the public sector increases, because not cuts has been done in government expenditure.
This increases the inflation .
In an open market situation unemployment will lead to a diminishing inflation as the wages claims do decline also.
Acoording to Tilastokeskus ( finnish statics authorities ) the effecinecy of the public sector has decline about 20 % during the last decade. The ECB did research the effeciency of public sectors in 2003 and Finland was second to worst among all OECD countries.

Wide rasearches regarding wealth indicate without any questions that , demoracy, uncorrupted administration, fair justitce , human rights,and freedome of trade and competetion are basic elements of wealth.

The IMF and Commission have pointed out that lack of competetion is a major problem in the Finnish economy. The Greco organisation has criticzed Finland of not opening political funding to become transparent. Public procurements are not transparent in Finland either.
Finland is an ex eastblock country with all problems related with this past.

The following may sound a bit like cheap drugstore philosophy, but I have to say it anyway. Sometimes, complacency and passive behaviour may not be such bad things. As I hinted, there’s always the danger that those people who are ready and willing to take action and “fight the crisis”, are likely to pursue an easy way out and take all the _wrong_ and _counterproductive_ actions.

Cf. the Bush administration in the aftermath of 9/11. Or, well, as you’ve already noted, certain European countries right now. “We must do something!” -> “OK, this is something”.

So, the Finnish lethargy at the moment may have its benefits. But the same tendency for rash decisions motivated by panic exists also here, and the recession is likely to stir things up further. During the last recession, the end result was the increased political passivity of the populace, but this time, as I mentioned, actual populism is suddenly on the rise. The required political channel for these emotions exists, and punchlines such as “blame the Euro” and “immigration is the problem” are likely to attract actual support.

This brings up the second matter, which is the tendency of the mainstream political parties to integrate the issues of the marginal movements with their own agenda. Back in the 1980s, after the first political success of the Greens, the old political parties were quick to notice the advantages of adopting the ecological issues as part of their platform. These days, when the so-called “immigration criticism” – the salon term for xenophobia – is gaining ground, the result may be exactly similar. Xenophobia may become part of mainstream politics.

Plus, most Finnish politicians are idiots. The era of great men and women who actually lived through the years of peril and who were thus genuinely concerned of the fate of the country and the nation is over. These days, we’re saddled with spineless assholes who are just looking for re-election and unwilling to rock the status quo. So, again, the tendency to make occasional quick-’n-easy decisions is there, and we’ve seen some of them already. “Let’s declare something illegal!” “Let’s raise the taxes on alcohol!” “Let’s pass this snooping law that Nokia has asked for, never mind if it violates people’s privacy!” “Let’s set up a national fingerprint registry!” I mean, sigh. And these are supposed to make things better?

But apart from that, there are also some positive signs. The stimulus package seems to be working. The bank sector is in a good shape, and actual bailouts almost certainly won’t be required. Also, while the private construction has halted, the public construction seems to have increased, and this year, there will be twice the usual number of state-supported apartments completed. So, some things are ticking along just fine.

The problems are under the surface, as you already noted yourself. But I’m more concerned about the politics than the economy or even the demographics. The last recession, while a blow to the social security, at least had no adverse effect on people’s _freedom_. This one just may have. What if the potential economic problems are solved, but there’s a notable deterioration in civil rights? I’m not all that interested in living in some Nordic counterpart of Singapore.

When it comes to North Karelians, I was, of course, making a reference to the local folks who always lived in the region. The post-war evacuees from the Ladoga Karelia – which was a very similar place – are perhaps a bit more diverse lot, and they settled all around the country. Likewise, the more recent Ingrian and Russian immigrants have also settled here and there, and probably have more or less similar demographics as the people around them.

Oh yeah, and I don’t actually have a profile in Facebook – sorry, I meant to notify you about this, but forgot. My first name is common, the last name less so, but there seems to be a few people who have this same combination, and they seem to be more active online than I am.

But none of them are me. I’m a military historian and a free-lance, part-time writer and journalist, affiliated with the University of Tampere, currently working on grants from the Finnish Academy and the Finnish Cultural Fund. I don’t really work on the field of economics, but you could perhaps say that my focus is on certain _consequences_ of economics.

Cheers,

J. J.

“Other than that, while it’s not your intention, there are some anti-EU populist politicians who would read this with delight, cherry-picking those comments where you propose that “the euro might be a factor, with the loss of control over monetary policy leading to a steady deterioration in the level of international competitiveness” and “it could be that the EMU membership may have up to now slowed down rather than accelerating the reform process”.”

I am sure you are right that anyone can twist my comments, but I am more worried about people ignoring them altogether. What worries me most about the euro at the moment is the level of complacency it induces. People seem to be waiting for the crisis to end, rather than rolling up their sleeves to struggle their way out of it.

We do this at our peril. If we don’t go fight the crisis it will come looking for us, and in concrete terms – just like a forest fire – it can leap at some stage straight across from the Baltics to South Eastern Europe, and then down into the heart of Southern Europe itself. The “internal devaluation” they are struggling to introduce in Latvia is evidently needed in a number of euro member countries, and it is needed now. If we don’t build the firebreaks in time, there is a danger the whole thing gets out of control.

Also, your name seems to be quite a common one in Finland, since I tried looking for you in Facebook to invite you to my friends, but turned up a host of possibilities, none of whom, at the end of the day, may have been you.

“All we have to do is to wait for the last men in North Karelia (where the demographics are similar to the eastern side of the border) to die from alcohol or suicide.”

Interesting question this, the Karelian one. I am vaguely aware of all this, although my knowledge is very superficial. I have a Finnish friend whose mother is Karelian. He once wrote me the following, which seems somehow relevant.

Not all Russians in Finland are Ingrians but, following the pattern to which you have often pointed, they also served as pioneers for others Russians to follow. And then again, in east and south east of Finland the natural contacts towards Russia have always been more frequent than towards, say, Scandinavia. It’s certainly easier for a Russian to settle in the Finnish side of Karelia than in western Ostrobothnia.

lncidentally, mother’s side of my family are from the Ladogan Karelia (part of Russia since 1945), from a rural area pretty close to the Petrozavodsk mentioned in the article. Karelia was always a sort of “in between” place – a western outpost to some, a cultural crossroads to some others – and when its people were relocated in the western parts of Finland after the war they often faced forced conversions, ethnic insults and other types of discrimination. What I have been told has always somehow reminded me of the southern Italians who once moved to work in factories of the north, and the attitudes they faced. Karelians and the westerners had had little natural contacts before the evacuation, and the same goes for the northern and southern Italians.

Basically, I don’t view the Helsinki, St Petersberg, Tallinin tie in a bad light at all. I mean Russia has its problems, and they are bound to be ongoing if you look at the political culture and the demography, Russia is likely to be quite unstable. But you can do business with the Russians, and it isn’t what happened in the second half of 2008 that worries me, as what happened between 2002 and 2008. This is the problem that needs addressing.

But if you get your relative prices right, you could undoubtedly do significant business with Russia, although you would effectively become a “derivitive commodities economy” in the sense that movement in activity will follow the movements in commodity prices, as we are now seeing. You cannot count on automonous demand inside Russia without high oil prices. So you would need a Finnish equivalent of the Sovereign Wealth Fund, to even out the ups and downs in activity.

As for the collapse in trade, supposedly one of the biggest external problems that need addressing before Finland turns into Hungary, as you predicted… well, you do know the country that was the most important destination for Finnish exports in 2008? Russia. ‘Nuff said. That direction has required “addressing” for most of the written history, but it’s sort of difficult, never mind what methods one has used; pilgrimages by the estates delegations, military expeditions or frequent presidential visits and hunting trips at Zavidovo.

The comment on the male life expectancy and labour force reminded me of the gender factor. The last statistic information that I could find was from 1999, and back then, women made up 47,5% of the work force in Sweden and 47,3% in Finland. But the graph on the exit age from labour force seems to cover both sexes, anyway, so this may not be all that relevant.

As for raising the average Finnish male life expectancy, well, that’s simple. All we have to do is to wait for the last men in North Karelia (where the demographics are similar to the eastern side of the border) to die from alcohol or suicide. After that, with those basket-cases from a peripheral rural region no longer skewing the statistics and with only us healthy people around, the overall Finnish average should definitely look better.

(Cf. Swift’s “Modest Proposal”.)

Cheers,

J. J.

So, what’s the deal? “Dwellings” include only those houses and flats which serve as abodes for actual people, but excludes supermarkets, shopping centres, nuclear reactors and other stuff like that?

I wouldn’t call it a “massive boom”, but at least on the street level, and judging by that first graph, the surge in Finnish construction activity, when compared with the late ’90s, was visible enough.

(Focusing on private construction, of course, and leaving aside roads, bridges and other such public works, although there was an increase even on that part of the construction sector.)

Other than that, while it’s not your intention, there are some anti-EU populist politicians who would read this with delight, cherry-picking those comments where you propose that “the euro might be a factor, with the loss of control over monetary policy leading to a steady deterioration in the level of international competitiveness” and “it could be that the EMU membership may have up to now slowed down rather than accelerating the reform process”.

Also, yes, the old-age pension system became more flexible in 2005; whether this could be described a “major reform” depends on the viewpoint. This is still an incendiary topic. The Prime Minister’s proposal of gradually raising the minimum pension age from 63 to 65 caused a massive political uproar back in March. The end result was that the government withdrew its initial proposal, and the trade unions hammered down a new, watered-down resolution which stated that the “average exit age of 59,4 from the labour market should be raised by three years”… by the year 2025.

Wow, what an achievement! Is this what you mean when you note that “the government will phase out early retirement schemes”? Because I sure didn’t see it that way. Frankly, it seemed like just another “let’s make it sure that the baby-boomers are safe and cozy, and dump this on the next generation instead”-decision.

As for encouraging immigration, not likely to happen. At the moment, populism, nativism and xenophobia are on a steady rise, and recession is likely to intensify these feelings. With the rising unemployment rates, the obvious question is, as always, “why should we import here more people when we can’t provide work for our own?” Mainstream politicians can’t afford subscribing to these feelings openly, but they’ll have to pander to the popular majority opinion at least passively, if nothing else.

I might also note that at the moment, the acting government is practically impotent and paralyzed by the election funding scandal. This is nicely balanced by the fact that the major opposition parties are equally toothless. No prizes for guessing which political forces are likely to reap the benefits of the situations (see above for “nativism and populism”).

Still, on simple economic terms, it’s not that bad. In fact, an average citizen is doing just fine. And it’s definitely not as bad as it was back in the early ’90s. Or, at least, not yet.

Cheers,

J. J.