Economy of Finland Totally Explained

Everything about Economy Of Finland totally explained

Finland has a highly industrialized, free-market economy with a per capita output equal to that of other western economies such as France, Germany, Sweden or the UK. The largest sector of the economy is services at 65.7 percent, followed by manufacturing and refining at 31.4 percent. Primary production is at 2.9 percent. With respect to foreign trade, the key economic sector is manufacturing. The largest industries are electronics (21.6 percent), machinery, vehicles and other engineered metal products (21.1 percent), forest industry (13.1 percent), and chemicals (10.9 percent). Finland has timber, several mineral, and freshwater resources. Forestry, paper factories, and agricultural sector (on which taxpayers spend around 2 billion euro annually) are politically sensitive to rural residents. The highly productive Greater Helsinki generates around a third of GDP, though transfers to rural regions make urban living standard less prominent. In a 2004 OECD comparison, high technology manufacturing ranked the 2nd largest after Ireland. However, knowledge intensive services ranked the smallest and slow-growth sectors - especially agriculture and low-technology manufacturing - ranked the 2nd largest after Ireland. Investment was below expected. Overall short-term outlook was good and GDP growth has been above EU peers.
A sizable number of skilled engineers and other professionals reside in Finland, producing a top patents per capita and world leading companies. Index of Economic Freedom ranking 16th (9th in Europe) reflects Finland's good economic freedom, though job market and taxation affect negatively. While the manufacturing sector is among the world's most efficient, OECD point out that the service sector could benefit substantially from policy improvements. The World Economic Forum report, based on loose opinion polls, has ranked Finland the most competitive country. The more data-based IMD World Competitiveness Yearbook 2007 ranked Finland 17th most competitive, next to Germany and the lowest of Nordics. The central government has officially given many promised such as emphasis on information technology, but critics question the central government's competency to deliver much - for instance, Finland didn't even have Internet-based tax filing system as of 2007. Finland is one of the most fiscally responsible EU countries and inflation has been below eurozone stability limits.
Finland is highly integrated in the global economy and international trade is a third of GDP. European Union makes 60 percent of the total trade. Largest trade flows are with Germany, Russia, Sweden, United Kingdom, USA, Netherlands and China. Trade policy is managed by European Union, where Finland has traditionally been among the free trade supporters, except for agriculture. Finland is the only Nordic country to have adopted euro.

History

Finland started out as a relatively poor country that was vulnerable to shocks to the economy such as the great famine of the 1860s. Until the 1930s, the Finnish economy was predominantly agrarian, and, as late as in the 1950s, more than half the population and 40 per cent of output were still in the primary sector.

After World War II

Property rights were strong. While nationalization committees were set up in France and UK, Finland avoided nationalizations. After failed experiments with protectionism, Finland eased restrictions and made a free trade agreement with the European Community in 1973, making its markets more competitive. Local education markets expanded and an increasing number of Finns also went abroad to study in the United States or Western Europe, bringing back advanced skills. There was a quite common, but pragmatic-minded, credit and investment cooperation by state and corporations, though it was considered with suspicion. Support for capitalism was widespread. Savings rate hovered among the world's highest, at around 8% until the 80s. In the beginning of the 1970s, Finland's GDP per capita reached the level of Japan and the UK. Finland's economic development shared many aspects with export-led Asian countries. The growth in the 1980s was based on debt, and when the defaults began rolling in, GDP declined by 13% and unemployment increased from a virtual full employment to one fifth of the workforce. The crisis was amplified by trade unions' initial opposition to any reforms. Politicians struggled to cut spending and the public debt doubled to around 60% of GDP. After devaluations the depression bottomed out in 1993.

Liberalization

Like other Nordic countries, Finland has liberalized the economy since late 80s. Financial and product market regulation was removed. The market is now one of the most free in Europe. State enterprises were privatized and taxes were cut. However, unlike in Denmark, trade unions blocked job market reforms, causing persistent unemployment and a two-tier job market. Trade unions also blocked social security reform proposals towards basic income or negative income tax. Finland joined the European Union in 1995. The central bank was given an inflation-targeting mandate until Finland joined eurozone. Finland has sophisticated financial markets comparable to UK in efficiency.
   Finland-headquartered companies are quite international, though statistics are affected by the few largest. About 70% - 80% of equity in Helsinki Stock Exchange is owned by foreign-registered entities, large Finland-headquartered companies get most revenue abroad, and employ the majority of their workers abroad. Cross-shareholding and other uncompetitive practices have been abolished and there's increasing anglo-saxon style corporate governance. However, only around 15% of residents had invested in stock market, compared to 20% in France, and 50% in the US. Invest in Finland and other programs attempt to attract investment. In 2000 FDI from Finland to overseas was 20 billion euro and from overseas to Finland 7 billion euro. Acquisitions and mergers have internationalized business in Finland.
   Finland's income is generated by the approximately 1.8 million private sector workers, who make an average 25.1 euro per hour (before the median 60% tax wedge) in 2007. In 2003 residents worked a high average of 10 years for the same employer. 62 percent worked for small and medium-size enterprises. Female employment rate was high and gender segregation on career choices was higher than in the US. In 1999 part-time work rate was one of the smallest in OECD. The unemployment security benefits for those seeking employment are at an average OECD level. The labor administration funds labor market training for unemployed job seekers, which is often vocational. The aim of the training is to improve the channels of finding employment. Very much like in Sweden, the government is often accused of "cleaning the unemployment statistics" by vocational training programmes.
   Future liabilities are dominated by the pension deficit. Unlike in Sweden, where pension savers can manage their investments, in Finland employer chooses a pension fund for the employee. The pension funding rate is higher than in most Western European countries, but still only a portion of is funded and pensions exclude health insurances and other unaccounted promises. Directly held public debt has been reduced to around 32 percent in 2007. In 2007, the average household savings rate was -3.8 and household debt 101 percent of annual disposable income, a typical level in Europe.
   In 2006, there were 2,381,500 households of average size 2.1 persons. 40 percent of households consisted of single person, 32 percent two and 28 percent three or more. There were 1.2 million residential buildings in Finland and the average residential space was 38 square meters per person. The average residential property (without land) cost 1,187 euro per sq metre (without land) and residential land on 8.6 euro per sq metre. Consumer energy prices were 8-12 euro per kilowatt hour. 74 percent of households had a car. There were 2.5 million cars and 0.4 other vehicles. Around 92 percent has mobile phone and 58 percent Internet connection at home. The average total household consumption was 20,000 euro, out of which housing at around 5500 euro, transport at around 3000 euro, food and beverages excluding alcoholic at around 2500 euro, recreation and culture at around 2000 euro. Upper-level white-collar households (409,653) consumed an average 27,456 euro, lower-level white-collar households (394,313) 20,935 euro, and blue-collar households (471,370) 19,415 euro euro.

Business environment

Finnish politicians have often emulated other Nordics and the Nordic model, characterized by strong property rights, openness to globalization, risk sharing and high taxes.
   Legal system is clear and business bureaucracy often modest. Property rights are well protected and contractual agreements are strictly honored.
   According to OECD, only four EU-15 countries has more free product markets (UK, Ireland, Denmark and Sweden) and only one has more free financial markets (Denmark). Nordic countries were pioneers in liberalizing energy, postal and other markets in Europe.. A typical employee pays nearly 60 percent tax wedge Value-added tax is 22 percent for most items. Capital gains tax and corporate tax are 26 percent, about the EU median. Property taxes are low. - restricting service supply and demand - though some taxation is avoided in the black market and self-service.
   Much of the taxes are spent on public service, consisting of 124,000 civil servants in state agencies and 430,000 in municipal civil service, twice as much as in Japan. The state has a programme where the number of jobs decreases by attrition: for two retirees, only one new employee is hired.

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