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The Evolution of the Finnish Model in the 1990s: from Depression to High-tech Boom

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  • Jaakko Kiander
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    Abstract

    Finland has recently got much admiration due to economic success reflected in rankings of competitiveness, technology, education and economic growth. This success has largely been embodied in the growth of Nokia group and ICT sector. Yet the economic boom and the success of the Finnish high tech industries is a relatively new phenomenon, starting from the mid-1990s. In fact, the years of good economic performance were preceded by an exceptionally deep recession in the beginning of the 1990s. This paper discusses the roots of the crisis of the Finnish economy, and the factors which helped it to recover and to create the technology-driven growth of the last decade. The focus is both on macroeconomic issues and on institutional change and the role of public policy. The main conclusion of this paper is that the institutional reforms (or the absence of them) seem to have played only minor role in the emergence of unemployment and in the subsequent employment revival in Finland in the 1990s. In addition to the breakthrough of ICT technologies, more traditional macroeconomic factors like changes in monetary policy and exchange rate, and pro-cyclical fiscal policy may have been of great importance. In spite of the severe economic shocks and industrial restructuring, the Finnish political governance and corporatist institutions have remained relatively stable. Political decision making has all the time been largely based on national consensus building like before. The structures of welfare state survived the fiscal crisis of the mid-1990s though the welfare state was forced to go through many small incremental changes, which reduced many entitlements. The central labour market institutions ? strong trade unions with high unionization rate, and centralized incomes policy ? have remained almost intact.

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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 344.

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    Date of creation: 15 Dec 2004
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    Handle: RePEc:fer:dpaper:344

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    Keywords: Finland; economic growth; social corporatism; structural change;

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    References

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    1. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    2. Summers, Lawrence H & Gruber, Jonathan & Vergara, Rodrigo, 1993. "Taxation and the Structure of Labor Markets: The Case of Corporatism," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 385-411, May.
    3. Jalava, Jukka & Pohjola, Matti, 2002. "Economic growth in the New Economy: evidence from advanced economies," Information Economics and Policy, Elsevier, vol. 14(2), pages 189-210, June.
    4. Jaakko Kiander & Reino Hjerppe, 2004. "Technology Policy and Knowledge-based Growth in Small Countries," Research Reports 110, Government Institute for Economic Research Finland (VATT).
    5. Maliranta, Mika, 2001. "Productivity Growth and Micro-level Restructuring. Finnish experiences during the turbulent decades," Discussion Papers 757, The Research Institute of the Finnish Economy.
    6. Jalava, Jukka, 2002. "The Production and Use of ICT in Finland," Discussion Papers 827, The Research Institute of the Finnish Economy.
    7. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. Francesco Daveri & Olmo Silva, 2004. "Not only Nokia: what Finland tells us about "new economy" growth," Economic Policy, CEPR & CES & MSH, vol. 19(38), pages 117-163, 04.
    9. Koski, H. & Rouvinen, P. & Yla-Anttila, P., 2002. "ICT clusters in Europe The great central banana and the small Nordic potato," Information Economics and Policy, Elsevier, vol. 14(2), pages 145-165, June.
    10. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September.
    11. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
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    Cited by:
    1. Tuomas Kosonen, 2007. "The Increased Revenue from Finnish Corporate Income Tax in the 1990s," Discussion Papers 421, Government Institute for Economic Research Finland (VATT).

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