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

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  • Kiander, Jaakko

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.

Suggested Citation

  • Kiander, Jaakko, 2004. "The Evolution of the Finnish Model in the 1990s: from Depression to High-tech Boom," Discussion Papers 344, VATT Institute for Economic Research.
  • Handle: RePEc:fer:dpaper:344
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    File URL: https://www.doria.fi/handle/10024/148330
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    Cited by:

    1. Clara Martinez-Toledano & Alice Sodano, 2021. "Changing Party Systems, Socio-Economic Cleavages, and Nationalism in Northern Europe, 1956-2017," Working Papers halshs-03135013, HAL.
    2. Juan Carlos Conesa & Timothy J. Kehoe & Kim J. Ruhl, 2007. "Modeling great depressions: the depression in Finland in the 1990s," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 31(Nov), pages 16-44.
    3. Jaakko Kiander & Pentti Vartia, 2011. "Lessons from the crisis in Finland and Sweden in the 1990s," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(1), pages 53-69, February.
    4. Kosonen, Tuomas, 2007. "The Increased Revenue from Finnish Corporate Income Tax in the 1990s," Discussion Papers 421, VATT Institute for Economic Research.
    5. Clara Martinez-Toledano & Alice Sodano, 2021. "Changing Party Systems, Socio-Economic Cleavages, and Nationalism in Northern Europe, 1956-2017," World Inequality Lab Working Papers halshs-03135013, HAL.

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