Finland

Finland, one of the five Nordic countries, is a small, open economy, with a population of 5.5 million people. Finland is a republic and a parliamentary democracy. It is officially bilingual, with a Finnish-speaking majority and Swedish-speaking minority (6 percent). Finland was a part of Sweden until 1809, when it was annexed to Russia as an autonomous Grand Duchy. Under Russian rule, the country experienced extensive economic autonomy. In 1917 Finland gained independence.

Finland belongs to the 20th richest countries in the world measured by gross domestic product (GDP) per capita. It is also ranked as one of the most competitive economies, renowned for some large global corporations, mainly the mobile phone producer Nokia. Also, the largest Finnish paper companies, StoraEnso and UPM, are among the largest paper corporations in the world, ranking third and sixth, respectively, in 2006.

Finland is a successful late-comer, experiencing a rapid catching up by exploiting the advantages arising from the international division of labor. The country has actually been one of the fastest-growing economies in the world over the last century, but the economy has also been highly volatile. Finnish industrialization took off in the late 19th century. The industrial development was also swift in the inter-war period, while the 1930s Depression, measured in GDP figures, was reasonably mild. The favorable development continued after World War II and by the 1980s Finland had caught up [Page 678]with the leading industrial nations. In the early 1990s the country was, however, hit by a deep depression called forth by a simultaneous collapse of the extensive trade with the Soviet Union and an international recession, combined with severe domestic economic and structural problems. Finland experienced negative growth during three subsequent years (1991–93), adding up to a total fall in GDP of about 10 percent, followed by debt-deflation problems, a severe banking crisis, and high unemployment. In the late 1990s, the recovery was swift. The international economic boom, Finnish membership in the European Union (EU) in 1995, the expansion of new branches and the success of some large corporations—“the Nokia phenomenon” —promoted the recovery.

By being a small, open economy, Finland has been heavily dependent on its export sectors. Historically, forest industry products (timber, sawn goods, pulp, and paper) sold in the Western market can be seen as the key to Finnish economic success. Today, exports are more varied, comprising electronics, metal and machinery products, and paper. Paper export is still significant, but the branch has suffered from structural problems, while new branches have expanded.

Trade with Russia has also been significant. Before independence, Russia formed the main export market, while in the postwar period bilateral trade with the Soviet Union was extensive, the exports amounting to 26 percent of total exports in its peak year of 1982. Finland exported primarily metal and textile products to the Soviet Union, and imported oil. This trade ended in 1991 with the collapse of the Soviet Union. Russian trade was, however, growing again by early 2000.

Finland's historical, political, and economic development shows many similarities with the other Nordic countries, but Finland's development path has also had its distinctive marks. The Finnish economy has been more crisis prone than the other Nordic economies. The country was long dependent on one single, highly cyclical branch (the forest industry), but the economic policy also aggravated the cycles. Finland has also been susceptible to outside shocks, most notably the wars.

...