Economic Council of Finland

Briefly, our assessment of the background to the crisis can be summed up as follows: the success ofthe Nokia-led ICT cluster maintained favourable, even deceptively favourable, economic growth inFinland for a long time. The budget surpluses were large and unemployment was on a downwardpath. As is now apparent, these conditions created a setting in which wages rose more – and publicspending grew faster – than was desirable in terms of sustainable development.With the collapse of the electronics industry, exports and output have declined sharply at the sametime as the contraction of the paper industry has continued and metals processing has suffered fromlow market prices. All this has been reflected in a deterioration of profitability in manufacturing.In the good years, Finland accumulated a high level of general-purpose expertise and internationalexperience, which the country should be able to utilise in future. Finland has the prerequisites toreturn to the pre-crisis growth path – if the crisis provokes an adequate response. There is no singleand fast way, however, to recover from the crisis and return to rapid growth. In economic policy, agoal-directed, long-term and patient approach is required.The state can make a real contribution to economic growth by improving general operatingconditions for business, promoting labour mobility and supporting research and innovation. We alsounderline the significance of high-growth enterprises in economic renewal and the public sector’srole in encouraging such enterprises.Anticipated public spending cannot be sustainably funded at the current tax rates. The growthobjective means that there is no scope for increasing taxation. The target level (services, incometransfers) of the welfare state must therefore be set in accordance with financial sustainability.Restating the promise of the welfare state would clarify both public and private decision-making. Itis important to try and improve the productivity of public services and to raise the labourparticipation rate.This time, the main reasons for Finland’s economic plight lie largely outside its borders; correctivemeasures, however, must be found at home. Raising productivity and accelerating economic growthis an imperative of Finland’s economic policy. Based on good preparation, economic policy mustmake painful choices, set targets in order of importance and act in accordance with priorities.

This book is intended to serve as a resource for those who want to understand the recent reforms of local government organisation, tasks and funding in Finland, Denmark, Norway and Sweden. A special focus of the book is on Finnish local government and how the present Finnish situation compares with developments in other countries. However, this book also offers a more general view of localgovernment reforms and in the way that fiscal federalism has been affected by the global fiscal crisis.