A Political and Economic Dictionary of Western Europe, First Edition
Finland is a large but sparsely populated Nordic state in the north-east of Western Europe. It gained independence in 1917 after centuries under Swedish then Russian rule. Following military conflict with the Soviet Union (USSR) during the Second World War, Finland was forced to give up 10% of its territory to its eastern neighbour, the USSR (now Russia), with which it has a 1,000km border. The two states signed a Treaty of Friendship in April 1948, though this became void in 1990 at the end of the Cold War.
Area: 338,000sq km; capital: Helsinki; population: 5m. (2001).
A neutral country during the Cold War, Finland remained outside of the North Atlantic Treaty Organization and the European Community (EC). It applied for membership of the EC in 1992 and joined it in January 1995 following a successful referendum on the issue on 16 October 1994 (yes 56.9%; turn-out 70%). Despite some opposition to membership from rural interests, farmers and non-mainstream parties, Finland is the most enthusiastic Nordic member of the European Union (EU) and the only Nordic state to participate in Economic and Monetary Union in 1999 and to introduce the euro in 2002.
A semi-presidential democracy, in Finland the directly elected President formerly had wide-ranging constitutional powers to veto or amend government legislation, suspend bills passed by parliament and in the area of foreign policy. The President also had the power to manage the process of coalition-building following national elections. However, a constitutional amendment of 1 March 2000 reduced the President’s powers to those associated with a ceremonial head of state. The President now no longer has a political input into the process of coalition-building; he must develop foreign policy together with the government; and responsibility for EU policy lies with the Prime Minister. The current President is Tarja Halonen, the first woman to hold this office in Finland. She was elected on 1 March 2000, in the second round of voting, for a six-year term. Legislative power lies with the Eduskunta. Finland has developed a distinctive model of consensus politics which, in contrast to other Nordic states, encourages broad, multi-party coalitions rather than single party minority governments. Finland is also a corporatist state and social partners are traditionally included in important aspects of policy-making. Finland enjoys the reputation of having the least corrupt political system in the world and voter participation in elections is high, although it has declined in recent elections (71.9% in 1995; 68.3% in 1999; and 69.6% in 2003), raising concerns about citizens’ commitment to democracy.
Finnish politics have been dominated by the Finnish Social Democratic Party. Since 1937 there are have only been two periods—1957–66 and 1991–95—when the party has not participated in government. The Social Democrats went into opposition voluntarily in 1991, having lost support in two previous elections. A non-socialist coalition of the Centre Party, the National Coalition Party and the Swedish People’s Party under the Centre Party Prime Minister Esko Aho had the task of navigating Finland out of the severe economic recession of the early 1990s with policies of spending cuts and tax rises. The Finnish Social Democratic Party returned to government following the election held in March 1995 in which it achieved its best result since the Second World War, winning 28.3% of the vote and 63 seats in the Eduskunta. The Social Democrat Paavo Lipponen became Prime Minister of the so-called ‘rainbow coalition’ which brought together the Finnish Social Democratic Party, the National Coalition Party, the Left Alliance, the Swedish People’s Party and the Green League. This coalition was remarkable not only for its ideological breadth but also because it was the first time that a green party had participated in a national coalition in any European state. The ‘rainbow coalition’ was re-elected in March 1999, though support for the Social Democrats declined to 22.9% of the vote and 51 seats in the Eduskunta. This was the first time in Finnish history that a governing coalition had been returned to power following an election. The Green League left the coalition in the spring of 2002 in protest at the government’s decision to proceed with the construction of a new nuclear power station.
In the campaign for the elections held on 16 March 2003 the opposition Centre Party criticized the ‘rainbow coalition’ for its failure to reduce unemployment and Paavo Lipponen’s stance on the issue of the war in Iraq in 2003 and his relationship with the USA. The party accused Lipponen of giving the impression that Finland supported the US-led military intervention. The election campaign also featured a well-known candidate for the populist True Finns Party, the professional boxer and wrestler Tony Halme, who campaigned on law and order issues. In the end just 6,000 votes decided that the Centre Party had gained the status of largest party. It formed a coalition with the Finnish Social Democratic Party and the Swedish People’s Party under the leadership of Centre Party leader Anneli Jaatteenmaki, who became the first female Finnish Prime Minister. For a short time, Finland was the only state to have a female President and Prime Minister in office at the same time. However, Jaatteenmaki was forced to leave office after only two months following allegations that she had leaked a confidential memorandum which detailed a meeting between Lipponen and US President George W. Bush. Jaatteenmaki was replaced by the current Prime Minister Matti Vanhanen.
Economy: The Finnish economy has traditionally been dominated by timber and timber-related industries which account for about one-half of exports. Finland relied until the 1990s upon close trading relations with the Soviet Union (USSR); in 1985 the USSR purchased 21.5% of Finland’s exports. It suffered a deep recession in 1991 following the collapse of its eastern market, but recovered quickly as it became integrated into the economy of the European Union (EU). An associate member of the European Free Trade Association since 1973, and a co-founder of the European Economic Area in 1992, it became a full member of the EU in 1995.
GNP: US $123,400m. (2001); GNP per caput: $23,780 (2001); GNP at PPP: $125,000m. (2001); GNP per caput at PPP: $24,030 (2001); GDP: $120,855m. (2001); exports: $48,812m. (2001); imports: $38,427m. (2001); currency: euro; unemployment: 9.1% (2002).
Finland has a corporatist economy. Trade union involvement in government economic policy-making began during the 1930s when the Economic Council was established, and by the 1970s trade unions were consulted on most important areas of economic policy. Corporatist agreements were reached through formal tripartite incomes policy bargains rather than direct codetermination with social democratic governments. However, trade union leaders—especially from the Central Organization of Finnish Trade Unions—have close links with ministers of the Finnish Social Democratic Party. Consultation with social partners began to decrease from 1985 onwards and the centre-right coalition in 1991–95 further restricted the access of the trade unions to the economic policy-making process.
The dominance of the Finnish Social Democratic Party in the 20th century and the involvement of the labour movement in economic policy-making promoted the development of a social democratic welfare state. The Finnish welfare system offers universal welfare support and all citizens—male and female—have equal rights to social security. It provides an extensive range of both social transfers and social services such as child-care, health-care and education, which are funded by the state through general taxation. In 1990 public expenditure on welfare accounted for 27.2% of gross domestic product (GDP) but public support for the welfare state remains high.
The Finnish economy fell into deep recession following the end of the Cold War. Between 1990 and 1993 GDP fell by 15%, the rate of unemployment rose from 3% to 20% and public debt increased from 11.4% to 54.3% of GDP. Spending on social welfare programmes increased from 27.2% to 37.8% of GDP. In 1991 there was a banking crisis and the Finnish markka was devalued by 14% when it broke away from the European Currency Unit. The centre-right coalition of 1991–95 responded to the economic situation by cutting welfare spending and raising taxes. The generosity of the Finnish welfare state has diminished, but its scope remains broad none the less.
By the late 1990s the Finnish economy was growing again by 5% a year. Finland’s recovery can be largely attributed to its accession to the EU. In the early 1990s Finland made a rapid application to join the EU to become further integrated into Western European markets. The economy’s recovery can also be attributed to a concerted policy to promote a modern, high-tech economy, especially in the area of telecommunications. The government decided in 1995 to increase spending on research and development (R&D) by 3,200,000m. markka, raised through the sale of state-owned companies, and to increase the share of R&D expenditure from 2.5% to 2.9% of GDP between 1996–99. The funds were spent on promoting academic research in Centres of Excellence and universities, industrial clusters, and regional innovation systems in both the centre of the country and in the peripheries—for example in Oulu in the north. Local innovation agreements have been negotiated with social partners according to the corporatist model of regeneration. The social partners also agreed to a policy of wage restraint during the recovery. Much of Finland’s recovery has centred on the Finnish firm Nokia, which is the world’s largest mobile phone manufacturer. The company now accounts for more than 5% of the country’s GDP, and for one-quarter of exports. The success of the economy is now closely linked to international demand for its products in the high-tech sector, in particular Nokia’s mobile phones. Finland’s economic performance as a knowledge economy is still not wholly stable. In the year to 2001 economic growth slowed from 6.1% to 0.7%, but it nevertheless recovered faster than the other countries in the euro area from the economic slowdown of 2002.
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