Foreign Trade Minister Sasi: Economic and political situation in Finland today
The title of my presentation should be the title of a series of lectures about the Finnish economy, foreign trade and political life - I guess you would call it " Finland 101". So, with your permission, I will only focus on few subjects. Actually, in the light what I am going to say - the title should read "How Finland is doing so well today".
In Finland we completed our recovery from the severe recession of the early 1990s with the help of sound macroeconomic policies. The economic growth is now increasingly sustained by the sectors of the “new economy”.
The expansion has been led by a very dynamic “high tech” sector, which, while still accounting for only 3 percent of employment, is generating nearly a third of the growth in real GDP. I can mention that Finland´s July trade balance rose to 6.3 billion markka ($932.9 million) - revised upward from a preliminary 6.1 billion - versus four billion a year ago.
For exporting industries in general, this year´s development represents a return to normal, in the sense that last year the use of capacity in manufacturing was fairly low. So the prospects for a continuation of strong economic growth in Finland over the next few years are good.
However, Finland´s rate of inflation has picked up reaching 4 per cent, as a result of a rise in import prices, especially the oil price, but also because of domestic factors. There is a danger that, in conditions of strong domestic demand, the rate of increase in domestic costs will accelerate and that overall inflation will remain high. All means will be deployed under monetary union to avert economic overheating. Furthermore, next year inflation is expected to fall slightly from this year´s levels.
Domestic and foreign investments are anticipated to grow this year. The recent rise in interest rates is not expected to curb the growth momentum. Also the past two years have seen a rapid increase in the popularity of investing in ordinary shares and investment funds. For the first time in Finland, households´ investments in shares now exceed the money they have tied up in bank deposits. Investment funds in particular have quickly fired the enthusiasm of the general public.
Wireless telecommunications is the fastest growing business globally - and there is no end in sight to this trend. For example, the number of mobile subscribers worldwide is estimated to be over 400 million - one billion landmark is expected to be passed in the next few years. We, in Finland, are taking our share of these markets in various ways. You all know Nokia´s success story - I can share with you a secret - it is not the only one. High tech product make up an increasingly large part of Finnish exports - the electronic equipment sector as a whole accounted for nearly 30 % of total Finnish exports, which is almost as large as the share of the forest industries.
I´ m sure earlier you have heard that the Finnish economy stands on two "pillars" - forest and engineering industries, and now - in the light what I just said - the ICT-sector is the third one.
According to the World Economic Forum, Finland has the world´s best economic environment. There is also praise for the efficiency and innovative nature of Finnish businesses in its latest report.
We have made the maintenance of a well-educated, multilingual, motivated workforce a national priority. Numerous international surveys specifically point out that the interaction between Finnish companies and universities provide substantial benefits for the society as a whole. Finland has a wide range of programmes to support cooperation among companies, universities, science parks and other public organizations. All these facts add up to a business environment, which is extremely open, global in outlook and forward-looking.
I can also mention that at the beginning of this year, the Ministry of Trade and Industry launched an project with the aim of removing and lowering barriers to business operations and encouraging all administrative branches to promote the establishment of new businesses. Another aim of the project is to give a boost to entrepreneurship and to increase the growth and competitiveness of companies.
We can conclude that with trends mentioned earlier - new economy and high tech industries leading our exports - Finland´s export competitiveness will stay strong.
As a European, a few words about future possibilities. Europe is often regarded in today´s global setting as a backward-looking slow mover, divided and burdened by its glorious history. But, during the last few years Europe, has taken a new face: EU governments have shown ability to agree on reforms of strategic importance, and launch processes with far-reaching consequences.
Greater change can be expected in the way the EU internal markets function. The EMU is rapidly creating a full-scale capital market integration. The breakthrough in forming a pan-European market for financial services will trigger off new progress in integration on commodity, services and labour markets. Recent developments in public utilities show the direction of change. I am aware about the not-too-good performance of Euro in markets. My message to those questioning the creation of Euro would be ”wait and see” – we are still at the beginning of our project.
Shortly we can finally start talking about an EU-wide home market. It provides great opportunities for countries with sensible economic policies and efficient companies. Finland is prepared for the Euro, and we are counting that this step will greatly enhance business possibilities for Finnish companies - but also possibilities for foreign investors to come to Finland.
The political situation in Finland (government´s priorities, taxation, collective bargaining)
At present, it seems that this government will continue until 2003, in other words until the next parliamentary elections. The government in office is based on cooperation between National Coalition and the Social Democrats - actually the coalition includes five parties, but those two mentioned are the "biggest shareholders"
This government is aiming, for example, at 1) reducing the State debt (FIM 13 billion), 2) cutting income taxes (FIM 5 billion) and 3) improving social security. The budget is nevertheless balanced and achieves the goals set by the Government. Finland has not seen anything like it in ten years. The goals are high, but achievable.
The strong economic growth has allowed the Government to take action on taxation. Finland has the fourth heaviest taxation on earned income in the EU area, but the Finnish tax authorities are much more gentle toward corporations. Finland’s nominal corporate tax is among the lowest in the EU. When examining the effective tax level, or what companies really pay, taxation is even lighter.
But back to income taxation, there are two opinions on this matter. Some say that cuts will extend economic growth while others believe that it will cause overheating. The International Monetary Fund brought its own contribution to the debate during its annual visit by calling for a tax reduction.
Tax cuts will be used to curb demands for wage increases, for the Government’s next difficult task is to achieve an incomes settlement. The present settlement will expire at the end of this year. The wage hikes agreed in recent years have been modest, only two per cent per year in two successive settlements from 1995 to 1999 and three per cent in this year’s agreement.
The Government hopes that the labour market organizations will settle for the longest period possible. The crucial talks will be held in November and December, a few weeks after municipal elections in October.
Another argument for lowering taxation is the fact that unemployment has remained high, at almost ten per cent, in spite of the strong economic growth. Though, latest figures clearly show that it is coming down. However, in some sectors we can expect bottlenecks where more people are needed than are available. So, at least partly unemployment has become structural and cannot be shaken off unless going to work is made much more worthwhile, and we can make sure that the companies are finding the educated people they need.
The European Union
When we joined the European Union – the change was much far-reaching than ever imagined. The framework how we work and see the state of the world today changed. The effects of the European Union membership extend into every sector of society. Finland has a lot to gain in this development. Both our immediate geographical region and more broadly Europe are in a dynamic phase of development, in which we can play a part by encouraging positive dependence – a process of growing together.
Of the factors promoting stability and security in Europe, the one I see as most important at the moment is enlargement of the European Union. Enlargement can produce stability and security as well as prosperity and social development. It creates the preconditions for comprehensive political and economic cooperation in our continent. It also makes it possible for Europeans to cope better in global competition. But before enlargement is possible the EU has to reform its own structures. That is what we are now trying to negotiate in the so-called Inter-Governmental Conference.
I would like to conclude by saying that Finland’s position is better than it has ever been in the past. However, a dynamic development and several simultaneous processes are ongoing in Finland, Europe and the world. We have to take actions continually on numerous issues in several walks of life in order to influence the future of Finland and of our continent. I think we in Finland stand ready for this challenge.