In the general election on Sunday, Finnish voters gave most support to a former telecoms entrepreneur as prime minister. Juha Sipilä, the leader of the Centre party and a millionaire who has built his own house and gas-powered car, is set to replace Alex Stubb as Finland’s prime minister. Centre came first in the election with 21.1% of the vote (up from 15.8% in 2011). The euro-sceptic True Finns gained 17.6% (actually down from 19%). The incumbent coalition parties took a hit, with the National Coalition down to 18.2% from 20.4% and the Social Democrats 16.5% from 19.1%. Centre won 49 seats in the 200-seat parliament, with the True Finns gaining 38, the National Coalition 37, and the Social Democrats 34.
So Finland’s Berlusconi, Sipilä will try to form a coalition, probably a right-wing government consisting of Centre, True Finns and National Coalition. The True Finns refused to join a coalition in 2011 in opposition to Greece’s second bailout, but this time it seems that its leader Timo Soini is ready to join Sipila in government, significantly as foreign minister where he can exercise his party’s anti-immigration policies, just at a time when we see the terrible tragedy of migrants drowning by their thousands in the Mediterranean because Finland, among other ‘northern states’ in the EU, has insisted on cuts in EU funding for rescues as a ‘deterrent’ to those attempting to get into Europe.
Why did the conservative-social democrat ‘grand coalition’ (similar to that in Germany) lose power? Because Finnish capitalism is in a serious recession. Yes, just as we are told that the US and much of Europe is recovering from the slump of the Great Recession and the Euro depression of 2011-12, even Greece, Finland has got worse. The economy has been contracting for three straight years in a slump that is much worse than in deep recession of the early 1990s. “Finland is in very, very deep trouble,” says Anders Borg, the former Swedish finance minister who is conducting a review of Finland’s economy for the government. Alex Stubb, Finland’s losing prime minister, talks of a “lost decade”.
Finland is one of the richest economies in the world and has one of the lowest public debt ratios. Indeed its governments used to boast of their low government debt and balanced budgets, unlike the feckless Greeks. But it seems that tight budgets and low public debt do not guarantee avoidance of slumps, contrary to the consensus view put forward by supporters of austerity in the US and the UK.
So what’s the cause of this failure of Finnish capitalism? Well, the underlying reason is the same as it is for other capitalist economies: the profitability of capital in Finland has taken a turn for the worse.
The deep recession of the early 1990s, which led to high unemployment and major restructuring of industry, gave a huge boost to profitability at the expense of wages during the 1990s, similar to the recovery in profitability in Germany (see my post, https://thenextrecession.wordpress.com/2013/09/22/german-capitalism-a-success-story/). But it did not last. From the early 2000s, overall profitability began to fall and then dropped horrifically in the Great Recession, with no recovery since.
The net income of Finnish technology industry firms was on average just 0.9% relative to revenues in 2013 compared to 7.3% between 2000-2005 (7.3%) and 12% in 2007 before the Great Recession.
The problem for Finnish capitalism is that its mainstays for decades — the forestry industry and the electronics sector around Nokia — fell into sharp decline. Timber prices collapsed as demand for printed paper declined with the advent of paperless online media and the internet. Nokia failed to defend its market share against Apple and other telecom rivals. At the same time, its large trading and geopolitical neighbour, Russia, did not provide an alternative market for Finnish exports and investment. Instead, while public sector finances remained tight, the private sector went on a binge as banks lent huge amounts to companies and for the housing market.
“We have been hit by various shocks at the same time. There are few, if any, countries in Europe that have had the same shocks,” says Erkki Liikanen, the central bank governor (failing to mention Greece). It’s really yet another example, at the northern end of Europe like the southern end, where the smaller capitalist economies have taken the biggest hit from the Great Recession and subsequent miniscule recovery in world trade.
Finns are getting older and more expensive to keep alive. The proportion of Finland’s population that is of working age is due to fall from 65% in 2012 to 58% by 2030. Over the same period, the over 65s are expected to rise from 18% to 26%.
Unlike Germany, wage costs have spiralled higher than any other European country in recent years. As unit labour costs of Ireland and Spain have fallen because of the massive layoffs and cuts in real wages there, Finland’s has increased by about 20%. From 2007 to 2012 Finland’s unit labour costs in manufacturing rose by 6.3% a year, faster than any of the countries surveyed except Australia and Japan. At the same time, Finland’s productivity fell by 3.9%, far more than any other country. Wages can rise if the productivity of labour does also and thus not damage profitability. But falling productivity drove up costs for Finnish companies.
Of course, the answer of the mainstream is that profitability must be restored by cutting real wages and public spending. Sipila wants to cut spending by €2bn a year even though Finland’s budget deficit in 2014 is just 3.4% of GDP and public debt to GDP is around 60%, about half that of Italy’s. The bankers are screaming for cuts. And they want Finns to work harder and longer. They’ve had it too soft apparently (although Finns are continually told that the Greeks are the lazy ones in Europe).
Pasi Sorjonen, an economist at Nordea, the biggest bank in the Nordic region, says the government needs to cut taxes to help healthy businesses and stop “protecting jobs in the public sector.” Jyri Häkämies, former conservative Minister of Economic Affairs, and now head of the Confederation of Finnish Industries (EK,) would like to “freeze wages for years ahead”.
Sipilä, who made millions in telecoms and bioenergy, says he wants to run the government “more like a business”. And he means by that cutting the Finnish health system, one of the best in the world, and shrinking the public sector. The Finnish people should prepare themselves for a new bout of neoliberal solutions to the failure of Finnish capitalism.