Finland - Future trends



Finland's aging population poses the greatest challenge for the future. Its extensive welfare and social security system will be strained by the shrinking workforce and increasing population of the elderly. A major difficulty the government faces is the political unpopularity of suggesting reductions in the welfare system. The guarantee of a certain standard of living is considered to be of primary importance to most Finns, but the question of where the money will come from to support this policy has no easy answer. The suggestion made by Finland's most right-wing political organizations—restricting those who are eligible for benefits based on ethnic criteria—is fortunately not popular. However, it is clear that significant re-structuring of the welfare system will be needed. The IMF, while praising Finland's strong recovery from its recession of 1991 to 1993, recommended several measures to anticipate and defuse the coming demographic crisis, including raising the effective retirement age of 59, altering individual pensions accounts, and reducing the length of time that unemployment benefit can be claimed. The Finnish government so far has focused on altering tax and wage structures and is more wary of reducing benefits.

Although steady economic growth reduced unemployment to some extent, Finland still faces an unemployment problem. National unemployment is still above 10 percent, and in areas of rural northern and eastern Finland it exceeds 30 percent. Since most export industries are highly automated and create relatively few jobs, it has been suggested that Finland is nearing its structural limit on unemployment. The state has been investing in education programs for adults and children to familiarize people with the Internet and computer programming and it is hoped to find a place for them in the new economy. However, public spending is expected to fall in 2001, and the government is trying to find a way to solve the unemployment problem without increasing government expenditure. Plans for lowering the income tax may be one way to encourage more participation in the labor force but cannot guarantee that the kind of workers required by the new economy will be available.

In 1995, the first Green Party representatives were elected to the Eduskunta, and their strong opposition to nuclear energy and fossil fuels poses a challenge to the government, which is looking for consensus on how to meet increasing energy demands. In the light of domestic and international environmental concerns about sustainability, pollution, and other risks associated with nuclear power, as well as dependence on exhaustible fossil fuels (which must be imported), Finland's energy system may need to be reexamined. It is unclear how the coalition government will deal with this challenge. Most attention has been given to research into sustainable energy sources, for which some funds have been allocated. Finnish businesses appear to be more sensitive to these issues than some of their European counterparts that may actually be better equipped to handle the task.

The importance of the timber industry to the economy may lead to future problems. Many current environmental reports describe commercial timber farming as destructive to Finland's ancient forests. The government and timber industry deny this claim, and they do not appear to distinguish between old-growth forests—which are ancient and full of a diverse range of plant, animal, and insect life—and homogenous, younger, and non-native trees that have been more recently planted. High levels of logging and clear-cutting of ancient trees and their replacement with commercially viable tree species threatens the bio-diversity of these ancient forests and poses extinction risks to local plant and animal species. Complaints by environmental groups on this issue have inspired the Finnish Ministry for the Environment to increase efforts to ease the ecological pressure on Finland's ancient forests. The timber industry, however, is highly dependent on world demand and is not as flexible in its responses as other industries. Finland's ongoing commitment to research and development in all its industries can be taken as a hopeful sign that further flexibility may come, as new industrial products are developed which can allow the industry to diversify.

Membership in the EMU has taken away Finland's ability to control the economy through interest rates and devaluation. Fiscal policy is now the main instrument of control. This situation could lead to problems, as the government has been running a budget deficit , and depends on high taxes for much of its revenue. If the EU starts to require harmonization of taxes among its members, Finland will be in great difficulty.

Although Finland has recovered well from its recessions of a decade ago, it is still in a slightly precarious position in its over-concentrated engine of growth. Specifically, Nokia alone accounts for around 65 percent of shares traded on the Helsinki Stock Exchange, and Finland is particularly sensitive to world demand of its main forest products for export. As the nation's population ages, the shift of people out of the workforce and into its pension system will strain the government's resources, which have only recently recovered from the recession. Membership in the EU gives some advantages, especially in terms of an export market but also removes some control over the economy. It is up to the Finnish state to attempt to strike a balance.

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