The perils of post-closure support

[This is a draft, I try to get my thoughts straight, originally published 27.2.2012]

This story started with the closure of the Kemijärvi pulp mill in 2008. Although it was argued by some that it was pure destruction of capital and knowledge, as this mill had a very advanced testing lab, Stora Enso closed the mill ostensibly because it did not want competitors to buy it.

Kemijärvi is in the very north of Finland, and the loss of an employer of this size has tremendous local consequences. A local protest movement, including businessmen and employees alike, was formed and tried to pressure politics and Stora Enso not to close the mill. Alas.

Something did happen though after the mill was closed. The (then) Anaika Group informed that it would buy the mill to produce laminated wood products. According to this news it was a project driven by the state and Stora Enso to help the region. Both Stora Enso and the state (through Finvera) borrowed substantial sums of capital to Anaika Group, which by then had changed its name to Arktos Group.

However, the project was never completed and production never started. In 2011 there were co-decision procedures and a few weeks ago the production was stopped. Rather incredibly, Arktos Group got in 2010 a ‘Success certificate’ from the research and analytics division of Kauppalehti Oy.

Without further facts, it is not entirely clear what happened in this episode, but the owner of Arktos Group mentioned problems with technology conversion and deficient skills of the personnel regarding producing laminated wood products. The failure of the laminated wood factory can be explained sociologically as well as economically. Both explanations more or less amount to the same, though. Sociologically, it can be said that the Kemijärvi pulp mill was embedded in its surroundings (physical and business-wise). It got its raw materials locally but apparently also did international work thanks to its advanced lab. The Arktos laminated wood factory was not embedded in the same environment, although it also would procure wood locally. Its products (had there been products) were finished products ready to sell through hardware stores or furniture makers. The lack of connection between what was to be done at Arktos Group in Kemijärvi and the rest of its relevant market was too big. This is where we switch to economic explanation: the transport of pulp, due to its bulk nature, is most likely much cheaper than laminated wood transport. Pulp from Kemijärvi most likely went to the mills in Kemi and Oulu, whereas the sale of laminated wood products would have been national and non-bulk. From the point of view of the end-product, the physical location of a factory of (nearly) consumer products in Kemijärvi was not very well chosen. Local demand would not have been enough, at least.

The owner of Pölkky Oy, mentioned in the first link, has some critical words for state interference in investments. He especially criticized that the state came in so early, before there was a ‘product’.

A similar situation exists in Voikkaa, where the planned business center in the former paper mill has not yet materialized, despite optimistic sounds in Melin and Mamia’s (2010) Tapaus Voikkaa. On the other hand, the Hamina region was lucky when Google bought paper mill real estate to house a server park. This, however, did not necessarily benefit the former paper mill employees.

Reschooling programs should be studied for effectivity to re-employ, but a study for the Confederation of Finnish Trade Unions shows that re-employment programs have not worked very well.

The problem is simply stated: Finland is an ‘archipelago of paper communities’, and if a mill closes, not only is this a personal catastrophe for the employees, it is also a big problem for the community, which one way or the other depends on the spill-over effects of paper mill employment (employees shop, buy houses, drive cars, eat in restaurants, participate in politics, etc).

It is really difficult to replace lost demand for jobs in the paper industry. When a mill closes, all of a sudden a lot of employees with relatively similar work experience find themselves competing for jobs. They might not find work in their own sector and have to re-school. The laminated wood production planned for Kemijärvi was possible the kind of new investment that had possibilities to employ former mill employees in work close to their own experience, but the Google server hall or Voikkaa Business Park companies might not have the same effect.

This is really one of the hazards of capitalism for society: in regions where employment is heavily dependent on a single sector (or employer), its employees are left in the cold when the work disappears. In the case of Stora Enso, the Finnish state has a rather responsible position, as it partially owns the company.

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