Finland: focus on bolstering domestic demand rathar than international competitiveness

Thanks to this strategic analysis of Greece, I have learnt to use a new (for me) statistics database – OECD.Stat and more specifically the STAN database. I started wondering how the same graphs look for Finland that Papadimitriou et al produce for Greece. Obviously, the data is only until 2012 (or 2009), and according to all kinds of sources the Finnish economy has definitely soured.

First, here is the GDP development since 2000. I used the output approach; I do not know exactly what are the positive and negative aspects of the other two approaches. (I apologize for the picture quality)

Source: OECD.Stat

Source: OECD.Stat

As you can see, there is a decline in GDP in 2008-2009, just like in most parts of the Western world. And also here, GDP continued growing, but at a lower level than before 2008, suggesting that also in Finland there is an output gap.

So, very roughly, what do exports, imports and domestic demand look like in this context? In this post I showed that the trade balance worsened, which can also be seen here. In addition, I showed that domest demand as approximated by retail development showed resilience, and in fact, it seems quite clear from the graph below (disregarding any finesse) that domestic demand is what has kept the Finnish economy afloat:

Source: OECD

Source: OECD

Although the quality of the graph leaves to be desired, the worsening trade balance can be observed. Also of note is the slow growth and small size of service exports. But perhaps most significantly, next to the possible flattening of imports and exports, is the growth of domestic demand, which in absolute value terms and in growth rate is much bigger than exports and imports. It is thus not wrong to say that thus far, growth of domestic demand has kept the Finnish economy afloat. Furthermore, leaving out a host of issues, the focus on international competitiveness is partly misguided, because it seems that this is not where GDP growth comes from (because the trade balance is well, nearly in balance.)

But what is the export of Finland? There is/was Nokia, there are successful companies like Kone and METSO (at least regarding the mining machinery division), chemical companies, smaller companies like Fiskars (of the scissors and knives). The OECD STAN database has a separation of export of goods by technological content. You can see this for Finland below. Compared to the study on Greece, I left out agriculture and ICT manufactures; the latter is included in the high-tech exports, as far as I could see from the database.

Source: OECD

Source: OECD

So even though Nokia and other ICT manufacture has always been seen as a major factor in Finnish exports, in terms of value this did not show. The category with the highest growth until 2008 was the Medium-high tech manufacture, as well as the medium-low technology manufacture. Companies like Kone and METSO as well as chemical industry fit the bill for medium-high technology manufacture (all these categories are based on R&D intensity).

The decline in low technology manufacture is perhaps best expressed by the decline of the traditional pulp and paper industry in Finland. It is a shame the dataset ends in 2009 (due to changes in categorization valid from 2010).

What does this look like for imports?

Source: OECD

Source: OECD

Most of Finland’s imports were in the category medium-high technology manufactures. This category also has seen the sharpest drop. The other import categories are surprisingly close to each other in terms of value. So the bottom line regarding the trade balance might be: both imports and exports fell starting 2008, but most of the decline seems to relate to the medium-high technology manufacture.

As a final statement I would like to say that from these statements it really seems that the focus on international competitiveness is a bit overblown. Yes, exports are important and there are very many top quality manufacturers in Finland. But in the current situation, with European and global demand weak (and perhaps getting weaker again), it seems that it is more important to bolster domestic demand. This means more than wage moderation – because demand isn’t going to come back with that.

So my personal advice for the current labour market negotiations is: focus on domestic demand and purchasing power, not primarily on international competitiveness. There are many more people working in non-export sectors than in the export-sectors and it is high time taking their purchasing power into account; however illogical that may seem to those steeped in neoliberal competitive markets-thought.


5 responses to “Finland: focus on bolstering domestic demand rathar than international competitiveness

  1. Pingback: Finland: Competitiveness, wage moderation and the Eurocrisis | Arjen polku

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