Category Archives: General Update

Finnish Independence Day – What Finland means to me

Today Finland turns 98 years old as an independent state. I don’t want to write about this week’s upheaval in labour market relations, because that is a topic for more serious thoughts. I just want to make one comment: given the European Monetary Union and its currency, and the rules and regulations setting strict limits to budgetary freedom of the Finnish government – the rules that have come from Brussels (with the approval of the Finnish Finance Minister of course) – one must really ask: is Finland an independent state? Is the Finnish parliament really (as in effectively) the supreme controlling body? These are more or less rhetorical questions and I leave further discussion for another time.

So, to the real topic: what has Finland meant for me personally? I first came to Finland in 2002 (internship at the Finnish Forest Industries Federation) and I did part of my Master’s thesis writing at the Labour Institute for Economic Research (Palkansaajien tutkimuslaitos). After I moved permanently to Finland on December 8, 2003, I was unemployed in Helsinki for a while before I found a job as a sales assistent for the German market at Marja Kurki Oy. I started working on my dissertation in 2006 and then I also moved to Turku. I got married and founded a family. Basically since 2006 I have been at the University of Turku, in various positions and with various funding.

Coming from the Netherlands, Finland has meant to me first and foremost space and nature, both of which are scarce in the Netherlands. Along the way I learnt a lot about picking mushrooms and going to sauna – and I suppose I am nearly fluent in Finnish nowadays.

Finland has also meant efficient bureaucracy to me. Coming from the Netherlands, the KELA-system is supremely easy to navigate (although I know of course that this is not always true). In any case, everything from dealing with social security to paying taxes has been very easy in my view.

Finland also has shown that because it is a small country population-wise, it is very homogeneous. In the Netherlands I don’t know of products that are likely to be literally in every home, such as Marimekko Unikko, Aalto-vases and other Iittala products, Moccamaster coffee machines (which are actually Dutch I think), Arabia Teema -plates and mugs, Hackman cutlery etc etc. They are nice and functional but it is quite amazing that there are so many products which are kind of socially obligatory to own.

One big asset is also the Finnish day-care and schooling system (all the way to the universities). I do wonder to what extent critical thinking, creativity and healthy disregard for authority are part of the school system, but it seems that it is very efficient in teaching skills. The context of this remark is that I was in a Montessori-school, where at least the latter two issues are quite prominent. At the secondary school though, creativity was “killed” due to not so good art teachers. Critical thinking was prominant in civics, history and economic classes.

But maybe interestingly enough, I think the thing that matters most for me in Finland is its music scene. Finland is small but there are so many good musicians (although less in the pop scene I dare say). It is obvious that Sibelius is a towering figure, but I personally like the works of Einojuhani Rautavaara a lot, since he frequently included e.g. bird song in his works. (e.g. this one). Finland has a very active and productive heavy metal scene, where maybe Nightwish is the name most well-known (now with a Dutch singer!) and Children of Bodom is the most influential music-wise. My personal favourite (for all kinds of reasons) is Sentenced, e.g the  instrumental song Kaamos. In the jazz world (where I include improvisational music more widely) there are too many names to mention: Juhani Aaltonen, Mikko Innanen, Raoul Björkenheim (Blixt, Krakatau), Iiro Rantala, and many others, also in the experimental folk scene. Also in the visual arts there are many important figures, but I am less familiar with those and music is my love in any case.

So, happy Independence day!

Finland: what is its competitiveness?

The Finnish economy is not doing well, regardless of the better-than-estimated growth. Politicians, business representatives and also labour unions talk about Finland having become uncompetitive, especially relative to Germany. This is commonly expressed through a comparision of the (Real) Unit Labour Cost developments. Especially the wage increases in the sectoral collective bargaining rounds of 2007-2008 are frequently blamed for Finland’s downfall.

Recently, I have read all kinds of literature related to trade diversification, export performance and such. It was also nice to discover this website, which can provide a wealth of insight. Basically my thought for this post is: If Finland is so uncompetitive, this must somehow show up in the data. Another issue is: Finland is frequently mentioned as very competitive and high-tech, such as in this article, but does this show up in Finland’s exports?

Regarding the first question:

Export destinations of Finland (1995-2012)

Export destinations of Finland (1995-2012)

The top export destinations of Finnish exports are Sweden, Germany and Russia (followed by the Netherlands, UK, USA and China). That is the ‘macro’ picture. If you look at those individual countries, you will see completely different ‘export packages’.

Finnish exports to Germany (2012)

Finnish exports to Germany (2012)

Half of what Finland exports to Germany is either paper goods or metal goods (this can be steel plates, zinc, nickel, iron pipes etc.). Machines account for nearly 18% of exports. These are typically machines for the German industry to make things (e.g. paper machines, processing machines, lifting machines, …) but it also includes telephones, electrical transformers and electrical motors.

For Finnish exports to Sweden the picture looks quite different:

Finnish exports to Sweden (2012)

Finnish exports to Sweden (2012)

Mineral products is the category code for e.g. oil-based products, like petroleum and refined petroleum. Chemical products also include medicaments.

Finally, exports to Russia look like this:

Finnish exports to Russia (2012)

Finnish exports to Russia (2012)

Again, chemical products, phones, computers and other machinery are a large part of exports, but Russia is also a significant market for Finnish dairy products.

To make the picture complete, I provide a list of the Top-40 export products from Finland (in 2012), in terms of export value (in US$), see below. What I find striking, is that in terms of the classification used by Cafiso (2009) there are only a few high-tech export products in the top-40,  and the top-6 features ‘traditional’ industry products, as in relatively low-tech. In terms of export value, the Finnish paper industry is far from being history.

When we go back to the first question – does Finnish uncompetitiveness show up in the data? – it depends what you look at!! Here are the graphs fror the top-3 products:

Kaolin Coated Paper exports

Kaolin Coated Paper exports

Refined petroleum

Refined petroleum

Stainless steel

Large Flat-rolled Stainless Steel

Strange to say maybe, but depending on the destination and the product Finnish competitiveness does not look too bad. Yes, the start of the Great Financial Crisis is visible in the data in 2008-2009 and from 2011 European demand for two of the three products here is in decline. But that doesn’t mean that Finland is uncompetitive – German exports of stainless steel and kaolin coated paper also declines, especially in Europe.

I think one of the most relevant lessons of these sketches is that in Finland the industries that produce the top-40 products are typically very capital-intensive.  It may be true that Finnish Real Unit Labour Costs are higher than in Germany, but does it matter? Storm and Naastepad (2015) conclude that for Germany (and other industrialized countries) trade is not very sensitive to changes in Real Unit Labour Costs.

This overview of some of the aspects of the Finnish export industries has implications for the labour market relations and what issues are emphasised (either by labour unions, the state or employers). I hope to write more about that in a later phase.

 

1
Refined Petroleum $7,571,937,492.43 10.06%
2 Kaolin Coated Paper $5,546,692,160.65 7.37%
3 Large Flat-Rolled Stainless Steel $3,188,856,875.23 4.24%
4 Uncoated Paper $1,896,120,674.00 2.52%
5 Sawn Wood $1,578,749,613.50 2.10%
6 Sulfate Chemical Woodpulp $1,554,623,680.00 2.07%
7 Packaged Medicaments $1,402,117,640.52 1.86%
8 Electrical Transformers $1,397,459,014.12 1.86%
9 Telephones $1,213,812,358.00 1.61%
10 Excavation Machinery $1,141,698,501.29 1.52%
11 Broadcasting Equipment $977,911,850.49 1.30%
12 Papermaking Machines $874,822,111.30 1.16%
13 Machinery Having Individual Functions $821,263,336.80 1.09%
14 Electric Generating Sets $809,612,169.02 1.08%
15 Medical Instruments $789,197,173.22 1.05%
16 Electric Motors $707,507,667.19 0.94%
17 Other Construction Vehicles $652,354,778.80 0.87%
18 Raw Nickel $648,832,883.17 0.86%
19 Raw Furskins $619,987,425.28 0.82%
20 Raw Zinc $602,721,172.66 0.80%
21 Uncoated Kraft Paper $596,906,691.21 0.79%
22 Stone Processing Machines $574,838,607.82 0.76%
23 Plywood $570,319,551.66 0.76%
24 Cellulose Fibers Paper $557,917,828.69 0.74%
25 Cars $529,368,714.55 0.70%
26 Refined Copper $526,786,902.13 0.70%
27 Rubber Tires $522,128,649.04 0.69%
28 Valves $512,834,686.85 0.68%
29 Lifting Machinery $500,867,236.02 0.67%
30 Ethylene Polymers $495,928,852.51 0.66%
31 Passenger and Cargo Ships $456,775,890.54 0.61%
32 Other Uncoated Paper $430,972,171.17 0.57%
33 Electric Motor Parts $428,195,865.56 0.57%
34 Low-voltage Protection Equipment $423,857,644.83 0.56%
35 Flat Flat-Rolled Steel $421,897,577.90 0.56%
36 Coated Flat-Rolled Iron $415,547,511.74 0.55%
37 Special Pharmaceuticals $415,278,848.27 0.55%
38 Computers $411,008,464.22 0.55%
39 X-Ray Equipment $404,066,790.60 0.54%
40 Tractors $401,011,453.94 0.53%

The Finnish economy in 2014 – an overview

This post is in a way an update of this post, but with a different focus and hopefully a bit more structured approach. The post is timely, in that the interim budget negotiations are about to start and various politicians have started marking their positions. I apologize that most links are in Finnish only.

By way of an introduction, I wish to refer to a currently ongoing debate, in which the Finnish mainstream economists argue that Finland has clearly structural problems, and that therefor (logically) the welfare state should be reduced. Nonetheless, professor Pertti Haaparanta has convincingly argued that the problems of the Finnish economy are not structural, or “at least misleading: business cycle problems that are not corrected create structural problems.” He refers among other things to hysteresis. One particular  good argument is what he writes (my translation):

Also Sweden has suffered more [from the crisis] than OECD countries on average, although less than Finland. This is in itself already sufficient reason to doubt the claim that Finland has big structural problems regarding the labour supply, that Sweden is claimed to have solved.

This claim is especially suspicious because the decline of potential production was timed in all countries at the start of the financial crises, which everywhere led to a decline of private and unfortunately also almost everywhere of public demand. How can this be, if Finland has some particular structural problem? And even though the crisis might have revealed some particular structural problem of the Finnish economy – as has been claimed – without the crisis it wouldn’t have been noticed, so…??

The current economic debate in Finland is thus clearly ideological (as it is almost anywhere). This being said, the state of the Finnish economy is quite horrid. First I show the development of GDP since 2000 (figure source: Tilastokeskus). It shows both the old and new methodologies of counting GDP.

GDP (volume change). Blue is EKT95 and Red is the new EKT2010

GDP (volume change). Blue is EKT95 and Red is the new EKT2010 (Source: Tilastokeskus)

This does not look good. And with the Ukraine crisis and the related economic sanctions, it may press Finnish GDP further down, as Russia is still an important trade partner for Finland, especially regarding energy resources:

Source: ULJAS/Tulli.fi

Source: ULJAS/Tulli.fi

The core of the ECB strategy is combating inflation. We know that it is not really succeeding at achieving its near-2% goal, but how is inflation developing in Finland? Well, since mid-2011 there has been a strong downward trend:

CPI (Blue) and HICP (Red) Source: Tilastokeskus

CPI (Blue) and HICP (Red) Source: Tilastokeskus

The question is always, what causes this drop in prices. On the one hand, Statistics Finland reports that industrial producer prices have declined (especially in export sectors, broadly since 2011) but on the other hand service sector producer prices have risen continuously since 2010. One the biggest factors in price increase is rents (both so-called social rental levels and private sector, but real estate has declined in value – more about housing etc below.)

Unemployment is high in Finland. Although the problems in Finland are not likely structural, Finland does have a fairly high level of structural unemployment, which dates back to the economic crisis in the 1990s. But this is how the unemployment level has developed (Source: Tilastokeskus):

Unemployment rate (Green) and Trend (Blue)

Unemployment rate (Green) and Trend (Blue) (Source: Tilastokeskus)

 

Obvi0usly, in this figure nothing like a recovery can be observed. With the ongoing structural changes in the Finnish forest industries and the implosion of Nokia it is not quite likely that this trend is coming down soon. The Finnish ministry of Employment and the Economy has its own methodologies and statistics, and focuses on people who actually look for work. The picture can’t be copied here but I suggest to take a look. Line (1) shows unemployed people looking for work and line (2) shows the number of open positions (through mediation of the Employment Office). In my view, this is a quite depressing figure.

I have previously argued, that Finland did fairly well as long as domestic demand kept up. How has this developed in the meantime? OECD.Stat gives this development:

Domestic Demand (P3-P5). Source: OECD.Stat

Domestic Demand (P3-P5). Source: OECD.Stat

 

 

 

 

 

This graph shows that at least using this measure domestic demand is perhaps slowly decling or has been at most flat since 2011. This may be somewhat explained by the Finnish system of unemployment benefits – the labour unions manage the unemployment funds, and union members get up to 500 days a certain percentage of their last salary. Thus, unemployment does not immediately mean a crisis in household expenditures. But on the other hand, under current circumstances it is not likely that domestic demand would soon increase. Most likely the growth of domestic demand from 2009 to 2011 was due to availability of credit at low interest rates. This may be reflected in increases in private indebtedness as well (see below).

One issue which has been current in economics blogs is that international capital is searching either safe havens or yield. Finland has been for many years on top of various innovation- and competitiveness indexes, but is that reflected in Foreign Direct Investment? This table from the Bank of Finland gives us the following graph:

Foreign Direct Investment in Finland, EUR million

Foreign Direct Investment in Finland, EUR million

 

 

 

 

 

 

 

 

From this graph it would seem that Finland has only recently become less interesting as a country to invest. By far most FDI comes from Europe, with Sweden and the Netherlands the biggest investors from Europe. Investment is needed to create new jobs, so this would seem to be a fairly positive situation, as Finland has a highly educated workforce, good infrastructure etc.

So, on these macro-level variables, Finland is not doing very well in terms of GDP and Unemployment but FDI and domestic demand seem to hold up fairly well. The big question is of course, how the Russian sanctions and possible counter-sanctions are going to affect the Finnish economy. In the post that I referred to above it can be read that the trade balance of Finland is well, nearly in balance. This is perhaps a function of increasing imports and declining exports – after all, the whole labour market debate is centered around the primacy of Finland as an export-oriented economy.

To return to domestic demand, it is instructive to show this graph (through Revalvaatio.org):

Indebtedness of households. Mortgages (light blue), Consumption credit (red), other loans (dark blue), interest costs (yellow)

Indebtedness of households. Mortgages (light blue), Consumption credit (red), other loans (dark blue), interest costs (yellow)

 

 

 

 

 

 

 

 

 

 

Here we can see that consumption credit has expanded somewhat, but the main driver of Finnish private indebtedness is the mortgage. Elsewhere I have argued (in Finnish) that it is possible that Finland has seen a real estate bubble, which by now has burst – there are many indications for this, as in the country side prices are declining rapidly and houses stand for sale quite long. Another indicator is that even though housing prices are down, rents are up, which may be a way of recuperating (future) losses. Either way, Finland’s household sector debt is quite high and their financial assets are seen to be contracting. This is not yet a problem, but with rising unemployment and declining housing prices it could become a problem, since if you are unemployed somewhere and are unable to sell your house, you are literally stuck because it is often necessary to move near a job. And since the places with Nokia -related industry are not doing well, this is likely to become a problem.

On the other hand, public debt is still relatively modest. The expectation is that it will cross the 60% -limit next year but it is still nothing to panic about.

Private sector debt is high, but this is not necessarily a problem either. The problem is that Finnish companies are faced with reduced aggregate demand and therefore don’t invest, or worse make many people redundant. This realization means that the current trend in labour market relations, extreme wage moderation, is misguided. It is true that Finnish labour costs are higher than Germany’s. But Finland can never become a low-wage-high-productivity-export-led economy like Germany. This is an issue which demands another post, but Finland really should focus on the domestic demand and high quality export goods and services (which it does, with examples of KONE or METSO or Pöyry).

All in all, the big risk for Finland lies in the combination of a big correction in the housing market prices, a continuing economic crisis with consequences in unemployment and finally as a result of both AND the Ukraine situation a crash in domestic demand. But Finland is certainly no Greece or Spain – the economic fundamentals, innovation and capacity to attract investment seem to be all right. This crisis can be prolonged with the wrong policies (another blast from the past regarding the 1990s crisis and its prelude), and there should be more focus on the issues which are in my view more relevant for the future of the Finnish economy. As I have written somewhere sometime last year, a good start would be for the unions to demand higher wages, before Finnish households become trapped with deflation. Wage moderation may appeal to a moral sense of ‘we all have to suffer’ but it is not exactly good for domestic demand.

 

 

 

 

On MH17, Ukraine-Russia and a thought on sanctions

The disaster with MH17 is terrible. I think the Ukraine-crisis is much worse than people may think.

I am just wondering, wouldn’t increasing sanctions and barriers to trade with Russia actually increase the chance of armed conflict? I mean, interconnectedness of trade gives a good reason to important sections of society on either side to prevent conflict. After all, conflict means loss of market access etc. And this was the original solution to the German-Franco rivalry in Europe.

“Marxin analyysi auttaa ymmärtämään kuinka palvelualoilla tehdään voittoa “

THL:n blogissa. Kiinnostavaa! Sopii tavallaan hyvin Erin Hattonin teesiin, ettei voi olla vapaus työmarkkinoilla niin kauan kun on vielä ihmisiä jotka tekevät työtä mutta jotka kielletään “etikettiä” työntekijää (kuten vangit, workfaren yhteydessä työtä tekevät.)

My speech at the Alter-EU conference “Beyond the Social Dimension of EMU”

Below you can read the speech I held at the panel discussion at yesterday’s Alter-EU conference. Or at least, it was my intention to tell exactly the text below but as usual, I more or less improvised on the themes in the text. The discussion of European economic policy was left for the discussion and I did not get to speak about the issue of climate change.

———————————————-

 (synopsis) In many European countries labour markets have changed. There are reasons of policy, demography and technological change behind this. Change in national systems of industrial relations or labour market relations have happened much slower. In many countries unions have seen their membership levels decline. To some extent, this is understandable, because the sectors these unions represent have been in decline. There are other sectors, where it has been much more difficult to organize members and engage in collective action. In many countries organizing part-time, temporary and other categories of atypical employees has been difficult. In my view, this is as much a consequence of changes in the way younger generations see labour unions as it is a consequence of unions clinging to the ‘standard, full-time employment’ as the norm to which they relate alternative employment relations. Thus, although the challenge is big, modern labour unions should acknowledge the practical relevance, in a legal sense, of changed employment relations and focus on those groups of employees that enjoy less strong labour rights than ‘standard, full-time’ employees.

In this short speech I wish to address some general issues of labour union representation in our time. The theoretical basis for this topic is my dissertation, in which I developed a synthesis of various currents of industrial relations literature. Through this theoretical framework it is possible to assess, in a broad and qualitive way, what factors contribute to changes in the representative capability of labour unions.

In an analysis using this framework, much weight is given to long-term developments and qualitative analysis of key moments in the interaction of labour unions with other societal actors. These can be decisive industrial conflicts, internal union developments, changes in the sector the union represents or changes in the legal context that influences the labour union environment. In short, seen over a certain period of time, there may be many issues that in their own way influence the representative capability of labour unions.

Often, though depending on the situation, the major factor is the state of the economy and the specific sector. To some extent this can be simplified to issues of employment, under-employment and unemployment.I will return to the issue of employment contracts a bit later. Another issue that is very important is the legal context. The mileage varies, but in many countries – at least in Europe – labour unions participate to varying extents in devising labour market policies. This is true for the national level as well as for the European Social Dialogue process. In this way, labour union representativeness in the context of legal developments is a reflexive dimension, beause labour unions are involved in the processes. Richard Hyman talked about the logic of influence versus the logic of representation, at least regarding the European dimensionI will return to this issue in a moment.

The challenges national and trans-European labour unions, or let’s say the labour movement, faces are quite big. On the one hand it is possible to some extent to see the influence of years of neo-liberal policies that have sought to minimize labour union involvement. On the other hand, there are more diffuse developments such as the influence of globalization, which may have contributed to an accellerated loss of jobs in European industry and attempt to downsize government or privatize state firms – which traditionally have high rates of organization. But also demographic changes, changes in and between generations have in many complicated ways affected the attractiveness of joining a union. Much research has focused on changing social norms and increased individualism. But perhaps the biggest influence is nonetheless the changing structure of the economy. Roughly speaking, blue collar jobs are disappearing or changing – traditional conveyor-belt work is quite rare in Europe.

Labour unions found it easiest to unionize those workers, who had a comparatively weak position through highly transferable skills. But these workers did have an advantage – large numbers. Although I now generalize, labour union organizing and representation has for a very long time relied on a kind of standard worker – full-time, often male, with comparatively low skills. Many unions nowadays still implicitly claim to represent the blue-collar worker – but it is a big question whether this worker still exists in Europe. My research has focused on the Finnish Paper Workers’ Union and in terms of skills, duties and content of work an old-school unionist would perhaps not recognize these employees as blue-collar workers.

Beyond these changes there has been also a wide increase of a-typical work. Here we can think of part-time work, temp agency work, outsourced work, all kinds of forms of work where there is some kind of intermediary between the employee and the employer who deals with issues of employment contract. Why are these employees problematic for unions? In short, because they are “moving targets” – unions cannot count on continuing commitment to the union because the employee moves from job to job in many cases.

And here I wish to return to the reflexivity of labour union representation in terms of labour law and labour policy. Since there is now a wide range of different employment contracts, labour unions have to focus on this issue more. Unions are in a difficult position indeed, because at the same time, they have to represent their current members, who might be in those typical standard employment relations. But on the whole, because this kind of employment relation is still in decline, unions must balance their attempts to represent both old and new members. Nonetheless, for example the Part-time Work Directive, which was born through the process of Social Dialogue, shows unions can have a beneficial influence regarding these kinds of non-standard employment relations as well.

I said these legal issues are reflexive, and by that I mean that through their membership base in previous time there have been certain priorities in advancing policy mainly relevant for that current membership. And that is how it should be with a representative organization. In Dutch we say ‘A general should not advance too far ahead of his troops.’ But a major programmatic aim of the labour movement should be to include those that are not currently represented by labour unions. By that I do not only mean those employees that currently have more insecure employment contracts but also the unemployed and those who are not classified as employees, e.g. Domestic workers and interns.

It will be far from easy to organize these various categories of working people, not in the least because they have many different interests and problems regarding work. But if labour unions broaden their political scope towards alternative employment relations as well, there may be a genuine interest in becoming a labour union member.

So, this is the major issue of union representation in terms of employment relations. But the union movement also has a role in public discussion on economic policies. So far, through the ETUC and many strikes in mainly the Southern European countries unions have had a critical voice in relation to European economic policy. Although important, I think it is important that beyond criticizing current policy unions should also focus on alternative economic policies and deconstructing the rationales for the present austerity policies.

As you have heard during this conference, European economic policy in this crisis has been based on bad science, bad analysis and bad rhethoric. Labour unions could do much more to counter this. Also in Finland labour unions have completely bought the mantra of export competitiveness and labour costs. The issue labour unions should focus on are domestic demand and employment. Preferably these issues should be tackled with a strong focus on the big question of climate change.

In my opinion, even traditional industry would benefit from such a strategy. Every country has different issues that are relevant, but a shift to renewable energy or bioenergy would be beneficial for industry as well and it might well be a growth industry of the future for countries such as Finland. Furthermore, although more consumption is not a sensible goal, a focus on domestic demand does do much to re-balance income inequality between domestic and export sectors.

Regarding the eurocrisis, the window of opportunity for either reconstructing the EMU or perhaps leaving it has probably closed. This nonetheless still leaves us with the potential of the European Investment Bank to spur green investment and positive economic policies. I don’t know if it is in any way possible to reach full employment, although some economic currents think it is possible. But I do think there are within the current setting possibilities to create non-destructive economic policies. And labour unions should promote these. Thank you.

“Yanis Varoufakis: Sick Predators: How a Dying Regime Preyed Upon Women with HIV, Invested in Wholesale Racism, and Endangered Public Health”

http://www.nakedcapitalism.com/2014/01/sick-predators-dying-regime-preyed-upon-women-hiv-invested-wholesale-racism-endangered-public-health.html

Shocking. Truly shocking. This is what you get when a party wants to attract votes from the Golden Dawn Nazi-party voters.