Norway's anf finland's economic system and economic problemsDocument Transcript
Norway's economic system and economin problems
Finland's economic system and economin problems
*****ROHAIL QAZI SR.1.S*****
"NORWAY'S ECONOMIC SYSTEM AND
The economy of Norway is a developed mixed economy with heavy state-ownership in strategic areas of the
economy. Although sensitive to global business cycles, the economy of Norway has shown robust growth
since the start of the industrial era. Shipping has long been a support of Norway's export sector, but much of
Norway's economic growth has been fueled by an abundance of natural resources, including petroleum
exploration and production, hydroelectric power, and fisheries. Agriculture and traditional heavy
manufacturing have suffered relative decline compared to services and oil-related industries, and the public
sector is among the largest in the world as a percentage of the overall gross domestic product. The country
has a very high standard of living compared with other European countries, and a strongly integrated welfare
system. Norway's modern manufacturing and welfare system rely on a financial reserve produced by
exploitation of natural resources, particularly North Sea oil.
A boiler towers over a fjord on Norway's south coast from a 116-year-old pulp mill, the largest employer in
the town of Tofte.
The 300 jobs may be gone by September, the deadline set by the loss-making plant's Swedish owner to find a
buyer or close, victim of high wage costs, the debt crisis that has hurt its local European markets.
If the Tofte workers lose their jobs, they will join the growing ranks of Norway's unemployed. The number of
jobless risen to an eight-year high of nearly 100,000, although its 3.5 percent rate is much lower than
Sweden's 8.2 percent.
Just a year ago the government was worried the unemployment was too low, the housing market was
overheating and it cut spending to cool the economy down.
The central bank, which had been promising rate hikes to cool the economy, last week delayed its first hike
until the end of next year and said there was now a 50 percent chance its next move would be a cut.
The housing market has stagnated and bankruptcies rose by 31.9 percent in May from a year earlier.
Mainland exports to Europe are down 2 percent in the first five months and manufacturing exports have
fallen 13 percent.
Wage costs, up more than 60 percent since 2000, about six times more than in Germany or Sweden are
adding to the pain while banking regulations, among the toughest on the continent, are also holding back
lending. oil prices have fallen to $100 a barrel from last year's $112 average and a sustained fall to around
$80 levels seen as recently as 2010, would jeopardize many projects
"FINLAND'S ECONOMIC SYSTEM AND
Finland has a highly industrialised, mixed economy with a per capita output equal to that of other western
economies such as France,Germany, Sweden or the United Kingdom. The largest sector of the economy
is services at 65.7 percent, followed by manufacturing and refining at 31.4 percent. Primary production is 2.9
With respect to foreign trade, the key economic sector is manufacturing. The largest
industries are electronics (21.6 percent), machinery, vehicles and other engineered metal products (21.1
percent), forest industry (13.1 percent), and chemicals (10.9 percent). Finland has timberand several mineral
and freshwater resources. Forestry, paper factories, and the agricultural sector (on which taxpayers spend
around 2 billion euro annually) are politically sensitive to rural residents. The Greater Helsinki area generates
around a third of GDP.
In a 2004 OECD comparison, high-technology manufacturing in Finland ranked second largest after Ireland.
Knowledge-intensive services have also ranked the smallest and slow-growth sectors – especially agriculture
and low-technology manufacturing – second largest after Ireland.[clarification needed] Investment was below
expected. Overall short-term outlook was good and GDP growth has been above many EU peers. Finland
has the 4th largest knowledge economy in Europe, behind Sweden, Denmark and the UK.
Finland is highly integrated in the global economy, and international trade is a third of GDP. The European
Union makes 60 percent of the total trade. The largest trade flows are with Germany, Russia, Sweden, the
United Kingdom, the United States, Netherlands and China.Trade policy is managed by the European
Union, where Finland has traditionally been among the free trade supporters, except for agriculture. Finland
is the only Nordic country to have joined the Eurozone; Denmark and Sweden have retained their traditional
currencies, whereasIceland and Norway are not members of the EU at all.
The global outlook is weakening, slowing growth in Finland. The Finnish economy has still not recovered
from the sharp 2008-09 recession and GDP remains about 3% below its mid-2008 level. Policymakers should
cushion the downturn by strengthening active labour market policies.
While the budget deficit is small, current fiscal plans are not ambitious enough to deal with future fiscal
challenges related to an ageing population. Raising the retirement ages, improving incentives to work for
older individuals and further tightening early-retirement schemes would increase labour supply and could
lower fiscal costs sufficiently to address these long-term challenges. Without major retirement reforms,
significant further fiscal consolidation would soon be needed to deal with the costs of ageing.
After a long period of strong growth, Finland’s productivity performance has weakened recently, reflecting a
weak performance in information and communication technologies but also in the public sector. Structural
reforms aiming at increasing productivity therefore need to move up the agenda. Current support for
businesses and private sector R&D do not seem to be effective and should be scaled back further and
streamlined together with business taxation. Government R&D spending should mainly focus on funding
research in academic environments and should be distributed in such a way as to reward academic quality.
Stronger competition, especially among shielded private and public service sectors, could contribute to
higher productivity. Less restrictive zoning and planning regulation for retail trade would boost productivity
through stronger competition and larger scale economies. Exposing low-productivity government dominated
sectors to competition would also raise productivity. In addition, thorough reforms of the municipal system
are needed to shore up sustainability and efficiency, and announced plans for mergers should therefore be
Productivity in the health sector has been falling and Finland underperforms the most efficient OECD
countries on some indicators of the population’s health status. Ageing will put further pressures on public
health spending, underlining the need for significant and lasting efficiency gains. The planned reform to
restructure municipalities and public services offers opportunities to reduce inefficiencies related to the
excessive fragmentation of health care provision.
Health inequalities between socio-economic groups and regions are high by OECD standards. Apart from
addressing the fragmentation of the health care system, increasing user choice and competition in health
service provision would also improve efficiency and equity. Reinforcing the role of cost-effective primary
care, home care and prevention would contain the increase in the need for costly specialised care and long-
term care services.