SFAH: Rapport 1992

1. 1
The 7th Nordic Conference of Labour Historians in Nykøbing Falster, Denmark,
'
May 6-9, 1991
Tapani Paavonen:
Welfare State and Political Forces in Finland in the
20th Century
1. Welfare State as a Historical Era
The formation of the welfare state has characterized the development of
the 20th century Western societies, which enables it to be regarded as an entire
historical era of Western society. The beginning of the welfare state in the
industrial countries is usually placed in the 18905 or at the turn of the 20th
century, when the modern social policy for labour protection was introduced.l
Also in Finland the modern social policy came into existence in this phase. The
Labour Protection Decree of 1889 and, even rnore, the Accident Insurance Act of
1898 were in this reSpect the first reforms based on the problems of the industrial
society.2
1
See e.g. ASHFORD,DOUGLAS E., Ilte Emergence of the Welfare States, Oxford
1986, p. 100-5
WARIS, HEIKKI,Suomalaz'sen yhteiskunnan sosiaalwolitiikka. Johdatus sosi-
aahpolitiikkaan, SosiaalipoliittisenYhdistyksenjulkaisuja 5, 6.p. Porvoo 1978,
p. 11-4; KARISTO,AN'm & TAKAIA, PENTI'I & HAAPOLA,ILKKA,Elintaso,
elämäntapa,sosiaalipolitiikka -
suomalaisen yhteislamnan muutoksesta, 4th
ed. Juva 1988, p. 140-9; ALESTALO,MA'ITI & UUSITALO,HANNU,“Finland”
(Growth to Limits. Nie Western European WelfareStates since World War II.

2. 2
The consolidation of parliamentary democracy and mass support for the
labour movement introduced a new
phase in the development of the welfare state,
when the labour protection provided from above was replaced by the demands
carried through by the protected themselves. Thus, a social policy directed towards
marginal groups was replaced by comprehensive social and economic policies
aiming to influence the living conditions of the whole population. The experience
of the Great Depression of 1929-33 became the decisive turning point in this
respect.
The development of the welfare state has been influenced by many factors.
Firstly, the welfare state has been partially a result of the economic develOpment.
The new social problems of the industrial society could not be solved within the
institutional framework of the old peasant society. At the same time, the economic
growth created resources that facilitated the foundation of the institutions of the
welfare state. Secondly, the deve10pment of political ideas, the competition
between political parties, political compromises and other political phenomena
have resulted in solutions that have increased the institutioual framework of the
welfare state. To this is connected the political consensus in regard to basic values,
towards which the Western societies have moved in the 20th century. Thirdly, a
certain automatism is still discernable in the growth of the welfare state, i.e. the
application of the principles already decided on has enlarged the share of the
public sector in the Western economies.3
Compared with the periodization of the Swedish and British welfare states,
there was a clear delay in the Finnish development. In fact, Finland appears as a
backward country, where the old-fashioned, pre-industrial views based on
traditional peasant values and the modern liberal demands for a “free economy”
constituted a dominant bourgeois view that, for many decades, obstructed the
arrival of the new Westem ways of thinking.
Volume 1: Sweden, Norway, Finland, Denmark (Ed. PETER FLORA),Berlin-
N.Y. 1986), p. 200
CfI e.g. KOSONEN,PEKKA,Hyvinvointivaltion haasteet ja pohjoismaiset mallit,
Mänttä 1987, p. 48ff.
3

3. 3
2. State, Economy and Society up to World War II
A lively debate on social policies arouse in Finland already at the beginn-
ing of the century. The social state, however, developed slow1y.In the conditions
of agrarian dominance, from the outset the question of the landless rural
population eclipsed the modern labour question. The leading bourgeois party of the
autonomous period, the Finnish Party supported e.g. by the wealthy farmers,
adopted at the critical stage of 1906 social policy views resembling the German
"Kathedersozialismus”, which emphasized labour protection granted from above.
The main emphaSis in this respect was, however, on the question of the landless
rural population. A more modern view on social questions was represented by the
liberal-minded Young Finnish Party, but its political strength remained discernably
weaker.4
The demands of the workers were manifested by the Labour Party foundcd
in 1899 (The Finnish Social Democratic Party, 1903), whose potential force since
the electoral reform of 1906 was clearly discernable. The “immediate demands” of
the Forssa Program of 1903 included all the institutions characteristic of the
welfare state: general social insurance, general basic education, free health care
etc. It was understood, however, that the principal goal was the realization of
socialism in accordance with the German Social Democratic model. But, in
practice, even the Social Democratic Party paid great attention to the question of
the landless rural p0pulation, on whose support it was dependent?
During the period of autonomy,the main obstacle to social reforms was
the Russian Emperor, who left unconfirmed most social legislation because of the
fear that they would stimulate similar demands in Russia. The dawning collective
bargaining system on the labour market, on the other hand, foundered on the
Oppositionof the employers.°
The Civil War of Spring 1918 had the effect that bourgeois White Finland
took up a
very reluctant attitude to all demands based on labour interests. In the
4
See BORG, OLAVI,Suomen puolueet ja puolueohjelmat 1880-1964, Porvoo
1965, p. 36ff.
SOIKKANEN,HANNU,Kohti kansanvaltaa 1. 1899-1937. Suomen Sosialide-
mokraattinen Puolue 75 vuotta, Vaasa 1975, p. 44ff.
WARIS, 0p.cit. p. 15-6; KALELA,JORMA,Työttömyys1900-Iuvun suomalai-
sessa
yhteiskuntapolitiikassa,Helsinki (Ministry of Labour) 1989, p. 36
5
6

4. 4
politics of the inter-war period economic liberalism thus appeared mainly as a
›
negative attitude to redistribution of income in favour of the workers. The accident
insurance was the only kind of compulsory social insurance that was generally
recognized. In other respects the social protection was mainly maintained on the
old basis of poor relief.7
1
The bourgeois partiesconcentrated on strengthening the peasant element
that was perceivcd to “consolidate” the society. According to JORMA KALELA, e.g.
the treatment of the employment question proved that the vision of a peasant
Finland remained as the predominant view in the Finnish social and economic
policies until the* late 19505.8 The agrarian predominance in Finnish society is
further reflected by the fact that the Agrarian Party was by no means the only
agrarian party, but, on the contrary, a strong agrarian wing appeared in all political
parties.
In spite of the White Victory in the Civil War, the inter-war period was
not completely dominated by rightist forces. The Agrarian Party became a strong
force in Finnish politics. And it was a state interventionist party. In Finland, land
reforms were carried out that exceeded the traditional liberalist view of protection
of private pr0perty. The customs duty policies favouring agriculture were sup-
ported also by the Right? But these policies were not jeopardizing property
relations. The increasing protectionism in the foreign trade policy was in other
respects, too, completely in accordance with the
prevailingbourgeois line, not
calling into question the entrepreneurial freedom of action.lo
The Finnish economic liberalism included, also, the view that LEIF LEWIN
for Sweden has called positive industrial policies (positiv näringspolitik). This was,
in the first place, the building of infrastructures by the State. In this connection
should be mentioned also e.g. the Private Forest Act of 1928", which, in fact,
7
Cf. e.g. KARISTO & TAKALA & HAAPOLA,Op.cit., p. 152-60
8
KALELA,Op.cit., p. 73-4
9
See MYLLY,JUHANI,Maalaisliitta -Keskustapuolueen historia 2. Maalaisliitto
1918-1939, Helsinki 1989, p. 110-7, 128-42, 222-34
Cf. PAAVONEN,TAPANI, "Neutrality, Protectionism and the International
Community. Finnish Foreign Economic Policy in the Period of Reconstruction
of the International Economy, 1945-1950” (Scandinavian Economic History
Review 1/1989), p. 23-4
"
Suomen Asetuskokoelma -
Finlands Författningssamling161/1928
10

5. 5
limited the owner's freedom by forbidding destructive felling.12But, in Finnish
govemmental policies with regard to particular industries, again, the main em-
phasis was concentrated on the development of agriculture. Further, in Finland a
strong group of state-owned enterprises was formed, the most important of which
were: Enso-Gutzeit Oy and Veitsiluoto Oy (wood processing), Imatran Voima Oy
(electric power) and Outokumpu Oy (mining .13
The debate on nationalization of the means of
productionwhich, in the
aftermath of World War I, was brought about by the growing influence of the
labour movementin many countries (Germany, Austria, Norway, Sweden etc), did
not take place in post-Civil War Finland. The Social Democracy of the 1920s,
however, still stuck, in principle, to the realization of Socialism. The Nationaliz-
ation Program of 1930 continued the tradition of German Socialism, with obvious
influences from Austro-Marxism. In practice, however, the Social Democratic
Party was reorienting to the stand of reformism, which even strengthened in the
1930s."
In the other Nordic countries the c00peration between Labour and Agrar-
ian parties was closer connected with depression policies. The governmental
policies that had meant regulation of income distribution since the Great Depress-
ion di5placed the authority of the traditional economic doctrines. Also the Finnish
government formation of 1937 followed the Nordic line. In Finland, however, the
influence of the labour movement remained still relatively slight compared with
the other Nordic countries.
The postwar planning of economic policy that was carried out during
World War II within the Western Allies and in Sweden perfected the new
reformist conception of social and economic policies. The focus of the new way
of thinking was the Keynesian view that the State, especially by means of fiscal
12
Cf. LEWIN, LEIF, Planhushållningsdebatten,Uppsala 1967, p. 20-2, 82-3
VIRRANKOSKI,PENTI'I, Suomen taloushistoria kaskikaudesta atomiaikaan,
Keuruu 1975, p. 199, 200-4; AHVENAINEN,JORMA & VARTIAINEN,HENRI J.,
“Itsenäisen Suomen talouspolitiikka”(Suomen taloushistoria 2. Teollistuva
Suomi, Helsinki 1982), p. 183-4
Cf. SOIKKANEN,Op.cit., p. 499-506; PAAVONEN,TAPANI,“The Finnish Social
Democratic Party since 1918”,Political Parties in Finland. Essays in History
and Politics (Eds. Juhani Mylly &. R. Michael Berry), Turun yliopisto. Poliit-
tinen historia C:21, Turku 1984), p. 139
13
14

6. 6
policies, could influence the general economic development to mitigate cyclical
fluctuations and to maintain employment. The second cornerstoue consisted of the
general social insurance to safeguard all citizens.
The reformist Labour parties developed additionally a new conception of
planned economy that replaced the old socialist conception of class conflict.
According to the new view, the State should regulate economic deve10pment partly
by indirect fiscal and monetary means and partly by direct orders in accordance
with a plan to safeguard maximal welfare.
The bearers of the new view were the Reformist Labour parties on one
hand and the Leftist Liberals on the other. Their common basic view was that full
employment should be maintained by means of “effective demand” and that
general social insurance was a necessity. But even the most reformist of the
bourgeois parties rejected, however, any direct regulation of the economy by the
State, e.g. investment control, and in other respects they wanted to quantify the
economic and social measures more
carefully than the Socialists.”
In Finland, however, the traditional ways of thinking were preserved
during the whole 19305. The economic depression was perceived as an inevitab-
ility, to which e.g. governmental finance had to be adapted. Accordingly, the
treatment of unemployment was seen as a separate social problem to be dealt with
by unemployment works as far as resources allowed.16 Yet, the Social Democratic
Party strove to some extent, inSpired by the Swedish example, to develop claims
for anti-cyclical economic policies, but even these thoughts were awakened only
after the depths of the depression were already passed, and the party was too weak
to exercise an effective influence on the practised policies.17
Also in Finland postwar planning was carried through in 1943-44 in
accordance with the Swedish and Western Allied examples. The social reformist
15
Cf. eg. PAAVONEN,TAPANI,“Reformist Programmes in the Flaming for Post-
War EconOmic Policy during World War II”, The Scandinavian Economic
History Review, Vol. 1000:3, 1983, p. 194-7
PEKKARINEN,JUKKA & VARTIAINEN,JUHANA & VÅISÅNEN,JARMO & ÅKER-
HOLM, JOHNNY,“Suomalainen finanssipolitiikka ja kysynnänsäätely”(Sata
vuotta suomaIaista kansantaloustiedettä. Kansantaloudellinen Yhdistys 1884 -
1984, Vammala 1984), p. 218
Cf. PUOSKARI,PENTI'I,“Vanha Tanner ja uusi talouSpolitiikka”,in Murros-
kausien mies. Väinö Tanner 1881 -1966. 100 vuotta Väinö Tannerin .synty-
mästä. Tarkastelevia kirjoituksia, Helsinki 1981, p. 149-50
16
17

7. 7
orientation, prevailing in the Western planning work, however, met with defeat in
the Finnish committee work. The leading position in the Finnish planning activities
was
occupied by the representatives of traditional economic liberalism, i. e.
prestigious business leaders, whose standpoints were followed by most bourgeois
politicians and press organs.18
3. The Postwar Phase, 1945-1948
After the war, Finnish society was in fierce ferment. The first postwar
Parliamentary election, in March 1945, produced an equilibrium between the
bourgeois groups and the lab0ur groups: 101 to 99. In social and economic
policies, however, the cooperation between the “Big Three”, i. e. the Communists,
the Social Democrats and the Agrarians, crushed the position of the traditional
authorities. But, on the other hand, the old doctrines were not replaced by any
coherent new guide-lines. The only thing that was clear was that in the new
situation the interests of the workers and the small-holders would gain a new
legitimacy at the expense of the'traditional upper and middle classes.
The government coalition of the “Big Three” in 1945-48 was based on
unstable foundations. The party most content with the new sitüation was SKDL
(The Finnish People's Democratic League) dominated by the Communist Party. The
Communists, however, did not intend to content themselves with those relatively
moderate “democratic” reforms mentioned in the common declaration, but aspired
to a unified front along Eastern European lines, within which they had to attainthe
leading position. The Social Democrats, again, expected that the new situation
would bring new
support for their social reformist views. But Finnish Social
Democracy was
politically split in the aftermath of the war. The “Tannerite”
majority recognized only reluctantly the political change that had taken place, all
the more as
they were
systematically accused of being “fascist war politicians” by
one of the c00peration partners. The party Opposition, on the other hand, tried to
'8
PAAVONEN,TAPANI,Talouspolitiikka ja työmarkkinakehitysSuomessa toisen
maaiImansodan jäIkeiseIIä jälleenrakennuskaudella vuosina 1944-1950,
Annales Universitatis Turkuensis, C:64, Turku 1987, p. 30-53

8. 8
harness the cooperation grouping of Social Democrats and Communists, that was
formed within the Confederation of the Finnish Trade Unions as well as within the
Government, to the vehicle of reformist social change. The Agrarian Party, for its
part, was suspicious of the labour groups that were in leading positions in the
Government.
An important role in Finnish politics was played by the Confederation of
the Finnish Trade Unious (SAK), which to a high degree dominated the ec0nomic
and social policies practised in the country in 1945-47. SAK represented lab0ur
politics that were a compromise between the Social Democratic party Opposition
and the Communists. Especially owing to this influence far-reaching reforms were
outlined in the first postwar years.”
The debate on nationalization (socialization) was started soon after the war
ended. For the first time the situation was favourable for such a discussion. The
Social Democratic party executive decided to take the initiative into its own hands
and suggested in January 1945 that the Government appoint a committee to in-
vestigate the matter. The initiative reflected the new Social Democratic view that
definitively detached itself from the traditional German socialism and was oriented
towards the modern western, democratic socialist views of planned economy along
the guide-lines of Swedish Social Democracy and the British Labour Party. The
obvious model for the initiative was the Myrdal Commission of Sweden.
Nationalization was touched on in the common declaration of the “Big
Three” in April 1945, but not mentioned in the subsequent Government program.
When the Social Democratic Party urged the matter, the Government finally in
February 1946 appointed the Socialization Committee, within which were formed
seven, strongly leftist dominated sub-committees.
The public discussion did not deal with the basic questions of the initiat-
ive, i. e. the economic role of the State and the means to increase it. Up to summer
1946 both the bourgeois and the Communist polemic made it seem as if the Social
Democratic Party was suggesting a large-scale nationalization of the economy,
while various “tactical” concerns were seen to lie behind the matter. The Com-
munist polemic additionally implied that the Social Democrats did not understand
the logic of transfer to Socialism. The Communists opposed “socialization” as
being premature, emphasizing “democratic reforms” as what was required in that
19
See PAAVONEN,Op.cit., p. 69-79

9. i
i
I1
i
i
i
l
1
9
phase. They aspired to get hold of the economy through the existing economic
regulation machinery.
After spring 1946, however, the demand for “nationalization” became one
of the most central Communist claims. Subsequently, the polemics about national-
ization were influenced by the “people'sdemocratic” model, e.g. the Parliamentary
election campaign of the bourgeois parties in 1948 rested to a high degree on
opposition to nationalization.m
The assignment of the socialization committee observed, in accordance
with the Social Democratic initiative, the modern western conceptions of planned
economy. The leadership of the committee was in the hands of reliable party
representatives, even though the party in many respects was displaced from central
decision-making. The committee was, however, unable even to define the guide-
lines of the investigation work. Within the committee reports were drawn up that
outlined the most grandiose schemes for nationalization but that in fact represented
only a
minority view within the committee.Finally, the modest proposals of the
committee, aiming at nationalization of electric power, the telephone companies,
the sugar industry and the tobacco industry, foundered on opposition from the
bourgeois Parliamentary majority.21
Within the prices and wages regulation system dominated by SAK, on the
other hand, more realistic schemes were outlined to reorganize the economy on the
basis of comprehensive planning. There was pointed out the necessity of more
“concentration” as part of the actual stabilization efforts. To attain more
planning
the purpose was to preserve part of the governmental regulation powers adopted
during wartime as normal instruments of economic policy.
The first attempt to attain more “concentration” was made in autumn
1945, when SAK demanded the establishment of a Production Ministry. The Prices
and Wages Council dominated by SAK began to prepare the reorganization, still
leaving out the Production Ministry at this stage. The Government, however,
limited the concentration to prices and wages regulation, which even the bourgeois
groups could accept. Among SAK's claims the Production Ministry was included
until 1947.22
2°
PAAVONEN,Op.cit., p. 209ff.
21
PAAVONEN,0p.cit., p. 230-2, 237-59
22
PAAVONEN,0p.cit., p. 266-8

10. 10
The second scheme, the TE-Ko Program (program for increasing produc-
tion and standard of living), also observed the guide-lines set by SAK. The
Economic Council appointed for the final design of the program concentrated its
work on short-term stabilization problems, but the intention was also to con-
solidate long-term comprehensive economic planning. The scheme, however,
foundered essentially on political contradictions. The industrial employers were
prepared to make short-tenn concessions to the workers, but the agricultural
circles whose claims had been neglected caused the scheme to founder in the
Government.23
4. The Victorious Anti-Reformism
The plans of 1945-47 for far-reaching reforms in the economic system
foundered before anything was realized. Firstly, the reformers lacked political
force. The leftist majority in the Government was to a great extent based on the
new
foreign policy requirements. But even the Social Democratic parliamentary
group had a
sceptieal attitude towards the policies of the P0pular Front Govern-
ment. Further, the labour leaders lacked the education which was required to
manage the new institutions. And the reformers' front was split by the political
struggle for the workers' “soul”; a
struggle finally won by the Social Democrats.
When the institutions of the welfare state in the Western countries
principally were consolidated in 1945-50,24 in Finland the cooperation group of
the labour movement neglected to develop the economic and social policies along
the new social reformist lines. In 1947 began the counter-offensive of the Conser-
vative forces. The counter-offensive was not limited to curbing the “nation-
alization enthusiasm” -
for which campaign the vigorous Communist propaganda
gave appropriate inducement -
but was continued to final torpedoing of the social
reformist conCeption. Here the liberalist tenet of the business circles coincided
23
PAAVONEN,Op.cit., p. 131-8; JORMA KALELA,on the other hand, emphasizes
the aspect of long-term planning as the profound goal for the IE-Ko Plan,
instead of short-term stabilization aSpirations, KALELA, Op.cit., p. 141-2
2*'
See ASHFORD,Op.cit., p. 106-8, 189, 240, 294

11. 11
with the agrarian egoism.
In many respects, even in Finland, the experiences of World War II shat-
tered the ideological foundations of the old world. But contrary to e. g. Sweden and
Great Britain where the Conservatives by 1945 had abandoned their traditional
opposition to the new social reformist ideas,7J Finnish Conservatism stuck to the
old principles. The German economist Wilhelm Röpke had, in Finland, much the
same role as an international authority that F.A. Hayek had in Sweden. Only some
few understood his Neo-Liberal theory, but his fierce criticism against “collectiv-
ism” pleased the bourgeois public.26Yet, the wartime experiences had accustomed
even the Finnish Right to the thought of permanent influence of the Iabour move-
ment in political life. Thus, even the Conservatives ad0pted a practical negotiation
attitude in matters that did not touch the foundations of the economic system.
The Socialization Committee had to develop, among other things, means
for maintaining full employment, but the “Keynesian”economics were
apparently
foreign to the Committee's members and investigators. The Economic Council
drew up in 1947 a plan to consolidate the centralized labour force administration,
including the establishment of a Ministry of Labour. However, the plan foundered
on opposition from the bourgeois groups, led by the Confederation of Finnish
Employers. A governmental labour employment service was labelled as
conflicting
with the “free economy”.
In the same way, the attempt by the Social Democratic minority govem-
ment of 1948-50 to achieve a permanent employment service act foundered. The
bourgeois Parliamentary groups especially picked on the proposed labour districts
and vocational guidance, which were claimed to represent over-organization and
to limit the employee's individual freedom, respectively.27
When the principle of the full employment policy foundered, winter
unemployment was, in the 19505, combatted by public unemployment works, a sort
of employment rehabilitation. In the unemployment works the productivity was
intentionally kept low. It was known also as the “spadeline”.28
Cf. ASHFORD,Op.cit., p. 264ff; IÆWIN,0p.cit., p. 271-8
Cf. IEWIN, 0p.cit., p. 271-2
PAAVONEN,Op.cit., p. 299-303
KALELA,Op.cit., p. 159-71
äüäü

12. 12
The idea of a general social insurance failed as well. The labourers'
accident insurance was still the only kind of obligatory social insurance that fitted
into the framework of that time's economic liberalism. The old-age insurance
legislated in 1937 was not even intended to become effective fora long time. A
general unemployment benefit was quite unthinkable in the Finnish society of the
19405 and '50s, but public financial aid to the voluntary unemployment benefit
societies was accepted. The report on Sickness insurance in 1949 by the Social
Insurance Committee appointed in 1945 aroused only little interest. The scanty
discussion concentrated on the question of how to forestall “misuse” were the
'
reform to be realized.”
As a counterbalance to the unsuccessful social reformist conception, how-
ever, modern social policies succeeded in the field of population policy. The Child
BenefitAct of 1948 and the state-subsidized housing construction in the population
centres, started in 1949, were remarkable social reforms that gained support even
in bourgeois circles.30
It would be, however, exaggerated to refer only to the tenet of economic
liberalism or the bourgeois and agrarian class interests in explaining the im-
plemented economic and social policies. For example,the Agrarian Party, the most
central government party in the 19508 and until 1966, was clearly a state interven-
tionist party. But the State interventionism of the Agrarian Party concentrated on
promoting the agricultural income formation, while appealing to the poor (“kåyhän
asia”) mainly referred to small-holders' interests. Hence, the party obstructed
governmental measures aimed at wage-eamers' interests.
The Social Democratic Party was the second government coalition party
until the party Split in the late 19505. Finnish Social Democracy did not par-
ticularly emphasize the modern social and economic policies, even if they were, in
principle, included in the party program. It seems obvi0us that the workers' interest
was mainly concentrated on the amount of money wages. In many cases the trade
unions succeeded in including provisions for sick pay into wage agreements”.
PAAVONEN,Op.cit., p. 306-9
PAAVONEN,Op.cit., p. 309-14
MANSNER,MARKKU,Suomalaista yhteiskuntaa rakentamassa. Suomen Työn-
antajain Keskusliitto 1940-1956, Jyväskylä1984, p. 410-6
31

13. 13
Mill MK
-
GDP
._._.
Public Expenditure
....... ..
Social Expendlture
-50 -55 -60 -65 -70 -75 -80 -85 -90
FIGURE 1. Gross Domestic Product, Public Expenditure and Social Expenditure at
constant 1985 prices, 1950-1990
Even though the social reformist conception foundered in the postwar
situation, the change in Finnish society was none the less impressive. The
increased influence of the labour movement remained permanent, even though it
weakened by the 19505. From 1945, collective bargaining was put into practice for
worker occupations, a system the employers had earlier rejected.32After the war
the public finance was consolidated at a level that was higher than prior to the
war, though naturally lower than during the war. The incidence of state taxation
also adhered more to the income distribution claims of the labour movement than
had been the case prior to the war.33
The distinctive feature of the Finnish economy, i. e. the share of the state-
owned industries, strengthened considerably in the period of government cooper-
ation between the Social Democratic Party and the Agrarian Party in the 19505.
This again was
opposed by the Right in the Cold War atmOSphere. Especially to
be mentioned are Neste Oy (oil refining) and Rikkihappo Oy (now Kemira Oy;
32
Cf. e.g. PAAVONEN,Op.cit., p. 106ff.
33
Cf. e.g. PAAVONEN,Op.cit., p. 282ff.

14. 14
per cent of GDP
_
Public Expenditure
--
Grass Tax Rate
10
-50 -55 -60 -65 -70 -75 -80 -85 -90
FIGURE 2. Public Expenditure and Gross Tax Rate as percentage of GDP
fertilizers), and in the '605 Rautaruukki Oy (basic metallurgy).34
5. The Breakthrough of the Welfare State
In the 19505, developmentstook place that anticipated the emergence of
the modern welfare state in Finland. Firstly, the bourgeoisparties were gradually
detaching themselves from their traditional opposition to “state socialism”. The
liberal National Progressive Party, that hitherto had emphasized its commitment to
the “pure”liberal idea was, in 1951, replaced by the People's Party, that com-
mitted itself first of all with the cause of the middle class. The program of the
People's Party stressed also the demands for modern social policies.”But even
more important was that, within the conservative National Coalition Party, the
younger generation, that represented a more social-minded spirit of “brotherhood
34
Cf. HJERPPE,RII'I'I'A,“Teollisuus” (Suomentaloushistoria 2), p. 412-3
35
Cf. BORG, OLAVI, Suomen puolueet ja puolueohjelmat 1880-1964, Porvoo
1965, p. 302-9

15. 15
of arms” dating back to the common experiences of wartime, strengthened its
position.36Even within the Agrarian Party there began to arise trends of detach-
ment from the strict commitment to agricultural interests and of reorientation to
population centres, which was manifested in the new party program in 1962 and
in the change of name to Centre Party in 1965.37 Thus, the question of welfare
ceased to be an ideological watershed of the political field.
The idea of regulation of cyclical fluctuations through fiscal policies found
no response within the Finnish decision-making system. According to JUKKA
PEKKARINEN'S study group, Keynesianism was consolidated within Finnish
academic economics during the 1950s, but the practical fiscal policies continued
along the old conventional ways of thinking, characterized by the general negative
attitude towards increasing of public expenditures as well as the assumption of
tight budget restriction.38
A remarkable social reform was when the national basic pensions were
increased near to the subsistence minimum in 1956.39 The Labour Exchange Act
of 1959 finally consolidated the governmental labour force administration. The
new
Employment Act of 1960, on the other hand, brought about e.g. the general
unemployment benefit that had been hitherto shunned, even though the amounts of
mOney in the beginning remained modest. The governmental labour exchange
aimed at promoting the mobility of the labour force. The former unemployment
works were replaced by normal public works that were to be organized so that
they would balance fluctuatious in the private sector. The new ideas were, how-
ever, put into practice rather slowly. The Ministry of Labour started to function in
Finland only in 1970.40
The employee pension was legislated in Finland in 1961-62, and the
general Sickness insurance in 1963. There was no battle in Finland over the
employee pension like in Sweden; the reform was prepared mainly on the employ-
ers' terms by governments led by the Agrarian Party. The contributions were to be
paid to private pension funds, while the employers got the right to reborrow the
3°
cr. BORG, 0p.cit., p. 322-31
37
Cf. BORG, 0p.cit., p. 350-6
3”
PEKKARINFN & Orm-:115,Loc.cit., p. 223-30
39
KUUSK,PEKKA, 60-Iuvun sosiaalzpolitiikka, Sosiaalipoliittisen Yhdistyksen
julkaisuja 6, 4th pr. Porvoo 1963, p. 213-4
4°
KALELA,0p.cit., p. 185-97
%
,

16. 16
funds on relatively favourable terms. The general breakthrough of the new way of
social thinking was in any case shown by the fact that the reforms were carried
out in a period when the Agrarian Party played the leading role in government
politics, which again was based mainly on foreign policy factors.41
Pekka Kuusi's book 60-Iuvun sosiaalipolitiikka (1961) (Social Policy for
the Sixries, 1964) became in many respects indicative of Finnish social policies.
Kuusi himself emphasized the goal of economic growth to which the social and
economic policies were to be subordinated. This meant especially employment and
housing policiesywhile the other branches of social policies had to ensure an
adequate livelihood for the citizens when required.42The same guidelines were
observed by the Economic Council's report on growth policies in 1964.'3
The short-lived days of glory of Social Democracy in Finland started with
the Victory in the 1966 Parliamentary elections and lasted about ten years. Yet, the
economic and social policies since 1970 were decisively influenced by the bour-
geois majorities in Parliament and in the governments. In any case the Finnish
welfare state widened enormously during this period. The basic ideas of social
reformism were largely accepted, even though they were identified most distinc-
tively with the aSpirations of Social Democracy.
'
One of the most remarkable reforms carried out in this period of Social
Democratic dominance was the comprehensive school that after 1968 gradually
ended the division of compulsory education into two; that for the ordinary pe0ple
and that for the educated class. The Social Democratic Party carried on tough
negotiations with the centre Party for the reform. The National Health Act of
1972, for its part, complemented the general sickness insurance, while the
municipal health centres offered new services in accordance with the increased
demand. The rightist opposition sharply criticised the ways and means of realiz-
ation of the reforms, but the basic principlesin this phase were already broadly accepted.44
In the 19605, the power of the trade union movement began to grow again,
4'
KALELA,Op.cit., p. 167-9
“2
KUUSI,0p.cit., p. 35ff., 85ff. and passim
43
Talousneuvoston mietintö Iähivuosien kasvupolitiikasta, Kommiet. 1964:A 16,
Helsinki 1965, p. 51-70
“
For the enlargement of welfare state in Finland, see KARISTO & TAKALA &
HAAPOLA,0p.cit., p. 162ff.

17. ;
17
reaching a comparable level with the other Nordic countries. The incomes policies
practised since 1968 with the comprehensive solutions and social policy
“packages”of the wage agreements marked, above all, commitment by the
employers to the development of the welfare state. On the other hand, this “neo-
corporatism”arosed opposition, too, in some rightist circles. During the rising
boom in the first half of the 19705 the comprehensive labour market policy was
disturbed mainly by the tendency of the Communist trade union fraction to follow
the wild wage movements that tried to exceed the general level of wage increases.
The idea of more governmental management in the economy also got onto
a better footing during the Social Democratic reform period. For example, the need
to direct capital flows was discussed. The most famous example was the -
subsequently unsuccessful -
attempt to start state-owned television tube produc-
tion.
6. The Welfare State in the Post-Industrial Society
Since approximately the mid-19705, the Finnish welfare state has been
"completed". According to MA'lTl ALESTALO and HANNU UUSITALO,the relatively
strong position of the Agrarian/Centre Party, i.e. the agricultural interests, in
Finnish politics has moulded the general social insurance more towards general
national than particularlylabour insurance.” PEKKA KOSONEN has compared the
Finnish welfare state with
the other Nordic countries. According to him, the
Finnish state has been more committed to the promotion of capital formation in
the national economy, because of which the levels of employment and social
security as policy targets have been subordinated e.g. to the competitiveness of the
export industries. Accordingly, the real level of social benefits has remained lower
than in the other Nordic countries. As the most important reason for the difference
he regards the weaker position of the labour movement in Finnish politics than in
the other Nordic countries.46
*5
ALESTALO & UUSITADO,Loc.cit., 225, 228
“6
KOSONEN,Op.cit., esp. p. 183-6, 218-26, 233-9

18. 18
Social policies have concentrated on modifications and minor adjustments
on the basis of earlier solutions. In the reforms of 1982-85 social benefits were
made taxable, while their real levels were raised correspondingly. The income-
bound unemployment benefit was raised even in real terms. The VALTAVA
reform of 1984, for its part, rationalized the shares of social expenditures between
the state and the municipalities."
The “revolt of the affluent” against high taxes has appeared also in the
Finnish discussion on economic and social policies. The gross tax rate in Finland,
38 per cent in 1988 or 45 per Cent inclusive employers' compulsory payments to
private pension funds, has represented an approximater average level in compari-
son with other economically advanced countries.48 The “blue-red” government
Coalition of the National Coalition Party and the Social Democratic Party in 1987-
91 tried to lighten the taxation, however, at the same time trying to widen the
taxation basis in order to better adjust taxation to real income formation. In the
government position, the Coalition Party, which has traditionally been. backed by
the Opponents of high taxation, has found itself in a situation where cutting down
on public expenditures has proved to be very problematic. In recent years, the
public sector has, however, striven to move more towards the principles of market
economy. For example, many public services, both state and municipal, have been
transformed to a
self-financing basis. Discussion of privatization of state-owned
companies has increased as well.
The comprehensive wage negotiations system is facing a crisis. Most
pronouncedly the principle of comprehensive solutions has been opposed by the
employers, but also by the unions of salaried employees. The advocate of this
system has mainly remained the workers' trade union movement. But even within
it, tendencies to deviate from the general line have appeared in separate unions.
Obviously, the comprehensive labour market policy will be the first institution of
the welfare state to be abandoned in the 19908.
The Swedish discussion of collective wage-earners funds in the 19705
found no response in Finland. In the 19805, the discussion was launched mainly by
younger rightist representatives emphasizing individual pr0perty acquisition. The
“7
See KARISTO & TAKALA & HAAPOLA,0p.cit., p. 166ff.
Growth and Integration in a Nordic Perspective, The Research Institute of the
Finnish Economy (Helsinki) -
The Institute for Future Studies (Copenhagen)
-
The Industrial Institute for Economic and Social Research (Stockholm) -
The Institute of Industrial Economics (Bergen), Helsinki 1990, p. 24

19. 19
Employees' Funds Act of 1989 was based on this neo-liberal, individual basis. The
enterprise-related employees' funds became voluntary, and primarily the funds are
to be divided into individual shares.49
I
However, the pessimistic predictions of F.A. Hayek and Wilhelm Röpke
how the Western societies, first ad0pting the welfare state, would slide through
“collectivism” to totalitarian dictatorship and poverty, did not materialize. On the
contrary, in the era of that “collectivism” unparalleled economic growth and
prosPerity have been achieved, without individual freedom even seeming to have
been je0pardized. There is, however, a rather common view that the welfare state
has completed its -histor'ical function by having brought about considerable equality
and broken down the class borders. Yet, for the moment, the rise of Neo-Liberal-
ism (“Friedmanism”)in the 19805 seems to remain mainly an Anglo-Saxon phe-
nomenon. But, on the other hand, even in Finland the increase in real incomes that
has taken place during the 1980s has not been distributed equally, but has been
most obviously concentrated on occupational groups that have been the first to
adopt new
technologies.
According to KOSONEN,the welfare state as a whole has not facing a
crisis in the sense that it would have become unable to fulfil its functions. Opinion
supporting the welfare state, however, has weakened to some degree;0 The
Keynesian-Meidnerian model for employment policy, on the Other hand, is clearly
facing a crisis. The multiplier does not work as the mechanism creating employ-
ment in an open econOmy where the production is highly mechanized and auto-
matised. KARI SALAVUO refers to problems produced by the new technologies
based on micro-electronics in the adaptation of and the demand for labour
force.51 According to KALELA, again, a labour market policy based on the
requirement of mobility becomes inefficient in en situation where qualifications of
quite a new type are
suddenly required from the citizens.52
49
Suomen säädöskokoelma -
Finlands författningssamling814/1989
5°
KOSONEN,Op.cit., p. 320-8
5'
SALAVUO,KARI, “Sosiaalipolitiikantulevaisuus” (Järjestelmä,toimeentulo ja
toimintakyky. Esseitä sosiaalipolitiikasta Terho Pulkkisen täyttäessä 60 vuotta
28.3.1986, Turku 1986), p. 25-37
52
KALELA,Op.cit., p. 216-27