History, - 1800 Agrarian country 70% of people in agriculture and forestry ½ of value of production came from agriculture and forestry Industry: Some iron works at southwestern part Tar burning Sawmilling Fur trading Export and trade concentrated on coastal areas, small towns The income from tar and timber shipping accumulated capital for the first industrial plants. Finland part of Sweden – All export has to go trough Stockholm – Industrialization begins in UK / Europe
1800-1900 Beginnings of industrialization in Finland Already started in Europe The first modern cotton factories started up in the 1830s and 1840s, as did the first machine shops. The first steam machines were introduced in the cotton factories and the first rag paper machine in the 1840s. The first railroad shortened the traveling time from the inland towns to the coast in 1862 First telegraphs around 1860 Some new inventions, such as electrical power and the telephone, came into use early in the 1880s, but generally the diffusion of new technology to everyday use took a long time. Own currency, Markka Trade partners : Russia, Germany, England. Import : Grain 1809 – Finland under Russian government, autonomy. First steps of industrialization reach Finland.
… until First world war The export of various industrial and artisan products to Russia from the 1840s on, as well as the opening up of British markets to Finnish sawmill products in the 1860s were important triggers of industrial development. From the 1870s on pulp and paper based on wood fiber became major export items to the Russian market GDP grew at a slightly accelerating average rate of 2.6 percent per year, and GDP per capita rose 1.5 percent per year on average between 1860 and 1913. The population was also growing rapidly 1860 : 2 000 000 1918 : 3 000 000 About 10 % of population lived in towns The investment rate was a little over 10 percent of GDP between the 1860s and 1913 and labor productivity was low compared to the leading nations. Economic growth depended mostly on added labor inputs Strong exports to Russian market, Russia blooming on Tsar era. 1914 – Word war I begins
World war 1 to world war 2(1918-1939) 1917: First steps on metal and shipbuilding industry Revolution in Russia – Soviet union Finland became independent Russian trade cut off: Short term effects: The food situation was particularly difficult as 60 percent of grain required had been imported. Loan from USA to help on food situation Indstry : New markets were found, exports started to grow.On the eve of World War II, almost half of the labor force and one- third of the production were still in the primary industries 1917 – Revolution in Russia – Finland became independent – Civil war in Finland 1917-1918
1919-1939 After world war 1 Finnish sawmill products, pulp and paper found old and new markets in the Western world. (need of timber in europe, after war) The structure of exports became more one-sided More than 80% of exports were based on wood, and 1/3 of industrial production was in sawmilling, other wood products, pulp and paper. Other growing industries included mining, basic metal industries and machine production (shipyards) , but they operated on the domestic market, protected by the customs barriers. Economic recession had little impact to Finnish economy 1938 GDP already higher than Europe average. Global economic recession 1930s
World war II (1939-1945) International trade practically 0 Industrial production collapsed during first 2 years Industrial production focused on weapon industry to domestic market.
Post war era : 1946 - After war, economy was in crisis Finland had to pay reparations to USSR, the compensation was paid in form of industrial products Examples: Ships (over 500) Electrical engines (52 500 pcs) Locomotives (over 700) Timber Special products … Reparations done after 8 years, 1952 last reparations paid Influence on economy : Benefits: + Investments in R&D and domestic industry + Education / training of workforce + opening of sales channel to USSR Downsides: - Loan capital from US and sweden - Industry (Paper and metals) focused only on reparations Because of land-losses to USSR, over 400 000 inhabitants were re-located to Finland Affected on labor availability and construction industry
Post world war 2 Timber exports to west started again Productive capacity modernized, industry reform 1948 Finland joins: World Bank International Monetary Funch (IMF) Bretton Woods 1950: GATT (General Agreement on Tarrifs and Trade) Tariffs were eased and imports from market economies liberated from 1957 1961: Finnefta (an agreement between the European Free Trade Area (EFTA) and Finland)
Fast development after world war 2 The labor-force growth stopped in the early 1960s, and economic growth has since depended on increases in productivity rather than increased labor inputs. GDP growth was 4.9 percent and GDP per capita 4.3 percent in 1950–1973 Bilateral trade agreements with the Soviet Union started in 1947 and continued until 1991 Building of Nordic welfare model since 1960s Government policy favoring investments.
First signs of structural change Structure of export industries were diversified by Soviet and, later, on Western orders for machinery products including: paper machines, cranes, elevators, special ships such as icebreakers. Soviet Union provided good markets for clothing and footwear The modern chemical industry started to develop often led by foreign entrepreneurs, the first small oil refinery was built by the government in the 1950s. The government became actively involved in industrial activities , with investments in mining, basic industries, energy production and transmission, and the construction of infrastructure, and this continued in the postwar period. Government also active on developing the welfare model (investing on education etc)
1970 The oil crises of the 1970s put the Finnish economy under pressure. Oil price started to climb Inflation high in Finland Bilateral trade agreement with the Soviet Union helped on this matter (agreement had to be followed by both parties). This boosted export demand and helped Finland to avoid the high and sustained unemployment Between 1978 and 1979 Finnish currency was devaluated 3 times, with total effect of 19% to boost export industry
1980s Electronics industries started to rise Economic growth in the 1980s was somewhat better than in most Western economies 2 devaluations in 1982 (total of 11 %) due to high inflation End of the 190s Finland caught up with Swedish GDP Finland caught up with the sluggishly-growing Swedish GDP per capita for the first time. Re-valuation of Finnish Currency 1989 Banking system was liberated late 1980s (free capital movements from and to foreign markets)
1990s Collapse of Soviet Trade No more bi-lateral agreements Liberal capital movement Currency loans Banks needed support from governments Depression GDP fell over 10 % in 3 years Unemployment up to 18 % The banking crisis triggered a profound structural change in the Finnish financial sector. Devaluation of currency (2 times at 1991) Exports started to raise already from 1992 1995 EU membershio 1998 EMF, Euro-zone 1997 – Annual growth already over 6 %
EU-era : 1995 Many factors have influenced the Finnish economy in the past 10-15 years: EU Membership 1995 Monetary union membership Improved credibity of monetary policy, Lower intrest rates, more stable intrest rates No more inflation-devaluation cycles Strong growth of Electronics and IT-sector (Lead by Nokia) Growth of metal and engineering industry (Together with global economic growth)
Productivity increase ICOP Estimates of levels of labour productivity in manufacturing, 1960–1996 (value added per hour, USA=100)120,0100,0 80,0 Netherlands Belgium Finland 60,0 USA Sweden 40,0 Japan UK 20,0 0,0 1960 1973 1987 1996 1998 2000*
Number of employed in manufacturing industries, 1925–2000250200150 Textile, clothing and leather Saw-milling and other timber Paper and pulp Metal industries100 Electric and electronic applies Other industries 50 0 1925 1938 1960 1974 1990 2000
Distribution of industrial value added by major branches, 1925–2000 (%)45403530 Textile, clothing and leather25 Saw-milling and other timber Paper and pulp Metal industries20 Electric and electronic applies Other industries1510 5 0 1925 1938 1960 1974 1990 2000
Conclusions Forest industries has always played high role on exports, but it is changing it’s form Changing from manufacturing to services Strong cluster feeding other branches Share of Forest industries still remarkable Electronic industries has been the rising star in last 20 years. Strong cluster driven by Nokia Feeding subcontractors, and service providers Manufacturing non important in Finland Development of Finnish industries in general has been fast since 1950s, especially at 1990s Key points : Second world war Collapse of trade with Soviet union 1990 -> Domestic crisis, concentration on electronics and services Lead by global growth of Nokia and IT cluster High investments to R&D Changing from manufacturing to services
Metal and engineering cluster together with chemical industries has been gaining trough global economic situation. All industry clusters / segments suffers on global economic situation Economy is highly depending on exports Investing to R&D is beneficial, and it has proven effects Changing from Labor driven to Capital driven ?
Sources Website, Statistics Finland (www.stat.fi) Research paper: Technology and structural change: productivity in the Finnish manufacturing industries, 1925 - 2000 Jukka JALAVA1, Sakari HEIKKINEN2 & Riitta HJERPPE3 Journal of Economic Development Volume 15, 2 December 1990 Growth and Structural Change of the Finnish Economy, 1860-1980. Hans C. Blomqvist Website, Bank of Finland (www.bof.fi) Website , Confederation of Finnish Industries (www.ek.fi) Research Paper: Trade-flow Based Industrial Clusters in the Finnish Economy Growth Through National Synergies Outline version for the OECD Cluster Focus Group Workshop 8-9.5. 2000 Tuomo Pentikäinen , Sakari Luukkainen VTT Group for Technology Studies Website : Wolfram Alpha (www.wolframalpha.com )