finland crash Q&A

Dale, who asks excellent questions, asked this today:

I was just reading a blog entry that mentioned the Finnish financial crisis of 1991. The horrifying thing is that its effects on the job market were worse than the current US recession. I was wondering if you were in Finland by that time, and if so, what did it look like?

Carried along by nostalgia, I replied at length:

I arrived in Finland in summer 1993 and lived there full-time from fall 1994 onward. Two things had happened: Loss of trade with the USSR collapse (20% of exports), and reorganization of banks which had lent carelessly during a boom. Foreign media were mainly told about the first one.

Real unemployment was quoted at 15% to 20%. I met professionals as well as factory workers who had been on the dole for a year or two. I interviewed a thirtyish programmer-type who did not think she would ever get off the dole. There was the shame and trauma of downward mobility, family fights over resources etc., but not shantytowns or breadlines in the manner of the Great Depression. There was ample public housing. Children were guaranteed meals at school. They could travel nearly free on buses, look forward to free university study with living stipends. Most people were back at work by 1999, though often retrained, underemployed, or with lower benefits via privatization. Hardest hit were older unskilled and semiskilled workers especially in the provinces, and these were gradually reclassified as early retirees or long-term disabled.

Being a social democracy and a country of emigration, Finland had some safety valves:

1. The government remained lax on students taking 5 or 10 years to complete a first degree, which reduced the competition for grown-up jobs. It expanded paid and unpaid graduate school places and built new research labs. Undergraduate student places still carry stipends, which are probably cheaper than dole stipends. The harder times were, the more people studied.

2. There was a small baby boom. New mothers get state support and if employed, have every incentive to time babies in years when it would be hard to change jobs. Backlash: Employers knew this and became reluctant to hire women of childbearing age for permanent positions.

3. Finns abroad, always numerous, tended to stay abroad and others joined them, helped by new EU programmes like Erasmus as well as trade with growing economies in the South.

Hostility to resident foreigners in Finland rose as they were seen to be taking “our” benefits or (mainly in fantasy, as it was nearly impossible for most foreigners to get jobs) “our” jobs. It would be years before immigrants were reframed as worker bees supporting Finnish retirees, building export bridges, or expanding the country’s tiny economy with their consumption.

Nevertheless students from other countries were happy to come to Finland, escaping instability in Russia, politics in Romania, unemployment in Spain, rapacious landlords and cockroaches in New York. Rents were modest, especially in university flats, and though other costs were high, inflation was low during the last markka years. Flea markets, discount shops, bartering and pop-ups proliferated. Storefronts in the cities mostly remained occupied (since Finland wasn’t over-retailed at the time) and building renovations were financed to keep the construction industry going. Shopping and food trends seemed 5 to 20 years behind Western Europe and lack of foreign investment probably contributed to this.

Fearing what would happen if they were left alone next to Russia, Finland voted to join the EU in 1994 and joined the Schengen Group and the EMU as soon as practical. Voters tossed out the Center Party (party of Cold War leader Urho Kekkonen and the provinces) in 1995 and elected the Social Democrats who pledged to halve unemployment in four years. There’s disagreement on whether they achieved that target but they got re-elected anyway.

While parties were eager to take credit, a great deal of the rebound was down to cycles and global trends. Some of the industries that expanded and got Finland out of the recession have since receded, creating new problems:

1. The Finnish forest sector, which boasted two of the world’s top three papermakers following mergers in the 1990s, has receded in importance as regions like Latin America, Russia and particularly China have built up their mills since 2000. With more online reading and more recycling, there should be less need to ship paper cross-regionally.

2. Finnish engineering companies have shifted much of their actual work to Asia, closer to the markets that are buying machinery for their new mills and foundries, and that means fewer jobs in Finland. One engineer I know was told by his company he would never be employed in Finland again and should move to India. He did. He’s lived there before and his wife is Indian so it’s less of a hard landing than it would have been in 1994.

3. Translation and technical writing companies employed thousands of people like me in the ’90s, and thousands make a big difference in an economy that size. This sector has been consolidated by automation and the global, Internet-enabled race to the bottom for knowledge work, as well as the growing dominance of English as a single business language.

4. And then there’s the story of Nokia and its suppliers, which every news outlet re-reports at least twice a year. When competitors stumbled, Nokia was the biggest beneficiary of the first-purchase boom in Europe in the ’90s and then in developing markets in the ’00s. Now the market is largely replacements and upgrades, with the most desired models California-defined and Asia-produced. Samsung is the world’s biggest phone producer, Apple captures another huge share of revenue.

There are lessons for other countries in Finland’s rebound, but they are about infrastructure investment, not clever fiscal policy. Go back in time 20 or 30 years and invest in public health, decent cheap public and private housing, mass transit, social entitlements, good schools, free universities, and other non-means-tested mitigators of the effects of recession on people. Then you too should be able to keep your cool through an economic crisis.

Posted on by Diana ben-Aaron
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