How to create economic growth in Finland?

Economy & Markets
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What do you think should be done to accelerate economic growth?

PRIME MINISTER Petteri Orpo (kok) announced on Thursday, September 26, 2024, that he had appointed Risto Murto, CEO of the pension insurance company Varma, to lead a working group whose purpose would be to devise means to accelerate Finland’s economic growth.

There’s plenty to consider, as Finland’s economic growth has been negligible for over 15 years.

The working group is expected to complete its report in February, after which the government will consider which of its proposals are politically feasible.

According to Orpo, decisions on measures to accelerate growth will be made in April at the government’s mid-term review.

The PRIME MINISTER appealed at the press conference to the opposition and other parties, stating that now is a good time to make concrete proposals to the working group for accelerating the economy.
“All ideas will be taken into account,” Orpo said.

On such a significant matter, the broadest possible perspective is needed. Therefore, Inderes Foorumi is doing its part and is collecting proposals from you, esteemed forum members, for accelerating economic growth.

You can always inform Orpo, Murto, and other members of the working group about this thread.

Idea generation is open, and challenging ideas in the forum’s respectful style is welcome. However, don’t shoot down an idea immediately; let’s discuss. Idea creators, be prepared to defend your ideas.

Edit: Please make proposals for measures. This is not a complaint corner.

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Inderesin kahvihuone (Osa 9)
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I start from the basic assumption that economic growth is created by people, and that people cannot really be commanded—or at least, commanding them does not lead to a good outcome. In that case, the question becomes: How do we get people to act in a way that generates economic growth without giving orders?

And what kinds of actions generate economic growth? I would say at least doing productive work (productive can sometimes be hard to define), increasing labor productivity, entrepreneurship, developing new things, and solving various problems. One could think of productive work as work that results in goods or services that increase people’s well-being, but that remains quite abstract. However, I think a precise definition isn’t terribly essential, and I believe there is a general consensus on what constitutes productive work or what increases well-being. This is perhaps a more significant question when we start optimizing resource allocation, but it is not essential for this reflection.

Furthermore, how do we get people to act in the right way? I argue that this depends on incentives, which here doesn’t just mean money. Of course, people are interested in money, but they are also interested in meaningfulness, status, their own well-being, and probably a host of other things. Different people may have different priorities, but I believe that for most, the core priorities are found among the things I listed. So the question becomes: How do we create a framework where people are rewarded with money, meaning, status, and personal well-being for doing things that lead to economic growth?

Now we are approaching the core. The prevailing culture has an effect: Do we put people who have succeeded (where success is measured through economic growth) on a pedestal, or are they elevated based on something else? Or are successful people perhaps looked down upon? An example could be the United States, where success is emphasized, or a medieval religious society, where piety was emphasized and worldly matters were belittled. Or an authoritarian police state, where loyalty is rewarded. Do we emphasize income inequality or success? Regarding money, the matter is simpler. The more financial benefit people receive from the economic growth they produce, the more the activity is incentivized. In practice, this means lower (marginal) taxes.

How then do we change a culture in the desired direction? Note: I am not taking a stand here on whether this would be a good thing, but rather just reflecting on the question in the opening post. Everyone, of course, changes culture through their own actions, as a community’s culture is the sum of its actors. But what can the Prime Minister or Parliament do about it? Regarding the financial side, they can do a lot quite easily and are the only ones who can do anything, but what about culture? Perhaps politicians should start speaking differently and change their message; perhaps they could influence institutions and schools? Cultural change is certainly slower and more difficult to achieve.

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An interesting opening. It will be equally interesting to see at what point this thread starts to resemble the Politics thread! :smiley:

Personally, I’d start breaking things down from the basics. What is economic growth? Well, it’s the national economy producing more goods, services, and well-being than the previous year. Well-being is also important, because the economy exists for people and not the other way around. One can, of course, disagree with this. :slight_smile:

Where does economic growth come from? When more pairs of hands work more productively—simplified: the workforce + their productivity (know-how and capital, such as machines that allow one person to perform a task that would require the muscle power of 10 men, 10 women, or perhaps a couple of horses).

What is the Finnish economy suffering from? Well, starting from these simple premises, the working-age population isn’t growing and productivity growth is slow.

It’s hard to force the population to grow, at least through coercion, so in the context of this thread, the government can try to help productivity growth. Let there be fewer workers, but let them also accomplish more valuable things. A Finnish “we’ll always cook pulp in the village because that’s how it’s always been done” mentality doesn’t help here.

So, I would invest an absolutely insane amount more into raising education levels and into the youth, whatever the cost. A small nation cannot afford to waste the intellectual potential of a single soul. Thus, people would know how to do, at least in theory, higher value-added work. Investing in youth is also an idealistic message to the population that we aren’t giving up yet and that we believe in tomorrow.

(Addition: I understand that in practice, this might be a tough sell for Orpo to an increasingly older, active population that is entrenched in its positions, knows its worth, and is growing in numbers, while the youth being invested in are not yet of voting age or are more passive about exercising their right :smiley: .)

If someone starts complaining about where the money comes from, a country with a good credit rating like Finland can get cheap loans from the bond market, and by saving somewhere else, for instance. :slight_smile: Plus, economic growth pays off debts, not saving. :wink: There’s a strange debt hysteria going on in Finland, when there should be hysteria about the lack of growth! :smiley:

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What about economic incentives? We probably agree that in today’s globalized world, it is easier than ever to change one’s country of residence if one so wishes. Don’t you believe then that these highly educated people will increasingly leave Finland as they realize that, according to statistics, Finland offers poor salaries—especially among higher earners—while simultaneously maintaining extremely tight taxation?

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Another question is likely whether the intention is specifically to grow the state economy or the citizens’ economy? They are certainly linked, but the means to grow them are probably a bit different?

Then one can ask, what do other Nordic countries do differently from Finland? Maybe Norway can be left out of this picture due to its rather different “minor convenient detail” [referring to oil]. Should Sweden also be excluded, because their advantage is an extremely broad business sector of world-renowned companies, of which Finland has barely one. And even that no longer exists as it once did.

Well okay, Denmark? What is done differently there than in Finland?

Denmark has a very flexible labor market where turnover is fast. But not in the Finnish way where people do leave, but no one comes in to replace them :smiley: In Denmark, a new person also gets on board agilely and in accordance with the culture without major processes. In Finland, recruitment (for both foreigners and locals) often takes even several months. In Denmark, we are probably talking about days. In other words, people can try out roles until they find their own specific area of interest, where they get a suitable salary and an interesting task to invest in with their own enthusiasm. Both the employee and the company win. And ultimately the state too, in the form of taxes (instead of unemployment benefits).

  • AP: Some kind of incentive for companies to speed up, facilitate, and streamline recruitment. The goal is to get a “right” workplace for everyone, indirectly so that one can also live normally on it, to be able to focus on work.

The Finnish market is concentrated on a rather uncertain and uneven technology sector and “old” industry, while in Denmark it is more global.

  • AP: More support from the state for companies that can become global players. Especially in sectors that are not yet strong in Finland—diversification makes the market and the economy less sensitive to economic cycles. And as a small twist, there should be some condition that prevents the sale of a quintessentially Finnish company abroad as soon as someone offers even a slightly larger sum.

The population structure is also quite difficult in Finland. No one can be forced into corrective actions, but there really ought to be some significant carrot for it. A more permanent working life (no temporary and fragmented work) would certainly be one, but something like the German and Hungarian models comes to mind?

  • AP: Income tax reduction for each child for both parents? Not some “vappusatanen” [paltry one-off bonus], but something along the lines of Germany in the €6,500 – €9,000 range (varies annually).
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What does raising the education level mean? More graduates from universities of applied sciences and universities? Do we take more people in and lower the standards? Or do we demand more and raise the standards in schools (meaning right from primary school)? Though real learning does happen at work in many fields.

How much economic growth does a poor university-educated coder bring to Finland? Personally, I think far too many people aren’t very good at what they do. Does everyone have what it takes to do demanding work?

If all Finns decided that they wanted to be better at their jobs and, for example, developed themselves in their free time, what would happen? Like, actually invested in their professional skills. But it’s nicer to do fun things in your free time.

There is probably quite a bit of efficiency that could be squeezed out of people. If many have the attitude of doing the bare minimum, will there be results? Then again, in many places, you aren’t paid for expertise or efficiency, so is it worth the hustle.

How does legislation affect economic growth? Is the legislation here in Europe such that companies like Google can’t even emerge? Though, for example, Spotify is from Sweden, but would it have succeeded if it had been in Finland?

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As long as the majority of voters do not understand the link between economic growth and well-being, it might be wiser to just accept that the economy will not grow and continue cutting spending. From the bottom, there is only one way to go, and that is up.

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Actually, no, but rather that more money is generated from products and services than in the previous year, and for this reason, I think GDP and “labor productivity” are problematic metrics, even though measuring things in money is, of course, central to a market economy.

GDP or labor productivity don’t grow by inventing the best and perhaps even free solutions to problems, but by inventing the most expensive solutions possible and still somehow managing to sell them. :slightly_frowning_face:

Edit: I will also answer the thread’s question itself in a separate post.

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This is an interesting point, by the way, because in theory, the state can create as much economic growth as it wants by investing and spending. Whether it’s sustainable or even sensible is another matter. :smiley:

That’s what I was getting at, but thanks, good point! :smiley:

It was hard to find information on this, at least right away. I found an old blog post on the subject from 2017. Maybe there is a bit more emigration among the highly educated? On the other hand, if the economy started to grow, wages would rise and there would be more reasons to stay (plus presumably more challenging and diverse jobs), without taking a stand on tax progression etc. :slight_smile: I just wanted to post a feel-good message on an important topic, but I’m being a poor conversationalist now and will avoid getting into a more detailed political discussion. :smiley: You essentially end up mooning one direction when you bow to the other.

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Randomly perforated condoms into legislation, rewarding work and wealth creation by easing tax progression, double the money for maternity clinics, daycare, and schools to prevent unnecessary taxpayer loss, eliminate corporate subsidies, and get rid of incentive traps and bureaucracy with a basic income

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I would boost startup funding. Many economic experts have expressed concern in the media that the lack of growth financing is part of the reason for Finnish small businesses’ eagerness to sell. Growth requires money, and because of that, the owner must sell a large stake to the United States. I cannot say how this would be implemented in practice; it would certainly require state guarantees and other such arrangements. But this would potentially be a good medium-term measure for creating economic growth.

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One key point I would highlight is the need for a shift in attitude when discussing companies and competitiveness. The current mindset is evident in corporate subsidies, among other things. All too often, various corporate subsidies or support models are proposed to increase the competitiveness of the Finnish business landscape. The basic idea could be summarized something like this: “The state supports these and those growth companies and sectors, some of which will then grow into global players.” It is, of course, an extremely beautiful thought that the entity with the absolute largest amount of money in Finland would know how to make sensible capital allocation and that top-tier companies would emerge as a result. However, this is not the case. The public sector does not allocate capital with maximum efficiency; rather, market actors as a consensus succeed best in this task. An environment should be created where the efficiency of capital use can be maximized. In practice, this could mean an attitude shift regarding corporate subsidies and taxation, among other things.

I would see a justified direction where corporate subsidies are completely abolished (entities/actors critical for security of supply and safety are a separate matter). At the same time, the corporate tax rate would be lowered to 15%. This would allow companies engaged in profitable business to keep a larger portion of the cash flows they create. These companies would use this “extra” cash flow for R&D, investments, and profit distribution. The first two potentially develop the company in question and its affiliated businesses. Profit distribution flows to the owners, who in turn invest their capital into new companies, for instance. These are the basic mechanisms of a market economy. It is completely idiotic to capitalize companies with public money when private market actors have not been interested in financing them. Winning companies should win, and losers should die off. In addition to those performing poorly business-wise, corporate subsidies are distributed to large corporations like UPM and Wärtsilä for projects such as R&D or electrification. Surely they are capable of investing capital sourced from their own cash flows or the capital markets if they see an opportunity for good returns.

It feels like the need for green investments, COVID-era subsidies, and the war in Europe have created a trend where massive government subsidy packages have become the most common topics in financial newspapers. If other countries want to move toward a more inefficient and more centrally managed system through massive corporate subsidies, it doesn’t mean Finland should join the same folly. At least not in those actions that are largely within our own decision-making power, such as internal corporate subsidies and taxation, etc. And although ever-larger corporate subsidy packages are being announced in the United States as well, it should be remembered that today’s star companies (such as Apple, Meta, Microsoft, Amazon, etc.) were born and grew out of the profit-seeking of private market actors, not government subsidies.

So, let’s leave it to the state here in Finland to develop and maintain the world’s best security, education, and social safety nets (the public sector’s role also includes regulation). Let the markets and market actors handle capital allocation and economic growth. More capital will be invested in growth companies and R&D when the investing entities have more capital available to use. The fruits of economic growth are more likely to flow to a place that has created an environment where the markets choose the winners.

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If the price is market-determined, a high price only means that there is a shortage of supply and/or the demand for solutions to problems is high. A company’s strategy may involve offering a service to users for free (e.g., Google). Then, when there are not too many search engines on the market (why would you compete against free?), people end up using Google’s search engine. This gives Google the opportunity to increase its value in the eyes of advertisers, as targeted advertising can be created for a large audience.

Many companies set out to solve a problem that isn’t really a problem, ask for a higher price for their service than competitors, and end up realizing that the resources required for the business have been poorly allocated. As investors, our task is to notice which problems are real, which solutions are functional, and to fund only those firms that are thus able to create real value.

Productivity grows slowly because things are already so good. Finland’s purchasing power adjusted GDP per capita is one of the best in the world, which is quite staggering considering our geographical location here in a remote corner of the north.

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My own ideas; they might have a direct impact or they might not.

  • Finnish education is quite outdated. Nowadays, you can learn even a profession using YouTube + AI. YLE’s (Finnish Public Broadcasting Company) mission should be to create high-quality learning material open to everyone. This could be something like: a day with a plumber, following how installations are done, what is a good installation method, etc. I could do this for my own profession if someone paid for it. And for every profession like this.
  • Education can be long but it guarantees nothing. So there should be an incentive for self-learning/development and experimentation. You could get some sort of competency certificate for this, which could be as valuable as a UAS (AMK) degree.
  • Making entrepreneurship easier. Enable crowdfunding. It’s incomprehensible, for example, that you can do crowdfunding projects in other Nordic countries, but NOT IN FINLAND. This would be one of the best enablers for startups.
  • Sensible taxation. It makes no sense that you can’t get rich through work but you can by withdrawing dividends.
  • Sensible benefits. How can incentive traps still exist? Let people work for €10,000 a year without losing their benefits. If a time limit needs to be set, let’s say 2 years where you can earn that €10k along with benefits. If you’re a student, earn whatever you want, because studying is expensive.
  • Cheaper logistics? I even looked into whether it’s possible to sell products abroad, e.g., on ETSY… yeah, €20-50 shipping is so steep that it’s not worth starting to sell anything (not just a Finnish issue, of course).
  • LET’S BUILD IDENTICAL BUILDINGS. I don’t understand how housing prices are soaring so high. We should realize that we could make good plans + 10 different color options and start building houses. From what I’ve seen, the construction industry is an unbelievable mess. Why can’t we mass-produce consistent quality? The state should create high-quality public plans, implementations, etc., and share the information with everyone for free. The cost of housing eats up a lot of the standard of living.
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Pension companies pay over 2 billion euros a year in fees to foreign hedge funds and private equity investors, but the returns are nothing to write home about. Put those funds into index funds, and from the freed-up 2 billion, a new €10M investment could be made into domestic startups roughly every working day of every year. :cowboy_hat_face:

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Let’s seek economic growth by transforming the Finnish pension system into a completely new form. The original idea was planted in my head by former Nordnet Rahapodi host and current Member of Parliament Martin Paasi, where by investing approximately €4,000 for every newborn into cost-effective index funds, an average current pension level is achieved.

Let’s take this thought experiment a bit further. Instead of the state investing this sum directly, let the state loan it to every Finn born. Let’s increase the amount to €6,000, with €4,000 going into index funds and €2,000 to venture capitalists (pääomasijoittajat) to fund growth companies. Once the person becomes employed, the loan would be paid off, for example, during the first 15 working years.

Benefits from an economic growth perspective:

  • Employer pension contributions can be eliminated. Profitability and investment power improve.
  • Employee pension contributions can be eliminated. Purchasing power improves.
  • Work-based immigration and starting a family become very attractive. By starting a family in Finland, the offspring receive free education and a good pension.
  • Workers’ willingness to move to Finland positively impacts companies’ willingness to invest in Finland.
  • Finnish ownership will grow over time in both large-cap index companies and growth-stage companies, allowing Finland to also benefit from the success of foreign companies.
  • Venture capital (pääomasijoittajien pääomat) enables Finnish companies to grow and keeps ownership in Finland.
  • Large profitable companies and a growing population bring in significant tax revenue, which enables the public services of the welfare state.
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The idea sounds good, but I’ll challenge it a bit.
Using a compound interest calculator, €6,000 invested at age 0 yields €42,000 in 40 years (I couldn’t find a calculator that calculates directly to 65 years) with a 5% target, and this €42,000 invested for 25 years at the same rate of return yields €142,000, meaning at age 65 there would be a total portfolio of €184,000. Did I calculate correctly?

Is this enough for the rest of one’s life? I doubt it.
Can employer and employee pension contributions be eliminated with this? I doubt it. At the very least, they could be reduced, or possibly one of them could be eliminated?

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Calculators can be found online, referred to as “compound interest calculators” in English, such as the one provided by the U.S. SEC:

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

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You calculated that correctly. Personally, I estimate that over a 65-year period, we will get close to a 7% annual return; given the risk associated with private equity, 8% is realistic. Below for comparison:

  • 5%: ~€143,000
  • 7%: ~€487,000
  • 8%: ~€892,000

Additionally, the starting amount matters a lot. Compared to current earnings-related pension contributions, it doesn’t really matter whether the starting amount is €6,000, €10,000, or €20,000.

Edit:
Further perspective on the starting amount comment with an example.
Let’s assume annual earnings of €40,000 (you are likely close to the Finnish median salary)

  • Employee pays pension contribution: ~40,000 x 7.15% = €2,860
  • Employer pays pension contribution: ~40,000 x 17% = €6,800
  • Total €9,660/year
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As someone working for the state and seeing regulation up close, I would lighten the regulation. As it is, the claim is pure populism and would require a lot of specifics to get anything useful out of it. There is, however, a massive amount of regulation, and the EU in particular keeps coming up with more. The Act on the Secondary Use of Health and Social Data (which drove away companies utilizing said data and hinders research), NIS2, CER, GDPR, EHDS, AI Act, etc. The list is long. I can no longer bother to remember how many times a new government has promised to dismantle regulation without succeeding. For some reason, ideology drives the creation of new laws where regulation just changes form to match the ideology, when one effective solution would be to repeal laws. But no, that’s not happening.

To follow up, here is a rant about how politicians and even ministers are sometimes completely clueless about how laws are legislated in Finland. In the papers, politicians make statements about how authorities here come up with various administrative contraptions (hallintohimmeli). Good grief, those IDIOTS were the ones legislating and voting for them themselves. Authorities don’t do a single thing without a law that regulates the activity. Our comments and proposed changes to laws are often not even taken into account; instead, ideologies steamroll through. Then people wonder, “oh, how did this get so fucked up?”

The thought behind those is surely good, but it creates an operating environment where the big players succeed because they have the resources to throw at fulfilling the requirements. Heavy administrative requirements, on the other hand, raise the barrier for small companies to enter the market. GDPR was supposed to prevent the conquest of Europe by US giants, but it went the other way around. Perhaps as a result, there are more services produced in Europe from the MS, Google, AWS axis, but otherwise, that regulation is pretty much from hell.

Then the traditional tax cuts for companies (focusing on growing companies), significant weakening of dismissal protection, etc. I quite strongly represent the view that the difficulty of firing significantly raises the threshold for employment. The labor market must be flexible. Right now, when you get the boot, you’re screwed because companies don’t want to take the risk and hire people. If firing were easy, the threshold for hiring would also drop significantly. The Danish model seems to work, also regarding unemployment security.

And finally, a wish that the atmosphere would become more favorable toward entrepreneurs. From my perspective, it seems that in Finland, entrepreneurs are considered slave drivers and the worst kind of human waste. Maybe it’s a legacy of the strong labor movement, but I think even the SDP understood back in the 90s-00s that without companies, the members have no jobs. The current leftist SDP and the trade union movement do not seem to be interested in consensus.

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