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Matti Viren:

On the State of the Finnish Economy and Political Decision-making

A Speech Given at the Publication Event of the Book Taxes, Debt and Crony Capitalism on 25.5.2018.

 

Thank you for the opportunity to be here with you and to say something about my part in this book.

It would be best, perhaps, to begin with telling what I think is a significant problem with the way the Finnish decision-making process in economic policy goes.

What are accepted as the ’givens’ when the schematic is first set out? I am afraid that we seem to be going back into Finland’s history and taking our decision-making methods and priorities from the legacy of Czarist times – we give prime importance to institutes and the seats of authority. If a proposal just comes from the Ministry of Finance or the Bank of Finland, it is already a step ahead – and we only then look for ways of implementation. The actual content and consequences are in ’second place,’ at best.

Finland is now undergoing an extreme re-organization and reform of its social and health programs – combined with a re-making of regional and administrative boundaries (SOTE). The influence and consequence of these changes is, in my mind, very far from being known.

Present analyses of ’SOTE’ address a variety of planned goals and international comparisons – but these analyses will not be of assistance in determining the actual effects of new arrangements and priorities. The fact is that these proposed changes will affect the social welfare and health of just about every Finn and thus makes competent and comprehensive decision-making in this area very crucial.

The problems we face desperately need discussion but the atmosphere is not conducive for such conversation. The present government concentrates on telling how it has saved Finland from economic disaster and has brought it under the umbrella of the European recovery. The political opposition complains that there is not enough public spending and taxes must be raised. Meanwhile the public balance sheet is chronically unbalanced – there is no growth in public sector productivity and efficiency – and the public debt just grows.

Some inexplicable and mystifying ’calculations’ are floating around that are giving the idea that all is well or soon will be. It’s said by one political party that the ’grey economy’ is bringing benefits.

There is also a ’projection’ that the digitalization planned for the social and health benefit systems will bring rather significant savings – something like 4 billion Euros annually – as a result of harmonization, rationalization and so forth. Not mentioned, however, are the costs of technical system changes and equipment – as well as huge adjustments, and possible disruption, in the human resource area -? There can very well be efficiencies but they will not produce fruit in the wink of an eye – but take years. It’s also clear that much tweaking and tuning will need to be done – there’s no magic wand. Additionally some are talking about immigration being a beneficial factor in the economy – but not presenting hard numbers.

So far, though, there is no convincing evidence that these are among the elixirs needed. I would ask – ”where is the research that is studying these issues?” Who is studying, for example, one model or the other of immigration policies as to their costs and benefits? I am glad that there are some people analyzing these subjects in a detailed manner – for example, the Finland Core foundation. The book we are introducing here attempts to bring these issues forward for further examination and discussion.

Some of the questions we can ask –

How do we go about financing the growing cost and pressure of paying for pensions as well as supporting the welfare state with increased spending for the public sector – at the same time economic growth is slowing? How can we revitalize companies that have ’broken down’ for one reason or other? The book considers these subjects and offers some ideas in sections by Heikki Koskenkyl√§ and Kai J√§rvikare.

The article on enterprises looks mostly at the income distribution perspective. We should probably also look at why the number of start-up companies is decreasing while the number of loss-making ’zombie’ enterprises is increasing?

It’s noticed that many of the small, one-person companies are not genuine enterprises but have been set up as convenient out-sourcing ’service suppliers’ for larger companies. They are not ’growing’ and have not really been intended for growth.

With regard to the whole area of taxation, much more attention should be given to the role of taxes as a tool in a creative environment. As it is now, public fund expenditures are basically fixed and locked in and we use taxes to collect the funds to pay for them.

More consideration for capital gains taxation would include the goal of widening the base – one proposal is to significantly lower the rate – thereby making the announcement and taxation of these earnings more likely. On the other hand, all kinds of exceptions for taxes are included for foundations, etc. It seems the ’powers-that-be’ do not want to cause difficulties for those that are supporting them – and rather choose to collect from those not in the ’system.’

I have played with the idea, too, of doing away completely with the taxation of dividends – and combining that move with also eliminating corporate subsidies. The total amounts for dividend tax revenues and subsidies are not far from each other. I do realize these are sacred issues for many – and not a simple idea politically.

One of the main topics of the book is ’Crony Capitalism’ – I mention above the overall ’co-operation’ of decision-makers with the ’powers-that be’ – and that slips over into the field of ’research, discussion forums, universities and think tanks,’ as well. Indeed, there are few studies and analyses in Finland that are genuinely ’independent.’

Matti Viren is Dr.Soc.Sc and Professor emeritus of Economics in University of Turku