SPEECH BY PRESIDENT MARTTI AHTISAARI AT THE AUTUMN MEETING OF THE DELEGATION OF THE CENTRAL CHAMBER OF COMMERCE AND THE FINNISH SECTION OF THE INTERNATIONAL CHAMBER OF COMMERCE AT FINLANDIA HALL, HELSINKI ON 9.12.1997

FINLAND NEEDS A COMPETITIVE ECONOMIC SECTOR

I shall begin with a quote:

"A fact that is beginning to be obvious to growing numbers of people is that in this system which manufactures goods for sale, an entrepreneur can not produce nor a merchant sell unless the circle of purchasers continues to grow and strengthen, unless the general purchasing power of the nation and especially that of the broad masses strengthens and increases in step with expansion of the entrepreneurs' businesses. A prerequisite for growing output and trade is that the broad strata of the people, down to the humblest, prosper to the greatest degree possible and that the standard of living of these strata continues to rise at an ever-more considerable pace."

These thoughts were expressed nearly 70 years ago by bank director J.K. Paasikivi, who was addressing members of the chamber of commerce in Turku after his election as Chairman of the Central Chamber of Commerce. The view that he outlined then still holds true, although today growth and strengthening in the purchasing power of the great masses is taking place more pronouncedly beyond the borders of our own country, for example in the great growth centres of Asia.

This fact emphasises the growing importance of foreign trade. We must have competitive production anchored in a vigorous economy, which in turn can only rest on a foundation of balanced public finances. Only an economically strong nation that sustains itself from its own resources can be a fully-fledged member of the international community.

One of Finland's special assets is our ability to reach, within a framework of broad consensus, basic agreements concerning our economic policy. Although we are still to some degree living on borrowed funds, balance in public finances is beginning to be in sight. Moderate incomes agreements and a tight line on public finances have considerably increased the purchasing power of the employed population and made possible the stable economic growth and low inflation and interest rates that we have enjoyed in recent years. At the same time we have been able to maintain a relatively high level of social security for the unemployed.

I congratulate the labour market organisations on the incomes agreement that they have negotiated. The result achieved demonstrates that the parties have been aware of their responsibility for the wellbeing of the economy as a whole. If the result is comprehensively accepted across the board in the labour market, we shall be well-placed to continue on a growth curve in our economy. I make a serious appeal to all concerned to work towards this end.

Finnish industry has retained good international competitiveness and its fundamentals appear to be in order. Thanks to continuing strong economic growth, employment has considerably improved, although not yet enough. The demand for and supply of labour are not matching each other either geographically or occupationally; unemployment and labour shortages exist at the same time. Economic growth will not be enough on its own to solve this problem; structural reforms will also need to be carried out.

Workers and companies have a shared interest: producing a good economic result. That is what ensures a company's competitiveness and vitality and safeguards the livelihoods of its employees. It also enables our society to function and provide services. We must together seek the means that are required to remove obstacles to job creation. Now is the time for us to discuss them open-mindedly.

The high level of contributions payable by employers and of tax on services is an impediment to job creation and reduces demand for services. On the other hand, an appropriate level of social security and education cannot be maintained without adequate tax revenues. We ought to be able to reform the structure of taxation and social security in a way that enables us to safeguard both competitive and productive industrial and business operations and appropriate public services.

Society must through its own measures encourage citizens to seek and take jobs. Work must always be an economically preferable alternative to unemployment and exclusion of the unemployed must be prevented. Those who want to work must have the opportunity to take paid employment or employ themselves. And those who want to employ others must be given a fair chance of doing so.

The authorities must always be able to ensure public order and security, education and health care in addition to maintaining the general framework and basic structures essential for the functioning of society. We must always look after the weakest; the strong have no need for society to take care of them.

The era of the passivating welfare state is over. It is time to embrace a model of society that is closer to life. A functioning market economy and an evolving labour market provide the framework for a humane society which bases its success essentially on citizens' own initiative. Results will be achieved only through a bold approach to reforms and our daring to tackle all outmoded structures.

Many of the central reforms accomplished since the war have been the result of cooperation between the State and the labour-market organisations. We know the advantages of this model. Now we must look at what the new situation demands of us.

Globalisation of the economy and a rising level of education have altered our operating environment and will continue to do so. Responding to the challenges of change will inevitably demand greater flexibility and adaptability. Rigid and hierarchic operational models do not meet the demands of the times. Companies and their employees must assume more responsibility for solving problems relating to themselves and their workplaces.

Changes pose a challenge to our existing labour-market system. A change can be either managed or follow its own dynamics. I believe it is in everyone's interest that changes result from consideration and are managed. We shall continue to need the expertise and negotiating skills of the central organisations, because the labour-market system will not become superfluous. It will, however, be more appropriate in the future to reach agreement on growing numbers of matters on a company or workplace level, and to do so with greater flexibility and expertise.

Decentralised decision making is gaining ground. More and more frequently, operations and decisions naturally take place on separate levels: local, regional, national, European or global. This must be seen as an advantage rather than a drawback: decisions can be made where problems can be most effectively dealt with.

The chambers of commerce network provides an example of decentralised decision making, of the collective interests of business life being taken care of on the regional, national and international levels. The model is simple and functional. It sprang from a genuine need.

A Europe of the Regions has featured prominently in the work of the EU for a long time. Through the initiative that she has presented, Finland is creating a northern dimension for the EU. The large internal market and the new common currency, the euro, will further enhance prospects for cooperation between regions. A Europe of the Regions gives both authorities and companies new opportunities for cooperation. It also contributes to promoting cooperation throughout Europe.

Decentralisation of decision-making power is a major challenge for the European Union. It is a challenge to which the EU must make a serious response. The principle of subsidiarity was reaffirmed in the Treaty of Amsterdam and also in other respects the Union must strive to take the needs of citizens' everyday lives into account. An appropriate transfer of power of decision closer to citizens likewise accords with the interests of the Union. Doing so allows the Union to concentrate on the matters that are properly its responsibility.

Globalisation in combination with technological development is changing the world economy and the way it functions. In an open economy, the challenges that Finland and her companies face are more numerous and demanding than earlier, but in return they also offer a wider scope of opportunities.

Changes are shaking up the Finnish business world. Recent times have seen very significant corporate restructuring and rationalisation measures. Arrangements which create stronger and more effective companies are welcome. Growing investment in Finland helps strengthen the financial foundation of our economy. In many sectors, increased global cooperation between companies is an absolute prerequisite for survival.

Citizens may often feel that many matters are taken care of in a manner that primarily caters for the needs and wishes of companies. A company is the same thing as it employees. A factor to which a growing amount of attention must be paid in business operations today is how in a situation of tightening competition personnel can be motivated to implement the company's goals. Job contentment is a key question in working life. It is not merely a matter of money; on the contrary, what is involved is one of the fundamental factors in a humane society. The option that matters most is the option of a workplace with humane conditions.

Innovation-based companies - especially small and medium enterprises - are the backbone of the nation's employment. Finland must be as enticing a location as possible for both domestically- and foreign-owned business operations.

In an open economy the means available to society to support companies in a crisis situation are quite limited. Companies must bear the primary responsibility for their own success. Every company must itself see to its market share and product development. Companies must have a sense of responsibility towards their owners and employees, but above all towards their customers.

The factor that ultimately determines a company's success is its ability to market its products or services. We in Finland certainly know how to produce outstanding goods and high-class services, but that does not help much unless our marketing is effective as well. Promoting marketing- and service-mindedness is a matter for the whole of society.

We must increase the resources that we channel into research and training in relation to international marketing. Only persons with outstanding capabilities can succeed in the demanding global market.

I have tried to do my bit to make Finland and Finnish products well-known around the world. This work demands a lot of time and trouble, but in many cases the President's support helps us penetrate markets. I shall continue this work as opportunities permit, because seeing results has been very encouraging.

Responsibility for marketing lies with ourselves. The authorities and companies must find appropriate forms of cooperation in marketing, forms that are compatible with our international obligations and the requirements of EU membership. In marketing we must not forget SMEs, because especially they need support to get started in the world market and grow into new Nokias and Kones - flagships of world-beating Finnish expertise.

In the global economy companies compete among themselves, but states compete for companies. This is natural, because investment creates jobs. Finland, too, is in contention for both domestic and foreign investment.

Finland has been striving, within both the EU and at the WTO, for a reduction of state subsidies. In the long run, a policy of subsidies only skews competition and slows the pace at which companies renew and strengthen themselves.

Here in Finland, a stable, secure and efficient operating environment as well as tax treatment that lends itself to international comparison and guarantees the entrepreneur's legal rights create the conditions that companies need to operate. Legislation should be of a kind that enables companies to employ their resources as efficiently as possible for their actual purpose, i.e. making a profit. Towards this end, reform of taxation and development of the tax administration system must be energetically pushed forward.

Relations between society and the business sector are the subject of quite a lively discourse. The collapse of systems founded on a planned economy as well as EU membership have created a new framework for the debate. Governments everywhere are trying to improve the general conditions within which companies work. There is widespread awareness of the importance of appropriate legislation in achieving this.

Especially small companies have criticised legislation and official procedures for their complexity and the costs that they cause. In conditions of an open economy, one cannot adequately emphasise the need for high quality in national law drafting and legislation. Good legislation is one of the means that must be used to reinforce Finland's few natural competitive advantages and make them as effective as possible. Law drafting on the national and Union levels must always include an appropriate study of the effects that the regulations will have on economics and corporate operations. Those who draft regulations should understand the interrelationships that exist within the economy.

In all important projects there ought to be open and thorough discussion of the effects of reforms and the approach adopted must be based on experience and close to practical reality. It is outmoded and today often unfounded to imagine that there is always an opposition of interests between the business sector and consumers. A satisfied customer is a company's most important competitive trump.

Another matter that globalisation highlights is the need for internationally-agreed business rules. World-wide electronic commerce conducted through the Internet is impossible to regulate nationally and difficult even internationally. Where activities of this kind are concerned, one must increasingly often rely on companies' own sense of responsibility and collectively-agreed ground rules. On the other hand, customers must also realise that not all actors are responsible or even engaged in activities of a high moral standard.

In quite many cases the business sector could monitor and regulate itself. Often, too, self-regulation of this kind can respond faster and costs less than official oversight. Experience of economic self-regulation both internationally and nationally is abundantly available. Thus the boards that function in conjunction with the Central Chamber of Commerce and the International Chamber of Commerce are developing world-wide self-regulation systems. This work is very important.

Self-regulation is appropriate in cases where it works well and enjoys broad public confidence. In the light of experience gained, a broadening of its scope of application can be considered. That presupposes that also in European Union circles there is a general willingness to accept more self-regulation.

Self-regulation on the part of the economic sector is ultimately a question of the sector's morality. If public opinion regards the internal morality of the sector as lacking, the atmosphere in society will inevitably become hostile to companies. It lies in the business sector's own interests to try to strengthen the general public's trust. In this respect, recent years have taught all of us a lesson. Individual wrongdoing detract from the credibility of all companies and distorts the competition situation.

Thus the business sector has every reason to try to help the authorities combat economic crime and the grey economy. It is honest entrepreneurs and companies as well as their customers who pay the bill for crime.

Finland intends to be in the first wave of countries participating in the third stage of economic and monetary union, one of a majority of EU member states to do so. For us EMU is not an end in itself, but an instrument for ensuring stable economic growth and prosperity. The introduction of the euro is a Finnish national interest. A subject being discussed among our citizens is whether the euro will, as expected, bring new economic opportunities and stability. This calls for honest discussion on the part of the authorities, business life and political decision-makers. The Finns will have to be convinced that adopting the euro means choosing the route of greater economic security at the crossroads of Europe.

The challenges that the new 21^st century will bring lie ahead. Economic relations will become increasingly intertwined with political and security-centred relations. It will be difficult to separate the economy and politics from each other. There is no idyllic world; we are living in an era of realism, but one in which idealism should not be lost. Joining the EU has elevated Finland to membership of the group that decides our shared European destiny.

The Central Chamber of Commerce will be celebrating its 80^th anniversary next year. I extend my congratulations to the organisation and wish it continuing success in its work for the benefit of Finnish economic life and the whole nation.