Speech by President Martti Ahtisaari at
the spring conference of the
Centre for Finnish Business and Policy Studies (EVA) in Helsinki
on 11 May 1998
The Structure and Ownership of the
Finnish Economy
The member states of the European Union have
decided to create the euro area and a common currency. With every
justification, their decision has been described as historic.
We are satisfied with the EMU decision and with Finlands
status among the other countries that will be entering monetary
union. Although the decision is in some measure a reaction to
liberalisation of capital flows, its most important task is to
shape the future, not to patch up the past.
What is now important is that citizens familiarise themselves
with the significance of economic and monetary union, its
different aspects. Finns are given to practical thinking. The
question of adjusting to the European Union has at various stages
divided opinions. Whether or not to join was decided in a
referendum. There will continue to be a need for citizens to
engage in a discourse on the development of the Union. Progress
will not be possible without the support of citizens.
Although we now have a role in shaping European economic and
monetary policy, it is our own national choices that will affect
our future most. We are entitled and duty-bound to pursue our
countrys interests. The old Finnish saying that "no
one else will blow on our spoonfuls of porridge for us" is
still true.
We must refine our own model of society. We can not hide behind
the market economy. Successful Finnish companies have learnt to
appreciate social stability and a high level of education and
training. However, the State ought not to control civil society,
but rather to support its all-round development.
For us to be able to guarantee that Finnish wellbeing will
continue to increase, we must now conduct a thorough debate on
the direction in which we want our economy to develop. Here, the
structure and ownership of the Finnish economy are of essential
relevance.
In the nineties, the Finns have been taking a crash course in
global economics. The beginning of the decade taught us what
happens if we are not quick enough to master the rules of the
open economy and unregulated money markets. The crisis was one of
the deepest in the Western countries in the post-war period. It
caused major damage. Many entrepreneurs saw their years of effort
go to waste. They and the unemployed are still having to feel the
consequences of that crisis in their everyday lives. They must
not be forgotten.
Yet the crisis contained the possibility of a new rise. We
eventually reached a consensus on how to restore external balance
in the Finnish economy. Finland escaped from the crisis by
opening up rather than closing up. The creation of the European
Economic Area and our accession to membership of the European
Union were components of this solution.
Today, principles of sound economic management guide Finnish
society. Our public finances have been approaching balance, as we
have been able to observe in a European comparison. Our companies
are efficient, competitive and capable of achieving results.
A diversified and developing production structure, good capital
management and at the same time a proprietary structure that
provides security are the characteristics towards which a strong
economy must aspire. However, we still have a lot to do in
reforming the structures of our economy. Compared with many other
countries, our services sector is undeveloped. Enterprise also
needs to be encouraged. I have just submitted to Parliament a
Government bill which, when enacted into law, will improve the
entrepreneurs legal security in taxation.
Public administration and the economic sector have supported each
other in the work of reform. Our inputs into both training and
R&D are among the highest in the world. Cooperation between
schools and companies have produced results that prove earlier
suspicions unfounded. Our entire economy is now able to hold its
own in international competition. Our exports have diversified
and at the same time our sensitivity to cyclical fluctuations has
been considerably reduced. Hopefully, the future development of
the business cycle will show that we have found a course of
stable growth.
Growth has not, however, led to the creation of enough new jobs.
Our employment rate is languishing at a worryingly low level.
This is a particularly European problem. Indeed, we must ponder -
both within the European Union and on the national level - means
of making work more competitive without endangering the principle
of common responsibility. A developing services sector,
enterprise and the third-sector jobs complementing them as well
as the measures taken by public authorities that are
fresh-mindedly reforming structures are factors that support each
other in this respect.
In recent years we have learnt the importance of economic
discipline. We also accept that in a global economy we must
observe ground rules different from those that guided us in past
decades. We are having to make decisions under the vigilant eye
of publicity and to present supporting arguments more openly than
in the past.
The importance of this new way of economic thinking has been
widely understood. It has been understood by the politicians who
decide on public finances, the labour-market organisations, by
those working in the fields of research and training, by our
entire system of innovation. In recent times, however, several
questions that in one way or another relate to ownership have
come to the fore; they concern who owns our companies and what
kind of relationship exists between owners and various groups of
employees. We need to talk about improving our own ownership
culture.
Finland has historically suffered a dearth of financial capital.
As long as we were living in an agrarian society, we could not
accumulate wealth. Our economic ascent in the present century has
been founded on our having in various ways saved up capital,
which we have then, through our collective decisions, channelled
into building up our society. That has been possible thanks to
the sense of shared responsibility that is part of our Nordic
heritage of values.
Scarcity of capital was long said to be a major constraint on our
economic development, even though it did not prevent us from
sometimes investing in poorly-yielding ways. The most recent
example of the significance of this constraint came during the
recession in the beginning of this decade. We were spared an even
worse crisis by the fact that the State was able to procure new
capital by raising foreign loans. Without liberalisation of
capital flows and abolition of restrictions on foreign ownership,
our companies would never have been able to embark on their
present growth curve. In the last decade, foreign capital was
overheating our economy. Yet international capital markets and
investors have been helping to pull Finland upwards in the 90s.
That is something that, in all honesty, we must acknowledge.
In the cases of many companies it has not been a matter of just
money, but also of the know-how capital that new owners have
brought. There are several examples - indeed, I would go so far
as to say unfortunately many - of an originally Finnish company
getting down to really conquering world markets only after a
foreign owner has taken over. The expertise introduced on the
management and marketing side has helped reap the fruits of the
resources that have put into research and development.
Why have the Finns not always succeeded in this? The external
equilibrium of our economy is now such that lack of capital alone
can not be the explanation. Foreign owners provide marketing
channels, but also Finns have various means of securing channels
for themselves.
The phenomenon is especially worrying where our small technology
companies are concerned. I have on numerous occasions been able
to study the work that Finnish top-rank experts are doing in
research establishments and small companies. The extensive
resources that we are channelling into training and research are
spawning new-generation companies with the potential to achieve
an important position in the world markets of the future. It will
be a pity if the greatest benefit of this drains abroad because,
for one reason or another, success can not be achieved on the
strength of Finnish resources. This is a problem that I have
drawn attention to in the past. The trend seems to have gained
strength in the past year.
International interest in our companies has grown. The proportion
of our publicly-quoted companies that is in foreign ownership is
increasing. What is involved is not just anonymous and diffuse
investment, but also owners with a clear industrial interest in
Finnish companies.
There are natural explanations for this. Our companies are
nowadays in good shape and attractive. There is an enormous
amount of homeless capital in the world. The pension savings of
the large age cohorts in the United States need productive
investment targets also abroad. In addition to that, economic
instability in South-East Asia has turned investors gazes
back to Europe, at least temporarily.
The changeover to a common currency will make Europe more
interesting. The comparability of our economies will increase,
and it will be easier for investors to examine potential Finnish
investment targets using the same criteria as for companies in
bigger countries.
Thus powerful forces are influencing the ownership structures of
our companies. In the view of some, we face inevitable change.
They are of the opinion that internationalisation of our economy
will gradually lead to the disappearance of national ownership.
It has also been said that this does not even matter, because the
logic of capital is similar everywhere. In other words, we ought
to blind our eyes to this change.
I take a different view. It does not accord with our interests
for Finland to become merely a subsidiary economy. We are fully
entitled to pursue our own interests, as long as the rules of the
market economy are observed. To ensure that Finnish owners
power is sufficient, ownership should not be fragmented. Can a
willingness and ability to create strategic ownership alliances
be found in Finland?
It is not that foreign ownership is anything harmful or to be
condemned. On the contrary, it is welcome and must be treated
with impartiality. Indeed, what is involved is a matter of
finding the balance between indigenous and foreign ownership that
would be most favourable from the perspective of the totality.
The beneficiaries of that would be both Finnish and foreign
investors, both owners and employees, and also public finances.
We cannot own everything; we must concentrate. Adequate
indigenous ownership would help to guarantee that our companies
keep their central functions in Finland. Finnish owners know our
own circumstances better than anyone else and can appreciate the
strengths of our society. That way, we can also ensure that our
companies product development programmes and the related
expertise remain in this country. However, that will not be done
by erecting protective walls, resorting to protectionism. The
only way in which Finnish ownership will be strengthened is by
improving the skills that relate to it and ensuring that the
prerequisites for it are met.
Thus we must begin developing the pattern of Finnish ownership.
For that we need two things: indigenous capital and a good
Finnish ownership culture.
The State has been a significant owner of enterprises in Finland,
and in assessments applying to recent times, it has also been
quite a capable owner. However, the level of State ownership in
Finnish companies cannot be raised, for which reason new capital
must be found elsewhere; it will have to come from Finnish
institutions and households.
The structural change that has taken place in Finnish financial
institutions was dictated by necessity. Banks had earlier been
important owners of companies. Now a large part of those holdings
has been or is in the process of being dismantled, often in a
regrettably haphazard manner. Many opportunities to arrange
national ownership have been passed up. Therefore the next steps
will have to be carefully thought out - but some of them must be
taken.
Pension saving creates considerable sums of capital in Finland.
It is a natural alternative to invest pension savings
productively and at a manageable level of risk in Finnish
companies, provided they are competitive in comparison with other
alternatives. It lies in our interests for pension funds to be
invested as productively as possible and across a sufficiently
wide spread. The primary purpose of pension savings is to
safeguard pensions in the future.
By international standards, Finnish households have invested
quite little in shares. Their money has been in bank deposits. At
the same time as the bank-centredness of Finnish economic life is
lessening in other respects, the investment behaviour of
households is also changing. Indeed, it can be supposed and is
also desirable that investment by private persons in shares,
either direct or through funds, will increase over the next few
years.
Also in general, Finnish society must be an interesting target
for investment. However, we must not and cannot begin using cheap
labour to entice capital, but must instead rely on our own
strengths: our educated and capable people, the results of our
stepped-up R&D efforts and our safe living environment. For
that reason, the global-era economy requires us to strengthen the
foundation of our welfare society, not to erode it.
The availability of capital is, however, not the only factor in
the development of Finnish ownership. The matter involves not
only general attitudes to the accumulation of wealth, but also
the moderation and long-term thinking that go with ownership. A
good ownership culture means that owners have a sense of
long-term responsibility for the success of their company, the
welfare of its employees and the way in which it relates to the
environment and society. That presupposes both an ability to
operate on the international level and an understanding of
ones own society and its values.
Fortunately, positive signs of a new ownership culture are
visible. I have noticed that many successful entrepreneurs who
have stepped down from active management of their companies have
put their skill and wealth at the disposal of new small
companies. Cases like this are examples of the creation of new,
lasting jobs.
Ownership culture must be developed. Linked with this is the
question of options. Options granted to members of corporate
managements are an agreement between owners and managements under
which the former surrender part of their wealth. The problem is
by no means that option schemes are against the rules. Where the
problem does lie is that disproportionately rewarding only one
group of workers is in conflict with the
common-responsibility-based values of our society and often also
with the longer-term development of companies.
Finnish owners should not adopt foreign operating methods and
remuneration systems unmodified. In the United States, one-sided
option schemes have begun to be criticised, also from the
perspective of the owners interests. It would be advisable
to set about developing a better model, which would make use of
the strengths of our own society. That, I believe, would lie in
everyones interests, also the owners.
We have irrevocably made the transition to an era of an
internationalised economy. Our prosperity is founded on success
in international competition.
The ground rules of a closed economy can not be followed in an
open one. Impartiality and openness are central principles in
economic decision-making. The only way that we can succeed is by
being better than our competitors.