Making or breaking Finland’s future

Arabs as “desert monkeys” and Jewish names as “kike things” that “we Nazis don’t really like.”

Things got worse last summer when media discovered that the far-right ministers Mari Rantanen (interior), Leena Meri (justice), Ville Tavio (foreign trade) and Riikka Purra (finance and PM deputy) had suggested in parliament and social media for years that ethnic Finns are being demographically replaced by “dark Muslims” through large-scale immigration.

The racist debacle was deeply embarrassing to most Finns, including many conservatives. But the latter need the far-right to govern. By fall 2023, Foreign Minister Elina Valtonen, a conservative whose campaign finance features the big donors who also fund Stubb, acknowledged that the Nordic country’s “EU partners have been equally concerned for Finland’s economic growth as they have been of its racism debacles.”

But there was worse ahead.

Labor turmoil, economic erosion

As the cabinet was struggling for credibility and struggling to contain realities, its supporters shrank to barely 24 percent of Finns and mass strikes ensued. Workers protested against government plans to reject centralized work accords, limit the right to strike and cut unemployment benefits. After a Christmas truce, some 290,000 Finnish workers — every eighth adult employee — began two days of strike action against the cabinet’s proposed labor reforms and planned cuts to social welfare. Instead of talks for reconciliation, government ministers called the unions “mafia” — as in Finland’s dark 1930s.

Meanwhile, Stubb’s campaign shrewdly distanced him from the policies of Orpo’s cabinet, which was only implementing what he himself demanded in 2015: “Structural reforms, structural reforms and more structural reforms.”

Prior to the 2008 financial crisis and the subsequent debt crises, Finland’s competitiveness and innovation were still world-class. Nokia benefited hugely from Finland’s political neutrality and strong position in the fastest-growing emerging economies. Unlike all its rivals, it made over 99 percent of its revenues outside the home base.

Today, Finland is no longer among the top 10 most competitive economies. Innovation expenditures have been penalized. Nokia was undermined by an exMicrosoft executive and restructuring that effectively dismantled the company, with Microsoft eventually buying the leftovers. At the same time, Finland’s trade surpluses morphed into deficits.

The expected strong post-Covid recovery has faltered in Finland due to longstanding structural challenges, compounded by the spillovers from Russia’s invasion of Ukraine. Higher energy prices have passed through to core prices, sustaining inflation. While wage growth remained moderate, public-sector pressures resulted in waves of strikes.

The economic landscape is dire, reflecting an aging population and low productivity growth. Moreover, the steadily widening fiscal deficit is likely to put public debt on a riskier path. The adverse trends are aggravated by higher “securityrelated” spending (read: increasing military expenditures), due to the NATO membership, that are likely to persist in the medium term.

A decade ago, Finland was dependent on Russia, which accounted for 18 percent of imports and 10 percent of exports. Today, one dependency has been replaced with another. As Russian imports have plunged and exports to Russia have been decimated, imports from the US have increased by some 50 percent and exports to the US by 30 percent in relative terms.

Soaring military expenditure

The military dependency on the US is likely to rise. Finland’s 2024 budget puts defense spending at about €6.2 billion ($6.6 billion), a nearly 5 percent rise from 2023. In the past, the country restocked ICT exports; now, it’s focusing on arms restocking and security on the Russian border, which used to be relatively quiet before the NATO membership.

The dependency on the US is rapidly growing through progressive militarization. During the Cold War, Finland tried to balance its aircraft purchases between East, West and domestic producers. The US ties originate from the 1990s with costly purchases of US F/A-18C/D Hornets by McDonnell Douglas. Finland’s F-35 program began in 2021 when it ordered 64 F-35A fighter jets from Lockheed Martin.

The deal is Finland’s biggest ever. It was deemed “necessary” despite mounting US and international criticism for the unprecedented size, complexity, ballooning costs, and delayed deliveries of the F-35 program. Finland spent about $3.9 billion on defense in 2020. In just three years, the figure has climbed by nearly 70 percent.

The problem is that while the expenditures soar, revenues linger. Finnish GDP grew by 0.1 percent in 2023 and is expected to increase by 0.8 percent in 2024.

Untenable status quo

In the 2024 election, Haavisto built on democracy, green values and ordinary people; Stubb relied on his elite ties and the far-right tide. Haavisto represented the future; Stubb, the past but with big money and big media.

With its aging population and slowing growth, Finland should invest increasingly in social security, welfare services, economic growth and innovation, and sustainability. Internationally, the country should focus on broadbased cooperation, particularly with the Global South, to benefit from its secular economic potential.

Yet, the NATO membership will require increasing militarization for years to come. And internationally, that compels the country to remain more euro-centric and perhaps even distance from some large emerging economies, due to geopolitics. At the same time, the welfare state is under fire by the far-right government, while income and wealth polarization is broadening.

Something has got to go.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/

Full disclosure: In the past, Dr Steinbock has addressed, advised and consulted all major Finnish multinationals, government agencies, parliamentary committees, financial institutions, and competitiveness and innovation organizations.

The original, full version of this article was published by The World Financial Review on Feb. 8, 2024. See https://worldfinancialreview. com/making-or-breaking-finlandsfuture-a-behind-the-facade-lookat-finland-after-the-2024-election/