Presentation in TSEBA - International economics - 2009. Finnish foreign trade history and development briefly, 1900-2000

1. Finnish foreign trade history
and structural changes in
export
Lassi Nummi,
International economics,
TSEBA, 2009

2. Contents:
 General information about Finland’s economics
 History
 Statistics
 Conclusions

3. General information, figures
Finland

4. History, from tar to mobile
phones

5. History, - 1800
 Agrarian country
 70% of people in agriculture and forestry
 ½ of value of production came from agriculture and forestry
 Industry:
 Some iron works at southwestern part
 Tar burning
 Sawmilling
 Fur trading
 Export and trade concentrated on coastal areas, small towns
 The income from tar and timber shipping accumulated capital
for the first industrial plants.
Finland part of Sweden – All export has to go trough Stockholm – Industrialization begins in UK / Europe

6. 1800-1900
 Beginnings of industrialization in Finland
 Already started in Europe
 The first modern cotton factories started up in the 1830s and
1840s, as did the first machine shops.
 The first steam machines were introduced in the cotton
factories and the first rag paper machine in the 1840s.
 The first railroad shortened the traveling time from the inland
towns to the coast in 1862
 First telegraphs around 1860
 Some new inventions, such as electrical power and the
telephone, came into use early in the 1880s, but generally the
diffusion of new technology to everyday use took a long time.
 Own currency, Markka
 Trade partners : Russia, Germany, England. Import : Grain
1809 – Finland under Russian government, autonomy. First steps of industrialization reach Finland.

7. … until First world war
 The export of various industrial and artisan products to Russia from the 1840s on,
as well as the opening up of British markets to Finnish sawmill products in the
1860s were important triggers of industrial development.
 From the 1870s on pulp and paper based on wood fiber became major export
items to the Russian market
 GDP grew at a slightly accelerating average rate of 2.6 percent per year, and GDP
per capita rose 1.5 percent per year on average between 1860 and 1913.
 The population was also growing rapidly
 1860 : 2 000 000
 1918 : 3 000 000
 About 10 % of population lived in towns
 The investment rate was a little over 10 percent of GDP between the 1860s and
1913 and labor productivity was low compared to the leading nations.
 Economic growth depended mostly on added labor inputs
Strong exports to Russian market, Russia blooming on Tsar era. 1914 – Word war I begins

8. World war 1 to world war 2
(1918-1939)
 1917:
 First steps on metal and shipbuilding industry
 Revolution in Russia – Soviet union
 Finland became independent
  Russian trade cut off:
 Short term effects:
 The food situation was particularly difficult as 60 percent of grain required
had been imported.
 Loan from USA to help on food situation
 Indstry :
New markets were found, exports started to grow.
On the eve of World War II, almost half of the labor force and one-
third of the production were still in the primary industries
1917 – Revolution in Russia – Finland became independent – Civil war in Finland 1917-1918

9. 1919-1939
 After world war 1
 Finnish sawmill products, pulp and paper found old and
new markets in the Western world. (need of timber in
europe, after war)
 The structure of exports became more one-sided
 More than 80% of exports were based on wood, and 1/3
of industrial production was in sawmilling, other wood
products, pulp and paper.
 Other growing industries included mining, basic metal
industries and machine production (shipyards) , but they
operated on the domestic market, protected by the
customs barriers.
 Economic recession had little impact to Finnish economy
 1938 GDP already higher than Europe average.
Global economic recession 1930s

10. World war II (1939-1945)
 International trade practically 0
 Industrial production collapsed during first 2 years
 Industrial production focused on weapon industry to
domestic market.

11. Post war era : 1946 -
 After war, economy was in crisis
 Finland had to pay reparations to USSR, the compensation was paid in form of industrial products
 Examples:
 Ships (over 500)
 Electrical engines (52 500 pcs)
 Locomotives (over 700)
 Timber
 Special products
 …
 Reparations done after 8 years, 1952 last reparations paid
 Influence on economy :
 Benefits:
 + Investments in R&D and domestic industry
 + Education / training of workforce
 + opening of sales channel to USSR
 Downsides:
 - Loan capital from US and sweden
 - Industry (Paper and metals) focused only on reparations
 Because of land-losses to USSR, over 400 000 inhabitants were re-located to Finland
 Affected on labor availability and construction industry

12. Post world war 2
 Timber exports to west started again
 Productive capacity modernized, industry reform
 1948 Finland joins:
 World Bank
 International Monetary Funch (IMF)
 Bretton Woods
 1950:
 GATT (General Agreement on Tarrifs and Trade)
 Tariffs were eased and imports from market economies liberated from 1957
 1961:
 Finnefta (an agreement between the European Free Trade Area (EFTA) and
Finland)

13. Fast development after world war 2
 The labor-force growth stopped in the early 1960s, and
economic growth has since depended on increases in
productivity rather than increased labor inputs.
 GDP growth was 4.9 percent and GDP per capita 4.3
percent in 1950–1973
 Bilateral trade agreements with the Soviet Union
started in 1947 and continued until 1991
 Building of Nordic welfare model since 1960s
 Government policy favoring investments.

14. First signs of structural change
 Structure of export industries were diversified by
Soviet and, later, on Western orders for machinery
products including:
 paper machines,
 cranes,
 elevators,
 special ships such as icebreakers.
 Soviet Union provided good markets for clothing
and footwear
 The modern chemical industry started to develop
often led by foreign entrepreneurs, the first small
oil refinery was built by the government in the
1950s.
 The government became actively involved in
industrial activities , with investments in mining,
basic industries, energy production and
transmission, and the construction of
infrastructure, and this continued in the postwar
period.
  Government also active on developing the
welfare model (investing on education etc)

15. 1970
 The oil crises of the 1970s put the Finnish economy under
pressure.
 Oil price started to climb
 Inflation high in Finland
 Bilateral trade agreement with the Soviet Union helped on
this matter (agreement had to be followed by both parties).
This boosted export demand and helped Finland to avoid the
high and sustained unemployment
 Between 1978 and 1979 Finnish currency was devaluated 3
times, with total effect of 19% to boost export industry

16. 1980s
 Electronics industries started to rise
 Economic growth in the 1980s was somewhat better than in most
Western economies
 2 devaluations in 1982 (total of 11 %) due to high inflation
 End of the 190s Finland caught up with Swedish GDP
 Finland caught up with the sluggishly-growing Swedish GDP per
capita for the first time.
 Re-valuation of Finnish Currency 1989
 Banking system was liberated late 1980s (free capital movements
from and to foreign markets)

17. 1990s
 Collapse of Soviet Trade
 No more bi-lateral agreements
 Liberal capital movement
 Currency loans
 Banks needed support from governments
  Depression
 GDP fell over 10 % in 3 years
 Unemployment up to 18 %
 The banking crisis triggered a profound structural change in the Finnish financial sector.
 Devaluation of currency (2 times at 1991)
 Exports started to raise already from 1992 
 1995 EU membershio
 1998 EMF, Euro-zone
 1997 – Annual growth already over 6 %

18. EU-era : 1995 
 Many factors have influenced the Finnish economy in the past
10-15 years:
 EU Membership 1995
 Monetary union membership
 Improved credibity of monetary policy,
 Lower intrest rates, more stable intrest rates
 No more inflation-devaluation cycles
 Strong growth of Electronics and IT-sector (Lead by Nokia)
 Growth of metal and engineering industry (Together with
global economic growth)

19. Statistics

20. GDP development

21. Volume index of Finnish industry

22. Industrial production in Finland

23. Productivity increase
ICOP Estimates of levels of labour productivity in
manufacturing, 1960–1996 (value added per hour,
USA=100)
120,0
100,0
80,0 Netherlands
Belgium
Finland
60,0
USA
Sweden
40,0 Japan
UK
20,0
0,0
1960 1973 1987 1996 1998 2000*

24. Labour productivity in
manufacturing by branch

27. Number of employed in manufacturing industries, 1925–2000
250
200
150
Textile, clothing and leather
Saw-milling and other timber
Paper and pulp
Metal industries
100 Electric and electronic applies
Other industries
50
0
1925 1938 1960 1974 1990 2000

28. Distribution of industrial value added by major branches,
1925–2000 (%)
45
40
35
30
Textile, clothing and leather
25 Saw-milling and other timber
Paper and pulp
Metal industries
20
Electric and electronic applies
Other industries
15
10
5
0
1925 1938 1960 1974 1990 2000

29. R&D Plays important role

30. Conclusions
 Forest industries has always played high role on exports, but it is
changing it’s form
 Changing from manufacturing to services
  Strong cluster feeding other branches
 Share of Forest industries still remarkable
 Electronic industries has been the rising star in last 20 years.
 Strong cluster driven by Nokia
 Feeding subcontractors, and service providers
 Manufacturing non important in Finland
 Development of Finnish industries in general has been fast since
1950s, especially at 1990s
 Key points :
 Second world war
 Collapse of trade with Soviet union 1990
 -> Domestic crisis, concentration on electronics and services
 Lead by global growth of Nokia and IT cluster
 High investments to R&D
  Changing from manufacturing to services

31.  Metal and engineering cluster together with chemical
industries has been gaining trough global economic
situation.
 All industry clusters / segments suffers on global
economic situation
 Economy is highly depending on exports
 Investing to R&D is beneficial, and it has proven effects
 Changing from Labor driven to Capital driven ?

34. Sources
 Website, Statistics Finland (www.stat.fi)
 Research paper: Technology and structural change: productivity in the Finnish
 manufacturing industries, 1925 - 2000
 Jukka JALAVA1, Sakari HEIKKINEN2 & Riitta HJERPPE3
 Journal of Economic Development
 Volume 15, 2 December 1990
 Growth and Structural Change of the Finnish Economy, 1860-1980.
 Hans C. Blomqvist
 Website, Bank of Finland (www.bof.fi)
 Website , Confederation of Finnish Industries (www.ek.fi)
 Research Paper: Trade-flow Based Industrial Clusters in the Finnish Economy
 Growth Through National Synergies
 Outline version for the OECD Cluster Focus Group Workshop 8-9.5. 2000
 Tuomo Pentikäinen , Sakari Luukkainen
 VTT Group for Technology Studies
 Website : Wolfram Alpha (www.wolframalpha.com )