. I. 2. b. 8. I FOR ECONOMIC C 0 - 0 P E R A T I 0* AND DEVELOPMENT ORGANISATION DE COOPERATION ET DE D E V E I 0 P P E M E N T ECONOMIQUES BASIC DATA ON FINLAND AREA AND POPULATION Area(1 000sq. km.) 337 Populationinmajorcities ofwhich: Cultivated land 31 (endof1966) Forests 240 Helsinki 519200 Lakes 32 Tampere(Tammerfors) 147500 Turku(Abo) 145600 Urbanpopulation(percentoftotal) 48 Totalpopulation(endof1967) 4676000 Man-Powerbyindustry(percent, 1967) Persq. km.oflandarea 15.3 Agricultureandforestry 27 Average 1962-66: Industryandconstruction 34 Livebirths(perihous.) 17.5 Commerce 14 Deaths 9.4 Transportandcommunications 7 Netnaturalincrease 8.1 Services 18 Net increaseofpopulation 7.3 PARLIAMENT AND GOVERNMENT CompositionofParliament Government,from22nd March 1968 No.ofseals,elections 1966 (No.ofMinisters) DemocraticLeague 42 DemocraticLeague 3 Social-DemocraticUnion 6 Social-DemocraticUnion 1 Social-DemocraticParty 55 Social-DemocraticParty 6 SmallHoldersParty 1 CentreParty 5 CentreParty 50 SwedishParly 1 LiberalParly 8 Prime Minister: MaunoKoivislo NationalCoalitionParty 26 SwedishPeoplesParty 12 Total 200 Nextelection 1970 PRODUCTION GrossDomesticProduct 1968 GrossDomesticProductbyIndustries Mk.mill. 33721 1968(percent): GDPperhead,USdollarsatexchange Agricultureandforestry 15.5 rate IS = Mk.4.20 I 710 Industryandconstruction 38.9 Grossfixed assetformation 1968 Commerce 9.8 percent ofGDP 22.7 Transportandcommunication 7.5 Services 28.4 THE PUBLIC SECTOR Publicconsumption 1967, Generalgovernmentrevenueand percentofGDP 15.7 expenditure 1968: Grossfixedcapitalformation 1967, Mk.mill. percentofGDP Currentrevenue 12065 Generalgovernment 5.3 Currentexpenditure 9248 Publicenterprise 2.3 ofwhich: consumption 5501 Publiccorporations 2.1 transfers 2763 subsidies 972 LIVING STANDARDS Caloriesperhead,perday 1964-65 2950 Consumergoods,perthous.(1967) Proteins,perhead,perday,gr. 91 Carsregistered 118 Numberofdwellingscompleted, Telephones 203 Av. 1964-65,perthous. 7.8 Televisionlicences 192 Radiolicences 356 FOREIGN TRADE Exportsofgoodsandservices, Jmportofgoodsandservices, percentofGDP, 1968 24.8 percentofGDP 1968 23.1 Merchandiseexports 1968,percent Merchandiseimports 1968,percent Agricultural products 4.7 Rawmaterials,etc. 44.9 Roundand hewntimber 0.8 Fuelsandlubricants 13.1 Woodproducts 16.9 Investmentgoods 22.8 Pulpandpaper 43.6 Consumergoods 19.3 Metalproducts,etc. 22.8 Othergoods 11.2 Monetary Unit: Markka CurrencyunitsperUSS (from 12th October 1967) 4.20 OECD ECONOMIC SURVEYS Archives - Références _ DOC PRÊTÉ - RETOUR BUREAU 706 FINLAND ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The Organisation for Economic Co-operation and Development wasset up undera Convention signedin Parison 14th DecemberI960bythe Membercountriesofthe Organisa¬ tion for European Economic Co-operation and by Canada and the United States. This Convention provides that the OECD shallpromote policies designed: to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; to contribute to soundeconomic expansion in Member as well as non-member countries in the process of economic development; to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The legalpersonality possessed by the Organisationfor European Economic Co-operation continues in the OECD. which cameintobeingon30th September 1961. The members ofOECD are: Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic ofGermany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The SocialistFederalRepublicofYugoslaviaisassociated incertain work ofthe OECD,particularlythatoftheEconomic andDevelopment Review Committee. The annual review of Finland by the OECD Economic and Development Review Committee took place on 14th May 1969. The present Survey has been updated subsequently. CONTENTS Introduction 5 I Growth and Structural Change 6 Growth 6 Change in Industrial Structure 8 Growth and Structure ofForeign Trade 10 II Managementofthe Economy 12 The Problem ofRising Prices 12 Contra-Cyclical Policy 14 m The 1967 Devaluation and Accompanying Measures 17 The 1967 Devaluation 18 Incomes Policy 18 Fiscal Policy 20 Monetary Policy and Developments 22 IV Recent Developments and Prospects 23 The Balance ofPayments 24 Domestic Demand and Production 27 Wages, Prices and Incomes 29 Prospects 30 V Conclusions 33 Annex I Institutional Background 39 The Monetary System 39 Government Finance 40 Labour Market Policy 40 Economic Planning 41 TABLES Text: 1 Gross Domestic Product and Employment by Industries 8 2 Exports by Main Types ofGoods 10 3 Foreign Trade by Areas 11 4 Fluctuation in Growth 15 5 Selected Indicators of Economic Development 17 6 Central Government Finance 20 7 Money and Credit 23 8 Balance ofPayments 24 9 Unit Value Indices of Exports and Imports 26 10 Gross Domestic Product and Expenditure 27 11 Gross Fixed Asset Formation 28 12 The Cost Push 30 13 Prospects for GDP in 1969 32 Statistical Annex: A Supply and Use ofResources (Current prices) 45 B Supply and Use ofResources (1954 prices) 46 C Gross National Product by Industrial Origin (Current prices) 47 D Gross National Product by Industrial Origin (1954 prices) 48 E Gross Fixed Asset Formation 49 F Central Government Income and Expenditure 50 G Balance ofPayments 51 H Quarterly National Accounts 52 I Labour Market 53 J Production and Employment by Sectors 54 K Foreign Trade by Area 56 L Imports: Prices and Commodity Groups 57 M Exports: Prices and Commodity Groups 58 N Prices and Wages 59 O Money and Credit 60 DIAGRAMS 1 Long-termTrendsin GNP 7 2 TrendsinPrices 13 3 TheBusinessCycleandEconomicPolicy 16 4 Productionand Unemployment 28 INTRODUCTION Finland became the 22nd Member of OECD at the beginning of this year. With an area of337000square kilometres, her size is about the same asthat ofItaly. But with a population of4.7million, sheis one oftheleast denselypopulatedMembercountries(14persquarekilometre). Nearlyatenth of the country is covered by inland waterways and lakes numbering, it issupposed, 60thousand while forests cover70 percent ofthelandarea. The forests are Finland's main natural asset; the waterways provide power and easy transportation for forestry industries. Economic progress since the war has been rapid: 48 per cent of the population now live in urban areas and income per head is about the average for OECD countries in Europe. Finland has close historical links with her two main neighbours. An integral part ofthekingdomofSweden formany centuries, she becameafter the annexation of 1809 an autonomous Grand Duchy under the Russian crown. Finland achieved independence in 1917, and adopted a republican constitution in 1919. Under the constitution, legislative poweris exercised byParliamentand the President;the chiefexecutive power, bythe President. The two hundred seats in Parliament are shared by six or so main political parties,andinnoelectionhasone partyyetgothalftheseats. Mostgovern¬ ments have been coalition governments, though seven of the twenty-one post-war administration have been minority governments. Finland faced great problems afterthe war. There had been heavy war destruction, and the peace settlement involved not only a large cession of territory and reception of the displaced population, but also heavy war reparation payments which extended over eight years. Despite these diffi¬ culties, output per head regained its pre-war (1938) level by 1948. Exports have continued to grow rapidly partly as a result of world demand for pulp and paper; partly because of trade agreements with Eastern Europe; andpartlythroughthedevelopmentofnewexportsto EFTAandothercoun¬ tries. During the last two decades Finland has been one of the fastest growingeconomies ofWestern Europe; and in the process the economy has been progressively industrialised and diversified. The extensive social security system which has been developed, as in other Nordic countries, provides support i.a. for the old,invalids and sick, OECDEconomicSurveys and for families and children; social transfers now amount to one-seventh ofthenational income. Education and research takealargepartofgovern¬ mentconsumptionexpenditure. Thelevel ofeducationishigh compulsory schooling extends to 16, one-third of young people continue education to 19 and one-tenth go on to university or other higher education. Therewas serious inflation in the earlypost-waryears and it has conti¬ nued to be more rapid than in most OECD countries. The last devaluation in 1967 wasthefourth since 1948. Developments since 1967have, however, been favourable. Incomes policy has succeeded in braking the rapid rise in nominal incomes; and last year the balance of payments improved, demand expanded and unemployed resources were absorbed. I GROWTH AND STRUCTURAL CHANGE Growth The rapid recovery ofactivity in the early post-war period represented enormous effort and sacrifice. Finland lost 10 years of normal economic growth during the war. After the war 12 per cent ofits territory and pro¬ ductive capacity was ceded to the Soviet Union. About 15 per cent ofthe population had lived inthis area and had to beresettled in Finland. Unlike most other Western European countries, Finland received no economicaid; on the contrary, during the eight years ending 1952 reparation deliveries totalling $570 million (in 1952 prices) about a quarter of 1948's gross national product were made to the Soviet Union. Most ofthese indem¬ nities were paid out of Finland's own production: net foreign borrowing over the eight-year period amounted to about $100 million. Finland, however, benefited greatly from an improvement ofher terms oftrade. The recovery effort entailed a high rate of investment. Although the absolute level of domestic output was low in the first post-war years, the ratio offixed investment to GNP was 22 per cent. This, together with the war reparations,meant that consumption had to be severelyrestricted. In real terms,private consumption per head in 1948 may have been abouthalf ofwhat it is today. Since 1948 GNP has increased at an average annual rate of about 5 percent, rather faster than the average for OECD countries combined but roughly in line with the performance of OECD Europe. The growth of exports was the main dynamic element in the expansion. Merchandise exports although the year-to-year advance was somewhat irregular be¬ tween 1954 and 1968 rose at an average annual rate of 8 per cent(in dollar terms), about the same as the average for OECD countries. Finland Diagram 1 Long-termTrendsinGNP Volumeindices, 1950 = 100 250 Finland 200 OECDEurope . Denmark,Noiwayand . Swedencombined' 150 100 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 1 1958exchangerates. Sources: National Accounts ofOECD Countries 1957-1966, StatisticsofNational Accounts 1950-1961 and nationalpublications. The expansion has been helped by an abundant labour supply. The growth of the population of working age (15-64 years) has been relatively fast(1 percentperyearbetween 1950-1968),andthemovementoflabourout of the large agricultural sector has meant that the non-agricultural labour force has risen rapidly (2% per cent per year) despite a fairly steady net emigration of some 3 000 persons a year, mostly to Sweden. Output per employed has risen by 4 per cent per year, roughly the same as the average for OECD-Europe. Gross fixed asset formation in the last decade has remained at about a quarter ofGNP. OECD EconomicSurveys Change in Industrial Structure Expansion has been accompanied by rapid structural change. In 1948, agriculture and forestry (a vocational combination typical in Finland) accounted for about one-third of total output and employed more than 40 per cent ofthe labour force. (200000 farmers and their families coming from the territories ceded to the Soviet Union in 1944 had to be resettled; a large number of small farms were then established with State aid). By 1967, employment in agriculture and forestry had fallen by one-third a major factor in the improvement ofreal income ofthose remaining in agri¬ culture. The relative size ofthis sector remains higher than in most other industrialised countries. And output per man in agriculture is still relati¬ vely low; productivity in agriculture has, in recent years, increased roughly in line with the trend in industry, but the initial difference has remained. Table 1 GrossDomestic Productand Employmentby Industries Percent Grossdomestic Employment product(current (man-years) factorcost) 1948 1958 1967 1948 1958 1967 Agriculture, forestry, hunting and fishing 33 21 15 44 34 25 Mining,manufacturingandelectricitysupply 30 28 30 22 23 25 Buildingandconstruction 8 10 10 8 10 11 Transport and communications 6 7 7 6 7 7 Trade, banking and insurance 10 12 13 8 11 14 Public administration and defence 4 4 4 4 4 4 Otherservices 9 18 21 8 11 14 Total 100 100 100 100 100 100 Sources: FinnishNationalAccountsandEconomicSurvey 1968. As in other countries, the service sector has been the main beneficiary of the relative decline of the primary sectors, increasing its share of total output from about 30 per cent in 1948 to about 45 per cent in 1967. The manufacturing sector has grown about in line with GNP, and accountsforaboutone-third oftotal outputand one-quarteroftotalemploy¬ ment. But there have been major changes within manufacturing. The engineering industries relativelymodestbeforethewar havethusgrown especially rapidly. The goods demanded as war reparations necessitated a majordevelopmentofthese industries, and after 1952 exports ofengineering products to the Soviet Union continued under bilateral trade agreements