Finland's New Realities

July 02, 1993

Finland's cradle-to-grave social benefits system sounds pretty incredible. Most medical expenses, including long-term critical care, are covered by an insurance package provided to every one of the 5.5 million Finns. Lose a job? Not to worry. For the first 500 days, unemployment compensation is given in proportion to the salary level of the job lost; basic compensation continues indefinitely.

This framework of utopian largess was dreamed up in the good old days. From the 1960s to the mid-Eighties, the Soviet Union bought seemingly unending amounts of goods from Finland, which developed one of the hottest economies in Europe. When the Soviet Union began crumbling, so did its trade with Finland. It plummeted to just 2 percent from a high of more than 20 percent. Moreover, now-defunct Soviet bureaucracies owe Finland $1.5 billion which may never be collected.

With Finland's unemployment rate hovering around 20 percent, young people in particular are pessimistic about their personal prospects and the country's future. The remarkable social benefits system has to be funded. Even though unprecedented cuts are proposed, the government's latest crisis program foresees so many additional levies that Finns can expect to pay more than 60 percent of their incomes in taxes.

The worst is probably not yet over. Private industries have experienced a painful downsizing but the state and local governments have hardly started reducing their swollen work force.

Since neighboring Russia offers few short-term markets for Finnish goods, the country is combing the globe for buyers as never before. Major sales of ships and machinery have recently been announced for such far-away customers as Abu Dhabi and the Philippines. The most natural market, however, is the European continent.

Although Finns are almost evenly divided over the desirability of entering the European Community, it is likely their country will become a member in 1995. Such a membership would cause a drastic restructuring of the economy in a country where a handful of private banks, labor unions and central trading organizations have exercised tight controls. Such reforms have been needed for a long time. But they are certain to be painful, because they shake the very foundations of Finland's post-World War II domestic power alignment.

With a strong central government gone from Moscow, Finland has unprecedented political latitude. It is buying American fighter planes, it is training military leaders for Estonia. After decades of trying to reconcile its geographic position in the East with its historic affinity to the West, Finland finds itself facing a world that has changed.

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