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 Finland’s 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 country’s 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 entrepreneur’s 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 one’s 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 owner’s 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 everyone’s 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.