Translation
SPEECH
BY PRESIDENT MARTTI AHTISAARI AT THE AUTUMN MEETING
OF THE FEDERATION OF FINNISH COMMERCE AND TRADE,
24.11.1999
The Challenges of the New Millennium for Finnish
Enterprises
Looking to the near
future, the turn of the millennium is taking place in
economically favourable conditions for us. Domestic
economic development is brisk and continues to
strengthen. Economic and monetary union has produced
the monetary stability which was expected of it.
Prices have remained stable. The state economy has
improved. Unemployment has fallen sharply, though it
is still at a high level.
Causes for concern
include the still difficult position of many victims
of the economic slump, wage development, the housing
market situation and migration. Excesses in wage
formation and banks' lending could stop the
favourable development of the economy. There is
reason to believe that this will not happen, however.
External risks mainly concern economic development in
Japan and the United States.
Experience of the
functioning of economic and monetary union is still
quite short and we can only draw tentative
conclusions. It can be noted, however, that EMU has
brought monetary stability and kept inflation
expectations low. There is every reason to believe
that this situation will continue. A stable monetary
environment and stable prices benefit enterprises.
This should encourage long-term investment decisions.
The labour market
and wage formation
EMU will provide a new
framework for the functioning of the labour market
and wage formation. Since a rise in wage costs cannot
be passed on to prices, excessive wage increases will
force enterprises to adjust their operations, which
most often means reducing personnel. If excesses take
place on the wage side, the loss will be long-term,
since there will be no possibility to correct the
error by means of devaluation.
The challenges for
the enlargement of the European Union
The enlargement of the
European Union to include countries in Central and
Eastern Europe is no easy task. It involves
considerable costs. But the potential economic
benefits are also great. The prospect of EU
membership supports applicant countries' political
and economic stability. Stability is a prerequisite
for fast economic growth in those countries. In this
way the applicant countries will draw closer to the
member states, although it will take a long time
before economic prosperity rises to the same level.
The applicant
countries' rapid economic growth signifies bigger
markets for enterprises in the EU and will therefore
support growth in the EU countries. This is not a
question of sharing some existing cake, but of a
rapidly expanding cake which has plenty for everyone
to share.
The integration of
Central and Eastern Europe will change the structure
of Europe's foreign trade, although this change will
take time. This is understandable, since for
historical reasons the structure of trade is
unnatural and far from relative advantages. The
former socialist countries' trade flows were directed
to the Soviet Union and trade between neighbours
remained small. In a similar way the EU countries'
trade with neighbouring socialist countries was
smaller than it could have been on the basis of a
market economy and free trade.
Now trade flows are
gradually seeking some kind of "natural"
balance. In the case of the EU countries this means
and has already meant that some products are no
longer produced here but in applicant countries,
where prices are lower. This is a precondition for
these countries to become more prosperous and ready
for membership.
Challenges in the
Baltic region
The Baltic region is a
good example of how political history has shaped
foreign trade and the quantity and quality of
economic relations between the countries in the
region. Trade between the Nordic and Baltic countries
as well as trade among the Baltic countries
themselves was quite limited during the socialist
period. Now the structure of trade has changed
substantially in just a short time.
The progress of the
Baltic countries and Poland towards EU membership
will create preconditions for the rapid expansion of
trade and other economic relations between the
countries in the Baltic region. Business is
internationalizing and forming chains in service
fields as well. It is easier to form chains between
neighbouring countries than between countries which
are far apart. In the Baltic region we can
increasingly expect to see the same logos and service
concepts in a larger area in many sectors, such as
retailing, the hotel and restaurant field, and
banking and insurance.
The President's
Working Group on Employment
When I assumed my
present office, I felt a duty to tackle the
unemployment problem. Since the President's means of
influencing economic policy are limited, I wanted to
formulate a programme of goals, which those with
actual responsibility for economic policy could then
set about implementing.
In June 1994 I
appointed a working group under the chairmanship of
Matti Pekkanen and with a membership comprising
influential figures from the economic sector and
society in general. The working group explored
obstacles in the way of permanently lowering
employment, collected studies and proposals drafted
by experts and presented clear recommendations for
measures that would effectively reduce unemployment.
It took only three months to produce its final
report.
The Pekkanen working
group outlined a strategy and measures that would
reduce unemployment to 200,000 by the turn of the
millennium, but the terms were tough. Unemployment
was at its worst in autumn 1994 and the policies
proposed by the working group aroused distrust. In
the view of the working group, growth in aggregate
output at an annual average rate of 5% up to the year
2000 was a central prerequisite for lowering
unemployment. Special measures to boost demand for
personnel and strengthen the functioning of the
labour market would likewise be required.
The growth called for
by the working group was generally considered
unrealistic, but we are not falling very far short of
the goal. In 1995-1998 aggregate output has been
growing at about 5% a year. Without such rapid
economic growth, the improvement in employment would
have been substantially slower. According to the
latest statistics the jobless rate is 9.5% and
237,000 people are out of work.
The measures proposed
by the working group and the goals set for economic
development have already been achieved astonishingly
well. We must not, however, allow ourselves to be
lulled into complacency, even though it appears that
solid growth will continue in the foreseeable future.
Challenges facing
enterprises
Globalization in its
different forms blurs distinctions between present
branches and expands geographical markets.
Globalization signifies the disassociation of
economics, technology and culture from national
control into independent variables which have
worldwide effects. Enterprises will establish
operations where it is most profitable economically,
regardless of national borders. This development
poses a demanding challenge for nation-states. They
have no alternative but to adjust increasingly to
bilateral and multilateral cooperation. The most
important task of nation-states is to ensure a
predictable and stable operating environment for
enterprises on global markets.
Globalization also
signifies growing demands for small and medium-sized
enterprises. They must be able to supply goods and
services on a broader scale and in a larger
geographical area. Meanwhile competition on
traditional domestic markets is intensifying. Small
and medium-sized enterprises must learn to operate
flexibly in internationalizing markets. By networking
and cooperating with one another they can develop new
strengths and turn threats into success.
The EU offers Finnish
enterprises large and stable markets. The free
movement of goods, services, capital and people is a
competitive edge in which Europe still lags too far
behind its competitors. The shift to a common
currency in the euro zone will improve the
comparability of goods and services, reduce
enterprises' costs and enhance the functioning of the
single market. Particularly trade in services between
the EU countries could grow substantially. At present
this trade only concerns part of financial, insurance
and corporate services.
The EU accounts for a
large portion of our foreign trade, but other areas
should not be forgotten. The Asian, Latin American,
NAFTA and Russian markets offer enterprises
significant opportunities in the future. Russia has
enormous natural resources and a large and educated
population. A socially stable, democratic Russia with
prosperous citizens and a healthy and sustainable
economy is in the interest of Finland and Finnish
enterprises.
Finnish enterprises
still spring from the Finnish soil and environment.
The domestic operating environment and business
policy must be in order so that our enterprises can
succeed in the world. Our business policy must be
constantly reshaped to respond to changing
circumstances - we must avoid self-complacency. The
state should encourage enterprises to
internationalize and should support export promotion
work.
In addition to other
challenges we must also remember the ageing of the
population. It appears that this question has not yet
received the attention it deserves. This may be
because the greatest effects of ageing will only be
visible a few decades from now, although development
can already be calculated with amazing precision.
The problem of ageing
is in fact due to two factors: the lengthening of
average life expectancy and the drop in the birth
rate. Their effects are cumulative. In 2030 Finland
will have about two million persons over the age of
55, which is 50% more than today. The situation is
similar in many other industrialized countries, such
as Germany. As a result of this change, pension costs
and social welfare and health costs will rise while
the number of working-age taxpayers will decline.
This equation will be difficult to resolve.
This does not mean
that an ageing population should be viewed as a
problem. On the contrary, it is a great challenge and
opportunity to develop a nation with more life
experience than ever before. Adapting to change will
require the renewal of our society, however.
The change on markets
will also be enormous. Change in the structure of
demand and growth in the wealth of elderly persons
will create plenty of new business opportunities
especially in social welfare and health services.
This applies to low- and high-tech fields alike.
High-tech products which can be used effectively to
monitor and prevent illnesses related to ageing have
already appeared on the market. As a result of the
drop in births, the supply of labour will decline in
10-20 years. Unemployment may be replaced by a
shortage of labour.
Enterprises' operating
environment is changing. Change creates new threats
and challenges, but it also offers new opportunities.
The need for renewal will continue in the new
millennium as well.
