Introduction

Finland has recently been much admired due to economic success. Finland has been in the news because of high rankings in competitiveness, technology, education and economic growth. The success has largely been embodied in the growth of the Nokia group and ICT sector. Yet the economic boom and the success of the Finnish high tech industries are a relatively new phenomenon, starting from the mid-1990s. In fact, the years of good economic performance were preceded by an exceptionally deep recession in the beginning of the 1990s. At that time, the Finnish GDP shrank by 10 percent in 1991-93, and employment decreased by 20 percent. As a consequence, the unemployment rate rose from 3 to 17 percent between 1990 and 1994.

However, the economic crisis and the rise of unemployment turned out not to be permanent. Instead, the Finnish economy started a strong recovery, and unemployment fell during the latter half of the 1990s by 7 percentage points. Economic growth was fast, too, averaging 4 percent in 1994-2000. In 2001-03 the unemployment rate stabilised at the 9 percent level, mainly due to the recession of the European economy. The employment rate, however, was clearly higher than the European average, and the Finnish GDP per capita exceeded the EU average. It is also worth noticing that although the cyclical downturn increased unemployment throughout Europe in 2002-03, that did not happen in Finland.

This chapter discusses the roots of the crisis of the Finnish economy, and the factors which helped it to recover and to create the technology-driven growth of the last decade. Finland was by no means the only country experiencing a significant drop in unemployment and a revival in employment towards the end of the 1990s. Recent experience shows that numerous countries have been able to reduce their unemployment rates significantly, and more than anyone relying on earlier estimates of high structural unemployment would have predicted. These countries include Sweden, Denmark, Ireland, the Netherlands and Spain. In these countries employment has improved more than anyone relying on earlier estimates of high structural unemployment would have predicted. It is also noteworthy that this improvement took place without any deep labour market reforms – or at least it is hard to find evidence of such path-breaking institutional changes.