Andersson on Ojala, Eloranta and Jalava, eds., _The Road to Prosperity: An Economic History of Finland_

[eh.net-review at eh.net]

Published by EH.NET (June 2007)

Jari Ojala, Jari Eloranta and Jukka Jalava, editors, _The Road to 
Prosperity: An Economic History of Finland_. Helsinki: Suomalaisen 
Kirjallisuuden Seura, 2006. 343 pp. 43 Euro (cloth), ISBN: 
951-746-818-0.

Reviewed for EH.NET by Lars Fredrik Andersson, Department of Economic 
History, Umeå University.


Just more than a century ago, Finland was an agrarian society 
featuring low per capita income and dependency of Russia. Today, 
Finland is a highly advanced independent industrial country in the 
top ten of the world income league. Finland's twentieth-century 
economic miracle is a story of success over hardship, poverty and 
Russian dependence. How was this achieved? Considering the causes and 
consequences of this transition into modern economic growth, this 
book gives valuable insights into the challenges faced by Finland in 
particular and other small successful European countries in general.

This anthology, edited by Jari Ojala, Jari Eloranta and Jukka Jalava, 
sets out to provide a model of Finnish success. The so called 
"Finnish model" is characterized by: (1) solid institutional 
legacies, (2) long-term utilization of abundant natural resources, 
(3) rapid adoption to shifting economic and political structures, (4) 
heavy investments in human capital, (5) egalitarian society with an 
extensive welfare state, and (6) innovations in new technologies. 
Using this model as a point of departure, the chapters in the book 
underpin the specific features of Finnish economic and social 
development.

Finland's long-term growth performance is outlined by Riita Hjerppe 
and Jukka Javala. The authors provide a description and analysis of 
Finland's transition into modern economic growth. It is shown that 
the industrial breakthrough occurred during the period 1860 to 1940 
and that rapid economic growth was achieved by high labor 
productivity growth. The labor productivity growth was driven by 
rapid technological progress. In turn, structural change was more an 
effect than a cause of the growth process.

Although the shift effects were small, one should not forget the 
importance of modernization in agriculture and the movement of labor 
from agriculture to industry and service production. Indeed, as noted 
by Jari Ojala and Ilkka Nummela, the shift from labor- to 
capital-intensive production in agriculture stimulated aggregated 
productivity growth and facilitated labor movement into the expanding 
industry and service sectors. In addition, the growth of industry and 
service production was also characterized by an evolution in business 
structures raging from merchant capitalism in the eighteenth and 
nineteenth centuries to industrial in the twentieth century and 
global capitalism today. To explain this evolution the authors Jari 
Ojala and Petri Karonen underpin the importance of competitive and 
institutional forces as well as long-term co-operation within and 
between companies in different industrial sectors.

The stages of evolution in business and are furthermore shown in Yrjö 
Kaukianinen's chapter on maritime trade. Finland was foremost a 
supplier of raw material back in the nineteenth century. During the 
twentieth century, these commodities were replaced by manufactured 
products emanating foremost from the forest industry. Only in the 
later part of the twentieth century was there a transition to higher 
value added and high technology exports.

As Finland's economy became more industrialized, factor markets 
became increasingly important. The labor market started to evolve in 
the end of the twentieth century in conjunction with the expansion of 
the manufacturing and service sectors. In the post-war period, the 
growth of private services and welfare services created job 
opportunities for women as well as men. The authors, Matti 
Hannikainen and Sakari Heikkinen, also stress how the labor market 
changed from domination by employers to a system with strong trade 
unions and centralized collective bargaining. In turn, the financial 
sector had a strong involvement from the government. The authors 
Concepción García-Iglesias and Juha Kilponen maintain that the 
Finnish case in some sense was different from other countries as the 
strong involvement of the government and the central bank in 
regulating the financial markets after World War II delayed the start 
of the financial modernization.

The government was apparently important in the development of the 
welfare state as well. Jari Eloranta and Jari Kauppila argue that 
while growth of government's spending primarily was an issue of 
institutional expansion, other factors also need to the considered. 
The building of the welfare state was closely tied to the development 
of incomes and the trade-off between social and military spending.

The equality ambitions of the welfare state were furthermore 
strengthened by the development of income distribution (taxable 
income of tax units). Indeed, as shown by Markus Jäntti, inequality 
was quite variable in the inter-war period, increased significantly 
in the period 1950-70 and declined rapidly after 1970. In the 1990s, 
Finland had one of the most equal distributions of income across the 
OECD.

Growing income and output have been enhanced by, among other things, 
investments in education, human capital and R&D. Rita Asplund and 
Mika Maliranta show that high investments in education and training 
has been important to foster economic growth as well as technology 
policy focusing on R&D and ICT investments. Part of this success has 
been the joint effort of private and public spending.

Summing up the chapters in the book, Pauli Kettunen concludes that 
Finland was a late-comer among the Nordic countries. The industrial 
take-off occurred late and the social structure remained agrarian for 
a long time. He maintains that Finland has indeed absorbed features 
of the other Nordic countries but still preserved features of its 
own. The "Finnish model" has been characterized by egalitarianism, a 
strong government role, innovativeness and geopolitical adjustment.

This book, written by three distinguished editors along with fourteen 
prominent contributors offers many kernels of insight. Numerous 
important issues are addressed around the topic of economic progress. 
However, the main explanation of this progress, "the Finnish model," 
has deficits. It is quite hard to find that Finland is an exception. 
The explanatory factors of Finland's economic progress -- solid 
institutional legacies, utilization of abundant natural resources, 
rapid adoption to shifting economic and political structures, 
investments in human capital, egalitarian society with an extensive 
welfare state, and innovations in new technologies -- are also keys 
features of the other Nordic countries. With this shortcoming in 
mind, I still would like to congratulate the editors and contributors 
for providing a comprehensive description and analysis of how Finland 
has evolved into the affluent society that it is today. This book 
should find a broad audience.


Lars Fredrik Andersson is active in a research project titled "The 
Historical Development of Swedish Insurance," financed by the Bank of 
Sweden Tercentenary Foundation. Among his recent publications is "The 
Evolution and Development of the Swedish Insurance Market," in 
_Accounting, Business and Financial History_ (November 2006).

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