Finland Should Build on Past Regulatory Reform to Confront New Challenges

13/05/2003 - Finland's reform efforts over the last two decades have strengthened competition in many parts of the economy and fostered above-average growth. A key feature of reform has been the deregulation of important sectors of the economy, reversing a legacy of state control.

However, the challenges posed by high unemployment and a rapidly aging population underline the need to spread reforms across all parts of Finnish society, according to a new OECD report, Regulatory Reform in Finland - A New Consensus for Change. Finland also needs to improve efficiency in its large public sector, says the report.

Finland's economy has changed significantly in the last 20 years. To complement the country's traditional strength in industrial goods and natural resources, an information and communications technology sector has flourished. R&D expenditure is now the second highest in the OECD, as a percentage of GDP. Productivity gains have underpinned economic growth. Finland's economy grew by 5% per annum between 1995 and 2000, one of the best performances in the OECD.

To build on those successes, further reforms are needed, says the report. Some parts of the economy remain protected from competition, creating an imbalance that undermines performance and leaves Finland vulnerable to external shocks. The public sector remains large relative to other OECD countries, as do tax burdens. Government jobs account for nearly a quarter of total employment - a situation that has changed little since 1990. Most public services are delivered at the municipal level, where spending has risen. Although significant reforms of the public sector have already taken place, further steps are needed to promote greater efficiency -- especially at the local level. Finland has worked hard to improve its regulatory governance since the1980s, but stronger political drive for impact assessments of new laws and regulations, as well as supporting structures in the centre of government, would improve the efficiency and coherence of regulatory instruments.

There is urgency for further reform, since Finland's population is aging more rapidly than it is in most OECD countries. The number of people over age 65 is projected to increase by more than 50% by 2020, and the labour force could start to decline within a decade. The old age dependency ratio, which compares the number of elderly individuals in the population to those of working age, is projected to rise from 25% today to 39% by 2020, the fastest increase in the OECD.

Rapid aging also underscores the need for labour market reforms. Although unemployment has halved since 1994, at 9% it is still above the EU average. Structural unemployment, especially long-term unemployment, remains a major problem. Centralized wage negotiations offer little incentive for improvement in sheltered sectors of the economy. Moreover, the regulatory regime does little to encourage unemployed individuals to return to work.

The report on Finland is the latest in a series of regulatory reviews of OECD economies. It reflects the input and views of all 30 OECD member countries and the European Commission, as well as contributions from the business and labour communities.

The report is available to journalists on the OECD's password-protected website, or from the OECD's
media relations division.

For further information, journalists are invited to contact César Córdova Novión in the OECD's Directorate for Public Governance and Territorial Development (tel. [33] 1 45 24 89 47).

Background reports.