Remarks by Angel Gurría, OECD Secretary-General
12th February 2014, Helsinki, Finland
(As prepared for delivery)
Madam Deputy Prime Minister, Ladies and gentlemen,
It is a great pleasure to be in Helsinki once again to launch the 2014 Economic Survey of Finland. Like most OECD countries, Finland has been hard hit by the global financial and economic crisis. Yet, your country has been there before and has emerged even stronger, reforming its economy and leading the way in education and mobile technology. You are, after all, a country renowned for your “Sisu”!
Already, we can see that action is being taken, moving forward with reforms and working with social partners. We applaud these efforts, aimed at building upon Finland’s strengths and consolidating measures to restore competitiveness, boost innovation and streamline local government, while tackling the long-term challenge of an ageing society. Ambitious reforms will lay the foundation for a strong, sustainable, inclusive recovery, for renewed prosperity and widespread well-being.
Let me now share with you some of the key findings and recommendations that stem from this year’s OECD Economic Survey of Finland.
Finland’s Solid Achievements
Prior to the 2008 global crisis, Finland enjoyed over a decade of strong output growth, led by innovation and bold structural reforms. Its economy outperformed most comparable countries, making it one of the most competitive in the world.
Thanks to its strong institutions, a solid financial sector and sound macroeconomic management, Finland has become a leader in the development of clean technologies. Your country is well-placed to unleash the power of green growth at a time when it is desperately needed.
On the social front, Finland is a high achiever. Your country performs better than the OECD average in all dimensions of the OECD Better Life Index, and income inequality is still among the lowest in the OECD. It also has an outstanding education system and a highly skilled workforce. The latest PISA results demonstrate that Finnish students remain among the top performers, attaining scores that are several points above the OECD average in mathematics, reading and science. In our Programme for International Assessment of Adult Competencies (PIAAC) Finland is also at the top of the ranks, showing high levels of proficiency in literacy and numeracy among its adults.
These constitute very solid and outstanding accomplishments, but they are no cause for complacency. Finland faces difficult challenges that will need to be addressed to maintain your impressive track record in the years to come.
The Way Forward: Challenges and OECD Recommendations
As a result of the crisis, Finland’s share of world exports has declined by more than a fifth, and its current account balance has swung from a surplus of about 4% of GDP to a deficit of around 1%. Having become one of the most competitive economies during the decade that preceded the global crisis, Finland’s competitiveness has deteriorated and output has fallen, as electronics and forestry collapsed. The country’s export performance has weakened while unit labour costs have increased faster than in many other European countries since 2000.
In order to remain one of the most competitive economies in the world, Finland has reached important settlements with social partners. These have included modest wage increases over the next two years, which will most likely have a positive impact on cost-competitiveness and on the recovery of exports.
This country must now keep moving in this direction and adopt measures to tackle structural unemployment upfront. This could be done by continuing to implement the youth guarantee; enhancing work incentives; reinforcing employment services and further investing in skills. Encouraging greater participation by women of child-bearing age in the labour market could also boost the labour supply and help reduce the gender pay gap, which is above the OECD average. Together, these efforts can help restore competitiveness and return the economy to a path of strong, inclusive growth.
Coping with Population Ageing
Secondly, Finland must face population ageing, which is advancing at a faster pace than in most OECD countries. Projections indicate that the ratio of people aged 65 or over to those aged 15 - 64 will rise from around 30% today to more than 40% by 2030. This trend puts a great strain on the country’s pension and health care systems.
The ratio of pension expenditure to GDP rose by around 3.5 percentage points between 1980 and 2009 to more than 9% of GDP, and spending on pensions is projected to increase by a further 3% of GDP by 2030. Finland has taken steps to reverse these tendencies, such as the social partners’ agreement to increase the effective retirement age to 62.4 years by 2025, but additional efforts will certainly be needed.
Finland should increase the minimum pension age gradually, linking the retirement age to life expectancy. It could also contemplate ending part-time pensions and the extended period of eligibility to unemployment benefits for older people, and complement its pension reform with policies that ensure the effective integration of older workers into the workforce, fighting age discrimination and promoting lifelong training, for example.
In addition, Finland must take advantage of the “silver opportunity” that its ageing population presents. There is a growing demand for new products and services in the so-called ‘silver-tech’ area, and Finland is well poised to capitalize in this field, given its strong track record and knowledge base in information and communications technologies.
Making Decentralisation More Efficient
Last but not least, Finland must find new mechanisms to restore the health of its local public finances. Being one of the most decentralised countries in the OECD, with local self-government enshrined in the Constitution, the spending of Finnish municipalities amounts to more than 20% of GDP. Municipalities are the key actors in public service delivery and play a crucial role in optimising services. However, their spending has increased steadily in recent years and they are struggling to align service provision with national standards. Many municipalities are small relative to their wide responsibilities, with half having less than 6,000 inhabitants. Therefore, some consolidation could help improve performance.
International evidence suggests that optimum efficiency is achieved when municipal populations are within the 20,000 to 250,000 range. The government’s plan to promote voluntary mergers provides an opportunity to reorganise services and better serve the population. In some cases, an alternative could be to transfer functions to larger entities with the aim of achieving economies of scale.
Ladies and gentlemen,
To face these challenges, consolidate its economic revival and remain competitive, Finland must build on its impressive human capital, strong institutions and sound macroeconomic and financial management. It must also find the most suitable governance mechanism to make its decentralised structure more efficient and functional, bearing in mind that local government reform is important for efficiency but hard to implement. The OECD stands ready to support your country in the consolidation of these efforts.
I have no doubt Finland has the will and the tools to bounce back, as you have in the past, but also to “bounce forward”, to an era of renewed, inclusive prosperity and widespread well-being. I hope that this Survey will help Finland to design, promote and implement better policies for better lives!
Thank you very much.