Recently, the World Economic Forum ranked Finland as the most competitive economy of Europe. In an opinion piece published in the Financial Times on 23 June, the chief executive of Finnish chamber of commerce, Risto Penttila, was quick to remark that, "If Finland is the best the EU can offer, we should all be very concerned." He painted a gloomy vision of the Finnish economy, which has not grown in five years, where Nokia lost its handset business, shipyards are in trouble and forestry companies are closing their plants. Public debt is growing and the population aging.
Which of these pictures is true of Finland? WEF's or Penttila's? Both – this paradox presents a great opportunity for foreign investors, companies and entrepreneurs.
Penttila agrees with WEF's assessment that Finland provides a great institutional context for thriving businesses: strong property rights, world-class educational system, stable political environment and large research and development spending.
However, as Mr. Penttila correctly notes, "Well-functioning institutions do not always translate into competitiveness." The Finnish private sector is indeed in trouble. The ICT industry cluster and pulp and paper industries have been traditionally key sources of growth in Finland, but now both of them are in decline. This is the paradox: Finland has one of the world's best institutional settings for doing business, but with the decline of Finnish companies, the Finnish economy has lost its "growth recipe," as pointed out by a group of Finnish economists, among them Bengt Holmstrom from MIT.
Image: Joel Hietanen
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