National competitiveness under debate

A project titled 'Finland in the global economy', commissioned by the Prime Minister, concluded in November 2004. The project involved the social partners in extensive sector-specific dialogue to discuss how Finnish companies' competitiveness can be maintained and improved. The project's steering group has made various recommendations for reforming collective bargaining, which have been strongly criticised by the SAK and STTK trade union confederations. SAK has also contested statements by the EK employers' organisation that labour costs are a constraint on the competitiveness of Finnish firms.

Following extensive debate in Finland over the relocation of jobs abroad, the Prime Minister’s office launched a project entitled 'Finland in the global economy' in January 2004. The aim was to bring together experts in various fields and important political actors, including the social partners, to explore how the competitiveness of Finnish production and work can be ensured. The work was carried out at three main levels: first, economic research institutes produced various background reports; second, the social partners engaged in sector-specific dialogue; and third, a steering group synthesised the work and drew up conclusions.

Final report proposes extensive reform

The steering group of the 'Finland in the global economy' project, which included representatives of the government, heads of research institutes and a manager from Nokia, presented its final report to Prime Minister Matti Vanhanen in November 2004. According to the report, the key to Finland’s success in the world economy is to: adopt a competence-based strategy; increase the level of expertise in society; and use this effectively for creating growth in all sectors of the economy. Furthermore, to make use of the potential of the international economy it is important that Finnish society becomes more open, the report suggests; Finnish companies need to be encouraged to become more international and attempts should be made to attract more foreign capital and labour to the country. Lastly, to make a competence-based society with strong international links function effectively, it requires a capacity to renew itself constantly and to adapt to changes quickly, the report advises.

In addition to the general aims laid out above, the report includes numerous more specific viewpoints and policy proposals. In terms of collective bargaining, these include the following:

• labour market legislation and institutions make the labour market more rigid;

• more pay flexibility - including downwards flexibility - is needed;

• pay variability has to be increased and levels of pay should more fully reflect differences in productivity between firms and between individuals;

• general pay rises should no longer reflect the average productivity increase in the national economy but should be lower than this level;

• workplace- and firm-level bargaining needs to be expanded but national coordination of pay increases should be retained to maintain wage moderation;

• departing from collective agreements should be made easier for firms facing a need to cut their workforce;

• more working time flexibility is needed; and

• part-time employment should be expanded.

The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) and the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK) strongly denounced many of the report's proposals in this area. SAK was especially critical of the prospect of companies having increased rights to depart from the terms of collective agreements when planning collective redundancies. It argues that nowadays even relatively profitable companies reduce their workforces merely in order to increase shareholder value. To give such companies that threaten job cuts increased rights to depart from collective agreements would be outrageous, SAK contends. Meanwhile, STTK regards the report as interfering in matters that belong to tripartite negotiation. Both of these trade union confederations were of the opinion that the report was biased in favour of employers and that it was irresponsible to air such views in the middle of the incomes policy negotiations that started on 2 November 2004 (FI0411201N). The central organisation of employers, Finnish Industries (Elinkeinoelämän keskusliitto, EK), along with the Confederation of Unions for Academic Professionals in Finland (AKAVA), had no objections to the report's proposals on collective bargaining. The former stated that, as the report suggests, labour market reforms are vital and that by now all parties should have an understanding og the necessary direction of policy.

Prime Minister Vanhanen, who commissioned the report, did not express support for the report's proposals concerning collective bargaining. Instead he commented that the debate on the challenges of globalisation continues, and the government is committed to following tripartite principles. Furthermore, a member of the steering group who belongs to the Social Democratic Party (Suomen Sosiaalidemokraattinen Puolue, SDP), which forms part of the coalition government, strongly distanced himself from the report's conclusions on collective bargaining. According to media reports, there may have been others in the group who felt the same way. However, the chair of the steering group, Anne Brunila, the director general of the Ministry of Finance, stated that the majority of the group gave their backing to even the most controversial proposals in the report.

Sector-specific dialogue

Another component of the 'Finland in the global economy' project was dialogue between the social partners at sector level. The aim was to discuss concrete ways in which the competitiveness of firms in the particular sectors can be ensured in the future. Similar talks have been held before, but the recent dialogue was unprecedented, in that never before have such discussions been held systematically and simultaneously in so many sectors - 23 sectors were involved in the project following its launch in April 2004. In 21 sectors, the social partner organisations engaged in dialogue and cooperated in preparing a report setting out their analysis of ways to improve competitiveness. In two instances, namely in the forestry and chemicals sectors, the project ended in disagreement and only unilaterally endorsed reports were produced.

The content of the reports from the different sectors varied considerably but some common themes emerged. In many cases, the social partners agreed on ways in which the education system should be improved. Education was often viewed as not sufficiently taking into account the needs of companies. Proposals to improve the situation included new vocational training degrees, wider use of apprenticeship contracts and increased cooperation between educational institutes and firms. Training organised by companies themselves was thought to be especially important, and it was proposed that taxes on training provided by employers should be lowered.

One of the main issues related to the labour market that emerged in the reports was the possibility of labour shortages in the future due to the overall ageing of the population. To tackle this, the social partners proposed, for example, that more immigrant workers should be allowed into Finland. Measures to increase the attractiveness of specific sectors in the eyes of workers were also seen as being important. These included, in the public sector especially, making the pay structure more rewarding. In various sectors it was agreed that more flexibility of working time and pay will be needed for firms to remain competitive.

Other considerations that emerged in the dialogue included a need for more public funding of research and development and of technological development. More funding was also desired for firms entering international markets. In some sectors, more steadfast defence of Finland’s interests in the EU was seen as important for competitiveness.

Labour costs and productivity under scrutiny

As part of the debate over Finland’s international economic position, labour costs have become a topical issue. In October 2004, EK published the results of a survey of international labour costs, concluding that Finland’s position is not good enough and the situation is worsening. The survey found that labour costs in Finnish industry are the fourth-highest in the EU and that private sector labour costs have risen by an average of 4.2% annually since 1997. In comparison, the average annual rise in euro-zone countries generally has been only 3.2%. According to EK, productivity has risen in recent years compared with Finland’s competitors but this has chiefly been taking place in the electrical and electronics industry. If that sector’s contribution is left out, industry’s overall competitiveness has decreased in the last 10 years and an unfavourable development of prices has further worsened the situation, EK insists. Furthermore, EK has also published an international comparison of working time and pointed to the finding that normal working hours are relatively low in Finland, which is seen as an impediment to Finland’s competitiveness.

SAK responded to EK’s comments by arguing that the figures it had supplied do not tell the whole truth. According to SAK, Finnish industry is very competitive for five reasons:

• labour costs in relation to productivity in Finnish industry are said to be the third-lowest in the euro-zone countries (after Ireland and Italy);

• wages continue to be relatively low as Finnish gross annual earnings are the fourth-lowest in the 'old' EU 15;

• labour costs are only one measurement of competitiveness - it is also important to take into account that competence levels are high in Finland and the welfare state yields many positive effects on competitiveness, SAK argues;

• despite the fact that normal working time is not especially high in Finland, actual annual working time is, with Finland having the fourth-highest level in the OECD, and SAK claims that it is the latter that is more relevant in terms of competitiveness; and

• Finland was recently rated by the World Economic Forum as the most competitive country in the world for the third time in succession.

In order to understand competitiveness it is important to look at the levels of profitability of companies, according to commentators. Pekka Sauramo of the Labour Institute for Economic Research examined this issue in a survey published in November 2004, finding that the profitability of industrial firms increased substantially in Finland during the 1990s and was by 2001 second only to Ireland in the EU 15 and fourth in the EU 25. The measurement of profitability he used was a comparison of labour costs with value added by companies.

Commentary

The Finnish government has strongly committed itself to a tripartite framework for collective bargaining. An indication of this is that it has recommended that the social partners aim to concluded an unprecedented three-year agreement in the 2004 incomes policy negotiations. Moreover, the government has refused to decide on incomes tax cuts prior to the outcome of these negotiations. For this reason it is not surprising that Prime Minister Matti Vanhanen distanced himself from the collective bargaining proposals contained in the final report of the 'Finland in the global economy' project. The recommendations are highly controversial and making a commitment to them could also have meant serious loss of political support, as happened to the Centre Party (Suomen Keskusta) government of Esko Aho in the 1990s when it tried to push through a labour reform package that was quite similar in content to the recommendations of the recent project's final report.

The sector-specific dialogue that was held as part of the 'Finland in the global economy' project was a success in that the social partners in so many sectors were involved in it. Such dialogue is likely to continue, as many of the actors involved have expressed their satisfaction with the process. It seems, however, that in such a forum it is difficult to reach agreements over delicate matters. The proposals that the social partners made in their reports based on the dialogue were mostly aimed at reforming government policy, while the relations between labour and capital were hardly touched on.

When controversial subjects are debated, trade unions' and employers' organisations' positions are wide apart. This can be seen in recent months in the debate over labour costs. While EK insists that the rise in labour costs must be further constrained, many on the trade union side believe that too many concessions have already been made on this front. The share of labour costs in value added by companies reduced quite substantially in the 1990s following the recession early on in the decade. This was largely the result of unions committing themselves to wage restraint in order to increase the competitiveness of Finnish firms (FI0408202F). Further reducing the share of labour costs in a context of better economic circumstances is very hard for many unions to accept. (Aleksi Kuusisto, Labour Institute for Economic Research)