Finland turns drawbacks into engines for economic growth

By most reckonings, Finland should be an economic disaster. The country is situated far from world markets, has freezing weather that often closes the ports, uses a strange language that resembles only Hungarian, and endured heavy war losses and postwar reparations to the Soviet Union. Instead, it is a shining economic success story.

Gone are the precarious days after World War II, when Westerners invented the epithet ``Finlandization'' to describe a state of suspended sovereignty, a country existing at the mercy of its large, powerful neighbor, the Soviet Union. The 5 million Finns were forced to cede 11 percent of their territory to Moscow, accept heavy war reparations, and sign a compromising Treaty of Friendship, Cooperation, and Mutual Assistance.

During the last decade, however, Finland has consistently grown faster than Western European countries. It now ranks as one of the world's richest countries in per capita income, above Britain and France. Unemployment is half the European average, between 5 and 6 percent, and inflation is below European norms, at about 3.4 percent. No wonder the Paris-based Organization for Economic Cooperation and Development calls Finland a model pupil.

``People now even tell us we're the Japan of Europe,'' notes Kari Puumanen of the Bank of Finland.

Ironically, some of this surprising success stems from close relations with the Soviet Union. Instead of acting as a drag on the economy, postwar reparations forced the country, which until then was rural and poor, to industrialize, and when the oil shocks hit the West in the 1970s, Soviet trade provided a buffer.

Finnish-Soviet commerce is run on a bilateral, barterlike clearinghouse basis. Finns buy oil from the Soviets in return for boats, textiles, and other industrial products. When the price of oil rose, the Russians bought more Finnish goods.

``It's a paradox,'' explains Arto Ojala, director of the Finnish Employers' Confederation. ``The oil shock hurt all the other consuming countries, but it helped us.''

This help should not be overstated. At its highest level, Finnish-Soviet trade amounted to only about 25 percent of total Finnish foreign commerce. When oil prices tumbled, Finnish-Soviet trade tumbled, because the Finns couldn't find any other Soviet products to buy. Some Finns feared a crisis. Instead, Finnish exports to the West have made up the difference.

``Our industry's capacity to adapt surprised me,'' says Mr. Puumanen at the Bank of Finland. ``Export volume in almost all areas, from the forest industry to electronics, is exceeding all expectations.''

Some examples are striking. Sweden scrapped its entire shipping industry; Finland's shipyards are still running full speed ahead. The secret: While Sweden and other industrialized countries concentrated on ordinary tankers and cargo ships, the Finns specialized in elegant ferry cruisers and highly advanced icebreakers.

In other fields, too, the Finns managed to find profitable niches. Instead of just cutting down trees and selling them, the Finnish forest industry cleverly used its expertise to become a world leader in sophisticated forest machinery. Finnish companies now equip many American paper mills.

The company Nokia perhaps provides the best illustration of Finnish industry's spreading tentacles. Created 122 years ago to produce paper, it took off after the war when it began to supply cables to pay back war reparations to the Soviets. At one point, half of its exports were going east.

No longer. In the last decade, Nokia has diversified into chemicals and, above all, electronics, which Nokia vice-president Timo Koski says now accounts for 60 percent of sales. To crack Western markets, Nokia specialized, becoming a world leader in mobile telephones, which it sells under the Tandy label in the United States. Mr. Koski says the Soviet market now accounts for only about 10 percent of all Nokia exports.

``Our future is in the West,'' Koski notes. ``Finnish industry is actively involved in all types of European cooperation ... the European Satellite association, and many others.''

What accounts for Finnish industry's impressive adaptability? Finnish and foreign observers agree that it lies in the extraordinary cohesion of Finland's citizens. Finns cultivated a strong national identity through centuries of living in a harsh climate threatened by a giant, aggressive neighbor. This is a small, homogeneous nation - almost alone among European countries, Finland has not accepted foreign guest workers - which puts the collectivity, the nation, above the individual.

Overall labor-management peace reigns despite periodic strikes. Because Finland never had an aristocracy and everybody started from about the same level of postwar poverty, the differences between rich and poor remain relatively small. No ghettos exist in Finnish cities; no mansions, either.

``We play together, so we are forced to work together,'' says Kari Tapiola of the Central Organization of Finnish Trade Unions. ``Compromise isn't a four-letter word.''

Consensus politics thrives in this atmosphere. Finnish governments are marked by broad-based coalitions, and the major parties of right and left hold few differences on essentials, both leaning toward the center. After last spring's parliamentary election, in fact, the leading right-wing Conservative Party and the leading left-wing Social Democrat Party formed the new government.

``In the US, I would be an East Coast Republican,'' explains Pertti Salolainen, the Conservative minister for foreign trade. ``Our system of consensus gives industry needed stability.''

It could not happen here, as in Britain or France, that a parliament decides by a narrow majority to nationalize an industry and then, after an election, decides by an equally narrow majority to denationalize it. In Finland, all major legislation requires a two-thirds majority, and structural change comes only after wide agreement.

As a result, Finland today is more capitalist than most countries in Western Europe. It never had the chance to develop a bloated public sector as in neighboring Sweden, and Finnish politicians and businessmen no longer seem attracted to the Swedish model of social democracy.

``We used to compare ourselves to Sweden,'' says Koski of Nokia. ``Now we prefer to use another comparison: Switzerland.''