State Capitalism in Finland

By Risto E. J. Penttilä
Director of the Finnish Business and Policy Forum EVA

This article was published on NORDICUM 2/2008

Big lay-offs are always bad news. The news is even worse if the closed plant is the biggest employer in a remote corner of a country. The news becomes inflammable if the company behind the lay-offs is partially owned by the state.

Stora Enso, one of the world’s leading forestry companies, ignited a storm of protests when it recently announced a closure of a plant in Kemijärvi. Kemijärvi is situated above the Arctic Circle in northern Finland. The plant was the biggest employer in the region.

Why did the Finnish government allow this to happen? Why did it not use its 12 per cent stake (and 25 % voting rights) in the company to protect jobs?

The response of the Finnish Government was as simple as it was unpopular. Cabinet Minister responsible for “ownership steering” Mr Jyrki Häkämies essentially said that politics and business do not mix well. According to him, government cannot bring political considerations into a publicly listed company – even if the state owns a major part of the company in question. It must act like any other owner.

Critics thought this sounded like irresponsible laissez-faire capitalism. Supporters hailed the statement as a confirmation that Finland was not going to follow in the footsteps of the French, the Norwegians or the Russians – three countries where state capitalism has fared particularly well lately.

The Finnish government has a big portfolio of shares in publicly listed companies. It controls the majority of shares in 31 companies. Among them are Finnair (the national carrier), Fortum (a major energy company) and Neste Oil (an old oil company that has recently become one of the leaders in the bio-fuels industry). It has a significant ownership (between ten and fifty per cent) in 23 companies. They include Kemira (a chemical company), Telia Sonera (an operator) and Stora Enso. Contrary to Sweden, Finland has no active plans to divest from these companies.

Finland is presently led by a centre-right government. As such, the laissez-faire policy regarding state ownership in publicly listed companies does not astonish anyone. The surprising news is that the policy has remained the same since 1994. It has survived a coalition government led by a Social Democratic Prime Minister Mr Paavo Lipponen and another coalition government led by Centre Party. It is likely to survive the present centre-right government led by Mr Matti Vanhanen from the Centre Party.

Looking at state ownership alone, Finland may sound like a beacon of free-market capitalism. Yet, it is not. From the point of view of economic liberalism the country leaves many things to be desired. Taxes are high and the public sector is big.

The state may be an enlightened owner but the same is not true for Finnish municipalities. Helsinki, Turku, Tampere and other Finnish cities own hundreds of industrial and service companies. These companies do not pay taxes. Quite often they enjoy a privileged position as providers of municipal services.

Despite these drawbacks, the Finnish government deserves high marks for refusing to let political considerations enter into the corporate board room. Whether it has done enough to help those affected by recent closures in Kemijärvi and elsewhere is an entirely different question.