Time for decisions

By Paavo Lipponen
The writer is former Prime Minister and Speaker of Parliament of Finland.

This article was published on NORDICUM 2/2009

The global economic crisis is being tackled with concerted action by all the major players. The G20 meeting in London on 3 March 2009 gave an extra boost to our confidence about recovery in the near future. Concrete action must follow: all governments should stimulate their economies more, regulatory reform cannot wait and underestimating the problem of growing debt would be a serious mistake.

All these challenges can and should be dealt with in a credible way. Stimulating the economy by financial and monetary measures will lead to indebtedness, but deflation is an even bigger risk. Structural reforms are needed in parallel with the stimulus to make crisis policy a package.

We need to reduce future growth of public expenditure by further reforms in the pension system that would lead to higher real median retirement age. The parties in the ongoing tripartite negotiations – government, employers and employees – are all obliged to contribute to a successful conclusion.

The tax base must be defended at all costs. Across the board tax reductions do not make sense now, particularly if they are financed by new debt. The VAT-base is vital for future central government revenue. Any holes in it will mean raising the general VAT percentage, putting an extra burden on consumers, particularly those with a small income. Taxes on energy also have a tendency to raise the price of energy for consumers.

Only by increasing public sector productivity it is possible to defend public services in health and education. Both central and local government must finally make necessary reforms by cutting bureaucracy and overlapping structures. Where is the sense of urgency to get things moving? If the economic crisis deepens too much, public services face a collapse.

In times of economic crisis labor costs have traditionally been brought under control by so-called incomes policy agreements covering more or less all wage earners. Such an approach can be legitimately criticized for lack of flexibility, but the alternative approach, branch-wise negotiations, might result in another expensive round of wage settlements.

Now is the time to make new decisions to secure the future of our industry. It is a good and fresh idea to renew our industry to make it exploit the opportunities offered by the global prospect for a green economy. In fact, our industry is already reorienting itself into such a direction. What we need to understand, however, is the connection between traditional and green industries in Finland.

The role of Finland in the global economic division of labor has been to produce and export energy intensive products manufactured from domestic raw materials. Finland makes paper for 100 million, steel for 30 million people. These industries, heavy metal and paper, and others like our chemical industry, have investment plans that would dramatically raise the value of their production, while making it more energyefficient and more diversified.

Our paper industry constitutes a case in point. It is already investing in renewables like bioenergy power stations. Industry in general is committed to the goal, set to Finland by the EU, to raise the share of renewable energy to 38 per cent from end consumption by 2020. But for this, industry must have the resources to invest. If conditions for industry are made worse, we cannot expect enough investment in renewable energy and our global companies will move production to other continents.

Energy is key to both addressing the economic challenge of rising unemployment and the challenge of climate change. We need a longer than short term perspective for our economy by making the decisions that would encourage industry to invest in Finland. Not only energy intensive, but industry in general need both security of supply of domestic energy and the advantage of relatively low cost of energy, particularly electricity.

The ball is now squarely in the court of political decision makers. Nuclear power plants would give employment during construction, release new investment by industry, raise the degree of self-sufficiency in electricity and make a significant contribution to the reduction of CO2 emissions. The two nuclear reactors in Loviisa are to be closed by 2030, so that is the time frame we need to think about. Ideally, we would have six nuclear power plants left in 2030, plus thousands of megawatts of wind power capacity built by heavy industry.

Sustainable development means combining economic, social and environmental considerations. Green development, a low carbon economy, is possible without endangering jobs and the welfare state.