Inequalities increase, profits grow, poverty increase… Is it unavoidable? Conservatives consider that it is necessary for our societies to progress, but there is no absolute evidence. Look at this paper written by the finnish researchers Markus Jäntti (Åbo Akademi University, Turku and WIDER, Helsinki), Juho Saari (University of Turku) and Juhana Vartiainen (Trade Union Institute for Economic Research, Stockholm) in November 2005: equity has supported the finnish growth, or at least has not prevented it.

Abstract

This paper reviews Finnish economic history during the “long” 20th century with a special emphasis on policies for equity and growth. We argue that Finland developed from a poor, vulnerable and conflict-prone country to a modern economy in part through policies geared at both growth and equity, such as land reform and compulsory schooling. The state participated in economic activity both indirectly and directly in the post-war period, implementing many social policy reforms that facilitated the functioning of the labour market and led to greater equity. Centralised collective bargaining was just one of the many means through which central government intervened in the economy. Both the long-run growth record and the equality of different kinds of economic outcomes are fairly positive. This suggests that facilitating economic growth through such policies that further more equitable outcomes may at least in the case of Finland have met with some success.

Concluding comments

We have shown that, rather than being a historically low-conflict society with a high degree of equity, Finland’s socio-economic history of the “long” 20th century is characterised by large socioeconomic shocks and initially high inequality. We argue that by managing both social conflicts and social risks, Finland has been able to attain a high rate of economic growth while it has arrived at outcomes that are, in the main, highly equitable in international comparison.
Finland started out the long 20th century as a poor country that was highly vulnerable to shocks such as the great famine of the 1860s. Relative ethnic homogeneity did not stop the country from descending into a bloody civil war in 1918. However, speedy land, education and tax reforms and a strong external threat induced cohesive national policies in the 1920s and 1930s. After World Way II, the State played a powerful indirect and direct role in the economy, pacifying the trade unions and employers’ organisations and investing heavily in the manufacturing industries. Centralised wage bargaining in the late 1960s coupled with several social policy reforms intended to reduce various social risks were the means chosen later for the management of growth that resulted also in fairly equal outcomes.
With hindsight, we argue that the pro-growth policies chosen in Finland have contributed not only to growth but also to equity. The extent to which the increase in equitable outcomes was a conscious goal is debatable. Some policies undoubtedly had a strong equity motivation, apparent even at the time they were made. E.g. the separate taxation of married couples was explicitly motivated on grounds of equity. An even more prominent example is land reform. In part, however, the more equitable outcomes may have been unintended consequences of efforts to solve some difficult conflict. The fact that in the late 19th and for much of the 20th century, socialism and communism were perceived of as strong threats to bourgeois society, as well as Finland’s vulnerable geopolitical position, probably played a strong role.
It is futile to ask if the Finnish development experience can be replicated. The initial conditions facing Finland were unique. Also and importantly, many of the growth policies that were implemented were shaped in an economic order that no longer exists, with limited capital mobility, (globally) undeveloped capital markets and international economic cooperation highly regulated. All the same, the Finnish case does attest to the possibility of achieving economic development in part through policy choices that promote both economic growth and economic equity.

The full report