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Finland turns drawbacks into engines for economic growth

By William EchiksonStaff writer of The Christian Science Monitor / September 18, 1987


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.

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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.