In my previous text I wrote about the desperate desire of influential Finns to see role models in other countries. This time I will write about the bind the political system is in and why the problem goes far deeper than the current conflict between the government and unions.
I proposed some policy solutions in the last text. They are crude and only hypothetical. In the current atmosphere they surely are difficult to imagine because no one is capable of thinking about politics and policy in a positive manner in a way that is not merely benefiting one side of the conflict. For me this is easier because I’m neither Finnish nor part of a party. I suspect that makes it also easier to see the bind itself.
Changing the fortunes for the better demands an environment that allows such thoughts in the first place. But as I have said before, pessimism and doomsday fears are so pervasive and the ideology of the right so dominant that it is currently impossible to formulate alternative ideas, let alone get them implemented. Since the problems are intellectual and psychological, first we’d need a change in the political atmosphere but that, in turn, is just a consequence of far bigger problems.
In the current year Finland finds itself in a negative downward spiral. The conservative side, despite being in charge for almost the entire time since 2003, imagines living in a world in which the left side and unions are conspiring against economic growth and everything they propose is not to build something better but to prevent the complete collapse of the country’s economy. Despite the saviour idea at its heart, it is a profoundly pessimistic political movement that only offers lower living standards. The left side, contrary to the perception of their enemies, is paralyzed, uncreative and politically weak. Only the unions are trying to use their remaining but fading raw economic power to preserve the status quo that has become untenable at the latest in 2012 when Finnish manufacturing and the birthrate collapsed and the baby boomers began to mass retire. It is a zero-sum conflict ripe with rent-seeking. The confrontation of a right driven by apocalyptic visions of the future and a zombified left yearning for a past that will never come back is culminating in the current conflict between the government and unions with the small left opposition in the parliament playing only a secondary role.
Even if someone managed to facilitate a compromise, the current political conflict is only a ripple on the surface and the confrontation between left and right only the currents directly underneath the surface. To see the truly relevant problem we need to dive even deeper.
The historian Carroll Quigley is famous for his cyclical model of civilizations. According to him, civilizations go through periods of growth and decline. I find it very useful to apply his thinking to Finland (and Europe if not the entire Western civilization) to understand what is going on. The first observation one has to make to make sense of our current problems is that Finland is in decline. Not just since yesterday but since 2008 or perhaps even since the 1990s when the economy crashed and a century-long phase of industry-driven growth came to an end. Despite impressive growth of high-tech industries and service sectors in the late 1990s and 2000s, unemployment never reached anything like the 1980s levels and company formation never matched the immediate post-war decades and a sizable part of the population stopped benefiting from economic growth. Finland was a latecomer to industry and wealth and powered through the year 1973 that marked a turning point for other European nations and after which they started to deindustrialize and could only continue to grow with rising inequality and more debt. For Finland the music stopped in 1991 and then again in 2008.
Two of Quigley’s concepts are very important here. The first is the instrument of expansion. Finland’s instrument of expansion was, like elsewhere, industrial capitalism. Industrial capitalism means running both public and private bureaucracies at scale and in conjunction; ideally for a productive purpose. Surpluses are generated and reinvested to generate more surplus..
Today, Finland has no instrument of expansion anymore. The old one - a hybrid model where entrepreneurs and the state as a large owner of heavy industry coexisted and worked together - broke down in the 1990s. Most state-owned enterprises were restructured into profit-seeking stock companies and listed at the stock exchange and entrepreneurship fell out of fashion. The growth of Nokia and the electronics industry generated growth once more for a decade or so but ultimately Finland just coasted on the waves created during the early inter-war and post-war periods. There are no industrialists anymore, only the heirs of grandpa’s business empire putting their money into financial shenanigans, media and entertainment and NGOs.
Today Finland is governed by public and private middle management types who are one the one hand unable to reform the system and on the other hand extractive. They can’t build industries like their predecessors did and they are not even able to maintain the things their predecessors have built (see for example failing schools and healthcare, crumbling infrastructure). But they are very good at directing more resources to themselves, the surest sign of a society in decline.
The second concept is the two types of growth, extensive and intensive. We are trying but failing to engineer the former but what we want, and what Finland used to enjoy, is the latter. That’s the win-win type of growth. Quigley simplifies it like this: applying organization (O) to resources (R) yields goods (G). The goods can be increased in two ways: by applying more effective organization to the same or even smaller amount of resources (that is intensive growth) or by the same or worse organization to an increased amount of resources (that is extensive growth). Intensive growth tends to turn into extensive growth and if this shift occurs, a civilization passes from the age of expansion into the stage of conflict or general crisis. It is obvious where we are today.
The political churn
The current confrontation is essentially about the desire of Finnish businesses to produce growth by driving down wages and other benefits to be able to offer cheaper goods for export. They seek to apply the same organization to a higher amount of cheap labour (all the while the labour force is shrinking). This is not the win-win anymore that has characterized Finnish growth for at least a century. There are clear winners and clear losers and ample reason for the losing side to try to preserve the status quo. But the status quo has become untenable, too, and no one has yet ideated and implemented an alternative. Industrial capitalism is no instrument of expansion anymore.
The fifteen lost years and the collision of reality with the identity of the Nordic Tiger that is envied and admired has had profound effects on the Finnish psyche and the Finnish political system. A Finnish government used to be created by two centrist parties with different ideologies teaming up and adding a few of the smaller parties to the mix. The result was boring compromise and consensus governance. But we now have the second non-compromise government in three election cycles. The first was the Juha Sipilä government (2015-2019 of the agrarian Centre, the bourgeois NCP and the right-wing PS) and the second the incumbent Petteri Orpo government (NCP, PS, Christian Democrats, Swedish People’s Party). Both are business-friendly, very concerned about government debt and at odds with the current political economy of a welfare state with high taxes and strong unions. The priorities vary among the coalition partners but they all matter to them.
Two such governments in such a short time could point towards a future where the consensus-model is no more and is replaced with a bloc system more common in other countries. And importantly, there is currently no mirror image of such a government. The right side had a majority in parliament for several elections in a row. In the 2023 elections the SDP, the Greens and Left Alliance didn’t even win 70 out of 200 seats and the agrarian Centre, which had enabled the Rinne/Marin governments (2019-2023) suffered a second crushing defeat and is getting replaced by PS as one of the big three parties around which a coalition is built. It is very obvious that the Finnish electorate hasn’t been interested in a left alternative in a while.
The right is convinced that the way forward is a Finnish version of Thatcherism and the left can neither ideate alternatives nor mobilize voters which is why they don’t know what to do if they, by chance and a hair’s breadth, win power like in 2019. There is no political balance anymore that has been so fruitful until the late 20th century. It remains to be seen whether the current government is able to break out of the stagnation. I doubt it since, as I said earlier, they are pessimistic and offer only lower living standards. The elites of a country must want their people to do well if the country is to thrive. Currently they only have pain to offer.
Ideally, a small periphery nation like Finland has an economic elite that is hardcore capitalist in the bureaucratic management of corporations but patriotic at crucial junctures to prioritize their country over shareholders. They constantly develop their business, generate surpluses, and do their best to reinvest them in their country and thus you get intensive growth. But today Finland’s economic elite is taking the whole shareholder value idea too seriously. They think their country has to earn their favour first and if it doesn’t they are ready to punish it for the insolence, creating a negative downward spiral. They want workers to earn less, not more which means a lower living standard which is bad for companies and entrepreneurs who serve the domestic market. One result is that multinational companies do very well while the country is stagnating.
Instrument of contraction
It is important to remember that Finland isn’t alone although it is one of the worst affected. A lack of dynamism is visible everywhere in Europe. Even Finland’s favourite yardstick Sweden has not had exceptionally great growth figures, same goes for Germany. The poorer nations like Estonia keep growing and catching up but that is much easier to do when poorer and it remains to be seen whether they can generate growth in the future. Even in the US things are not as rosy as they seem and the much discussed reindustrialization is hampered by a lack of industrial expertise that industry requires. The US and UK have been the poster children of finance and service sector capitalism for decades, a path that many in Finland followed when they shrugged at the collapse of manufacturing and instead celebrated food delivery apps and mobile games instead. Japan has been stuck in a swamp of deflation, demographic collapse and lost competitiveness in various sectors for decades and cars might be next. South Korea has become so hostile to life and joy in the pursuit of economic growth that it is almost comical. It has done so well in the economic and technological game that it is killing itself.
I am agnostic on China’s future and I refuse to partake in the conflict with the US. What matters to me and should matter to you is that China demonstrates things that have fallen out of fashion in the West and that I have never seen discussed in Finland when people discuss economic development: process knowledge, organization and hard tech (or making physical goods). Westerners are telling themselves all kinds of stories and myths like that they got rich from free trade or the misguided belief that we are living in a post-industrial society or that China is only stealing IP but the things I listed above are never part of the story even though they are the key reason. China still understands that these things are the key to growth. Where their story ends I don’t know. But what I know is that, at least as much as we can tell from the outside, industrial capitalism is still an instrument of expansion in China.
Industrial capitalism that revolves around rent extraction instead of reinvesting the surpluses and pushing the technological frontier is no instrument of expansion. It will struggle to generate even extensive growth. And a society that does not put living a good life and procreation first is one that will wither away and die. Our recent ancestors worked very hard but despite this they had children and lived a good life. We are living in a world where both are becoming increasingly impossible. Recognizing that we are declining, not just in terms of gross domestic product or population but in its entirety, is the first step to a better future.
Announcement: This text is most likely the last one I will publish on this website since I’m planning to move to Substack. I will experiment a bit with Substack first and unless I dislike it, I will take this site offline soon. Thank you for reading my texts here and I hope that you will follow me to the other side. Please subscribe!