In the past, the tiny Nordic country of 5.5 million people was seen as a bastion of stability, unity and neutrality; a sort of frosty Santa Claus-land. Today, only the cold weather remains.
In January, nine candidates ran for the Finnish presidency. The conservative former Prime Minister Alexander Stubb (55) led the first round with 27% of the votes, while Pekka Haavisto (65), Finland’s top diplomat in 2019-2023, took second place with 26%. On Sunday, the final race was between the two with Stubb dominating (54%) and Haavisto as second (46%) in the polls.
A Green League politician, Haavisto battled twice for the presidency against conservative Sauli Niinistö. Despite failures, his broad-based support has steadily increased, particularly among Finnish youth and women. Openly gay, the Finnish top diplomat has represented the UN in multiple tasks since 1999 and many hot spots. Seen as consensus-seeking and very knowledgeable, he enjoys great regard across the Finns.
Haavisto is likely to garner significant support from the Social-Democrats and the Left Alliance, and some from the Center Party. But to win, he’d need more. As the country has shifted toward far-right, his constituencies aren’t as powerful as those behind Stubb. The star of the Conservative Party (KOK) has risen fast since 2008 with various ministerial posts and as prime minister in 2014; until his controversial conservative policies cut to his popularity. After stints in EU offices, he made a comeback in the presidential race. But his track record has holes: repeated allegations of favoritism, disconcerting gaffes, allegations of personal promotion and the conservatives’ secretive NATO process (see https://worldfinancialreview.com/making-or-breaking-finlands-future-a-behind-the-facade-look-at-finland-after-the-2024-election/)
As the tensions in Finland, today a “NATO member,” and its borders are rising, Stubb has sold his neoliberal structural reforms and himself as a “NATO president,” who will allow nuclear weapons in Finnish territory in the name of “security.” Though selling himself as a “unifying force,” he, his party and its cooperation with the far-right has divided the country dramatically.
Most far-right government since 1945
When the Economist asked, “which economy did the best in 2023,” Finland ranked at the very end of the 35-country comparison. S&P Global Ratings has applauded Finland’s “energy diversification away from Russia,” but it expects economic activity in Finland to be “broadly flat” and not pick up until 2026.
Led by Prime Minister Petteri Orpo, the cabinet is dominated by conservatives and far-right Finns, coupled by the small Swedish and Christian-Democrat parties. Soon as it started its work, political turmoil ensued. At first, the far-right minister of economic affairs Vilhelm Junnila got caught for statements proposing “climate abortions” in “underdeveloped Africa.” He was replaced by the far-right Wille Rydman, who was amid a sexual harassment scandal and had texted racist messages about Arabs as “desert monkeys” and Jewish names as “kike things” that “we Nazis don’t really like.”
Things got worse last summer when media discovered that the far-right Ministers Mari Rantanen (Interior), Leena Meri (Justice), Ville Tavio (Foreign Trade) and Riikka Purra (Finance and PM deputy) had suggested in the Parliament and social media for years that ethnic Finns are being demographically replaced by “dark Muslims” through large-scale immigration.
The racist debacle was deeply embarrassing to most Finns, including many conservatives. But the latter need the far-right to govern. By fall 2023, foreign minister Elina Valtonen, a conservative whose campaign finance features the big donors who also fund Stubb, acknowledged that the Nordic country’s “EU partners have been equally concerned for Finland’s economic growth as they have been of its racism debacles.”
But there was worse ahead.
Labor turmoil, economic erosion
As the cabinet was struggling for credibility and struggling to contain realities, its supporters shrank to barely 24% of Finns and mass strikes ensued. Workers protested against government plans to reject centralized work accords, limit the right to strike and cut unemployment benefits. After Christmas truce, some 290,000 Finnish workers – every eight-adult employee – began two days of strike action against the cabinet’s proposed labor reforms and planned cuts to social welfare. Instead of talks for reconciliation, government ministers called the unions “mafia” – as in Finland’s dark 1930s.
Meanwhile, Stubb’s campaign shrewdly distanced him from the policies of Orpo’s Cabinet, which was only implementing what he himself demanded in 2015: “Structural reforms, structural reforms and more structural reforms.”
Prior to the 2008 financial crisis and the subsequent debt crises, Finland’s competitiveness and innovation was still world-class. Nokia benefited hugely from Finland’s political neutrality and strong position in the fastest-growing emerging economies. Unlike all its rivals, it made over 99% of its revenues outside the home base.
Today, Finland is no longer among the top-10 most competitive economies. Innovation expenditures have been penalized. Nokia was undermined by an ex-Microsoft executive and restructuring that effectively dismantled the company, with Microsoft eventually buying the leftovers. At the same time, Finland’s trade surpluses morphed to deficits.
The expected strong post-Covid recovery has faltered in Finland, due to longstanding structural challenges, compounded by the spillovers from Russia’s invasion of Ukraine. Higher energy prices have passed through to core prices, sustaining inflation. While wage growth remained moderate, public-sector pressures resulted in waves of strikes.
The economic landscape is dire reflecting aging population and low productivity growth. Moreover, the steadily-widening fiscal deficit is likely to put public debt on a riskier path. The adverse trends are aggravated by higher “security-related” spending (read: increasing military expenditures), due to the NATO membership, that are likely to persist in the medium term.
A decade ago, Finland was dependent on Russia, which accounted for 18% of imports and 10% of exports. Today, one dependency has been replaced with another. As Russian imports have plunged and exports to Russia have been decimated, imports from US have increased by some 50% and exports to US by 30% in relative terms.
Soaring military expenditure
The military dependency on the U.S. is likely to rise. Finland’s 2024 budget puts defense spending at about €6.2 billion (U.S. $6.6 billion); a nearly 5% rise from 2023. In the past, the country restocked ICT exports; now it’s focusing on arms restocking and security on the Russian border, which used to be relatively quiet before the NATO membership.
The dependency on the U.S. is rapidly growing through progressive militarization. During the Cold War, Finland tried to balance its aircraft purchases between east, west and domestic producers. The U.S. ties originate from the 1990s with costly purchases of US F/A-18C/D Hornets by McDonnell Douglas. Finland’s F-35 program began in 2021 when it ordered 64 F-35A fighter jets from Lockheed Martin.
The deal is Finland’s biggest-ever. It was deemed “necessary,” despite mounting U.S. and international criticism for the unprecedented size, complexity, ballooning costs, and delayed deliveries of the F-35 program. Finland spent about $3.9 billion on defense in 2020. In just three years, the figure has climbed by nearly 70%.
The problem is that while the expenditures soar, revenues linger. Finnish GDP grew by 0.1% in 2023 and is expected to increase by 0.8% in 2024.
Untenable status quo
In the 2024 election, Haavisto built on democracy, green values and ordinary people; Stubb relied on his elite ties and the far-right tide. Haavisto represented the future; Stubb, the past but with big money and big media.
With its aging population and slowing growth, Finland should invest increasingly on social security, welfare services, economic growth and innovation, and sustainability. Internationally, the country should focus on broad-based cooperation, particularly with the Global South to benefit from its secular economic potential.
Yet, the NATO membership will require increasing militarization for years to come. And internationally, that compels the country to remain more euro-centric and perhaps even distance from some large emerging economies, due to geopolitics. At the same time, welfare state is under fire by the far-right government, while Income and wealth polarization is broadening.
Something has got to go.
Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/
Full disclosure: In the past, Dr Steinbock has addressed, advised and consulted all major Finnish multinationals, government agencies, parliamentary committees, financial institutions, and competitiveness and innovation organizations
The original, full version was published by The World Financial Review on February 8, 2024. See https://worldfinancialreview.com/making-or-breaking-finlands-future-a-behind-the-facade-look-at-finland-after-the-2024-election/
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