Productivity and competitiveness in Finland : Which factors affect competitiveness? Why do we need it?
Stenborg, Markku; Huovari, Janne; Kiema, Ilkka; Maliranta, Mika (2021-04-29)
Stenborg, Markku
Huovari, Janne
Kiema, Ilkka
Maliranta, Mika
Ministry of Finance
29.04.2021
Julkaisusarja:
Publications of the Ministry of Finance 2021:20Julkaisun pysyvä osoite on
http://urn.fi/URN:ISBN:978-952-367-485-1Tiivistelmä
The report sets out a wide-ranging examination of the factors affecting Finland's competitiveness and productivity. When debating the competitiveness of the economy, or of businesses generally or in a particular sector, it is important to be aware of what we actually mean by competitiveness. Above all, we need to distinguish between short-term and long-term competitiveness. In the short term, the variables are prices and costs, and so the focus is on cost-competitiveness. In the long term, other variables can also come into play, including various structural aspects of the economy. The decisive factor in long-term competitiveness is labour productivity. Structural competitiveness is primarily about the ability of the economy to raise productivity. Short-term cost competitiveness is all about bringing costs into line with the long-term potential. This means looking at whether the labor costs are in the right proportion to labour productivity.
Competitiveness will affect the export performance, in particular. In the short term, i.e., in a few years, it is cost-competitiveness that will affect exports. Structural competitiveness will help boost the productivity of businesses and their ability to export successfully.
In Finland, productivity grew very rapidly during the period between the early 1990s recession and the 2008 financial crisis, but in the years following the crisis it declined more than in peer countries. In 2015–2019, productivity growth in Finland was higher than in the other ‘old’ euro-area countries. A similar trend was evident in Finland’s export success, too. Besides the trend in competitiveness, there is another notable factor that has affected Finland’s export success and productivity: the fortunes of the electronics industry. First, the industry saw rapid productivity growth, but this was later followed by a powerful negative shock.
Competitiveness will affect the export performance, in particular. In the short term, i.e., in a few years, it is cost-competitiveness that will affect exports. Structural competitiveness will help boost the productivity of businesses and their ability to export successfully.
In Finland, productivity grew very rapidly during the period between the early 1990s recession and the 2008 financial crisis, but in the years following the crisis it declined more than in peer countries. In 2015–2019, productivity growth in Finland was higher than in the other ‘old’ euro-area countries. A similar trend was evident in Finland’s export success, too. Besides the trend in competitiveness, there is another notable factor that has affected Finland’s export success and productivity: the fortunes of the electronics industry. First, the industry saw rapid productivity growth, but this was later followed by a powerful negative shock.