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1947-1981 - Economic Developments

The end of World War II found Finland in a thoroughly weakened state economically. In addition to its human and physical losses, Finland had to deal with more than 400,000 refugees from the territories seized by the Soviets. In an attempt to resolve the refugee problem through a program of resettlement, the parliament adopted the Land Act of 1945. Through the program thus established, the state bought up farmland through compulsory purchases and redistributed it to refugees and to ex-servicemen, creating in the process 142,000 new holdings. Finland's large class of independent farmers was thereby expanded considerably. Although many of the resulting holdings were too small to be economically viable, they speeded the integration of the refugees into the social and economic fabric of the country.

Reparations were another burden for Finland. From the failure of the reparations demands imposed by the Treaty of Versailles, the Soviets had drawn the lesson that, to be effective, reparations should take the form of deliveries of goods in kind, rather than of financial payments. As a result, the Finns were obligated to make deliveries of products, mainly machine goods, cable products, merchant ships, paper, wood pulp, and other wood products. About one-third of the goods included as reparations came from Finland's traditionally strong forest industries, and the remainder came from the shipbuilding and the metallurgical industries, which were as yet only partially developed in Finland. The reparations paid from 1944 to 1952 amounted to an annual average of more than 2 percent of Finland's gross national product (GNP).

The reparations were delivered according to a strict schedule, with penalties for late shipments. As the earnestness of the Finns in complying with the Soviet demands became apparent, the Soviets relented somewhat by extending the payment deadline from 1950 to 1952, but they still prevented Finland from participating in the Marshall Plan (European Recovery Program). The United States played an important role, nonetheless, by mediating the extension of financial credits of more than US$100 million from its Export- Import Bank to help Finland rebuild its economy and meet its reparations obligations punctually.

The Finns turned adversity into advantage by using the industrial capacities created to meet the reparations obligations as the basis for thriving export trades in those products. As a result, Finland's industrial base acquired greater balance than before, between, on the one hand, Finland's traditional industries of lumber, wood pulp, and paper products, and on the other hand, the relatively new industries of shipbuilding and machine production. Finland's growing integration into the world economy was demonstrated by its joining the General Agreement on Tariffs and Trade (GATT) in 1949.

Finland's economy underwent a major transformation in the 1950s and the 1960s, shifting from a predominantly agrarian economy to an increasingly industrial one. The number of workers engaged in agriculture and forestry dropped from about 50 percent to about 25 percent, and the decline of this traditionally dominant sector of the economy continued into the late 1980s. After the Soviet reparations were paid off in 1952, Soviet-Finnish trade did not decline, but rather it increased. In 1947 the Treaty of Paris had been followed by a Finnish-Soviet commercial treaty that provided the framework for expanded trade between the two countries. The Five-Year Framework Agreement of 1951, which has been renewed repeatedly, established this trade on a highly regulated basis. To a large extent, the trade consisted of Finland's selling machine goods to the Soviets in exchange for crude oil. Finland benefited from the arrangement because Finnish products sold well in the Soviet market, which could be counted on regardless of fluctuations in the Western economic system. Increased trade between the two countries also strengthened the political relationship between them.

Throughout the postwar period, the Soviet Union was Finland's single most important trading partner, generally accounting for 20 percent to 25 percent of Finland's total imports and exports. Nevertheless, Finland's goal was to create a balanced trade system embracing both East and West, and more than 70 percent of Finland's trade has been with noncommunist states. Finland's main trading partners, after the Soviet Union, have been Sweden, Britain, the Federal Republic of Germany (West Germany), and the United States, in order of importance. This trade has consisted mainly of the export of timber, pulp, and paper products in exchange for other countries' manufactures, technology, and raw materials for Finland's various industries.

In maintaining good economic ties with these countries, Finland had to overcome persistent Soviet suspicions; however, Finland was allowed to join the European Free Trade Association (EFTA) as an associate member in 1961 in the so-called FINEFTA agreement. The members of EFTA, including Finland, signed free-trade agreements with the European Economic Community (EEC) in 1973. Finland placated the Soviets for these initiatives by signing a trade agreement in 1973 with the Council for Mutual Economic Assistance (CMEA, CEMA, or Comecon), the Soviets' organization for trade and cooperation with its East European allies. Nevertheless, through the trading arrangements with EFTA and the EEC, Finland gained greater economic independence from the Soviet Union.

The economic growth that Finland has experienced in this century has laid the foundation for its social welfare state. The benefits of economic prosperity have been spread around to the population as a whole, with the result that the Finns have enjoyed a level of material security unsurpassed in their history. Conceived not as a whole, but as a series of responses to specific needs, the social welfare system has become strongly rooted. Among its main components are several forms of social insurance: allowances for mothers and children, aimed at encouraging people to have children; pensions; and national health insurance. By 1977 social welfare expenditures accounted for over 20 percent of GDP. The general effect of these measures has been to raise the standard of living of the average Finn and to remove the sources of discontent caused by material want.