Large spending in the social sector pays off in Finland

Garimella Subramaniam, The Hindu, 16 March 2006

No corruption in public institutions, says Prime Minister Matti Vanhanen

CHENNAI: Finland is the global leader in competitiveness for the fourth time in the past five years, ahead of the United States and other industrial giants of Europe, according to the World Economic Forum

Ranking. It invests heavily in basic education and social welfare, says Prime Minister Matti Vanhanen.

In an interview to The Hindu here, he said Finland's continued success in achieving a combination of fiscal prudence, high quality public institutions and technological innovation owed it to the large spending in the social sector.

"In addition to well-functioning public institutions which are marked by the absence of corruption, we invest substantially in the basic education of our people. The expenditure on education and social welfare also means that people have to be paid high salaries," Mr. Vanhanen said.

"Finland cannot compete with countries such as India in terms of wages. So we necessarily have to fall back upon technological innovation, provision of education, welfare and clean and transparent administration. I don't think the Nordic model can be viable if we sacrifice any of these components. It also means that we have to continuously innovate and create new jobs because of loss of jobs in manufacturing due to globalisation."

Labour migration

Explaining his Government's recent announcement that it would allow people from eight of the 10 new member-states of the European Union to work in Finland, Mr. Vanhanen said the move to open the doors after two years of EU expansion was the decision of Parliament as part of a compromise with trade unions. "We are now confident that we won't face serious problems on account of immigrant labour."

Denying that it was a recent European Commission report highlighting the benefits of labour inflow from the East that prompted the decision, he said it was based on an independent assessment by the country's trade unions and employers' organisations. It was true that Britain, Ireland and Sweden opened their doors to labour from the new member-states right from the beginning of the 2004 EU enlargement. But the member-countries were free to review the transition period (leading to full freedom of labour movement), which was allowed for a maximum of seven years.

European Constitution

Talking about the European Constitution, in limbo following the Dutch and French rejection last year, Mr. Vanhanen, who will chair the EU Council from July to December 2006 as Finland assumes the six-monthly rotating presidency, said progress on its ratification might not be possible till the general elections in the two countries. The Prime Minister, who was involved in the negotiations on the treaty, said the Constitution that was framed when the EU had only 15 member-states might need changes. "We need new rules now because we have enlarged and we will have more new members in the future."

Against NATO membership

Asked whether the success of European integration would determine the extent to which Finland could resist pressures to join the North Atlantic Treaty Organisation (NATO), Mr. Vanhanen noted that his country, a traditionally non-aligned state, had to take independent responsibility for its own security. "There is a large unanimity both within and outside Parliament against NATO membership. There was only one candidate (who secured just one per cent of the vote in the recent presidential election) who advocated membership of NATO. Support for NATO membership was only one-fifth even in the opinion polls."