Olli Rehn Interview: Conversations with History; Institute of International Studies, UC Berkeley

Finland and a Changing World: Conversation with Olli Rehn, Research Director, University of Finland; February 26, 2003, by Harry Kreisler

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Politics in Finnish Democracy

As somebody who had been in politics in your own country, and your own country is a small country, what are the challenges of making your constituents back home feel close to these new super-organizations like the Parliament or the Union itself?

It is a major challenge. There is a lot of Euro skepticism in Finland, like in other Nordic countries. And, for instance, my political constituencies are very multi-dimensional, because the Center Party is a catchall party. Just to illustrate the fact, on the one hand there are farmers who are worried about common agricultural policy and how it will deal with the Finnish farmers; while on the other hand, there are [people like] my cousins and others who work for Nokia as engineers, who are naturally part of the European market and have considered membership in the European Union as very beneficial for Finland, thanks to the opportunities for its exporting industry. So you have to pay attention to these different constituencies, but at the same time, try to keep in mind that you should work for the best of your country, and for that matter, for Europe as well.

Let's talk a little now about your political career. Back in Finland you were a leader of your party. You've told us a little about the party. What positions did you hold as you worked your way up the Finnish system? You were a member of Parliament, correct?

That is correct, yes. I was actually a deputy leader of my party, elected to that position in 1988. I think the Center Party of Finland has the third-biggest party congress in the world, after the Chinese Communist Party and the Democratic Party of the United States, [It is a] national congress of 4,000 people. That is, a direct vote of rank and file, and you get together in an ice rink.

In Finland, just the Finland party?

Yes, that's right, in an ice-hockey rink. You get 4,000 people there and you have a party day for one week and then on Saturday evening, you have the "Long Knives" night. And the next morning, you vote for the party leadership. So I held a post of deputy leader over the party for six years. I lost it, mainly because of my pro-European credentials, because the Euro-skeptic swing inside the party was quite strong in the middle of the 1990s.

I was elected in the Finnish Parliament in 1991 from Helsinki, the Finnish capital, and I continued from the Finnish Parliament to the European Parliament and stayed until the end of 1996. And then I had a short stay at the University of Helsinki before entering the service in the Commission for four years in 1998.

Let's talk a little about politics in your country as you adjust to these great changes in the world. There are a number of things that we can discuss. One of the first things is this amazing transformation of Finland in turning a company like Nokia from what was primarily a forestry products company, a diversified company, and not the diversified technological company that [today] is up there with Microsoft, the name coming out of the mouth of every technologically savvy young person in the world.

So here you are a political leader in your country, involved in various ways in navigating these processes within Finland to make this leap. What accounts for Finland's success and the role that democratic politics played in that?

I think in many ways, it was crucial that in the 1970s and 1980s the country was able to foster a strong national consensus behind a strong pro-active technology policy, an innovation policy. Meaning that exactly twenty years ago, the technology committee was set up by the government, which decided that Finland would invest very strongly in research and development. All the governments since then have stuck to that position, which has meant that Finland has risen enormously in the statistics of research and development, first, thanks to the public sector investment, which then paved the way for the private sector investment, which in many ways is behind the story of Nokia, which, as you said, used to produce rubber boots and paper and pulp, while it is now producing wireless mobile communications.

So that is one factor, and that has certainly played a key role. But at the same time, one has to recall that Finland is a very dualistic society in the sense that the country has a very strong technology sector, the highest proportion of engineers among the university students, while at the same time it has a rather underdeveloped service sector compared to other European countries, and a rather rigid labor market. These factors, together, mean that Finland has an unemployment [rate] of almost 10 percent for the moment. So what looks nice and thriving from the outside doesn't always mean that from inside it is as excellent as it might look. Meaning that Finland has serious structural problems, and it is a bit like Europe in microcosm, or Germany in microcosm. Finland requires structural economic reforms and a revival of entrepreneurship to thrive in the current century.

How does the Finnish political leadership, the Executive, the Parliament, sort this out and push the country in a direction that not only continues to benefit technologically, but actually creates a spillover for the rest of the society?

That is a good question, and you have to recall that I'm a member of the party that is currently in the opposition.

I see. So it's not happening.

It's just for "consumer protection" to mention this.

I think Finland, like many other European countries, suffers from a situation where there are no clear policy alternatives. All the parties are too similar to each other, and the power of the media is pushing them more and more to please the immediate needs of the political consumers. There is not enough courage to stand bold for your principles and say that we should reform the Finnish labor market, for instance, or that we should pave the way for more entrepreneurial society.

Let's say Finland attempted to do that. What are the policies that would need to be put in place to do something about the rigidities of the labor market? And what is the opposition to that?

I'm a comparative political economist by training, and there are at least two good cases in Europe that have been able to do that; that is to say, the Netherlands and Denmark. They are not without problems, either. But both have been able to reduce unemployment from around 15 percent in the mid-1980s to 3 or 4 percent in a rather permanent way. They've done it by improving the flexibility in the labor market and increasing part-time work. These measures are not very popular among the trade unions, which are rather strong in the Nordic countries. The main opposition comes from the labor unions. Nonetheless, it would be better for the Finnish society and for Finnish employees, Finnish workers, than letting people stand in the door and face a rigid unemployment of 12 to 13 percent.

Does your link to the European Union -- the fact that you served inside of the European Union and moved out and came back to your own country -- help in [bringing about] the political education required to make the changes?

It does, to some extent. But the European Union doesn't have powers, doesn't have competencies, and, perhaps, shouldn't have competencies in the field of social policy and labor market issues. Its power is mainly soft power or intellectual power, a bit like the OECD in the industrial developed economies.

But you're able to bring those ideas of overcoming labor rigidities, for example, to Finland to help shake things up, not in the command sense, but in an educational sense?

Yes, I think I have been able to do that. It doesn't mean that these ideas would be accepted in the political debate that easily. There is always opposition to major changes, and that's what we are facing now in Finland. As I said before, in this regard Finland is a rather representative case of "Old Europe," unfortunately. The whole Europe requires more dynamism and entrepreneurialism to succeed in the knowledge-driven economy in the future.

Give us an example of what a change toward entrepreneurialism in Finland would look like. What are some of the obstacles?

Finland has a lot of sound fundamentals in place. It is one of the most advanced information societies, which means that it has a good infrastructure for the future digital economy information society. But at the same time, it seems that there are lots of bureaucratic hurdles to start a business. First of all, our businesses take too long to set up, and our processes for doing this are too cumbersome. Secondly, the indirect labor costs are very heavy, thanks to high unemployment, which is financed by these indirect labor costs. So what I would do is, I would focus the tax deductions, especially in order to encourage entrepreneurship and encourage employment of people, which then would also ease the burden for the welfare state which, indeed, is financed by taxes and indirect labor costs.

Next page: Navigating Change in Domestic Politics

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