Björn Wahlroos – a portrait of a capitalist
By Ilkka Ahtiainen and Antti Blåfield
The past week has been a very pleasant one from the point of view of Björn Wahlroos. On Tuesday came massive dividends worth more than EUR 14 million, which Wahlroos raked up last year as a major owner of Sampo bank. Last Sunday Sauli Niinistö, a man very much to Wahlroos’s liking, was elected the 12th President of the Republic of Finland.
In Wahlroos’s view, the important aspect of the election outcome is that the confrontation that has prevailed in the two terms of Tarja Halonen is now over. “During Halonen’s term the institution of the presidency has suffered. I’m not saying that she would have been an inappropriate president, but rather that her political line and her attitude have differed from the will of the people, as expressed in Parliamentary elections.”
“There has been something clearly contradictory with Mrs. Halonen. She has been isolated, which has been reflected in her modest participation in political debate.”
“Isolation from political debate has led to a situation in which she has surrounded herself mainly with a ‘court’ comprising cultural figures and the ‘cultured elite’, which has consequently had a disproportionate influence on public debate.”
Björn Wahlroos, meanwhile, has surrounded himself with works from Finland’s golden age of art. His office in the main building of Sampo contains a television screen with financial news coming in, plaques marking various corporate arrangements, personal photographs, and the portrait of Gustaf Mauritz Armfelt, as well as paintings by Finnish artist Helene Schjerfbeck and the Russian artist Vladimir Makovski.
The Russian work is not an expensive masterpiece of the golden age, but it has another kind of value. It is one of Wahlroos’s first art acquisitions after he set up the Mandatum investment bank. The painting has followed him all the way from Mandatum to the insurance and investment company Sampo, which emerged from a merger of the former Postipankki and Sampo Insurance. Sampo is now the biggest shareholder of Nordea, the largest bank in the Nordic Countries, and Wahlroos is the chairman of the board of Nordea.
But back to President Halonen, and her last New Year’s speech, in which she said that the increase in differences in income have also led to an increase in differences in health. She appealed to the idea that the welfare state can be used to secure an equitable society. Helsingin Sanomat shared Halonen’s views.
Wahlroos disagrees. “Even in the basic course of statistics they teach that correlation and causality are two different things.”
“This correlation, which the President is referring to, is something other than cause and effect, because it has an explanation, which is that those who end up marginalised do not make efforts to nurture their health. The reason for weakening health is not the change in income distribution.”
“In the background there is a common variable, which is either indifference on the part of individuals, or marginalisation.
Wahlroos says that it is rubbish to claim that Finland is on its way back to being a class society.
“Finland is one of the world’s most equal countries.
“The reason for weakening health is not in the differences in income. Class means something that is temporally permanent – a glass ceiling that does not exist in Finland.”
Wahlroos does not deny the existence of marginalisation, and he sees it as a growing problem.
“If we constantly develop society in a way that options leading to marginalisation are an easy choice, then we will get more marginalised people. For this reason we need to be very concerned to see to it that societal incentives are such that lead people to work and active participation.”
“We can never replace work, because work and earning a living are basic character traits of humanity. Now I’m sounding like an election programme of the Social Democrats from the 1960s, and that was the intention, to some degree.”
Wahlroos feels that the greatest incentive promoting marginalisation is the present unemployment security system. He would treat people of different ages differently. Young people should be expected to take “worse jobs” than those who have turned 50.
He says that one of the causes of unemployment is embedded in the labour union movement itself. The system restricts the availability of labour, and this is in the interest of the unions. “The smaller the supply of labour is, the stronger the position of the labour union movement.”
Wahlroos has moved a long way from the left-wing views of his years in school and at university to a place as far to the right of the political spectrum that it is possible to reach in Finland.
He puts the change in his own way of thinking in the 1970s. He says that economics changed at that time as well.
The entire issue of incentives, and even its theoretical study, incentive economics, did not arise before the 1970s, and it began to flourish in the 1980s.”
“I remember well when I first heard the words moral hazard. It was in the title of the 1978 doctoral thesis of Bengt Holmström. I did not know what it meant, even though I was a graduate student of economics.”
“It has not occurred to anyone that human behaviour would change in any significant way when an incentive system is built in front of them.”
A certain way to provoke Wahlroos is to talk about the degrading effect of greed.
“One thing that bothers me is that people think that they are being analytical when they bring into the conversation purely emotional words like ‘greed’.”
Wahlroos recommends acquaintance with the thinking of Alexander Hamilton, the first Secretary of the Treasury of the United States.
“Go and read what Hamilton wrote about the US Constitution. He writes approximately like this: a key characteristic of a free and successful society is that it accepts the pursuit of profit, and is able to put a bridle on it, which means that the pursuit will be to the benefit of everyone.”
“By nature people seek to promote their own interest. It is a basic characteristic of every living organism through the millennia.”
Björn Wahlroos admits to being a capitalist, even though instead of capitalism, he prefers the term “commercial society”, as used by Adam Smith.
“Capitalism is a system in which commerce is as free as possible, and in which the preferences of consumers on the one hand and the inventiveness of producers on the other determine the outcome.”
How are the blessings of capitalism apparent to customers queuing in Nordea banks, or to employees who have been let go?
“Why is Nordea just about the only double-A bank in Europe? The answer is that it has handled its affairs well. Technology moves ahead and it means that we can produce the same service with much less labour than 25 years ago when I started my banking career.”
“Adaptation mainly takes place through natural attrition, but sometimes something more dramatic needs to be done, when something more dramatic happens in the world.”
The same applies to customer service, Wahlroos says.
“Naturally, the problem is that there are still people who are not willing or able to adapt at the pace that the world changes. For them the changes can be painful, or at least disturbing.”
The world is currently living through the crisis of the euro. According to banker Wahlroos, banks are at the core of the crisis. “Perhaps the most central unrecognised fact of this crisis is that Germany’s banking system is rotten to the core.”
“For most European banks Greece’s lack of creditworthiness, or its bankruptcy, would not be too harmful – except for the Landesbank, which is owned by the German states, and Commerzbank, which is partly owned by the central federation, which – after being forced to reduce their receivables from Greece – are in a situation in which their capital is not sufficient for engaging in banking activities.”
Wahlroos feels that “Mrs. Merkel made the wrong decision in the spring of 2010”.
In 2010 Germany’s political leaders had two options, Wahlroos says. The first was an infusion of between EUR 30-40 billion in taxpayers’ money into the banks, after which Greece could have been allowed to go insolvent and to be taken under the supervision of the International Monetary Fund.
“Another option was that she would start lobbying all other European countries to give money to Greece, so that she would not have to concede the bankrupt state of her own banking system.”
“That was the end of the Maastricht Treaty’s stability pact. That is where a few hundred billion euros in taxpayers’ money blew away with the wind. That is where the nervousness that has lasted for a year and a half came from, and which has raised interest rates in dealings between banks, reduced investments, and caused other economic destruction as well.”
Wahlroos speaks with the certainty of hindsight, and he admits as much. In 2010 it was feared in Europe that Greece’s bankruptcy would lead to the same kind of avalanche of mistrust that came when the American investment bank Lehman Brothers went bankrupt. In 2008 and 2009 the world’s financial system came near to collapse.
“With Lehman I have to say that I was wrong. I thought that it was the right thing to do to let Lehman go bankrupt. This proved not to be the case.”
It is easy to assess things in retrospect, but it is hard to say what should be done now.
“It is nice not to have to give advice; the markets have started not to give a damn about this.”
According to Wahlroos, the banking system works well now. The European Central Bank has lowered its interest rate, and has offered banks the opportunity for three-year loans. This has helped the predicament of banks that have had difficulties in getting financing.
“The ECB finally has a professional leader, Mario Draghi, who has done what the central bank should have been doing many years ago.”
Although the crisis in Greece has been moved to the margins on the financial markets, the European economic crisis has not gone anywhere, and Wahlroos says that it is not a crisis of the euro, but rather one of European economic policy.
“If the choice for a way out is a panicky balancing of the state budget by raising taxes, for instance, we will be in this crisis for at least 10 to 15 years, because it will mean that economic growth, which we absolutely need, will not happen. On the other hand, if we try to cut at least the most inefficient taxes, if we try to cut public spending and perhaps to sell public wealth, then we may be able to bring Europe back to the path of economic growth.”
Wahlroos’s arguments are arguments of economics, but his starting point is based on his concept of humanity, which in turn is based on the blessed nature of the pursuit of personal gain and competition.
He names three thinkers that are important to him.
The first is, “naturally”, the Scot Adam Smith, who was influential in the 18th century. “I would refer to him more as a moral philosopher than as an economist. He was perhaps the greatest thinker of the Enlightenment.”
The second is Milton Friedman, a professor of economics at the University of Chicago, who has often been mentioned as the father of the science of economics. “A brilliant thinker, and a person who kept the lights burning in the years of darkness”. For Wahlroos, the years of darkness extended from the 1950s through the 1970s.
The third spiritual beacon is the writer and philosopher Ayn Rand, who emigrated from Russia to the United States in the 1920s.
In her works, Rand proclaims the right of the individual to live free of the tyranny of the majority.
“You had a story in Helsingin Sanomat on what people had scribbled onto spoiled ballots in the presidential elections. In the picture there was one ballot on which was written ‘Who is John Galt?’”
Rand’s main work Atlas Shrugged begins with this question. “It was an extreme libertarian statement about the presidential elections.”
Libertarians demand that the control of the state should be kept to a minimum. Could it have been Björn Wahlroos’s ballot?
“I don’t think that the vote in question was cast in Salo.”
Helsingin Sanomat / First published in print 12.2.2012
Previously in HS International Edition:
Sampo Chairman Björn Wahlroos is most influential figure on Finnish boards (11.5.2009)
NEWS ANALYSIS: The impact of Björn Wahlroos (3.8.2011)
Nordea rewards bank executives with EUR 169 million bonus (25.3.2012)
ILKKA AHTIAINEN AND ANTTI BLÅFIELD / Helsingin Sanomat