Cooperation with Russia is not enough to save Finnish economy

Statistics exaggerate the volume of Finland’s exports to Russia, while Finnish investments in Russia are insignificant

Pekka Sutela

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By Pekka Sutela
     
      Whatever our own efforts, the fate of Finland has for many centuries been determined by its geopolitical location in the triangle of Stockholm, Berlin, and Moscow.
     
The significance of the Nordic countries continues to be great, but to be brutally frank, traditional Nordic cooperation has already reached its limits.
      The Baltic states have of late participated in a major part of this cooperation, each of them in their own way.
      The language of cooperation has changed to English, which is a foreign language for all.
      It does not seem likely that the Baltic region could assume its own identity, to be able to act as a free agent, or become a centre of its own.
     
When it comes to Berlin, it is also unclear what the significance of the German city is.
      The unification of the German Democratic Republic and the Federal Republic of Germany was supposed to make the country more Baltic-oriented. However, hardly anyone has noticed anything indicating this sort of change.
      Neither is it credible that we would be on our way towards a United States of Europe, with provinces like France, Germany, and Poland.
      And yet most of our legislation comes from Brussels and to some extent even from Strasbourg.
     
The vagueness that is associated with Stockholm and Berlin is not reflected in Moscow.
      The Russian capital is easy to interpret and its future is more predictable than that of most others.
      The boundaries of the eastern neighbour may have changed over the course of a millennium, but the country has stayed where it always was - between Finland and China.
     
Just over a year ago, Moscow approved an official programme of the nation's economic development until 2020.
      The programme set grand goals.
      The country was to become the world’s fifth largest national economy and a society based on innovation.
      Getting poetic, the Prime Minister said that Russia should be the best place in the world for men to live.
     
A political system that produces such goals cannot be all bad.
      But the programme was not realistic.
      The goals were unattainable and the proposed means were wrong.
      The financial crisis pulled the rug from under the utopian ideas once and for all.
     
When it comes to the future of Finland, innovation cooperation with Russia will not be the answer. Their resources are not sufficient.
      Statistically speaking, Russia is a normal country in many ways.
      It has an average income level, average disparities in standards of living between the rich and poor, an average political system, a dependency on the exports of its natural resources - the same aspects as we find as in many other countries.
      However, there are two facts that distinguish Russia from most other countries.
      It is a former superpower, a monster with nuclear weapons, that has inherited many good things - and many bad things - from the Soviet Union.
     
Russia is the only state that is located in Central Europe, the Arctic, the Far East, Central Asia, and in the Caucasus.
      For all that, it is a European country and even its most repulsive actions relating to human rights and politics are a pale imitation of what happened in Central Europe in the 20th century.
      We have forgotten too much of the history of the "European identity", which is why we tend to end up thinking that Russia is "unusual", "strange", and even "incomprehensible".
      However, only few countries are actually easier to understand, and there is no reason to suppose that Russia in 2017 would be very much different from our present neighbour.
      Predictability does not make it a bad neighbour.
      Instead, it is bound to improve the value of those assumptions that emphasize stability and predictability - even when it comes to our own decisions.
     
Berlin, Stockholm, and Moscow are the most important trading partners of Finland.
      The triangle continues to have its own economic significance.
      We were not able to benefit from Russia’s economic growth in the past few years.
      The growth was based on consumption, and as we were poor for a long time, we are not terribly good at manufacturing consumer goods - we do large investment items rather better.
     
The future growth in Russia will have to be based on investment goodss, otherwise the country will not be doing well for long.
      Machinery, equipment, buildings, roads, district heating pipes - almost any aspect of infrastructure you care to name - are now in such a state.
      In the worst-case scenario, our engineering industry, currently struggling in the wake of the recession, will also move abroad, in which case we will not be able to benefit from a potential investment surge in Russia either.
     
Statistics exaggerate the volume of our trade with Russia, and Finnish investments in Russia are rather thin on the ground.
      Their volume is growing but it will not amount to much, while Russian investments in Finland are minuscule, and will remain so.
     
There have been two success stories. One of them is the transit traffic bound for Russia through Finland, in other words the much-denounced trucks transporting cars and containers, which we will in our wisdom probably eventually manage to send packing.
      Thousands of jobs will be traded for reduced congestion on a few Finnish roads.
      Another success story is tourism, which even the economic crisis has not managed to crush. Russians are the largest group of tourists in Finland, and this fact is not likely to change.
     
There is one thing that connects us and our neighbours.
      It is the dream of a cottage by Lake Saimaa. The cross-country ski resort in Lahti may still be the closest one to Moscow.
      Communication between Finland and Russia will increase.
     
As a market area, Russia will grow faster than most others, but the difference is not likely to be dramatic, while our ability to export is scanty at best.
      The two economies and societies will not integrate. Immigration of Russians into Finland will remain insignificant.
      For Finland, Russia is a question of proximity and security, not one of economy.
      Predictability makes it easier. The prime ministers of Russia and Finland will establish in 2017 that the relationship between the two countries is better than ever and communication is more frequent than ever before in our shared history.
      Older readers will remember that we have heard this all before.
      However, the truth will not change if it is repeated.
     
     
Pekka Sutela is the Principal Adviser of the Monetary Policy and Research Department at the Bank of Finland. Sutela has not been able to shrug off Russia since 1983 when he wrote his master’s thesis on price theory in the Soviet economy.
     
     
Helsingin Sanomat / First published in print 22.1.2010
     
     
The article is one in a series examining the way the Finnish economy is looking in the wake of the financial crisis and the ensuing global recession, looking forward to 2017 and the 100th anniversary of Finnish independence.


Previously in HS International Edition:
  Finnish Port Association: Excess weight charge reduces container traffic via Finnish ports (17.2.2009)
  Decline in number of eastbound trucks heading for Russia now plain to see (17.12.2008)
  Major unemployment threat looming over Hanko as imports of cars grind to a halt (30.10.2008)
  Finland considers limiting number of border-crossing permits for Russian trucks in attempt to solve congestion problems (16.10.2008)
  Transport Ministry to examine road use fees for lorries on route to Russian border (7.8.2007)
  Russian plan to move container transport from highways to rails to be discussed during Putin visit (2.6.2009)
  Russia to postpone export tariffs on roundwood (26.10.2009)

See also:
  Slight growth in inbound tourism to Finland in 2008 (4.8.2009)

Helsingin Sanomat