Why is Finland so rich?

by on March 23, 2011 at 9:53 am in Economics, Education | Permalink

James, a loyal MR reader, has a request:

Why is Finland, with its tax distortions and subsidies, as rich as it is?

1. Finland’s taxes and subsidies do not much discourage the adoption of cutting-edge technologies and thus Finland has moved relatively close to “the frontier.”  Ed Prescott and Stephen Parente have a very important paper about the difference between interventions which have this effect and those which do not.  It’s one of the best papers on economic development.

2. Finland’s high taxes do discourage male labor supply and that is one reason why the country is not as wealthy, in per capita terms, as the United States.

3. There are extensive day care and child care subsidies, which in part counteracts the effects of high taxes on female labor supply.

4. Finland has one of the best educational systems in the world and high levels of human capital.  You might re-ask your same question about living standards in Russia, which had far worse economic policies than Finland, yet is not too far from first world standards in the major cities.

5. Finland invested in communications and IT at exactly the right time.  For a relatively small economy this had a huge payoff.

6. Some people might cite Finnish industrial policy as having driven growth; I am not sure how significant it was.

7. An open economy, with lots of trade, is usually much freer than traditional statistics will make it seem.  International markets are a disciplining force and they cannot be ruled by the domestic government.

8. That all said, I am not especially optimistic about Finland.  Their current investment and R&D stats are not those of an economy on the move.  They will be hit hard by aging and they have not made immigration policy work in their favor.  Public sector productivity is not as high as you might think (see also the McKinsey report).  Do they have another big success on the way?  Can they get further productivity gains in cell phones and timber?  It’s not obvious.  They’ll do “well enough,” however, see #1.

Here is a McKinsey study of Finland (pdf).  Here is a good Charles Sabel essay (pdf) on the economic future of Finland.

Sandeep March 23, 2011 at 10:05 am

9 (and one that is too politically incorrect to talk about) : there is little ethnic/cultural/religious diversity in Finland, which keeps away much trouble.

j r March 23, 2011 at 10:52 am

Wow. You’re so brave to even mention it.

Except that in the 15 seconds it took for me to look up “racial ethnic religious diversity economic growth” on Google scholar I found out that there are plenty of people talking about it.

Sandeep March 23, 2011 at 11:57 am

You are just taking it too literally. And snark hardly substitutes for bad reading comprehension.

j r March 23, 2011 at 2:30 pm

“one that is too politically incorrect to talk about”

I’m not sure your argument regarding my reading comprehension holds any water. That’s pretty plain language. And a few seconds of research would have shown you that it is factually incorrect.

Now, if in fact that was not meant to be a factual statement, but rather as some kind of race realist status signifier, that doesn’t change the necessity that your statement be actually true in order to be taken seriously.

anonygoat March 23, 2011 at 12:09 pm

Well, Tyler wasn’t brave enough.

YR March 23, 2011 at 11:26 am

That’s actually reason #1, FYI

dirk March 23, 2011 at 1:55 pm

Which countries do you have in mind where ethnic/cultural/religious diversity are keeping them poor?

The Anti-Gnostic March 23, 2011 at 3:12 pm

The US, where the government confiscates billions of dollars in private wealth for the enforcement costs, security measures, and transfer payments to make everybody pretend that diversity is our strength.

Brazil, Mexico et al. where an Iberian-descended elite lords it over a mongrelized and exploited underclass.

Tibet doesn’t seem to be doing so good by their Han immigrants. The Baltic States didn’t seem to enjoy all that Russian immigration. The Arab-Berber Libyans are getting a bit tired of Qaddafi’s Congolese immigrant mercs. Bahrain’s Shia majority are beginning to get a little restive about all the Sunni immigrants imported by their Sunni government.

California and Texas have imported a lot of diversity over the years. How are their public finances?

Lebanon finally ironed out all the kinks in its diversity. It took a 15-year civil war and substantial numbers of them leaving for the US and Canada but I’m sure it will all be worth it in the end.

Iraq has finally gotten rid of all those apparently non-diverse Christians and Jews who were holding the place back. All we have to do now is pay the Kurds, Shia and Sunnis not to fight each other. Same for the Afghan Tajiks and Pashtuns. Who knew diversity required the government to spread so much money around? I wonder who’s paying for it? Oh well.

Diversity, diversity, diversity.

dirk March 23, 2011 at 3:51 pm

So your examples include:

The US, the richest country in the world

Brazil, one of the fastest growing countries in the world

California and Texas, two of the richest places in the world

The anti-diversity meme has become as much a religion as the diversity meme has.

How about common sense instead of group think?

The Anti-Gnostic March 23, 2011 at 4:28 pm

Common sense: diversity requires huge transfer payments by a strong central government from the non-diverse tax base.

JonF March 23, 2011 at 7:23 pm

The US is one of the world’s poorer nations? Who knew?

Nathan W March 24, 2011 at 12:41 am

The USA imports more PhDs and innovators than anywhere else in the world, via immigration. You may dislike cheap nannies, house cleaners, labourers, etc., but the net effects of American immigration are unambiguously positive. I don’t know if diversity helps growth or not, but diversity is a by-product of something that unquestionably does.

pjt March 24, 2011 at 7:34 am

I quite agree: Diversity is a by-product of something that is good and useful (immigration of talented people).

The problem tends to be that many people claim that getting more of that by-product will necessarily get you the good and useful. BUt lgoical implication is not logical equivalence: you might also import a lot of useless people and get a lot of diversity without getting the good and useful things.

Similarly, you could say that radioactive particle leakage is a byproduct of producing electricity using coal power. Should you deliberately increase radioactive particle leakage in order to have more electricity? This is the kind of logic that sits behind a lot of the “let’s have more diversity” stuff.

I don’t really have anything *against* diversity of people (though I do have something against radioactive particle leakage). It just isn’t such a hugely desirable goal in itself.

dirk March 23, 2011 at 2:03 pm

Steve Sailor continues to make people retarded.

Silas Barta March 23, 2011 at 2:56 pm

Indeed, so retarded they can’t even spell his name right.

dirk March 23, 2011 at 3:54 pm

OK, let me be more formal: The Church of Sailerology is making people retarded.

Tom March 24, 2011 at 3:37 pm

Or at least makes you make retarded comments about Steve Sailor.

Steve Sailer March 23, 2011 at 3:55 pm

Answer #: Finland is full of Finns.

dirk March 23, 2011 at 4:05 pm

Finally, someone gets it.

dirk March 23, 2011 at 4:20 pm

And of course Belarusians are poorer than Mexicans because Belarus is full of Belarusians while Mexico is full of Mexicans.

dirk March 23, 2011 at 4:21 pm

China was so poor for so long because it was full of Chinese but now it is getting richer because it is full of Chinese.

my informed opinion March 24, 2011 at 12:56 pm

> China was so poor for so long because it was full of Chinese but now it is getting richer because it is full of Chinese.

Another bad example after a fashion. Large areas of China are non-Chinese, the whole of Western China in particular. Outer Mongolia, Tibet… anyone. Besides, what is regarded as Chinese are actually very different Chinese ethnoses, Mandarin and Cantonese and others. Among Mandarin Chinese there are also sizable differences.

dirk March 23, 2011 at 4:25 pm

Norway was the poorest country in Western Europe before they discovered oil in the North Sea because it was full of Norwegians but now it is the richest country in Western Europe because it is full of Norwegians.

The Anti-Gnostic March 23, 2011 at 4:39 pm

And tons of mineral resources were discovered in Nigeria but it’s still violent and dirt-effing poor. So the lesson for Norway is: don’t import Nigerians for the sake of “diversity.”

my informed opinion March 24, 2011 at 12:55 pm

> And of course Belarusians are poorer than Mexicans because Belarus is full of Belarusians while Mexico is full of Mexicans.

Bad examples. I don’t care about other dimensions of this question but if you are going to make a remark X is full of Xians then at least pick examples that are mostly true, like South/North Korea, (Japan, )Rwuanda, Burundi, Portugal, Iceland, and indeed Finland.

You should know that Belarus has a dictatorship that is assimilating Belarusians who speak Belarussian to Belarusians who speak Russian. There is that conflict there. There is also a large Polish minority that is also being assimilated. Another conflict.

And Mexico… Chiapas, anyone?

dirk March 23, 2011 at 4:35 pm

Manhattan is more diverse than the USA at large so I’m guessing Manhattan must be one of the poorer areas of the USA.

The Anti-Gnostic March 23, 2011 at 4:45 pm

Yeah. All those incredibly diverse bankers and hedge fund managers going to their incredibly diverse condominiums after a day of work at the Multi-Cult Rainbow Factory.

dirk March 23, 2011 at 4:59 pm

Your argument is that diversity makes people poorer. I came up with an example which happens to be one of the richest places on earth which also happens to be one of the most diverse. I’m not arguing that diversity causes wealth, only that it doesn’t cause poverty. The anti-diversity crusade is every bit as pointless as the pro-diversity crusade.

The Anti-Gnostic March 23, 2011 at 5:01 pm

Diversity demonstrably makes people poorer. Just think how much wealthier the market-dominant majority in the US would be if they didn’t have to pay for all the national security, Title VII enforcement and transfer payments necessary to manage the US’s diversity.

anonygoat March 23, 2011 at 6:56 pm

Wealth also attracts poor “diverse” people to do the vacuuming or perhaps just rob the “non-diverse” people, so correlation isn’t necessarily going to tell you a whole lot.

dirk March 23, 2011 at 7:39 pm

So instead of using one-eyed correlation, let’s use Saileresque blind speculation.

Here’s another call-it-spurious-if-you-want correlation: anti-diversity zealots, anti-lipid-theory faithful, gold-bug fashionistas, peak-oil mongers, global warming heretics.

Merely being against the conventional wisdom on every single issue doesn’t make you a free-thinker — or even a thinker. Sailer fans are adult versions of goth kids.

my informed opinion March 24, 2011 at 12:58 pm

> Manhattan is more diverse than the USA at large so I’m guessing Manhattan must be one of the poorer areas of the USA.

> Your argument is that diversity makes people poorer. I came up with an example which happens to be one of the richest places on earth which also happens to be one of the most diverse.

Why do you keep citing bad examples? Look:

http://www.myapartmenthub.com/montana/manhattan-apartments/

94 % of people living in Manhattan speak English. This is about exactly the same percent as Finnish spoken in Finland.

dirk March 24, 2011 at 4:27 pm

I see you picked Manhattan, Montana

my informed opinion March 24, 2011 at 6:52 pm

Did it on purpose :-) But seriously, think about your examples. You are not necessarily wrong, but think…

Peter March 23, 2011 at 9:31 pm

One factor which is genuinely almost too politically incorrect to raise is eugenics. Finland and the other Nordic countries led the way in sterilising those considered mentally or physically defective from the 1930s-1970s. Could having practised this policy for a few decades have had a positive impact on future prosperity?

Rahul March 24, 2011 at 12:41 am

What percentage of the population were affected? I doubt that changes outcomes much.

Peter March 24, 2011 at 6:46 am

I don’t have much information, but Sweden sterilised around 62,000 out of a population of around 6 million. The other Nordic states apparently sterilised a similar per capita figure – so say 1%. That 1% of the population would attract a percentage of public spending much larger than 1%- particularly spending on welfare, social projects and the criminal justice system – enough to be a factor worth considering?

Miguel Madeira March 25, 2011 at 1:05 pm

“there is little ethnic/cultural/religious diversity in Finland”

No? They have TWO official languages.

John Haskell March 23, 2011 at 10:13 am

In re immigration policy and lack of ethnic diversity: “Finnish has fifteen noun cases: four grammatical cases, six locative cases, two essive cases (three in some Eastern dialects) and three marginal cases.”

Descartes March 23, 2011 at 10:20 am

@Sandeep

There’s much in Canada, and we’re comparatively close to Finland. OECD education stats, pretty high taxes, and etc.

Although, being the larger country, managing the national sector has been more so sluggish.

Sandeep March 23, 2011 at 1:48 pm

Okay I am not very knowledgeable on this, but doesn’t Canada have much higher economic freedom than Finland? Also proximity to US should help? Natural resources – esp. oil and gas, logs for pulp and paper? Getting smarter as opposed to parasitic immigrants?

Example of this last point : Canada has about half as many Hindus as Muslims. Compare with Sweden which has about 5% Muslims as opposed to 0.012% Hindus, Norway that has about 3% Muslims as opposed to 0.1% Hindus, Netherlands has about 5% Muslims as opposed to quite less than 1% Hindus (exact estimates seem to vary). Note that I am not saying Hinduism is parasitic – for whatever reason – from the host country’s side or the immigrant side – only the richer among Hindus tend to immigrate while poorer Muslims who utilize largesses of host country seem to immigrate. Already in US the per-capita-richest religious group is Hindus, not Jews. Because US admits only relatively smarter Hindus in, while it has admitted all kinds of people from other religions.

Sandeep March 23, 2011 at 1:49 pm

Oops I meant “Note that I am not saying Hinduism is less parasitic than Islam”

Rahul March 23, 2011 at 1:54 pm

I’d be curious to know what the Hindu vs Muslim ratio is for UK. The other question is why is the Canadian & US immigration system so much friendlier to Hindus than the European one.

Sandeep March 23, 2011 at 2:13 pm
pjt March 23, 2011 at 4:32 pm

>The other question is why is the Canadian & US immigration system so much friendlier to Hindus than the European one.

I think one reason is that Canadian & US immigration is based on employment, while European immigration is based on asylum seekers.

Pat L March 23, 2011 at 2:41 pm

Surely there are direct statistics on the education levels of recent immigrants? I can’t imagine that this crude “Muslim v. Hindu” heuristic is the best measurement available.

Sandeep March 23, 2011 at 3:11 pm

You are of course right. This was the example I was familiar with, so I used it.

pjt March 23, 2011 at 4:29 pm

>doesn’t Canada have much higher economic freedom than Finland?

Umm, I think not that much. The tax rates are lower, but from what I hear, there’s also a whole lot of political correctness, regulation etc that is economically not so advantageous.
http://www.heritage.org/index/Ranking
6. Canada 80.8
9. United States 77.8
17. Finland 74.0

>Also proximity to US should help?

It does; for Finland, proximity to Russia has traditionally been a similar thing.

JonF March 23, 2011 at 7:29 pm

Hindus generally migrate to English speaking countries because they have some facility with that language already, and their culture has half a foot in the Anglosphere courtesy of Queen Victoria and the Raj.
But you’ll also find a lot of Pakistanis in English-speaking countries for the same reason.

Sandeep March 23, 2011 at 11:29 pm

That is not all – countries like Norway have more Pakistani immigrants than Indian immigrants.

Rahul March 24, 2011 at 12:46 am

It could have something to do with the relative economic conditions and desperation in India and Pakistan. India is doing much better. Hence, Hindus (Indians) emigrate mostly to “easy” countries (English speaking, ex-Raj etc.). Muslims (Pakistan) just emigrate pretty much anywhere. Also, it might be easier to fit asylum criteria (persecution, violence, ethnic harassment etc.) if you are from Pakistan.

my informed opinion March 24, 2011 at 1:02 pm

> That is not all – countries like Norway have more Pakistani immigrants than Indian immigrants.

This just begs the question. What countries are like Norway? Finland certainly hasn’t got very many Pakistani immigrants.

Rak March 25, 2011 at 11:27 am

“Already in US the per-capita-richest religious group is Hindus, not Jews. Because US admits only relatively smarter Hindus in, while it has admitted all kinds of people from other religions.”

You Jackass, there isn’t some kind of a special restriction on Indians , that does not apply to everyone else. US doesn’t admit any higher percentage of smarter Indians than any other group. Well except perhaps for illegals who run across the border.

You think gas station attendants, convenience store owners and motel runners are smartest people in India? ROFLMAO!

Enough with this nonsense.

adam March 23, 2011 at 10:21 am

Or maybe elasticities are small, so that taxes and subsidies have little effect on real activity. (A fact repeately found in the empirical tax literature but ignored by people like Prescott because such evidence is inconvenient to their world view.)

pjt March 23, 2011 at 10:24 am

9. Finland seems richer than it is, because, compared to other countries, the official statistics cover a larger part of the total economic activity. The tax rates are not the highest in world, but they are close to the top. And we’re talking about a true Big Brother country. A place where you can do a census by saying SELECT COUNT(id) FROM national_person_database WHERE residence_country=”fi”; and get a reliable result. A place where tax evasion by individuals is rather hard because the government gets automatically reports of your economic activity. So everything is included in statistics, and there is no hidden wealth around.

my informed opinion March 24, 2011 at 1:04 pm

> Finland seems richer than it is, because, compared to other countries, the official statistics cover a larger part of the total economic activity. The tax rates are not the highest in world, but they are close to the top.

This goes both ways. I’m always amazed about the tax thing because when you take away the (almost) required health expenditures you pay in the USA you won’t end up with much more money than in Finland. And I know for a fact that this is true when you compare Finland and Germany.

Flo March 23, 2011 at 10:27 am

On the cultural diversity: there is actually a sizable Swedish minority in Finland which is well integrated. And you can get around Finland with English just fine.

I would put a lot of emphasis on 7 as there are plenty of other examples where this seems to have been an important factor: Singapore, Luxembourg, Switzerland etc. Although these are also examples of fairly culturally diverse countries.

Emilia March 23, 2011 at 2:35 pm

Actually we’re NOT swedish, we are FENNOSWEDES.

Jon Martin March 23, 2011 at 2:51 pm

And you’re not that well integrated either ;)

Jenni March 24, 2011 at 10:57 am

“Well integrated”… seeing as the Swedish-speaking minority has been (and still is) holding a disproportionately high share of power and wealth, it’s more of a matter of the poorer Finnish-speakers being integrated. And a civil war helped solve that.

Floccina March 23, 2011 at 10:33 am

Maybe one factor is that Finland wastes less human talent and effort trying to school children who are too young to learn much.

Floccina March 23, 2011 at 10:39 am

High trust.
High average IQ.
It is a very small country and it is so rather free trade and can afford to specialize.

chris March 23, 2011 at 11:33 am

IQ is an effect of their wealth (and generous public support for families) at least as much as it is a cause (although it may also be somewhat of a virtuous cycle).

anonygoat March 23, 2011 at 1:45 pm

A control:

http://en.wikipedia.org/wiki/U.S._per_capita_income_by_ancestry

I wonder if Tyler could explain why “Russian” has the highest per capita income of any American nationality. I am of half “Russian” ancestry myself and would love to hear this.

Steve Sailer March 23, 2011 at 3:53 pm

The U.S. Census Bureau doesn’t use the word “Jewish,” so “Russian” winds up being used to refer to a lot of Jews whose ancestors lived within the Russian empire.

anonygoat March 23, 2011 at 6:51 pm

Well, I know YOU know the answer, Steve. Note the scare quotes, btw.

JonF March 23, 2011 at 7:31 pm

As with Cubans out of Cuba, a lot of Russian emigres from Communism were middle class or above.

DK March 23, 2011 at 9:30 pm

Jews counted as Russians is, without a slightest doubt, a factor. But not the only one. Self-selection is another major factor. Early 1990s brain drain from USSR to USA was MASSIVE. All these people eventually end up with a solid middle class/upper middle class income.

Floccina March 24, 2011 at 11:28 pm

IQ is an effect of their wealth (and generous public support for families) at least as much as it is a cause (although it may also be somewhat of a virtuous cycle).

Is it the same for athletic ability?

Floccina March 23, 2011 at 10:40 am

Oh and has a low crime rate.

Rahul March 23, 2011 at 11:09 am

Cause or effect?

pjt March 23, 2011 at 11:17 am

Effect. And thereby a cause.

Floccina March 24, 2011 at 11:29 pm

That is why crime shot up in mid 1960’s in the USA and fell in the 1930s.

JL March 23, 2011 at 10:51 am

They will be hit hard by aging and they have not made immigration policy work in their favor.

No country in Europe (save some microstate tax havens) has made immigration policy work in its favor, and immigration in most European countries will simply exacerbate the dependency ratio problem because the immigrants Europe gets have, on average, little social capital (and even less in the second generation: http://ideas.repec.org/a/ecj/econjl/v120y2010i542pf4-f30.html). Finland’s immigration policy has been more successful so far, as it does not have a large non-white underclass unlike several Western European countries.

Rahul March 23, 2011 at 11:15 am

The interesting question is which countries have ( if not europe) made immigration work in their favor? Is there an objective anwer to this question?

JL March 23, 2011 at 11:20 am

Canada’s and Australia’s immigration policies do not seem to undermine their general levels of human capital.

The Anti-Gnostic March 23, 2011 at 11:34 am

That’s great news. Maybe instead of US immigration carte blanche, we can divert the Third World to Canada and Australia instead.

Rahul March 23, 2011 at 11:44 am

I’d have agreed about canada and australia being immigration succeses till recently. But just a few weeks ago a MR post got several comments complaining that immigrants to canada are coming notoriously ill prepared. many seem to be working as cab drivers and sundry low pay jobs. Not sure which side to believe.

The Anti-Gnostic March 23, 2011 at 11:49 am

Yes. It’s always bad when they come in “notoriously ill prepared.” If Canada and Australia could just issue them graduate degrees before they get there everything would be fine.

James C March 23, 2011 at 1:48 pm

@The Anti-Gnostic-the immigrants who come to Canada are highly educated. but the degrees and licenses from their home country are not accepted by Canadian businesses. overall, Canada is being too protectionist of their labor, which defeats the purpose of being highly selective in who gets to immigrate into the country.

anonygoat March 23, 2011 at 1:47 pm

Mexico.

Rahul March 23, 2011 at 1:59 pm

@Mexico

You mean their emigration “policy”?

anonygoat March 23, 2011 at 2:14 pm

yeah. I guess that didn’t quite work. However considering that both the Mexican gov. and Mexicans living in American consider the latter to be under Mexican jurisdiction, Mexico probably has hit on one of the worlds best social welfare policies for its own people.

Rahul March 23, 2011 at 2:34 pm

yeah but not too many countries enjoy the borders Mexico does to avail of that option.

Ted Craig March 23, 2011 at 10:57 am

Finland exports a lot of workers, too. Finns have traditionally been the largest immigrant group in Sweden. I wonder what role remittances play?

pjt March 23, 2011 at 10:59 am

The Swedish-speaking minority is not the kind of diversity that makes much of a difference, and if it does, it is often positive (in terms of welfare dependency etc). Yes, generally high trust, low crime, good education are strengths in the country. Not many actually illiterate people around, meaning that the capabilities of the population are utilized quite well (though far from perfect of course).

chris March 23, 2011 at 11:35 am

Yes, generally high trust, low crime, good education are strengths in the country.

Those are obviously effects at least as much as causes. The decision to have a good education system is important, but if they were Zimbabwe they couldn’t afford it with all the will in the world. Low crime causes high trust, but it’s good education and high economic security that cause low crime.

The Anti-Gnostic March 23, 2011 at 12:05 pm

Low crime is a result of a populace with good impulse control, which is heavily influenced by IQ which is largely a product of genetics. Not the only cause, but the most significant one.

Also, there is this idiocy that education is “expensive.” It’s not as an increasing number of home-schooled individuals are showing. It’s only expensive because of public employee unions, bureaucrats with Ph.D.’s in Finger Painting padding the payroll, and artificial demand from below-market loans and numerous other externalities.

The soaring tuitions for private school are a function of demand, among other factors. People like Arne Duncan will pay a lot of money to keep their children away from the riff-raff.

chris March 23, 2011 at 3:42 pm

“Low crime is a result of a populace with good impulse control, which is heavily influenced by IQ which is largely a product of genetics.”

Damn, I was right with you up until the last word. Should be “environment”. The influence of environment on IQ is so overwhelmingly strong, you have to control it out before you can even pretend to see a genetic signal (and even then, the evidence is disputed). Usually this is referred to as “socioeconomic status”.

That’s why I referred to it as a virtuous cycle — Finnish institutions make it very unlikely for children to be raised in poverty, therefore they grow up smarter and without a hyperdiscounting mindset, therefore they’re more productive and less likely to commit crimes.

The rest of your comment is hardly worthy of mention — home schooling *is* expensive, people just write down their own labor costs to 0 because they’re not paid in a market, and genuinely poor people don’t have that kind of parental free time, and the anti-union invective has been amply refuted elsewhere, particularly recently.

Cliff March 23, 2011 at 3:52 pm

Evidence, please. In America, wealthy children with majority-African ancestry have much lower average IQs than poor children with primarily e.g. European ancestry.

Rahul March 23, 2011 at 12:48 pm

The correlation between economic security / education and crime is not as strong in practice as used to think. e.g. For the period 1960-2000 Brazil, Mexico, Colombia, and a lot of other central and south american countries have been pretty similar to the Indian subcontinent for the metrics of education and economic security (if not better). Yet, crime, especially violent crime has been way higher than the Indian subcontinent. The distinction is especially stark if you compare the corresponding cities. Think of MexicoCity or Rio and it is hard to think of any Indian city that comes close in terms of violent crime.

Just saying that education / poverty crime is not a straightforward relation; there’s a lot of cultural aspects to that.

chris March 23, 2011 at 3:38 pm

Yeah, I can’t imagine why there might be so much crime in Mexico and Colombia. Clearly it has nothing to do with their immensely wealthy neighbor whose government tries to suppress traffic in the same substances its population pays ludicrous amounts for. That couldn’t be distorting their economy and society a bit.

Must be the culture, or even better, the genetics.

Cliff March 23, 2011 at 3:55 pm

Does the U.S. have a higher drug use rate than e.g. Europe? Or any other countries?

Rahul March 23, 2011 at 4:11 pm

@chris:

I agree that the US drug policies play a role but I doubt that explains the whole violent crime situation in South America. You can’t blame all the trouble of the rest of the world on US policies. I’m curious though; what changes would you have the US do to reduce violet crime in S. America? Legalize marijuana? More?

In any case, all I am saying is crime is not explained by poverty or education alone. Culture, geopolitics, genetics, take your pick.

chris March 24, 2011 at 9:51 am

I’m curious though; what changes would you have the US do to reduce violet crime in S. America? Legalize marijuana? More?

Yes. It would also reduce violent crime in the U.S. The vast majority of violent crime in *both* places is a side effect of the drug trade — not because of the effect of the drugs themselves, but because the whole enterprise is declared criminal. It’s Prohibition all over again.

Jenni March 24, 2011 at 11:15 am

I would say the high trust comes from culture, as it is embedded in the idioms of the language itself. The culture is one which saviors frankness as well as humbleness, and I have a feeling also low property crime has its roots here. (Violent crime has always been more of an issue in Finland.) As The Anti-Gnostic mentioned, crime level also has to do with impulse control, which is also highly respected by the culture.

When the basis of Finnish education system was laid in the 19th century, Finland was as poor as Zimbabwe. It wasn’t created overnight, but a strive towards education of the masses which was very present in politics of the day helped to achieve the goal in the long run. The masses were turned to education with as high cost as a daily meal for the kids, which helped keep the kids in school instead of in the fields.

Lakesider March 23, 2011 at 11:11 am

Personal adds to the list:
9. Finland is a small country, with a relatively homogeneous population (a bit divided between proper Finns and Swedish, but still…): people are probably more willing to pay taxes than in the US, as it is more likely they see the benefits as money is spent for them/relatives/friends/neighbourhood. This is less likely if you pay taxes in Chicago and the money is spent in San Diego, while your family is living in Orlando and you grew up in Seattle. No data to support this, but I find it reasonable enough to say so.
10. The Finnish economy relies quite too heavily on Nokia: it represents roughly 3% of Gdp and, even more worrying, 25% of exports. I know that as Buffett says “differentiation is protection against ignorance”, but for a country being so concentrated in one firm and sector (and that sector in particular) sounds dangerous to me. So, they may be doing well because they are taking on a lot of risk which so far has always given positive results.
11. Scandinavian countries are usually perceived as much less corrupt than other countries (maybe also for reasons 7 and 9), as reported for example by the annual Corruption Perceptions Index, and this may create a smaller distortionary effect of higher taxes (again, endogenous/contemporaneous effect with reason 9).

This being said, I don’t think Finland (or Sweden or Denmark, or oil-producing Norway) can be taken as examples or models by large countries with heterogeneous population like the US, as the “environment” is radically different.
I’d say that their social model works quite well for them. I wouldn’t push further, saying that it should be taken as a role model by others.

JL March 23, 2011 at 11:15 am

Finland exports a lot of workers, too. Finns have traditionally been the largest immigrant group in Sweden. I wonder what role remittances play?

I don’t think Finland receives lots of remittances nowadays. Lots of Finns moved to Sweden in the 1960s and 1970s, but these days more people move to Finland than move out — net immigration is about 15,000 persons a year. Something of a problem is that the emigrants are generally well-educated (with degrees from tuition-free public universities), whereas the average immigrant is poorly educated.

IndianTechie March 23, 2011 at 11:31 am

I’m surprised that finland allows so many poorly educated immigrants in. What are the categories? Asylum seekers? Is finnish imigration policy less or more liberal than the US? it is hard enough immigrating as a well educated professional so how do so many poorly educated immigrants come in?

Jenni March 24, 2011 at 11:19 am

Around 10% of immigrants to Finland are asylum seekers (according to latest stats on granted living permits). The rest of the permits are divided between work, study, and family relations.

pjt March 23, 2011 at 11:15 am

Ted:
>I wonder what role remittances play?

Zero. There was a bit of an impact maybe up to 1970’s but after that it’s been really insignificant.

From 1950’s to 1970’s there were people who moved from Finland to Sweden, to work e.g. at the Volvo car plants, and perhaps sent some money home. They often came back to Finland for holidays. Many returned permanently after earning some money working abroad. But as the economies (structure, GDP level, salaries) of the two countries have become more similar, it’s no longer feasible to go to Sweden to make so much money that you could send any significant amount back home.

There was quite an emigration during those years. In 1970’s the Finnish employers even agreed to an annual bonus system which was called “holiday return compensation”. Some people took a summer holiday in Finland, went to Sweden to work during the holiday weeks, and because the pay was better, many would not come back. So the Finnish employers agreed to pay an extra half-month salary at the point of return from holiday, to make sure that the employees wouldn’t be lost during holiday. Later on this has lost its meaning and now it’s just a “holiday bonus”, half a month salary paid at the time of annual leave.

The Finns who emigrated to Sweden have largely been assimilated, just like the aboriginal Finnish-speaking population in Sweden has been converted to Swedish-speakers (to some extent forcibly). In the North there are still some original meänkieli-speakers but they’re struggling.

Ted Craig March 23, 2011 at 11:51 am

Yeah, I was just wondering. Any time you have a large expat population, you often have high remittances.

pjt March 23, 2011 at 3:03 pm

Quite true, in many cases the remittances are significant, though not in Finland, not any more. What remittances were sent in 1950’s and 1960’s had some impact.

my informed opinion March 24, 2011 at 1:08 pm

> Later on this has lost its meaning and now it’s just a “holiday bonus”, half a month salary paid at the time of annual leave.

You make this seem like a uniquely Finnish thing. See:

http://de.wikipedia.org/wiki/Urlaubsgeld

and

http://no.wikipedia.org/wiki/Feriepenger

and

http://de.wikipedia.org/wiki/Weihnachtsgeld

The articles are in German and Norwegian. I’m sure you’ll manage.

Allan March 23, 2011 at 1:17 pm

There is one other factor: the Cold War.

During the Cold War, Finland was the USSR’s main trading partner and had access to the USSR’s vast resources in return for a relatively small amount of hard currency. This was made possible by the fact that Finland was the only non-communist, non-NATO aligned country on the USSR’s norther border.

In other words, Finland was able to make enormous amounts of money being a middleman between the east and west during the cold war. During that time, Finland was able to use these resources to develop a social network for its citizens (it did not hurt that Finland’s population was relatively small, while its gains from being a middleman were large).

But, then, the good times came to an end. Finland had a deep recession in the late 80s and early 90s, with high unemployment, inflation, and other problems.

So, in stepped a rainboot maker that expanded into producing cell-phones. (This probably would not have happened absent the fall of the USSR, as Nokia would likely have been happy exporting rainboots to the USSR in return for raw materials (trees) to make other products for export).

I guess, therefore, that Finland has Reagan to thank for its current good fortune.

Jon Martin March 23, 2011 at 2:54 pm

And for its previous misfortune I suppose.

DK March 23, 2011 at 9:41 pm

Painting Nokia as a rainboot maker exporting to USSR is ridiculously misinformed. In 1970s, Nokia’s was huge in making cables of all kinds. In the USSR, whenever premium electrical cables were needed, they were Nokia and only Nokia (I’ve stolen bunch of them from construction sites in my childhood). And, needless to say, USSR market for rainboots was saturated with locally made products. No Nokia rainbots in the USSR! Not much more than 3.5 pairs, probably.

Allan March 24, 2011 at 9:56 am

A good point. The rainboot reference was a bit sarcastic, as well as wrong.

But you help make the point. When the USSR went under, it took Nokia’s fortunes with it. Nokia had to make a strategic change, and it did.

my informed opinion March 24, 2011 at 1:10 pm

> Finland had a deep recession in the late 80s and early 90s

Surely not in the 80s.

Old Whig March 23, 2011 at 1:56 pm

After the fall of the Soviet empire Finland lost, if I don’t misremember, lost nearly half it’s BNP because of loss of cheap imports from Russia, their industries were extremely dependent on exports to Russia.

As pointed out above Finland had given themselves entitlements that were unsustainable. They did one of the harshest austerity Programs we’ve seen since WWII. In fact they instituted a wage cut for everybody with 10 %.

They basically dismantled all their entitlements.

Finland as written above has a very superior higher education. Finland has the same amount of PhDs as Sweden but only has half of Swedens population.

When it comes to the Swedish minority, if I don’t misremember are 5% of the population but they own 50 % of the wealth.

As a curiousity Finland had the highest murder rate within the European Union.

pjt March 23, 2011 at 3:14 pm

Note that the wage cuts in the 1990’s austerity program were largely implemented by two means: devaluation/inflation and unemployment, not so much by an amicable agreement (they tried it, the unions wouldn’t agree even though leading Social Democrats said it would be a good idea). The Finnish mark lost a lot of value at the time. And a large part of the labour of 1990 never found a job. Because labour is spoiled in storage, it’s gone now. Many of them buried by now – mostly by alcoholism.

That story about 5 % Swedish minority owning 50 % of wealth sounds like an urban legend, although official statistics to refute it are hard to come by. Much of the “old money” is Swedish-speaking, but not all, and of course, not all Swedish-speaking people are wealthy although such a stereotype is popular in populist politics. But the Swedish minority is fading away; Swedish is still mandatory at schools but no longer mandatory to pass the matriculation exam and go to higher education, and the mandatory Swedish is clearly on its way out in a dozen years or so. It’s just no longer possible to force the Finnish-speaking majority to study the language that they feel is not useful, and you cannot demand it from immigrants whose number is increasing.

In 1880, 14.3 % of population was Swedish-speaking, in 1930 it was 10.1 %, in 1980 6.3 % and today it is 5.3 %. The trend is clear.

Old Whig March 23, 2011 at 3:28 pm

My grandmother was Finlander, Swedish ethnicity but born in Finland, she belonged to a small business family she spoke no Finnish.

It’s quite true that Finlanders like my grandmother wasn’t millionaires but most Swedes were small business people, entreprenuers as well as the professional class in Finland.

The top 10 % of the US population own 90 % of the wealth. The same goes for Sweden and I assume it’s the same in Finland.

Because of the high taxes Sweden have a higher wealth inequalty than Sweden, I think it’s the same for Finland. Source Luxembourg Wealth Study 2006.

As for equality being the factor behind Finland and Swedens success is in fact a pure myth! The equality ruined both Finland and Sweden from 1968-1993. Sweden and Finland were during these years functional socialist states. By functional socialism I mean a control and regulation socialism that instead of owning the means of production fully controlled and regulated it.

Jack March 23, 2011 at 7:37 pm

It’s quite true that Finlanders like my grandmother wasn’t millionaires but most Swedes were small business people, entreprenuers as well as the professional class in Finland.

Until quite recently, most Swedish-speakers in Finland were peasants just like the Finnish-speaking majority. However, the professional and commercial classes (which constituted a rather small percentage of the population in the pre-industrial era) used to be largely Swedish-speaking.

Old Whig March 23, 2011 at 8:25 pm

Not really. I was talking about the composition of the entrepreneurial, small business (of which self owning farmers and fishermen like my grandmothers family was one, therefor a difference between being a peasant, farm worker, and à self owning farmer) as well as the bureaucratic class.

Finland and Sweden was one country for nearly 900 years. Nearly all business people and senior bureaucrats were ethnic Swedes.

This means that most of the wealth was owned by Finlanders. As was said above we don’t know how large a portion of the wealth in Sweden is owned by Finlanders but I guesstimate that it’s far greater than 5% as is their percentage of the population. I would estimate that it’s closer to 50% than 5%.

You have only to google the most influential finance families in Finland, Enrooth och Walroos.

Wheter or not

Jack March 24, 2011 at 11:21 am

Not really. I was talking about the composition of the entrepreneurial, small business (of which self owning farmers and fishermen like my grandmothers family was one, therefor a difference between being a peasant, farm worker, and à self owning farmer) as well as the bureaucratic class.

I don’t think there was much difference between the social and economic status of Finnish- and Swedish-speaking peasants. There was never serfdom in Finland, so almost all land was owned by small farmers.

Finland and Sweden was one country for nearly 900 years. Nearly all business people and senior bureaucrats were ethnic Swedes.

It was more like 600 years. The roots of the Swedish-speaking population of Finland are not, of course, only in Sweden proper — rather, lots of them have at least some Finnish, German, English, Russian, etc. ancestry.

As was said above we don’t know how large a portion of the wealth in Sweden is owned by Finlanders but I guesstimate that it’s far greater than 5% as is their percentage of the population. I would estimate that it’s closer to 50% than 5%.

Below, I linked to a recent study showing that Swedish-speakers own about 8.8 percent of Finland’s wealth. This due to the fact that old money families are disproportionately Swedish-speaking, and because the Swedish-speakers are beneficiaries of many long-standing privileges, including affirmative action in university admissions.

Jack March 23, 2011 at 6:53 pm

But, then, the good times came to an end. Finland had a deep recession in the late 80s and early 90s, with high unemployment, inflation, and other problems.

The deep recession of the early 1990s was more due to the meltdown of the banking sector and the incompetent way it was handled than the collapse of the Soviet Union.

When it comes to the Swedish minority, if I don’t misremember are 5% of the population but they own 50 % of the wealth.

That’s balderdash. In 2000, Swedish-speakers constituted 5.6 percent of the population, and held 8.8 percent of the nation’s wealth. Source: http://lta.hse.fi/2002/4/lta_2002_04_a1.pdf (table 7). Even with the affirmative action that they are entitled to in higher education, I think that in the near future the Swedish-speakers are going to lose even the vestiges of privilege that they still have.

As a curiousity Finland had the highest murder rate within the European Union.

Yes, I think it did have, until the high-crime Baltic republics became members of the union.

Old Whig March 23, 2011 at 9:18 pm

Well maybe I should have been clearer. If they hold 8 % of the wealth they control a very large portion of the economy.

In Sweden the Wallenbergs, it’s foundations and its bank SEB as well as the second conglomeratec Industrivärden with its bank SHB owns less than 8 % but controls over 50 % of the Swedish corporations. This is because Sweden and I think Finland also allows golden shares. They have A and B shares. A shares equals 10-1000 B shares (common stock).

Jenni March 24, 2011 at 11:28 am

The so called “old money” is much based in foundations, which in turn are giving money to politics. This is one of the reasons behind more than half of the nation being against mandatory Swedish studies in primary education, but all of the parliamentary parties (with the exception of True Finns) being for it.

my informed opinion March 24, 2011 at 1:13 pm

A lot of exaggeration.

Intentional homicide rates per 100,000 population.

http://en.wikipedia.org/wiki/List_of_countries_by_intentional_homicide_rate

In Finland this means 2.5 * 53 about 133 cases per year. In Germany, for example, this means 0.86 * 820 about 705 cases per year. Yeah, there is a difference but the amount of cases in _both_ these countries is so little to begin with that it has relatively little affect on anyone else but the victims of these crimes. So, a little perspective is needed here.

Lithuania 9.0

Estonia 7.1

United States 5.0

Latvia 4.8

Finland 2.5

Romania 2.3

Czech Republic 1.94

Belgium 1.82

Slovakia 1.74

Luxembourg 1.45

Hungary 1.38

Ireland 1.38

France 1.31

United Kingdom 1.28

Poland 1.21

Portugal 1.17

Italy 1.10

Greece 1.05

Denmark 1.01

Netherlands 0.93

Spain 0.90

Sweden 0.89

Germany 0.86

Allan March 23, 2011 at 2:06 pm

It might also be pointed out that Finland is the only country to fully pay reparations from world war II. I am not sure of the significance of this, but it sure makes Finns feel proud.

Dave March 23, 2011 at 3:08 pm

One more thought (and forgive me if this was state above): Fins speak *exceptional* English. Fortunately for them, their language is unrelated to any other European language besides Hungarian and Estonia. There is therefore a huge incentive to master a lingua franca to conduct trade abroad. Countries like Germany or Spain, whose languages have close relatives around the world and whose native speakers (in Spain’s case) number in the hundreds of millions, have less incentive to master another language to support trade and cultural exchange. To what degree international commerce and the ability to communicate well affect Finland’s wealth. . .well, I don’t have numbers for that. But it must be a data point of some significance, so I thought I’d mention as part of the conversation. D

pjt March 23, 2011 at 4:02 pm

True, nowadays the English skills of people in Finland are rather good. I might add one reason – in addition to the functioning school system – to this: television is not dubbed. I.e. when you watch The Simpsons, Lost, or CSI, or Inspector Morse, or Derrick or Der Alte or Pippi Långstrump, there’s the original soundtrack, no one is doing voice-overs in local language, and any foreign-language content is just subtitled. This means that
1) kids have an incentive to learn to read – once you can read the subtitles, you can follow more interesting TV programs
2) when you read the subtitles, you still hear the original language, instead of dubbed voice-overs. Thus, you are exposed to original, foreign language when watching TV. Much of the time this is English, but often also Swedish, German, Spanish, and other languages.

TV is of course less significant these days than what it was 20 years ago – now my kids are fluent in English because they use the net and play games.

my informed opinion March 24, 2011 at 1:26 pm

> True, nowadays the English skills of people in Finland are rather good. I might add one reason – in addition to the functioning school system – to this: television is not dubbed

Not this thing again. It is kind of a national urban myth. (Another one is about Estonians. They knew Finnish because they watched Finnish television. Well, that is wrong for just the same reasons.) The effect of television is a hugely hyped thing. But come to think about it, why would subtitling help? You still read _Finnish_, not English.

Besides, if the effect of television on _native_ people is marginal how big is it on _non-natives_?

http://english.marion.ohio-state.edu/behan/English271/LanguageMyths/Myth15.pdf

And now we see the myth perpetuating itself in another direction:

> now my kids are fluent in English because they use the net and play games.

Miguel Madeira March 25, 2011 at 1:14 pm

“But come to think about it, why would subtitling help? You still read _Finnish_, not English.”

But you are reading finish but listening English, then, unless you are deaf, you are learning English.

However, I doubt that this is a main factor, because I think that subtitles in the rule in most countries.

my informed opinion March 25, 2011 at 6:51 pm

What are you? A linguist? I just gave you an article by a linguist. You responded with an opinion. Give me one reason to trust you ever again.

Miguel Madeira March 25, 2011 at 7:36 pm

“What are you? A linguist?”

A Portuguese, living in a country with subtitles in the TV, and with many words introduced in common language by Brazilian soap operas (like “Tchau” – goodby )

Miguel Madeira March 25, 2011 at 7:52 pm

After reading the text, I think that it is largely irrelevant to the point – what the author said is that television does not make outside expressions entering in common language (I doubt about that, but let’s accept this as true); but nobody is saying that subtitled TV makes Finns or Portugueses using english expressions in daily life – what it is being said is that subtitled TV makes Finns (or Portugueses) more proficient in understanding (or talking when it is needed) English.

Then, if you want to refute this, we have to come with an article saying that TV (or mass media in general) does not make people more able to understand outside expressions (for example, you are sure that watching American movies does not make British people more able to understand American expressions?).

Jon Martin March 23, 2011 at 3:13 pm

This is going to raise some heckles but one of the main reasons Finland is successful is because of the equality. The schooling results are not so good because the schools are amazing (though teachers are highly regarded and well-educated); the schooling results are good because the schools are very similar. All the schools are solid with a good cross-section of students (pre-upper secondary). As a result it’s a more efficient meritocracy with students at the universities getting in on merit rather than other factors. I have taught groups of law students at Helsinki University where a decent proportion came from blue-collar backgrounds and it’s just not an issue.

I’d also say culture plays a large role in all this. Besides the honesty, Finns are quite pragmatic. You don’t hear much of the hyperbolic ideology-based nonsense you get in other countries. If something works, they’re happy to do more of it.

I am pretty positive about Finland’s future. Growth has returned pretty quickly since the depression despite Nokia’s woes and unemployment is lower than in most EU countries at 8% and coming down all the time. More importantly Finland’s size does seem to make it quite agile. Small successes can make a big difference and there are a number of exciting growth companies out there. The entrepreneurial ecosystem was more or less non-existent five years ago but now there’s a lot going on in several different high-tech areas. People always spoke of Nokia as being the freak occurrence that made Finland rich. My response was always that if the smart folks that worked there had to found their own companies you’d get much the same results. Quite a few ex-Nokia folks took the payoffs over the last few years and are now founding exciting companies. While Russia and Germany are growing we have large export markets in traditional industries too. Pensions are of course an issue but we already have a flexible retirement age (63-67) and there is almost an expectation that people will need to work longer. The pensions issue will not be a problem for ever either: we will transition to a pay-for-yourself system over time.

Rahul March 23, 2011 at 3:26 pm

” the schooling results are good because the schools are very similar.”

I fail to see the causality here. Why are schools better because they are equal? If a country had schools of varying quality, some good , some bad, and then if you could shake it all up to make all schools of the average quality would it improve things? What’s the connection between equality and quality?

chris March 23, 2011 at 3:48 pm

You didn’t read the rest of the paragraph? Higher levels of education can choose their students on the basis of ability, not who had the best prep school/whose dad is an alum/who can afford the damn tuition. That creates a “more efficient meritocracy” (Jon’s words).

It’s an interesting theory but I’m not sure it’s sufficient on its own — probably a contributing factor though.

pjt March 23, 2011 at 3:50 pm

I think it’s just that we don’t have really bad schools in Finland. The PISA evaluation results are a demonstration of that, not much more. There are a few schools that are very selective with their pupils, but one can argue whether these schools are really so good and great, or whether they get good output simply by being selective with their input of students. In the big picture, these selective schools are insignificant. The big picture is that all schools are just rather good, not maybe great, but there are no total failures, and not even partial failures – which seems to be more than you can say about many schools in USA, Britain, France or Germany. That means, everyone has a chance, and kids are not left behind just because their local school is so poor that they cannot go to higher education.

One significant factor is that there are very few schools that would have so many immigrants that the language used in class would be an issue. This is slowly becoming a problem, though, and people are arguing what to do about it. A school in Espoo, a suburban area of Helsinki, was recently closed because it reached a threshold where 30 % of pupils were immigrants. (This is an immigrant-rich tenement development called Suvela in the middle of a well-to-do suburbana around it; the pupils were scattered to other schools in the neighbouring areas). The town hall didn’t want to have a nominally Finnish-language school where Finnish would be a second language for most of the students. The decision was a bit controversial, because those who are favouring a vibrant and colourful community with plenty of diversity were not happy, but I think it was perhaps the right thing to do – even though this very school was still achieving reasonable results and the teachers were saying there’s not much of a problem.

JonF March 23, 2011 at 7:43 pm

I think you can also make the point that higher levels of equality mean much less social pathology of the sort you find in low income US populations (or simlar populations in other high inequality countries). Kids do better in school when their home life is not full of dysfunction and disaster.

chris March 24, 2011 at 9:54 am

True, but that’s socioeconomic equality. Rahul was asking specifically why *school* equality (with other schools) would have an overall positive effect. Simply put, the answer is that school inequality is a form of noise: you can’t tell whether any given student is doing well because he is smart, or because he has been to a superior school up until now. (Or vice versa for a student doing poorly.)

The effect of socioeconomic status on IQ and school performance is much the same, only stronger. (Indeed, it’s possible that the “school inequality” observed in the US is actually largely student SES inequality showing up in the outcomes and being misattributed to the schools.)

Jenni March 24, 2011 at 11:39 am

One obvious connection is that when every child is put into the same system, the people in power have more of an incentive to make the system good: if you know your own little Tarja is going to be in the schooling system whose faith you are deciding, you are going to deem it more important than if you and all of your politician buddies’ kids were going to the nice private school in Westend.

This is also the reason why private healthcare system is seen as such a big threat in Finland to the public healthcare system.

Jamie_NYC March 23, 2011 at 5:41 pm

“This is going to raise some heckles but one of the main reasons Finland is successful is because of the equality.”

Not sure about the ‘heckles’, but look at the people of Scandinavian ancestry in the US: same life expectancy as Scandinavians, but richer and better educated. No equality necessary.

Jon Martin March 24, 2011 at 4:28 am

Do you have data to back that up. It seems suspect.

Jack March 23, 2011 at 7:14 pm

the schooling results are good because the schools are very similar

Nope. The results are similar across the board because the students are similar, and the results are good because the students are good. Note that the PISA study showed that immigrants kids do rather poorly in school in Finland, too.

Jon Martin March 24, 2011 at 4:32 am

PISA showed that outcomes in Finnish education are less closely tied to socio-economic background than in other countries. Yes, immigrant children do less well for obvious reasons. Our immigrant children are largely either refugees themselves or the children of refugees. Educating them is a challenge but we do better at it than most other countries.

pjt March 23, 2011 at 3:27 pm

Yeah, although on the other hand, Finland paid because it was forced to. In the first place, the whole reparation business was felt as tremendously unfair, because everyone in Finland as well as Stalin himself knew perfectly well that the war started in 1939 was pushed on by the Soviets. The original reparation amount of the armistice treaty was cut substantially later on, as USSR was trying to “purchase” influence. This was moderately successful, but not enough to convince Finland to join the Eastern Block economic system willfully.

The war reparations constituted about 15 % or government expenditure in 1945-1949 and 5-7 % in 1950-1952. The last trains of war reparations material went out in 1952, which was a great year: not only end of that huge economic burden, but also hosting the Olympics (in retrospect, granting the Games to Helsinki was clearly intended to tie Finland up with the international/Western community and not fall under Soviet dominance) and Armi Kuusela becoming the first ever miss Universum. These may sound like small things but the significance was absolutely huge in post-war Finland.

So, Finland ended up having good trade relations with both the SEV countries/USSR and the EEC/USA. Interestingly enough, the current president Tarja Halonen was in 1970’s very strongly against making trade agreements with the European Economic Community and EFTA, the evil capitalists and warmongers.

Jack March 23, 2011 at 7:22 pm

in retrospect, granting the Games to Helsinki was clearly intended to tie Finland up with the international/Western community and not fall under Soviet dominance)

Originally, Helsinki was meant to hold the Games in 1940, so it was only natural that it did hold them after the war.

chris March 23, 2011 at 3:43 pm

A few weeks ago, there was a similar piece regarding France. How many more countries do you need to look at that have high taxes, generous social provision and are wealthy without concluding that high taxes and generous social provision are not necessarily the impediments to wealth ?

a March 24, 2011 at 6:33 am

Bravo! Exactly the question which needs to be asked.

[insert here] delenda est March 23, 2011 at 3:49 pm

Russia, which had far worse economic policies than Finland, yet is not too far from first world standards in the major cities

You are being rather generous to Russia, or your idea of ‘first world standards’ places far too little weight on being able to share your thoughts with someone and walk home in tranquillity, or even being able to just walk home in tranquillity full stop.

Jenni March 24, 2011 at 11:42 am

Having just visited St. Petersburg and Moscow, I also disagree with this. Although the averages might not be far from first world standards, it is the division between the poor and the wealthy that makes the difference.

Matt D March 23, 2011 at 3:53 pm

Do not underestimate sisu.

Slocum March 23, 2011 at 5:21 pm

Wiki says:

Nokia plays a very large role in the economy of Finland; it is by far the largest Finnish company, accounting for about a third of the market capitalization of the Helsinki Stock Exchange (OMX Helsinki) as of 2007, a unique situation for an industrialized country.

But now Nokia is in serious trouble. Globally, Nokia still has the largest market-share, but it’s shrinking fast and they just threw in the towel on future development of their Symbian phone operating system and adopted the Windows phone platform (thereby hitching their wagon to a more modern platform…that itself in the low single digits of market share). It’s hard to see Nokia making a big comeback against Apple and Google (Android).

JustaCommenter March 23, 2011 at 7:21 pm

Something I thought was conspicuously not mentioned:

Public tax records. To me this is a much more striking facet of their taxation system, compared to the relatively higher rate. Since when is it normal for a modern economist to ignore informational effects entirely?

DK March 23, 2011 at 9:11 pm

That is like the most simple question ever asked! The answer:

Finland is so rich because it is full of Finns.

dirk March 23, 2011 at 9:36 pm

DK, you’re a perfect candidate for my survey. Please answer if you will:

1. Should we return to the gold standard?
2. Does lipid theory explain heart disease well?
3. Does human activity likely increase global warming?
4. Do you think global oil production is near its peak?

Bonus question: Is Roissy right?

DK March 23, 2011 at 10:00 pm

dirk, I laugh at some of your comments all the time so I am happy to oblige:

1. Should we return to the gold standard?
I have absolutely no idea! I am 100% clueless when it comes to all things monetary. My guts tells me that gold standard is good because it represents something tangible. Ummm…

2. Does lipid theory explain heart disease well?
No, it does not. That I can tell you semi-professionally.

3. Does human activity likely increase global warming?
Specify “increase”. Some increase – of course yes. But how much of it? – I doubt anyone has a real clue. If someone tell you that they do, know that they are lying.

4. Do you think global oil production is near its peak?
Don’t know very much about it. Doubt it personally. My father is a retired geologist with expertise on resource prediction and he tells me that the cost will be higher but production volume is no problem for at least another 100 years. I am very much in favor of nukes in any case.

Bonus: I only read Roissy in the minutes of infinite boredom, so not sure about his full spectrum. That said, he seems to be right about 50% of the time.

dirk March 24, 2011 at 1:58 am

DK, appreciate your obliging me.

You scored a 16.55 on a scale of 2 to 23.

Also, you are a Libra.

DK March 24, 2011 at 12:47 pm

You scored a 16.55 on a scale of 2 to 23.

Check your calibration. I think it should have been 16.73

anthony morrison March 24, 2011 at 6:05 am

Finland best in the world educational system and high level of human capital. You then Russia, which Finland was in very bad economic policies, ask your questions on the quality of life in the major cities.An open economy with a lot of business not long ago by global standards can overcome, usually free of many than traditional data will find it. International market is a disciplined force and they can not be denied by the home government.

TGGP March 25, 2011 at 12:45 am

In Prescott’s paper he said that there was lots of empirical evidence but theoretical models were scarce. Given how cheap theory is to produce, that strikes me as implausible.

Regarding Chiina: it was for a long time the wealthiest and most advanced civilization on earth. It’s more recent poverty can be regarded as a temporary aberration caused by poor governance, as evidenced by the success of the “overseas Chinese” in numerous southeast asian countries. Mexico is lucky to be neighbors and trading partners with a particularly wealthy economy, that of the U.S.

My answers to your other questions:
1. The interwar “gold standard” was terrible. Optimally we should have a system of free-banking (which the Canadian system of that time approximated, though not as closely as the pre-Peel Scottish system). I’m also intrigued by Hayek’s proposal for the denationalization of currency. In the mean-time the Fed should set up an NGDP prediction market and target its collective forecast.
2. Don’t know, but I generally defer to the expert consensus.
3. Yes. I wrote a post at my blog titled “Why shouldn’t belief in HBD and AGW go together?” that also referenced some of the Mangan-crowd’s heterodox beliefs. It was an oversight on my part that I forgot to mention Mitchell Porter in that post.
4. Don’t know.
I don’t read Roissy.

Paul Johnson March 25, 2011 at 3:05 pm

I have to wonder if it is really possible to answer a question as to why one rich country is somewhat richer than the average rich country at a given point in time? Isn’t it like trying to explain after the fact why one company happened to be more profitable at a point in time than another profitable company in the same industry? Of course people will after the fact rationalize success (I was an outstanding CEO! – buy my book! etc…). It wasn’t so long ago that a colleague was explaining to me in very rational terms why Ireland was such as success story – “Paul, we had a coordinated plan with government-private partnerships to develop education, attract foreign investment … ”

We have pretty good ideas why countries are rich, middling, or poor – but that’s it.

Brett Stevens March 26, 2011 at 12:34 am

Why not admit that Finland’s success comes from within — a high-IQ, homogenous population centered around a culture of can-do adaptation?

dirk March 26, 2011 at 2:46 am

Was the cultural exchange between Sweden and Finland positive or negative? Wouldn’t a good fence between the two nations have made better neighbors, sparing them the degredation and economic deteriorating effects of diversity?

Blacklake March 31, 2011 at 7:59 am

Today is comig Tv-program about which race finnish are? It is known that our genotype is one of a kind. Maybe our genotype is same as jews? :) Anyhow, God bless us. There is lot of praying people in country where is a little people. In these days we have kept God number one,but soon He is forgotten here too. And schools are the first places where this renounce will effect ( it is allready! ). And that have an effect on everything else.

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