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Nationalism and Industrial Development in Finland

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Nationalism and Industrial Development in Finland Nationalism and Industrial Development in Finland Kari-Erik Micheisen Markku Kuisma Universityof Helsinki A quickscan of the historiographyof businessand economichistory reveals that both bodies of scholarshiphave focusedon large Western Europeancountries and the United States.This comesas no surprise.Modern businessinstitutions, entrepreneurs and ideologieswere born, raised and cultivatedin Western Europe and the United States. The emphasison developmentin Germany,France, Great Britainand the United States,has overshadowed the evolution of modern business life in small and less advancedcountries. As SidneyPollard points out, scholarshave often viewed peripheralEurope as a passiverecipient of new industrialproducts from the center,and a moreor lessunderdeveloped supplier of raw materials,surplus laborand foodto advancedregions [19]. Recent studies of smallerEuropean countriesillustrate, however, that this broadlyaccepted view is somewhat,if not completely,misleading. For instance,countries such as Sweden,Norway, Czechoslovakia,Poland and the Netherlandshad already developed large scale industriesand advancedbusiness institutions in the 19th centurywhich were comparable--notin size but in structureand function--tothose in more advancedcountries [10, 22, 5, 8, 12]. One obviousreason for the distortedpicture is that modernbusiness enterprisesand institutions in peripheralEurope are generallysmaller and less significantthan those in the United States, Germany, France and Great Britain. Smaller countrieswere not capableof providingthe capital,raw materials,energy resources, skilled labor, technologies and expertise required to build a diversifiedindustrial sector. Distinguishing the most promising industrialendeavors, and concentratingon them, has been an absolute necessityin smallcountries. In addition,private and publicsectors have had to find waysto collaborateand thussecure the necessarysupply of natural resources. Althoughthe evolutionof modernlarge scale industries and enterprises differsin manyways in peripheralEurope, the centerand peripheryshare similar origins.As Alfred D. Chandlerhas pointedout, salariedmanagers monitor and co-ordinatemodern businessenterprises. Also modern enterprisesare seenas evolvingfrom singleunit companiesto multifunctional, BUSINESS AND ECONOMIC HISTORY, SecondSeries, Volume Twenty-one, 1992. Copyright(c) 1992by the BusinessHistory Conference. ISSN 0849-6825. 343 344 multiregionaland even multinational enterprises [4]. Publicpolicy has shaped the evolutionof modernmultinational enterprises in the centeras well as the periphery.Yet the principlesof publicpolicy in centercountries often differ from those in the periphery.It is well known that anti-trust legislation protected free markets and controlled the growth and influence of multinationalenterprises in the United States,Germany and Great Britain.At the sametime, in the Europeanperiphery, public policy was structured so as to enhancecollaboration between the public and private sectors,and to restrictcompetition in orderto protectbig business.' It is our intentionto examinehow and why the Finnishgovernment created an environmentfavorable to the growth of big business.Finland providesan extremelyinteresting case. Although small in population,Finland rapidlydeveloped into a modernEuropean industrial state during the interwar period.This accomplishment was exceptional among the newnations that had gainedsovereignty after World War I. Why did Finlandsucceed where others failed? Historians have pointed out that Finland had already created independentlegal and bureaucraticinstitutions by the 19th century.Finland wasalso able to build relativelystrong national identity under Russian rule. Therefore,Finland was politically,socially and culturallyindependent and readyto set herselffree from the Russianempire. It is the aim of thisarticle to explainhow the businesssector reacted to publicpolicy introduced following World War I. We will arguethat the Finnishgovernment integrated private and state owned enterprises, as well as multinational enterprises,into a process that unified the nation and transformedFinland from an agriculturalinto a modernindustrial state. The coreof thisprocess was public policy deeply influenced by nationalism.Hence, we will arguethat nationalismplayed a far greaterrole in the creationof modern Finland than previouslythought. Nationalism encouragedthe governmentto createlarge state ownedenterprises, to allow foreignhigh technologymultinational enterprises to selectivelyinvade Finnish markets, and finallyto find a new type of industrialentrepreneur, "a patrioticmanager." Divided Nation On December6, 1917the Finnish Senate declared Finland independent from the RussianEmpire. The declarationof independenceended a century- longrelationship between the two nations. The decisionto separatethe Grand Duchyof Finlandfrom Russia was made rapidly after Bolsheviks seized power in St. Petersburg.The quickdeclaration of independencealarmed Finnish Socialistsand Communists,who declared their solidarity with fighting comradesin Russia.Conservative parties, however, were determined to secure independence.As a result,political polarization escalated and a bloodyand bitter civilwar wasfought during the springof 1918[20]. IStateintervention ineconomic and industhai development isoften misunderstood torepresent socialism.As we showin this article,state intervention also could be usedto preventsocialism and strengthennational institutions. See [19, pp. 159-63]. 345 As usuallyhappens after a civilwar, a nationis socially,politically and culturallydivided. Finland proved to be no exception.Victorious Whites controlledsociety. Communists and socialistswere imprisonedor forcedinto exile in Soviet Russia. This situation could not last long. The White governmentwas very much awareof the fact that a dividednation was unable to resistthe politicaland ideologicalpressures coming from the East. In addition,England, France and the United Statesdelayed their recognition of Finnishindependence aslong as the political situation in the countryremained unsettled.The White governmenttook the firststeps to unifythe nationin the fall of 1918.Red prisonerswere pardoned, concentration camps dissolved and moderate left-wing parties were granted political rights. In addition, land reformwas introduced which provided farming land to a politicallyunstable rural proletariat.Also, municipal governments were encouraged to startsocial housingprojects and employersto improveworking conditions in factories. Theseinitiatives were successful.The ideologicalgap between socialists and conservativesslowly narrowed and political tensions lessened. As the standard of livingrose, life returnedto normal.Two decadeslater, in November1939, whenthe SovietUnion attackedFinland, the nationstood solidly against the aggression[1]. The Collapse of Market Structure Finlandindustrialized during the lastthree decades of the 19thcentury. Lureberingin previouslyuntouched forests and incipient development of hydro powermade large scaleproduction of timber,pulp and paper possible.The dominationof Finland'sexport market by forestindustries is illustratedby the fact that wood,paper and pulp comprisedmore than 90% of Finnishexports in 1920 and over 80% as late as 1938. Table1. Mainexport goods in 1920and 1938 (%) 1920 1938 Timberand wood procucts 56.4 40.3 Pulpand paper 37.3 41.5 Forestproducts, total: 93.7 81.8 Otherexport goods, total: 6.3 18.2 Source:Suomen taloushistoria, osa 2. Helsinki 1982,p. 269. The wealth createdby forest industrieswas broadly dispersedin Finnishsociety. It is oftenargued that Finnishsociety and its culturalheritage have been built on forests. The dominance of forests in Finnish culture is derivedfrom age-oldtraditions. Historically, forest land had not beenowned by private companies,but rather by farmers,peasants and the state. Therefore,forest industries became dependent on farmersand land-owners whocontrolled the valuableraw materialsupply. This relationshipprompted 346 the movementof capitalfrom the industrialto the agriculturalsector. The agriculturalsector, in turn, suppliedforest industries with raw materialand skilledas well as unskilledlabor [21]. Finnishsawmills and tar producersestablished business relations with Europeanship-building and constructionindustries by the 17th and 18th centuries.These associations proved valuable in the 19thcentury, when rapid urbandevelopment in Englandand Germanyopened new marketsfor wood products.Finnish saw mills and lumber companies eagerly supplied these new markets.Just prior to World War I, Finlandwas estimatedto be the third largesttimber exportingcountry in Europe [2]. A sizableproportion of Finnishpulp and paper productswere sold on the Russianmarkets. An estimated80% of the total productionof paper in Finland was "exported"to Russiabefore World War I. The word "export"is slightlymisleading because the Russianmarkets were in fact domesticmarkets for Finnishpaper makers. Finnishpaper was very popular in the largeprinting houses of St. Petersburg, Moscow,Kiev, Odessaand Minsk. Justbefore the war the Finns controlled about30% of the Russianpaper market [17, 18]. World War I, the October revolutionand the Civil War in Russia changedthe structureof the paper market entirely.In short, the Russian paper market dosedwhen the Bolsheviksseized power. At the same time, World War I closedthe exportroute of timber from Finland to European markets.The dramaticchange in market structureis illustratedby the followingfigures: in 1910 about27%
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