N ORDIC C OUNTRIES September 2008

Nordic Countries Office Stockholm Västmannagatan 4 11124 Stockholm Tel. 004684546592 Fax: 004684546595 email: [email protected]

4 - 2008

Caravan capitalism in the North? – The Case of Stora Enso Dismissals in Finland

by Antti Alaja The decision of Nokia to shut down its factory in the city of Bochum caused a wide- reaching political uproar in Germany last year. The concept of caravan capitalism, which was firstly used by the German minister of finance Peer Steinbrück, was consequently also used in the Finnish discussions. The German political protests encouraged thinking in Finland that maybe there are other possibilities than just adjusting to unfair decisions by the companies. In October 2007 the Finnish forest industry giant Stora Enso published its plans to shut down offices and factories in Finland and Sweden. This “case of Stora Enso” has ever since become a controversial and a symbolic theme in the political debates in Finland. A significant reason for this lies behind the fact that the Finnish state is the largest single owner of the company. In many European discourses the Nordic countries are often being portrayed as the winners of globalization, because of their ability to produce economic growth and do well in comparisons that measure economic and social development. The case of Stora Enso proves that globalization, understood here as opening international competition and accelerating industrial restructuring, should be considered to be a contradictory process even in a Nordic country like Finland. Stora Enso dismissals will have negative consequences to a balanced regional development. The limits of employees’ flexibility also limit the possibilities of active labour market policies. The discussion around Stora Enso has also raised the question of democracy. It has revealed a situation, where politicians avoid taking responsibility over economic matters that shape peoples lives.

In October 2007 the Finnish-Swedish redundancy notices were made public, they forest industry multinational Stora Enso have become a more and more published its plans to close down factories controversial theme in the Finnish political and offices in Finland and Sweden that debate. One significant underlying reason would mean the loss of a total of 1400 is that the Finnish state has the largest jobs 1. Ever since the Stora Enso single stake in the company. To be more

1 The Finnish Act on Coparticipation obliges companies to negotiate with the representatives of Summa, 214 in Kemijärvi and 170 in Anjala. The the personnel on redundancy notices. At Stora Enso paper mill in Summa was already closed in the these negotiations concluded in January 2008. beginning of February and it is planned to close Altogether 985 jobs will be lost in Finland. 450 in Kemijärvi mill in May.

1 N ORDIC C OUNTRIES September 2008

exact, its shares give it 35.1% of the votes 2 characteristic to stress that the welfare state in the company. Secondly, the Finnish must be seen as a precondition for success centre-right government has consistently in a global economy. In this context the refused to take action to prevent the welfare state’s ability to invest in people’s production cutbacks. One outcome of this capabilities and to produce human capital “Stora Enso case” has been the emergence is often mentioned. The Nordic model of of a visible social movement named collective risk sharing is seen as a key Kemijärven Massa, which is working to factor in maintaining a favorable public prevent the planned pulp mill closure in the opinion to free-trade and globalization- small eastern Lappish city of Kemijärvi. At friendly policies that are important for a more general level the dismissals have export-oriented industries 4. In this article I politicized the discussion of the possibility wishto use the example of the Stora Enso of political influence on multinational dismissals to point out that globalization, companies. The Nokia dismissals in the understood here as opening international German city of Bochum offer an competition and accelerating industrial interesting international parallel to the restructuring, should be regarded as a Stora Enso case, because the German contradictory process even in a Nordic reactions against Nokia have been country like Finland. As my analysis in simultaneously noticed in the Finnish this article will show, the Stora Enso discussions. According to Risto Uimonen, dismissals, in particular, will have a chief editor of the newspaper Kaleva the negative impact on balanced regional reactions in Bochum have prompted ideas development. Secondly long distances and that there may be other possibilities in natural limits to employees’ flexibility Finland than mere adjustment to global limit the possibilities of active labor market forces. Interestingly enough, the market policies. It is issues like these that concept of caravan capitalism 3 was should be taken into consideration when recently incorporated into Finnish political discussing “the Nordic model” as a vocabulary through the influence of successful model of globalization. The Bochum and Stora Enso dismissals. In the Stora Enso dismissals also call into Finnish context this is a notable change, question the legitimacy of democratic because it has not been common to use the institutions in Finland, because it has conflictual concept of capitalism, when revealed a situation in which politicians debating globalization in Finland. avoid taking responsibility over economic matters that shape people’s lives. The Nordic countries as a reference The forest industry as ann aspect of In many European discourses the Nordic Finnish industrial identity countries have been portrayed as the winners from globalization, because they The forest industry has traditionally been have been able to produce economic one of the core elements in the Finnish growth and do well in international economy. It had a central, even decisive, comparisons that measure economic and role in the Finnish industrialization process social development. On the other hand, in and many industrial towns were in practice the Nordic debates it has been built around paper factories. In a historical perspective, the forest industry has also 2 The votes linked to the shareholdings of the Finnish Social Security Institute are included in this 4 Implemented through its universal welfare state figure. model. See for instance the Research Institute of the 3 The concept of Karawanen-Kapitalismus was used Finnish Economy study: by German finance minister Peer Steinbrück, when http://www.etla.fi/files/1892_the_nordic_model_co he referred to Nokia dismissals in Bochum. mplete.pdf

2 N ORDIC C OUNTRIES September 2008

linked Finland more closely to Western seen as a part of this strategy. In particular Europe as most of the paper industry the Kemijärvi pulp mill closure has been products were exported to the “west”. widely criticized, because the mill has been Considering this background, it is obvious undoubtedly profitable. This was shown by that deep symbolic meanings, in addition the purchase offers received by Stora Enso to the economic and social considerations, for the mill, which have been refused are attached to the recent crisis of the offers to avoid further competition. Finnish forest industry. In the past years the discussion around the Finnish forest Exaggerated profitability expectations have industry has centered on the question of also been criticized in parliament. In whether the Finnish forest industry November 2007 several Social Democrat factories have a long-term competitive and Left Alliance politicians demanded future. the availability and price of timber, that as an owner the Finnish government digital predominance in offices and media, should define more moderate (7%-8%) a weak dollar, the shifting balance in the rates of return for Stora Enso. More world market and Russian plans to moderate rates of return would make it implement high timber tariffs have been possible for the closing paper and pulp some of the factors taken into account. mills to carry on, and this would mean taking regional and employment aspects A shift in state ownership policies into consideration in the state’s ownership policies. In his answer to opposition When the Stora Enso board announced the parliamentarians the minister in charge of mill closures in Kemijärvi and Summa, and government’s ownership policies, Jyri production cutbacks in Anjala, it cited Häkämies, referred to Stora Enso’s board rising costs and long-term profitability and experts, who according to Häkämies plans. Later on Stora Enso has also are capable of evaluating the long-term mentioned the uncertain availability of competitiveness and profitability of the cheap timber and impending Russian company. Political intervention in timber tariffs in 2009 as reasons for the company decisions would only scare off production cuts. In any case the claim that investors. According to Häkämies’s there is a shortage of cheap Finnish timber technocratic view, state ownership policies has been widely contested in the Finnish should not even be considered to be public debate. A forestry professor, Matti political. Kärkkäinen, has stated that Stora Enso has not declared its true reasons for the pulp In response to opposition criticism, the mill closure in Kemijärvi and that the government has claimed that it is only company’s argumentation has not been implementing the ownership policies that consistent. Therefore Kärkkäinen has were shaped by the previous governments, proposed a 10-year extension period for in which the main opposition party, the the mill. Stora Enso’s argumentation has Social Democrats were involved. The also been strongly rejected by the Finnish question of continuity stands at the centre Paper Workers Union. It claims that it has of party political confrontations in the shown most of the company’s arguments Stora Enso case as citing continuity to be false, and all of the arguments can at enables opposition criticism to be branded least be strongly contested. First and as populism. The social democratic foremost, critics of Stora Enso see demand for a shift of policy seems valid in exaggerated profitability expectations the light of the new Act on ownership behind the mill closures. After all, Stora steering and the government’s lack of Enso is trying to raise its profitability rate action in relation to the Stora Enso case. to 13%, and production cuts in Finland are The new Act on ownership policies came

3 N ORDIC C OUNTRIES September 2008

into force on the 1 st of January 2008, and decision by the mobile phone charger in contrast to previous legislation it does manufacturer Salcom to move its not consider active ownership policies if production from Kemijärvi to China led to the state possesses less than half of the the closure of a factory in Kemijärvi. The votes in the company. Secondly, the tendency of companies to shift industrial government resolution on active ownership production to countries with lower labor states: “The state does not accept or require costs and closer to potential markets has any exemptions, and ministries do not been called “ the China phenomenon” in intervene in the decision-making of the Finnish public debate. It was in fact the board of directors and executive Salcom dismissals that established the management of the companies”. The concept of the China phenomenon in government’s stated objective of active Finnish public consciousness. 5 So, for the ownership seems contradictory, if it second time in five years, the community simultaneously follows the policy of non- of Kemijärvi has ended up symbolizing intervention. wide-ranging changes in Finnish society.

The President of Finland, Tarja Halonen, The Stora Enso mill closure is estimated referred to the Stora Enso dismissals in her not only to have a catastrophic impact on formal address at the official opening of the community of Kemijärvi but on the Parliament on February 6 th . Halonen raised economic region of Eastern Lapland as a the question of whether the state’s current whole. According to a study by the ownership strategy paid sufficient regard to Government Center for Economic Studies 6, employment and regional aspects. She also the GDP of Eastern Lapland would be 31% emphasized parliament’s role in lower, there would be 1866 jobs fewer and determining state ownership policies. The the unemployment rate would be 22% case of Stora Enso was in fact taken to a higher, if the mill had never been built in parliamentary level when the opposition Kemijärvi. Against this background, it is moved a motion of no confidence in the hardly surprising that the mill closure plans government on February 12 th . The prompted a broadly-based social opposition claimed that the government movement, Kemijärven Massa , to oppose had acted in a passive and contradictory them. The movement has, for instance, way when negotiating with Stora Enso. opened an online petition against the The Act on active ownership requires closures, which was handed to the key employment and regional aspects to be cabinet ministers on February 4 th . A considered in ownership policies. The considerable number of demonstrators opposition’s view is that the government gathered in front of the Finnish parliament has failed to act according to these to hand over the petition. principles, and that it has also refused to give an open and detailed analysis to the The mill closure in Kemijärvi has received parliament of its involvement in Stora most of the Finnish media attention, but Enso. the 450 employees dismissed from the Summa paper mill in Hamina will also be Far-reaching regional consequences facing difficulties in finding work in the area around their homes. Luckily Hamina’s In the public discussions on the Stora Enso geographical position between Helsinki dismissals, the eastern Lappish city of Kemijärvi has been at the centre of 5 Kipeä Kiina-ilmiö. Suomalainen ay-liike ja attention. Kemijärvi is a community with a kansainvälistymisen haasteet. http://www.sask.fi/info/Raportit/Kiina-ilmi%F6.pdf population of 9,759 situated 896 6 kilometers north of Helsinki. In 2003 a http://www.vatt.fi/file/ vatt _publication_pdf/k368.pdf

4 N ORDIC C OUNTRIES September 2008

and St. Petersburg should offer greater The president of the Finnish Confederation possibilities for economic development of Salaried Employees, STTK, Mikko than the position of Kemijärvi in Eastern Mäenpää, proposed in reference to the Lappland. Stora Enso sold part of the Kemijärvi dismissals that Finland should Kemijärvi pulp mill to the Anaika Group, consider developing national globalization which is planning to run engineering and funds which would help the areas and gluelam beam operations in the factory. regions that have lost jobs to global Stora Enso has a more optimistic approach restructuring. According to Mäenpää, the to the employment possibilities and future present unemployment benefits and perspectives of this production than the flexicurity 7 measures are good systems, but local population in Kemijärvi. they are not extensive enough to meet today’s challenges. In today’s global Reaction from the unions - Are economy even profitable units can be globalization funds needed? closed down, which is exactly what the Kemijärvi case has shown. Mäenpää sees The Central Organization of Labor Unions, that the compensation offered by the state SAK, has demanded an extension period to areas suffering from restructuring are for the Finnish mills. SAK emphasizes that often lower than expected. Secondly, the other solutions must be considered before principles of the European Union’s cutting back on production. A study which globalization funds are problematic, would analyze timber availability and the because if dismissals take place some prevailing market situation in depth should regions receive compensation and some do be conducted before any decisions are not. This is why Finland needs a national made. In this context, the president of globalization fund to support the prevailing SAK, Lauri Ihalainen, pointed out that so systems. The fund could be financed by the far globalization has been largely favorable companies and the state, and employees for the Finns, because it has benefited the could also bear their share. Finnish export-oriented industry. It is exactly this kind of case, however, that Consequences for Finnish political demonstrate the vulnerability of employees culture in the times of change. Exaggerated profit expectations also undermine the good work The Stora Enso case started a far-reaching and commitment offered by the employees. debate in Finnish society, and it is still According to Ihalainen, the Stora Enso difficult to evaluate its political case has proved that Finnish society has consequences. It has been assumed by not been adequately prepared to face these different commentators that the dismissals kinds of radical changes. In future Finnish would put the ruling Centre Party under society must prepare far-reaching plans on pressure. It has agrarian roots and its how to act if structural changes occur. strongholds are still situated in areas like Ihalainen concludes that the closures eastern Lappland. This clearly implies a undermine the trust of citizens in possibility that the party could find itself in democracy because politicians seem to be serious conflict with its traditional powerless to assert their democratic supporter base. An expert on civic mandates against international market movements, Professor Esa Konttinen, forces. This could in future seriously compared the conflict in Kemijärvi to the weaken the central pillars of political trust birth of “The Finnish Countryside Party” and co-operation that have been so central SMP. SMP was a successful, but short- to the success of the Finnish system.

7 The closest Finnish to flexicurity, “muutosturva”, refers to security and change.

5 N ORDIC C OUNTRIES September 2008

lived protest party from the 1960’s until questions that concern their welfare and the 1990’s which consisted of a fraction income. that had left the Centre Party. The former chief editor of the centre-leaning The second political position portrays the newspaper Ilkka, Kari Hokkanen, also dismissals as unfortunate for the draws comparisons between SMP and the employees concerned, but then again it Kemijärvi movement. Both of the sees Schumpeterian creative destruction at movements reflect changes inside Finnish work as old factory jobs are being lost. society. The Centre Party is under pressure This perspective does not problematize the because globalization and the European diminished power of politicians and mainly Union have weakened the scope for emphasizes the need for the individuals to regional policies. The municipal elections adjust and be flexible, when conditions next fall will tell whether the predictions of change. Consider, for example, the views the Centre Party’s downturn in the of the former Centre Party Prime Minister, countryside will be realized. Esko Aho, on the Stora Enso and Nokia dismissals. In his article with John C. The Stora Enso case has also revealed two Kornblum 8 in the Frankfurter Allgemeine opposite reactions and political positions. Zeitung Esko Aho offered this analysis: Firstly, the Kemijärvi pulp mill closure has “Politicians may be mad. Workers may become a symbol for the impotence of demonstrate. From the perspective of democratic politics in an era of a global integration, these angry protests are globalized economy. The Kemijärvi mill useless. The problem is not companies symbolizes this change of industrial such as Nokia or Siemens, even though policies perfectly, because the mill itself they have much to learn about gaining was built in the 1960’s through a regional political acceptance for their investment policy initiative from the Centre Party decisions. It is about the new logic of President, Urho Kekkonen. The question global competition in the information age. of lack of power has been problematized Aho continues: “ The public debate too by numerous politicians, labor unionists, often still focuses on wages and job activists and citizens. The alter- security. But they are no longer the main globalization network, Attac Finland, has problem. The new paradigms concern probably been the most prominent market creation, mobility of resources and participant in discussing this issue. It risk taking as well.” Aho's and received a great share of media attention Kornblum's perspective solely emphasizes when it demanded a Finnish boycott of the progressive sides of Schumpeterian Nokia after the Bochum dismissals. creative destruction, and in their article According to Attac Finland, consumer they state without hesitation: “ The success boycotts seem to be the only effective of Europe in this process cannot be ways for citizens to oppose such injustices. measured by the traditional industrial jobs The network has also demanded a stricter saved, but by the number to be created .”. Europe-wide dismissals legislation that would protect employees from such acts of All the major political parties in Finland caravan capitalism. Social Democrat MEP like to be associated with the idea of the Riitta Myller also sees common caravan welfare state. This characteristic together capitalistic characteristics in Kemijärvi and with a consensus-oriented political culture Bochum. According to Myller, this sort of often leads to criticism of the small business logic has a negative impact on the will of citizens to participate. How can citizens be expected to have an interest in 8 John Kornblum is former United States politics, if politics can not influence ambassador to Germany. At the moment he works as a business advisor in Berlin.

6 N ORDIC C OUNTRIES September 2008

differences between the major political parties. The Stora Enso case has in any case shown that there are clear differences of opinion over the question of whether legitimacy can be found for industrial production cutbacks in the new rules of global competition. The Stora Enso case has revealed the passive and acquiescent position of the governing centre-right parties, but the Social Democrat position has not yet been clear enough on this issue. This is something that the Social Democrat Party will be discussing in the coming months, as they elect a new party chairman in June.

7