Legatum Prosperity Index 2016

Finland Ranked 3rd of 149 on the 2016 Legatum Prosperity Index™

OVERVIEW A rising ability to turn wealth into prosperity has seen Finland’s prosperity rise over the past decade despite rapidly declining wealth.

In September 2015, Finance Minister Alexander Stubb dubbed his nation, Finland, ‘the sick man of Europe’ as GDP growth flat lined and the economy struggled to recover its pre-crisis levels. Wealth per head is significantly lower today than in 2007. Finland’s Economic Quality sub-index is suffering, having dropped eight ranks from 5th in 2007 to 12th in 2016. Yet this decline has not been reflected in Finland’s overall prosperity which has been rising, pushing the country into third place globally in 2016. Social and structural reform are behind Finland cheating its downward economic trend. Particularly successful are the Governance, Education, and Personal Freedom sub-indices- all of which have improved in the past decade, proving that greater prosperity can be delivered without rising wealth.

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Sub-Index Rankings In the Prosperity Sub-Index rankings, Finland performs best on Governance and Natural Environment and scores lowest on the Health sub-index.

Visit our Rankings table to see how Finland compares to other countries.

PROSPERITY GAP

The ‘Prosperity Gap’ takes a country's GDP and uses it as the yardstick to measure a nation's expected Prosperity Index ranking.

Finland’s delivery of prosperity to its citizens relative to its wealth is exceptional. The country boasts the highest ‘prosperity surplus’ in the world after New Zealand, which has only been improving over the past decade.

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COMMENTARY

The last decade has not been the easiest for Finland as the nation struggles with the aftermath of the 2008 economic crisis. At -0.45%, trailing 5-year growth is amongst the worst in Western Europe, only just ahead of Portugal, Italy, Cyprus, and Greece. Output is still well below its peak in 2008 and at 8.6%, Finland’s unemployment rate is the highest amongst its Nordic peers.

Could it be that Finland’s ‘Golden Era’ is over as stated by finance minister Alexander Stubb? Oulu in the north of the country was worst hit as the two sources of growth it was built on- timber and mobile phone technology- came to a crushing halt after 2008. Finland’s over dependence on one firm- Nokia- was particularly conducive to its economic decline. Indeed, Nokia generated one quarter of Finnish growth between 1998-2007, one fifth of exports and paid 23% of the country’s corporation tax.Finland’s’ export diversification index was amongst the lowest in Western Europe in 2007 and has yet to match the standards of its regional peers.

Nevertheless, despite increased economic hardship, Finland remains a very prosperous nation. It has enjoyed high levels of overall prosperity growth over the last decade, which have culminated in it being ranked the 3rd most prosperous country in the world.

Trailing 5-year GDP growth vs. prosperity growth in Finland between 2007 and 2016 according to the Prosperity Index. Prosperity has increased steadily in Finland over the last decade despite a considerable drop in GDP growth caused by the 2008 crisis.

The nation’s key drivers of prosperity are its Governance and Natural Environment sub- indices, ranking 1st and 2nd respectively. Finland has the world’s strongest rule of law and the best government effectiveness in Europe. Yet, government confidence has faltered by

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22% since 2007, suggesting that the tough austerity measures imposed are not so popular amongst citizens. Extremely low levels of air pollution and strong pesticide regulations are strong contributors to Finland’s high levels of environmental wellbeing.

Good governance combined with the easy and simple process of starting a business venture in Finland, has maintained the country’s Business Environment in the global top 10 over the last decade. Not only does launching a business take only three procedures but Finland also has the best intellectual property protection and ease of resolving insolvency in the world. This makes it a particularly attractive place for ‘start-ups’. Indeed, the country has experienced a sharp rise in ‘social entrepreneurship’ with thousands of companies in the environment, health, and culture sectors making their mark. Additionally, Finland has made broadband access a legal right for every citizen, contributing to it having one of the highest rates of internet penetration in the world.

Having risen from 12th in 2007 to 3rd in 2016, Finland’s education system is an inspiration to all. The country spends heavily on education, training, and research, leading to it having one of the best qualified workforces in the world. The number of secondary vocational students has risen by 60% since 2007, placing Finland first globally in this variable. The nation also enjoys the highest quality of education in Western Europe. These achievements are particularly due to extensive education reforms which have sought to localise the system, teach by relevant ‘topics’ rather than exclusively by subject, and improve teacher quality by ensuring that their qualifications consist of nothing less than a master’s in education. With a 27% rise in citizen satisfaction with the education system since 2007, and with 95% of respondents feeling that children have the opportunity to learn and develop every day, it seems that the world has a lot to learn from Finland’s successful education reforms.

Social reform has been supported by structural improvements. Alongside improving Governance, Personal Freedom too has been on the rise, up ten ranks since 2007 to rank 8th. Rising tolerance and the legalisation of same-sex marriage has done much to drive the rise. Thanks to this social and structural investment, Finnish prosperity has cheated its economic fate.

Ways to make a change Click on the Tweets to help make a change in your nation.

1. Falling wealth, rising prosperity: what can Europe learn from Finland, its most prosperous nation? 2. A poisoned Apple? Is Steve Jobs to blame for Finland’s economic decline? 3. Europe’s most educated workforce- can Finland reclaim its entrepreneurial greatness?

4. How Finland broke every rule- and created a top education system.

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SPECIAL ANALYSIS Finland’s economy has been in decline since the 2008 crisis with poor growth rates and rising unemployment. Despite such challenges, Finland is the country which delivers most prosperity to its citizens relative to its wealth not only in Europe but also in the world after New Zealand.

Areas of success Governance is Finland’s strongest asset, ranking 1st in 2016, and consistently in the top five in the last decade. Here the rule of law has improved by 12% over the last decade to being best in the world. Corruption perception and government effectiveness rank 2nd and 3rd respectively. Environment is a close second, ranking 2nd in 2016. Air pollution has been reduced and wastewater treatment has improved by 24% since 2007. Notable improvement has come in the Personal Freedom sub-index, where Finland has climbed from 18th to 8th over the last ten years. This is predominantly a result of a 37% increase in LGBT group tolerance and the Bill passed in 2014 for the legalisation of gay marriage.

Areas of little change Little movement has been recorded by the index in Finland’s two strongest areas of prosperity: Governance and Natural Environment. Both have maintained a stable position in the global top five over the last decade. Ranking 1st and 2nd respectively in these sub- indices, Finland needs to ensure that such stability in Governance and Natural Environment ensues over the years to come to avoid lower prosperity.

Areas for improvement Unsurprisingly, the largest absolute decline has come in the Economic Quality sub-index, Finland has fallen from 5th to 12th in the last decade. This is predominantly a result of the 2008 crisis and the demise of its two main industries: timber and Nokia. This has caused a surge in unemployment levels that the country is struggling to curb. Finland is one of the only European countries that is yet to recover its pre-2008 growth rates. Wealth today remains over $3000 per head lower than in 2007.

Visit Finland’s country profile on www.prosperity.com.

Legatum Prosperity Index 2016 www.prosperity.com