Newsletter 2/2011 1/9 ARE POLICIES OF REGIONAL RESTRUCTURING IN FINLAND ADEQUATE? Lessons from Kaskö – in a Norwegian comparison ment (more than one year without work) started By Åge Mariussen to grow almost exponentially, to more than 30 % of unemployment in 1994. Lots of people who lost Will Finland experience a crisis in the Eurozone? their jobs in 1990 did not succeed in finding a new If so, we have to take a new look at policies for job. Instead, they went from short term to long term industrial restructuring. unemployment. Finland and Norway have several small cities and This impact of the 1990 crisis had three main expla- geographically isolated industrial towns which de- nations. First, in terms of skills, layoffs came from pend upon one or a few industries, often based on industrial sectors which had not provided their em- natural resource extraction. However, unlike Fin- ployees with the qualifications they needed in or- land, Norway has been working with the develop- der to get jobs in the expanding services and ICT ment problems of these localities, seen as ”omstill- industries. Secondly, there was the spatial compo- ing”, since 1982. During the last years of economic nent. Growth came in larger citites, primarely with turbulence, these experiences have been summa- universities which could support NOKIA invest- rised in a Norwegian law on “omstilling”. The law ments and employ bright young people. Less mo- was approved by the Parliament in Oslo in 2009. bile seniors left in the wrong regions (and wrong If you fail to do ”omstilling” properly, the regional sectors) could not compete. Third, because the ICT- labor market is likely to generate long-term unem- driven growth was so strong, the focus of national ployment, which tend to reduce the level of em- and regional policy making at the time was how to ployment in the population. In this respect, Finland manage growth in the expanding clusters, not to is still carrying the burden of the 1990 crisis. solve problems in areas left behind. Impacts of the 1990s crisis in Finland today? In the problem areas, the dynamic was one-way. Once you go into long term unemployment, it gets The Finnish economy went through a deep reces- harder and harder to go back into work. Long term sion in the early 1990s. From 1990 to 1993 unem- unemployment figures get stuck at a high level. If ployment increased from below 5 to almost 20. we look inside the not-so-bad 2010 unemployment Then from 1994, as the ICT industry started to grow, figure of 8,5 %, we find that Finland in 2010 had a unemployment started to fall. When the ICT indus- share of 23,6 % long term (more than one year) un- try got into trouble in 2001, other sectors, such as employed. Long term unemployment in Finland in mechanical and energy industries, boomed. Today, 2010 corresponds to 2 % of the workforce. Similar Vasa with its electrotechnical and mechanical in- figures in Norway is 0,035 % and in Sweden 0,14 dustry cluster has replaced the ICT cluster of Oulu %. So what happens if you cannot get out of long as the hegemonic regional success story. In 2010 term unemployment? After a while, you stop look- unemployment in Finland and Sweden was roughly ing for new work. Then, you are no longer regarded similar, 8.5 % of the workforce. Not as good as in as a part of the labor market. This means that a high 1990, but after all similar to well-performing Swe- level of long-term unemployment indicates that the den. Perhaps not so bad, then? level of employment in the population has a down- word preassure. The working population in Finland However, what these figures do not tell is that the 2010 was 68,3 % of the population between 16 and 1990 disaster had a deeper impact. In 1990, the 64. It is somewhat higher than Germany, with 66,1 Finnish share of long-term unemployed of the un- %. But the German economy is carrying the burden employed was just above 2 %. In other words, very of reintegration between East and West, which was low. But from 1992 to 1994 long term unemploy- a formidable challenge in terms of structural unem- Newsletter 2/2011 2/9 ployment. Finnish employment is 7,8 % lower than This was published in June. Since then, the EURO Norway (75,4 %) and 4,4 % lower than Sweden (72,2 crisis has gone from bad to worse. This could lead %). The case in point is the age group which were to growth disruptions, also in well performing core between 35 and 44 in 1990. They are now between EURO countries, like Germany and Finland. Would 55 and 64 years. Here, only 56,3 % of the Finns are we like to see another 1990 in, say 2012, which working in 2010. This is 14,3 % lower than in Swe- leads to another round of long-term structural un- den and 12,3 % lower than in Norway. This is the employment followed by low labor market partici- long-term impact of the 1990 crisis we experience pation, say in the 2020s and 2030s? If not, how can today. these potential long-term damages to the Finnish economy be avoided? Given the current framework Keeping lots of people, including seniors above 55 of national economic policy defined by the EZ sta- outside the labor market simply is very expensive to tus, it is quite obvious that crisis management can- the balance sheet of the national economy. This is not rely on expensive Keynesian counter-cyclical illustrated through a comparison with other OECD experiments. It is equally obvious that structural countries in 2010. The OECD employment average transformations in the economy simply have to be (64,6 %) was lower than Finland (68,3 %). But this allowed to take place, despite the local pains they OECD average was veigted down by countries like may cause. This means that efficient solutions have Turkey (46,3 %), Hungary (55,4 %), Italy (56,9 %), to be sought at the regional level, where the struc- Chile (59,3 %) and Greece (59,4 %). These countries tural labor market problems of long term unem- do not have very impressive economic performanc- ployment and labor market exit are created in the es. On the other end of the scale, countries with first place. The question is: do we have the right high employment rates, we find well performing rules of the games of local and regional restructur- economies like Switzerland (84,6 %), Iceland (80,6 ing, including institutional arrangement to do this %), Japan (80,0 %) and the Netherlands (80,0 %). If in a smart way in Finland? you want to have a competitive and well perform- ing national economy, you can not just look at un- The Kaskö case employment, you have to take the employment rate into consideration. The employment rate, typi- In this respect, a comparison between the case of cally, is influenced by long-term processes, which Kaskö and the Norwegian approach to local and for all practical purposes can not be reversed on regional industrial restructuring, or “omstilling”, is an ex post basis. They have to be anticipated and interesting. Kaskö is a small municipality located in confronted ex post, before the damage is done. The the region of Southern Ostrobothnia with no large mechanisms which create these bad figures play city urban clusters driving growth. Until recently, out at the regional level. This is where they must be the town was dominated by a Metsä-Botnia pulp stopped. factory which started its operations in 1977, with 400 employees in a town with 1 400 inhabitants. The 1990s – again? The analysis made by Nordberg and Eklund came to the following conclusions: Is Finland today going in the direction of the 1990s? According to the Economic Outlook of the Bank of 1. The municipality and the union was taken by Finland (Bank of Finland, 3, June 2011, page 22) surprise. The closure of the mill came suddenly in 2010, without advance warning to the employees “A positive thing is that at least thus far there have or the municipality. In the beginning, the corporate been no signs of the labor market mismatches that owner seemed to be interested in setting up an in- typically result from a protracted weak employment dustrial park in the area owned by the factory. These situation.” assumptions formed the point of departure for the Newsletter 2/2011 3/9 first restructuring project. These plans were later re- are specially high in the 50 years and older group, vised by the owner. Access to the area, the buildings and they are also felt in the 25–49 year group. and equipment were closed, and the machinery was sold to a foreign buyer. The Norwegian law on ”omstilling” is based on posi- tive experiences with Norwegian resturcturing pro- 2. Support and policies to create new jobs was cesses in several small industrial towns. Important short term. The municipality obtained ERDF sup- components of these policies are: port for restructuring, which was used for develop- ment projects, aiming at new job creation. These 1. Early warning to regional authorities. Com- projects focused on broad based search to attract panies planning closures are committed by the external firms with reference to local assets, such as law to inform regional authorities in advance. well-developed harbor facilities combined with rail- 2. Negoriations between unions, company road. These projects are now finalised and further and regional authorities. Regional authorities work is not undertaken. A few firms has been set up are obliged to go into negotiations with the with support from these projects.