Book Description

Finland's reform efforts over the last 20 years have strengthened competition in many parts of the economy and fostered above-average growth. A key feature of reform has been the deregulation of important sectors of the economy, reversing a legacy of state control.However, the challenges posed by high unemployment and a rapidly aging population underline the need to spread reforms across all parts of Finnish society. Finland also needs to improve efficiency in its large public sector.The economy has also changed significantly, to complement the country's traditional strength in industrial goods and natural resources, an information and communications technology sector has flourished. RandD expenditure is now the second highest in the OECD, as a percentage of GDP. To build on those successes, further reforms are needed. The public sector remains large relative to other OECD countries, as do tax burdens. Although significant reforms of the public sector have already taken place, further steps are needed to promote greater efficiency. Finland has worked hard to improve its regulatory governance since the1980s, but stronger political drive for impact assessments of new laws and regulations, as well as supporting structures in the centre of government, would improve the efficiency and coherence of regulatory instruments.There is need for further reform, as Finland's population is aging more rapidly than it is in most OECD countries. The number of people over age 65 is projected to increase by more than 50% by 2020, and the labour force could start to decline within a decade. Rapid aging also underscores the need for labour market reforms. Although unemployment has halved since 1994, at 9% it is still above the EU average. Structural unemployment, especially long-term unemployment, remains a major problem. Centralized wage negotiations offer little incentive for improvement in sheltered sectors of the economy. Moreover, the regulatory regime does little to encourage unemployed individuals to return to work.