3.1 Rapid growth and recession
3.2 Forests and brains as natural resources
3.3 Change in corporate structure
3.4 Internationalization
3.5 From tar to printing paper
3.6 A small, open economy
3.7 Standard of living

3.5 From tar to printing paper

Forest industry products earned Finland a place in the international economy and community. As recently as the 1920s, exports were almost entirely based on forest industry products, mostly timber and pulp. Forest products comprised 80-90 per cent of total exports. Paper and pulp did not surpass sawmilling as the most important export sector until the late '20s and early '30s.

In the years between the wars, Finland was one of the world's biggest exporters of sawn goods and plywood. The re-opening of trade with the Soviet Union after World War II diversified the export structure. As a producer of oil and other raw materials, the USSR benefited from higher fuel prices in the 1970s and '80s. Correspondingly the decline in oil prices was a reason for the collapse of the Soviet economy. In the early 1980s the Soviet Union's export revenues influenced the country's import potential. So, during times of high oil prices, the Soviets imported more goods from
Finland, mostly engineering products, textile and clothing.

In the early 1970s, though, forest products still clearly dominated Finnish exports, especially to the West. Even in the early '90s, the forest industry generated more than half of the net currency revenues from European Union countries.

Structural shifts in forest industry exports in the post-war decades changed the degree of working up of exports in general. By the 1980s, Finland became the world's biggest exporter of printing and writing paper. The share of high value-added products in paper exports is significantly higher than in Finland's chief competitor countries.

This structural change has required major investments. Finland's capacity is now top-notch in technological terms. For instance the average paper machine is one quarter larger than in Canada and Sweden. Since the mid-90s, the Finnish paper industry has rapidly globalized through acquisitions. Many companies are world leaders in their sectors.

The internal structural change in machinery and electronics industry exports occurred quickly in the 1980 and '90s. The electronics industry's output multiplied seven-fold in the 1990s, thanks to growth in telecommunications equipment exports. Nokia became Finland's most important company, with a full one-quarter share of the country's total exports. The electrical and electronics industry's share of Finland's total exports has already reached 30 per cent. The paper industry's share is now less than one quarter.

As a result of the structural reform in exports, Finland has clearly specialized in two sectors, the forest and ICT clusters. This is both a strength and a weakness.

Global trade in forest industry products is susceptible to fluctuations in volume and especially in prices, as the international trade in forest industry products is relatively limited and the fixed costs of production high. In the past, Finland has primarily been able to achieve the adaptability caused by these fluctuations by devaluating its currency. This option has been eliminated since the country joined the European Monetary Union. Instead, there has been significant adjustment toward more flexible structures in the economy.

There are technological risks associated with the ICT cluster, since changes in technology are impossible to predict more than a couple of years in advance. However such generic technology that can be broadly applied, even if the development of telecommunications slows down. There are, however, no signs that the Finnish companies' special area, mobile communications, will slow significantly in the near future.