3 Oct 2017

NIB President: Trust a foundation of a well-functioning economy

NIB President Henrik Normann is speaking at the seminar. Photo: Tommi Tolkki / Ministry of Finance of Finland 

On 2 October, NIB President Henrik Normann participated in a seminar on economic transition arranged by the Bank of Finland and the Finnish Ministry of Finance. In his comment on the keynote speeched, Mr Normann emphasised the role of transparency and trust as key to maintain competitiveness and sustain economic growth in NIB’s member countries.

The seminar, “Building successful economic transition – Finland’s story and future challenges in countries of slowing transition”, hosted participants from the Finnish and international organisations, the business community, academia and media. The event was arranged as part of Finland’s centenary year programme.

In his keynote, Olli Rehn, Member of the Board of the Bank of Finland, drew parallels between Finland entering economic transition a hundred years ago, when the country gained its independence, and Finland today.

“Three factors were broadly relevant 100 years ago: primary and secondary education, forest income—which diffused among society at large—and a peasant factor—Finland never became a latifundia-type economy. The rule of law, education and high rate of female participation in the economy are Finland’s strengths today.”

He also emphasised the role of technology sectors in recovering from a zero-growth period in the latter half of the 2000s and productivity growth to sustain the momentum in the country’s economic development.

“Since the downfall of Nokia’s mobile business, health tech has taken over as a driver of Finnish high-tech exports. For the Finnish economy to continue growing, it needs to focus on recovering cost competitiveness, reducing youth unemployment, and continuing structural reforms. Productivity growth is achieved through education, innovation, investment and competition”, said Mr Rehn.

Sir Suma Chakrabarti, President of the European Bank for Reconstruction and Development, talked about Finland as a source of inspiration for many other countries where the EBRD invests.

“From the severe crisis in the 1990s, Finland came out much stronger, building an economy that is today both inclusive and knowledge-based. The EBRD was set up as a multilateral development bank to help the countries where we work become a bit more like Finland”, he said.

An inclusive market economy means economic opportunity for everyone, he explained. “If everyone has a chance to succeed in life, they are far more likely to join the workforce, pursue education or contribute to economic growth in other ways. This will strengthen transition towards market-oriented economies. Others have a lot to learn from Finland’s success in the field of inclusion and some other transition qualities”, said the EBRD President.

Sergei Guriev, the EBRD’s Chief Economist, concurred that, “both governance and inclusion are important to prevent reform reversals and sustain the direction of transition”. He also argued that countries in transition need growth to support political legitimacy of reforms:

“Without growth, inclusion and the rule of law are not enough. Redistribution in a non-growing economy is bound to end up in conflict.”

Mr Guriev also spoke about the main factors driving transition in the EBRD’s countries of operation. Unlike the economic growth in these countries in the 1990s, “the source of growth that was based on removing the inefficiencies of a command economy” has been exhausted in recent years.

Countries caught in the "middle-income trap" face the challenge of switching from the industrialisation growth model to a post-industrial, innovation-based model. “For that they need the rule of law, a good education system, a developed finance sector—institutions that promote competition, innovation, a decentralised model of production of high-value-added goods and services. Finland accomplished it in the 1990s.”

Henrik Normann, NIB’s President & CEO, was invited to comment on the keynote speeches. He said that Finland was chosen to host the Nordic Investment Bank’s headquarters back in 1976, “because the other Nordic countries wanted to show that Finland was an important member of the Nordic family.”

“Time has changed and today, out of the Nordics, Finland is the most integrated country in the EU. The recent decision of Nordea to move its headquarters to Helsinki was made because Finland is a member of the EU Banking Union”, Mr Normann continued.

“Along with the other Nordic countries, Finland has become one of the most competitive countries in the world. If I need to put in one word how Finland has achieved it, the word would be 'transparency'. There is trust and belief in institutions.”

Mr Normann underlined that this progress is not automatic and maintaining trust as a foundation of a well-functioning society and economy is key for further growth.

“Problems can be solved, if we act together. Finland and the other Nordic countries have taken positive steps with regard to sustainable development. The Nordic countries have managed to decouple economic growth from CO2 emissions. The challenges need to be seen in a broader context. Then we can change the future with a concerted effort”, said the NIB President.

Watch the seminar video