Finns have a weakness for jokes about themselves. One of them goes like this: if a German, a Frenchman, an American and a Finn were asked to write a book about elephants, each would produce something completely different.
The German would write a rigorous, two-volume study entitled “Everything You Need to Know About the Elephant.” The Frenchman, with his passion for existential anxieties, would write The Life and Philosophy of the Elephant. The American, with his well-calibrated commercial instinct, would publish without hesitation “How to Make Money with an Elephant.” The Finn would write a book entitled: “What does the elephant think about the Finns?”.
The joke works because Finns have a special relationship with their own identity: a combination of self-irony, introspection and a certain suspicion of the rest of the world.
Their history explains why. Finland has long been a nation between empires. The Finnish language does not resemble those of its Nordic neighbors. It is closer to the Uralic languages—some of which have surprisingly many similarities to East Asian languages—than to Swedish or Russian.
The political history is equally unusual. For about 600 years, Finland was part of Sweden. Then, for about a century, it became the territory of the Russian Empire.
It was not until 1918, after the collapse of the tsarist empire, that Finland gained its independence.
It is not surprising that a country caught for centuries between two imperial powers develops an obsession with autonomy.
To put it more directly: Finns have become very careful about who enters their home.
Foreign capital, considered “dangerous”
In the 1930s, this prudence turned into an explicit economic policy.
The Finnish government introduced a series of laws that classified companies with more than 20% foreign capital as — the official wording — “dangerous enterprises.”
It is probably one of the most straightforward legislative labels in the history of capitalism. Not “sensitive”, not “strategic”; simply: dangerous.
The result was exactly what was wanted: Finland attracted very little foreign investment.
When the British comedy group Monty Python sang “Finland, Finland, Finland… You're so sadly neglected and often ignored” in 1980, they probably didn't realize that this was exactly what the Finns were trying to achieve.
The myth of total capital mobility
Today, the dominant idea in the global economy is that states can no longer control foreign investment.
The argument is simple: multinationals are mobile. If a country regulates them too strictly, they may go elsewhere. Economists call this “voting with their feet.”
But the reality is less dramatic. In certain industries—such as clothing or toys—capital is indeed highly mobile. Factories can be moved relatively easily and workers can be trained quickly.
In many other sectors, however, things are much more complicated. Companies depend on local natural resources, specialized labor, complex networks of suppliers, access to large consumer markets, etc.
In such cases, the mobility of capital is much more limited than economic theory suggests.
China is the classic example: foreign companies don't invest there just because they can, but because they can't afford to ignore the Chinese market.
Why states want to regulate investment
An important reason is that the benefits of foreign investment are not always as spectacular as they are supposed to be.
Sometimes multinationals create real “industrial enclaves”: they import almost all components, use local labor only for assembly, and export the final product. Export the profits many times.
The actual transfer of technology or skills may be limited.
In other cases, local companies are simply squeezed out by competition from a far more efficient global corporation.
In the short term, productivity may increase. In the long term, however, the local economy may lose the ability to develop its own competitive firms.
The Finnish lesson
Finland has not completely rejected foreign investment. But he tried, for a long time, to carefully control them.
In an age where globalization is often presented as inevitable, the Finnish experience offers a useful perspective: states have more autonomy than they think.
Sometimes economic policy is less like an economics textbook and more like the elephant bench.
In theory, everyone is talking about the global market. In practice, each nation asks itself, in its own way: what does the elephant think of us.
Sources used:
1 Data from the World Bank, UNCTAD
2 M. Feldstein (2000), “Aspects of Global Economic Integration: Prospects for the Future”, NBER Working Paper, no. 7899, National Bureau of Economic Research, Cambridge, Massachusetts.
3 A. Kose, E. Prasad, K. Rogeff and SJ. Wei (2006), “Financial Globalization: A Reassessment”, IMF Working Paper
4. S. Reddy and C. Minoiu (2006), “Development Aid and Economic Growth: A Positive Long-Term Relationship”, DESA Working Paper, no. 29, September 2006, Department of Economic and Social Affairs (DESA), United Nations, New York.
5. Bad Samaritans. The Guilty Secrets of Rich Nations and the Threat to Global Prosperity. Ha-Joon Chang.
6. J. Stiglitz (2002), Globalization and Its Discontents (Allen Lane, London). See also the chapters in H. Chang, G. Palma and H. Whittaker (eds.) (2001), Financial Liberalization and the Asian Crisis (Palgrave, Basingstoke and New York).
7. B. Eichengreen and M. Bordo (2002), “The Crises of Now and Then: Lessons from the Last Era of Financial Globalization,” NBER Working Paper, no. 8716, National Bureau of Economic Research (NBER), Cambridge, Massachusetts.
