Study: Global changes require the state to play a more active role in steering the economy

In future, the state will need to play a more active role in steering the economy. According to a study published on 26 April, short-term shocks, such as the COVID-19 pandemic and the war in Ukraine, have required the active involvement of states to ensure the sustainability of their economies and societies.

The study, conducted for the Government’s Economic Council by Demos Helsinki, the OECD’s New Approaches to Economic Challenges team and the BIOS research unit, examined how changes in the global operating environment are changing the role of the state in steering the economy in Finland. According to the study, the mitigation of climate change and biodiversity loss, the division of the economy into blocks due to geopolitical tensions, the ageing of the population and the effects of new technologies require the state to assume a stronger steering role in the economy and to learn new capabilities. The pressures for change will also challenge the long-term direction of Finland’s economic policy.

Finland’s economic policy has traditionally been characterised by striving to balance general government finances by curbing public expenditure and indebtedness. Finland has also been critical of deeper economic policy integration in the EU. In a situation where solving the ecological crisis is creating billions of euros of investment pressure and the United States and China are investing unprecedented amounts in green technologies, Finland needs to find the right balance between fiscal consolidation and the public investments required for the green transition. The implementation of the green transition and, for example, the reconstruction of Ukraine after the war may raise the question of strengthening closer economic policy cooperation within the EU.

The United States has invested massively in domestic production, and Europe has also started to pursue a more active industrial policy. As geopolitical tensions intensify, Europe will have to invest more in self-sufficiency in critical sectors, such as energy. Finland must be actively and proactively involved in the discussions when changes in trade and industrial policy are made in the EU, so that the changes also work for the benefit of smaller EU countries.

In the future, labour market policy may need new models of coordination between the state and labour market actors, for example to steer the transformation of the economic structure caused by the ageing of the population, the green transition and the development of technologies, and also to curb inflationary pressures through labour market policy.

To succeed in the midst of these drivers of change, the state needs to play a more active role in steering the economy. What is essential is the state’s ability to form an up-to-date overall picture of changes in the economic operating environment, as well as providing steering and creating incentives for focusing society’s resources on the implementation of politically decided strategic goals. It is also important to ensure stronger coordination between different policy areas and sectors of society in the economic transition.

The publication is part of the implementation of the Government Plan for Analysis, Assessment and Research for 2022.

Inquiries: Julia Jousilahti, Senior Expert, Demos Helsinki, tel. +358 40 722 4931, [email protected], and William Hynes, Head of Unit, OECD NAEC, tel. +33 663 754 237, [email protected]

The Government’s joint analysis, assessment and research activities (VN TEAS) produce data used to support decision-making, everyday operations and knowledge-based management. They are guided by the Government’s annual plan for analysis, assessment and research. The content of the reports published in the publication series of the Government’s analysis, assessment and research activities is the responsibility of the producers of the data in question and does not necessarily represent the view of the Government. For more information, visit https://tietokayttoon.fi/en.