Economic Policy, economic policy, competitive strength, productivity, economic growth
Economic growth is still important source of improving living standards and, in the long term, labour productivity growth is the most important factor behind it. Productivity grows as a result of better utilisation of better technologies. In this, its first report, the Finnish Productivity Board examines the development of productivity in Finland from diverse perspectives, making use of national accounts, growth accounting and corporation-level productivity decompositions.
The financial crisis put an end to Finland's fast productivity growth, turning it into a decline. The main causes for the fall in measured productivity were the shock faced by the electronics industry and decline in the competitiveness of the Finnish national economy, which resulted in negative or weak productivity growth, even if employment stayed at quite a high level considering the poor economic cycle.
In Finland the drop in labour productivity was more severe and recovery was slower than in the reference countries. Total factor productivity started to fall as well. Total factor productivity is often considered as a measure of technologies and expertise, but this is only partially true. Total factor productivity measures the change in productivity in total that is not explained by other factors. Part of the decline in productivity is due to weak demand and competitiveness.
There are considerable differences between corporations in terms of productivity. In creative destruction labour force moves from low-productivity activities to activities where productivity is higher. At the level of the national economy this is a key source of productivity. Corporate dynamics featuring creative destruction has for its part maintained productivity growth.
Policy actions only have an indirect and uncertain impact on productivity. In policy interventions it is better to focus on maintaining and strengthening general conditions for productivity growth.