The Role of the Multinationals
Has Become Stronger

As the economy becomes more global, the influence of multinational companies increases. They put pressure on governments to open up markets for goods and capital and lobby them to endorse the international competitiveness of the companies themselves. In the same way, these companies urge local authorities to make capital gains their priority.

Over the last few decades, the teachings of neo-liberalism have been the driving force behind the most important power bases in developing the world. According to this view, expanding freedom and strengthening the position of capital forces will lead to a social development that will be of benefit to all.

In 1999 PSI, the international organisation for the public sector trade unions, issued the following warning to the public sector of the dangers of neo-liberalism: "Supranational companies actively defend political measures which advance their own interests at the expense of public services and the staff who provide them".

According to PSI, supranational companies have the following objectives:

• low taxation and a low level of public spending,
• privatisation of public services and products, and
• promoting the right of private ownership, together with amendments in legislation and other regulations to restrict public participation.

The emphasis on being market-driven to the detriment of everything else has increased inequality and insecurity in society.

Multinationals wield a great deal of power because the investment decisions that they take have far-reaching consequences, both good and bad, on the economies of entire regions or even countries. As bullying tactics multinationals use the promise of conditional investment, threatening to move their production elsewhere, resorting to bribery, exploiting the media and in extreme cases even using violence.

Nevertheless, there is a limit to their power. Although governments compete with each other in order to secure investments from the multinationals, policymakers do not have to accept any conditions whatsoever. The activities of both trade unions and popular movements on the one hand, and consumers on the other, curtail the operations of the multinationals. Competition between large companies also keeps the extent of their powers in check.

Finance Ministers
and Chief Executives of Central Banks

The policymakers at the centre of the economic and monetary policies of the industrialised nations also have very considerable power. According to an editorial in Helsingin Sanomat in June 2000: "The role of the finance ministers and chief executives of the central banks within the European Union countries is significant because of global competition between States and their alliances. Moreover, the changed communications climate ensures that global comparisons are certain to increase all the time, making people continuously demand new economic achievements from their political leaders".

The World Bank
and the International Monetary Fund

The World Bank and the International Monetary Fund – IMF have been notable power brokers in past decades. They have more or less dictated the fundamental economic policies of dozens of developing countries that are heavily in debt. The leading industrialised nations, particularly the United States, play a key role within these organisations.

Advice from the OECD

Although the Organisation for Economic Cooperation and Development – OECD has a low profile in Finland, top-level policymakers and the civil servants of the Ministry of Finance pay close attention to its recommendations. However, certain experts point out that these very recommendations are based on the general guidelines proposed by the Finnish Ministry of Finance. The seeming contradiction is not important because both policies seek to promote Finland’s integration into the global economy.

Money Provides Power and Opportunities

The poor, the illiterate and the hungry are powerless. They form a significant proportion of mankind. "If the poor do not get organised and secure political power, then development programmes are unlikely to reach them, or in any case they will not be in a position to bring about permanent changes. Aid will reach its target correctly only when the influence of the poor is increased", says the UN development programme – UNDP poverty report for the year 2000.

Wider Democracy

The leading media cloud the issue of the influence of multinationals by using the term "market forces" when referring to a small group of investors moving huge amounts of capital. These investors can, in a worst case scenario, make or break the world economy. One key issue for the future must therefore be a fairer distribution of power, meaning a process of democratisation. There is a need for this both within nations and the business world, and in influential international organisations such as the World Bank and the International Monetary Fund.

In order to have power and influence people must get organised and take action. It is on these factors that the future of democracy depends. If democracy is not extended, the most acute problems in the world cannot be solved.

Competition Upwards or Downwards?

At the beginning of the new millennium the pressure of neo-liberalism are felt throughout the labour market as well. If the trade union movement and its partners do not come up with an effective alternative, public services and the position of workers in all sectors will be jeopardised both in the industrial and in the developing nations.

In February 1998, during a seminar of the Municipal Sector Development Foundation, the researcher Raija Julkunen proposed various alternative national options for adjusting to the new conditions of international competition.

"… in order to adapt, nations use various strategies which are rooted in their history and the character of their national institutions. On the one hand, the question concerns the extent to which the developed countries are able to ‘compete upwards’ and, on the other, it concerns how their own dynamism results in ‘downward competition’."

"‘Upward competition’ – a method of adaptation based on know-how and innovation – is aspired to in many countries. In this type of model, the welfare state and its resulting economic, social and political stability and its social and humanitarian capital all have their part to play. But even if this strategy succeeds, it does not guarantee a social policy based on solidarity in caring for those who have no role in the world of know-how and innovation. Nevertheless, it offers a better starting point than the ‘downward competition’ model which encourages production and inward investment through cheap labour and a flexible labour market along the lines of the Anglo-American model. This road will inevitably lead to wider social inequality."

"The various aspects of globalisation affect a nation in different ways. Free movement of capital narrows the margins of economic and monetary policies. Free trade and changes in the international distribution of labour force national systems of enterprise to come up with innovations. Within the public services, the State is increasingly presented as a competitive entity which sets itself strategic goals and tries to make itself attractive to freely moving capital."

The Public Sector
Serves the Common Good

Although neo-liberalism has affected the whole of the public sector, the common good cannot be achieved without a democratically effective State power. This guarantees basic services for those who would otherwise be disadvantaged and at the same time it ameliorates the impact of capitalism in engendering problems such as instability and inequality.

It is not only individual members of the public, but the public sector as well that have an important role to play at both domestic and international levels. This is illustrated in the work of organisations such as the United Nations, the World Bank, the International Monetary Fund, the World Trade Organisation, the OECD and the European Union.

Globalisation within the business world underlines the need to regulate public power even more effectively. "Regulation will increasingly be needed at intergovernmental level, too, in order to prevent the onset of ‘downward spiralling’. Defending and developing the public sector accords with the common good of all working people - not just those in the State and municipal sectors - in all countries.

Those hostile to the public sector base their arguments on examples of malfunctioning central and local government administrations. The solution, however, is not to reject public sector services but to reform inadequate structures. Public sector organisations at international level also have weaknesses. Such self-criticism is minor, however, compared to the demands they make of central governments.

The Future of the Public Sector

In June 1998, the researcher John Evans addressed the future of the public sector at the advisory trade union committee of the OECD. He reminded his audience that the public sector’s share of GDP in industrialised countries has remained at around 40 per cent even though privatisation and deregulation have been strongly advocated for several years. "Central governments will ultimately be responsible for determining what proportion of the national income they control", he predicted.

In spring 2000 Public Services International – PSI expressed the view that fewer people were any longer blindly insisting on privatisation. "The World Bank, the WTO and the UN are beginning to show signs of increased understanding of the importance of the public sector to economic and social development.

"While the markets and the private sector have proved to be efficient in providing certain services, at the same time it has become clear that privatisation is not the right medicine for all ills", PSI noted.

The organisation concluded that the public sector has bounced back as a relevant alternative even to those who at the height of the privatisation boom were strongly in favour of taking it to the limit.

Companies and Governments

Businesses increase their competitiveness by becoming more international. This improves their prospects for ‘shedding dead wood’ wherever they operate. The consequences are felt at workplaces throughout the industrialised and the developing nations.

Competition at the beginning of the millennium is not starting on a level playing field. Large corporations operating globally are advantaged in many ways.

Competition is also largely affected by the internal rivalry between the leading economic powers, the European Union, the United States and Japan, a rivalry for which the World Trade Organisation serves as one of various platforms. Various import restrictions and agricultural subsidies have been among the key bones of contention.

"Investment Climate"

Back in the 1970s many developing countries looked upon foreign investors either with suspicion or rejected them altogether. Now every country, aside from a few exceptions such as North Korea and Afghanistan, are keen to woo them.

The success of a country depends on dozens of factors, of which the most important are labour costs and the educational standard of its workforce, distance from key markets and stability. Other factors include:

• availability of raw materials, subcontractors and labour,
• the state of telecommunications and transport ,
• environmental regulations,
• import and export regulations,
• regulations governing the transfer of profits,
• taxation and investment,
• the organisation and working procedures of civil servants,
• image-related issues,
• corruption and other criminality,
• the state of law and order,
• operations of rival companies in the area, and
• the influence and activities of trade unions.

All of these issues together yield ‘an investment climate’ in which investors weigh up possible advantages against disadvantages in the short and medium term.

The international trade union movement accepts direct international investment provided that investors respect the basic rules of the labour market. The right to form and belong to a trade union and the right to collective bargaining are among the key issues here.

While these minimum rights have been severely violated in dozens of developing countries, it was not before the end of the 1990s that such infringements began to worry the management of the multinationals. Nevertheless, policymakers at several multinationals still believe in gaining further profit-making opportunities by disallowing trade union activities.

The Return of the Public Sector

For the past two decades the world has been under siege from privatisation. This has successfully attacked inertia but at the same time it has increased equality. An editorial in Helsingin Sanomat at the end of April 2000 pondered the importance of the public sector. The piece shows that the privatisation boom has moved onto the next phase, the hangover:

"As far as the relative competitiveness of a country is concerned, taxation, the proportion of public spending and other factors do not seem to be the decisive factors; instead, it is the ability to adjust to the challenges posed by ‘the new economy’. The input of the public sector in all this may be significant, especially in smaller countries. In this context and in addition to the fact that the all-round welfare of residents can be maintained and strengthened through high taxation and high public spending, a sizeable public sector is quite significant as well."

Fiscal Constraints of Multinationals

National tax systems are increasingly important in an open economy. However, there is a danger that both the industrialised and the developing countries will try to attract investments from multinational corporations by changing their tax systems to favour major corporations. This practice can be prevented primarily through intergovernmental agreements.

"We must lobby governments to harmonise the taxation of supranational corporations at international level", PSI proposed in 1999. The organisation pointed out that governments have a right to express concerns regarding the terms on which companies transfer production from one country to another and their use of tax havens. European Union leaders have also tackled the situation. In June 2000 a proposal to close the loopholes offered by tax havens was discussed.

European Union Agricultural Subsidies
Damage the Developing Countries

One of the key issues facing the developing countries is that of whether the industrialised nations should continue to subsidise their agriculture heavily. These subsidies amount to more than EUR 330 billion annually. The European Union and its member countries pay a large proportion of these subsidies to their own producers.

In India, with one sixth of the world population, agricultural subsidies are rare. The amounts allocated are less than the taxes paid by the producers. "This is not competition but the result of having monopolies," said Vandana Shiva, a well-known Indian physicist and leader of the national people’s movement, in an interview with the online publication Corporate Watch, referring to unequal competition between the North and the South.

Low-paid Skilled Workers
are the Latest Lure of the South

Low wages are the biggest asset of the developing countries. The question we must now ask is whether competition will spread from manufacturing to other labour-intensive areas.

During the 1990s some developing countries started making inroads into sectors other than labour intensive industries. Professor Raimo Väyrynen pointed out in his 1998 book "Globalisation - Threat or Opportunity?" that "the combination of low wages and a highly skilled workforce is not just a theory, in fact it already seems to be a reality, with computer program production shifting to India, Malaysia and Mexico".

Similar trends have emerged in the health service in the past. A growing number of people in the industrialised countries have decided to buy these services from low-wage countries. Many Finns have opted for health services in Estonia and increasingly, people travel from the United States with its expensive health care to Mexico to visit a doctor’s surgery.

In order to cut labour costs, companies in industrialised countries also began transferring routine office tasks to developing countries at the beginning of the 1990s. This trend was initiated by American and West European airlines, travel agencies, banks and insurance companies. Work was transferred to India and the Caribbean. It will probably be just a matter of time before office work will be subcontracted from Finland to Estonia. A smooth transfer is facilitated by well-developed information technology and the fact that Estonians have a high level of education and a good knowledge of the Finnish language.

Globalisation Leaves Little Room
for Manoeuvre at Domestic Level

Finland’s position at the beginning of the 21^st century is fundamentally different from the situation back in the 1980s:

• By joining the European Union, Finland transferred some of its legislative power to the various institutions of the EU. While the country lost some of its sovereignty in policymaking, as a member of the European Union it has a part to play in bringing about solutions affecting the entire Union, Europe and the whole world in a much more direct way than before.
• By joining the European Monetary Union – EMU, Finland transferred monetary policymaking powers from the Bank of Finland to the European Central Bank. The common currency, the Euro, will replace the Finnish Mark, which means that Finnish political leaders will no longer be able to boost the export industry’s competitiveness by devaluing the domestic currency.
• The free movement of capital, goods and people poses new challenges to policymakers, as they must now allow for multi-faceted, global connections.

When leaders make decisions they must above all be aware of how these decisions will affect the position Finland occupies within the global economy. There is no room for mistakes that could well turn out to be very costly.

Ever-deepening integration has left little room for manoeuvre at domestic level. The same holds true for other nations, and even for the leading economic powers.

Adjusting to the terms of a global economy is controversial in many ways. The key issue is whether the political leaders are willing and able to maintain an environment favourable to business and investment without giving these an unfair advantage over other sections of society or endangering long-term development.

In making their decisions, those in power must continuously try to balance wages, taxes, social benefits, employment, training and education, research, enterprise subsidies, environmental aspects, housing and many other issues.

Strengths and Weaknesses

Finland is in a good position to succeed in global economic competition by a strategy of ‘upward competition’. At the beginning of the new millennium, Finland’s strengths are:

• a high international level of industrial competitiveness,
• a high standard of education and a skilled workforce,
• a well-functioning social security system,
• a modern infrastructure (transport, IT),
• an egalitarian income distribution,
• a stable society, and
• a positive image abroad

Finland’s prospects are clouded by:

• a public sector debt of about EUR 67 billion,
• a high rate of unemployment despite a booming economy,
• a rapidly ageing population,
• a society based on wealth and individual achievement to the detriment of the common good,
• widening income differentials since the 1990s, and
• geographical inequality, both between different regions of the country and between individual municipalities.

Consensus is a Good Starting Point

In an open economy nothing stays the same forever. Competition continuously raises new questions and calls for solutions for the future. Policymakers at all levels and in all sectors are facing difficult times. Which solutions will provide the best way forward in the future?

Social stability is of the utmost importance. A consensus between NGOs and leaders is the best way to make progress in developing a fair society.

Close co-operation between the social partners and the government, in place since the late 1960s, has given Finland a competitive edge. This co-operation is one of the keys to Finland’s success. The opposing parties, with their conflicting demands, have sought enduring compromises.

Common Responsibility

The future of Finland will also be influenced by the perception of its leaders and public of their common national and global responsibility. During the 1990s their respective views became widely divergent.

The severe recession at the beginning of the decade focused attention on internal problems, which led to substantial cuts in social expenditure and overseas development aid programmes.

Although the economy showed strong growth towards the end of the 1990s, Finland did not restore its overseas development aid to the pre-recession level of 0.7 per cent of GDP to which it had committed itself in international agreements. Instead, it decided to freeze aid spending at less than 0.4 per cent, the level of the recession years. Neither did expenditure on social welfare programmes return to its former level.

The fate of the overseas aid and the social welfare programmes starkly illustrates how much pressure there is to put the short-term needs of capital investors first while trying to adjust to the competitive terms of the global economy.

While corporate leaders accept millions in the form of share options, they are unwilling to tackle growing wage differentials. This is another sign of a loss of collective responsibility.

Tolerance

As the economy globalises, the welfare of societies will largely depend on the degree to which they accept ethnic and other minorities. Although tolerance increased in Finland during the last decades of the 20^th century, certain negative tendencies also appeared.

With a rapid rise in the number of immigrants, fundamental elements of narrow-mindedness and racial discrimination became apparent. At the beginning of 2000 there were 90,000 immigrants in Finland. This figure is likely to rise sharply in the coming decades. It is therefore crucial that everyone understands the need for greater tolerance.

Estonia’s Strategy:
Downward Competition

Estonia, which is a candidate for European Union membership, has opted for a development strategy of competitiveness based on low labour costs. Estonia has successfully attracted a significant number of Finnish and other foreign investors to its labour-intensive industries.

As the economy grows this strategy of downward competition increases the discrepancy between the prevailing reality and the wishes of the people. Consequently, there is a risk that skilled workers may leave the country in large numbers and economic growth will stall.

A Big Employer

In 1998 nearly one in four people worked in the public sector so the privatisation of public services and the introduction of competitive tendering hit the labour market hard.

According to, Jouni Riskilä, the head of the KTV organisation, the welfare state has many enemies in Finland nowadays, including some who claim to support it. In April 2000 Riskilä commented as follows:

"Take, for instance, those who call for massive tax cuts in the name of preserving the welfare state; what they really want is to cut public services by subcontracting them to private firms. In practice, this means that the services will be more expensive and that fewer people will have access to them",

Two Conditions

In February 1998, the researcher Raija Julkunen discussed the conditions for maintaining the Welfare State at a seminar organised by the Municipal Development Foundation.

"In essence, there are two requirements for preserving the welfare State: firstly, the State’s ability to raise public funds and tax economic activity, and secondly, a society which is sufficiently keen on the idea of a welfare State. Globalisation affects both. While it leaves it to domestic politicians to determine taxation, primarily in the form of income tax, high tax rates tend to result in slower growth and lower rates of employment. However, there are international solutions available to get round these problems and finding them is the task of the European Union."

Cutbacks under the Pretext of "the Recession"

"Cutbacks had the greatest impact on the public sector, which mainly employs women. Under the pretext of ‘the recession’, staff numbers have been cut time and again and employees have been given new responsibilities in addition to their existing duties. Workers lose their motivation, become stressed out and fall ill when they find that it is not possible to cope with all of their duties, even with exceptional effort. Shedding dead wood will ultimately undermine productivity and invariably deplete ‘productive resources’" - Professor Juhani Siltala writing in Helsingin Sanomat, 18 June 2000.

Competition within the Health Sector

At a health forum organised in June 2000 by the Ministry of Trade and Industry, Permanent Secretary Erkki Virtanen and Director General Kimmo Leppo of the Ministry of Health and Social Affairs held a debate on the role of competition in the health sector.

According to Virtanen, "normal competition raises the quality of the product". He based his views on results gained from the privatised motor vehicle testing centres. Leppo, on the other hand, was of the opinion that what works in one sector does not necessarily apply in another. He pointed out that experiments in the health sector elsewhere in the world had failed. Leppo warned that within a market-led health service, "small groups with great needs but without a voice get trampled on."

In Virtanen’s view, the biggest stumbling block to subcontracting in the health service is the small size of most municipalities.

The European Union
will Favour Private Companies

The public sector unions in Finland are sceptical of European Commission policy plans favouring private companies over the public sector. The unions’ view is that such a practice would be inconsistent with the principle of equal treatment.

In their joint resolution the unions conclude that "too much emphasis is given in European Union service procurement regulations to the issue of the lowest price. At the same time, the EU does not seem worried about the real problems that private companies bring with them, such as flooding the market at bargain basement prices, a lack of responsibility and democratic supervision, and poor quality. These problems have emerged with certain multinational companies running public transport in the cities, refuse collection services, water supply and sewerage services, cleaning and meals services to name but a few."

Public procurement has a major role to play within the European Union economy. By the end of the 1990s more than 10 per cent of the GDP of the Member States came from public procurement.

Skimming off the Cream

"The responsibility for providing services must lie with local authorities. Otherwise, a system that serves the entire population cannot be guaranteed. Private services in particular tend to target the better off, aiming to skim off the cream," commented Parliamentary Committee Counsellor Pentti Arajärvi at a seminar organised by the KTV organisation in May 2000.

Use of Public Funds Must
be Determined Democratically

In May 2000, Tuire Santamäki-Vuori, Vice-President of the KTV organisation, pointed out that subcontracting community services to the private or third sector would strip municipal residents of adequate rights and would jeopardise the community’s right to exercise overall control:

"Local authority services are financed through taxation. It is therefore important that any decisions regarding provision and supervision of these services are made democratically. At the same time, we must think of ways to improve the quality and availability of these services by extending the powers of both municipal officials at their place of work and of the residents who use these services."

Water and Sewage Services
Not Suitable for Privatisation

Privatisation of public utilities in Finland has made the greatest progress in the case of electricity. During the latter half of the 1990s a significant proportion of local authorities sold off their electricity boards in response to lucrative offers.

In the new decade the business world is showing an interest in the privatisation of other public services. For example the investment bank Icecapital Securities is already preparing for the next wave of privatisation, which could include water and sewage works.

In the view of the KTV organisation this is a dangerous development. In March 2000 the organisation called for Finland’s water and sewage services to be kept in public sector hands. "… water services must guarantee the availability of drinking water and appropriate sewerage, irrespective of whether these operations are profitable. Clean drinking water is one of the basic rights of human beings and must not be turned into a commodity."

"...the claim that competition will lower prices and improve quality is often given as a reason for privatising the water services. However, water and sewage services in France are now practically outside of any democratic control. Small groups of people conclude agreements with the water companies for decades and the prices these companies charge are only dictated by their own strategies", the KTV organisation argues.

Water shortages will affect all countries except Canada and the Nordic countries over the next ten years. As a solution to the problem, international investment banks and finance firms are keen to invest private capital in the water and sewage services. Public Services International – PSI, together with the European Federation of Public Service Unions – EPSU are campaigning against this development.

The KTV organisation and the Finnish State Assist the St Petersburg Water Utility

Finland, Sweden and the United Kingdom are co-financiers of the St. Petersburg Water Utility VodoKanal development project. Helsinki Water, Stockholm Water and the privately owned British firm Severn Trent are among the companies performing this work.

The KTV organisation adds an additional layer of trade union representation to the project. Although roughly 90 per cent of the project staff are members of a trade union, co-operation between the local union branch and the employer has been minimal. The KTV organisation is serving as an intermediary seeking closer co-operation between these two parties. Training forms a central aspect of this approach. Both trade union activists and the employer’s representatives are being trained to become competent trainers in the areas of working environment and work organisation.

Their goal is to develop the water utility in a way that allows for the needs of the staff whenever changes are planned. This is a formidable task as a phased reduction in staff numbers from 9,000 in 1998 to around 5,000 is planned.

The Majority View:
Privatisation has already gone too Far

A growing number of people in Finland have misgivings about subcontracting public services. Eighty four per cent feel that subcontracting has already gone too far if it affects the income level and job security of employees. More than a third do not regard subcontracting as in any way essential.

These are the views expressed in interviews conducted on behalf of the SAK organisation by Gallup Finland in February and March 2000. Ninety two per cent of white-collar employees and 88 per cent of blue-collar workers are concerned about subcontracting.