University of Helsinki, Helsinki, Finland
Seminar: Building successful economic transition
Ladies and gentlemen
It is an honour to be invited to speak about transition amidst some genuine experts in the field.
And pay tribute to its generosity as a donor supporting our work.
This is most definitely the case with Finland.
However, today I want to salute your country for some rather different reasons.
I want to acknowledge Finland’s very special status as a source of inspiration for many of the countries where the EBRD invests.
This is true of the Finland of today – at the end of 2017 – a country at the political, if not the geographical, heart of Europe.
It is true of the Finland of history, the country which is this year celebrating the 100th anniversary of its independence.
And it is also true of the Finland of yesteryear, the Finland which suffered so deep a recession at the start of the 1990s.
It is that Finland whose real GDP declined by 11 percent and where unemployment quadrupled over three years.
The Finland that then recovered and came out the other side stronger, building an economy that is today both inclusive and knowledge-based.
It is that Finland too which inspires your neighbours, many of whom now stand alongside you within the European Union, and countries further afield which dream of EU accession at some point in the future.
That period of the early 1990s is of special significance to the EBRD as well.
It coincided with our birth, itself the consequence of the extraordinary events that precipitated what is now known as the Finnish Great Depression.
This was the era in which the EBRD was set up as a multilateral financial institution of a new kind, one which was supposed to serve as a ‘unique structure of co-operation’.
The EBRD was devoted then, as it is still today, to the goal of transition, transition towards sustainable market-oriented economies.
Or, to put it another way, to help the countries where we work become more like Finland.
To achieve those goals we invest in changing lives and delivering economic opportunities for all.
Note the proviso ‘for all’.
We want no groups left behind on this, our common journey.
Of course, just like you in Finland, we have not stood still in our understanding of what makes for a successful market-oriented economy.
The years since our creation have deepened, broadened and refined our appreciation of what that success might look like and how to promote its development.
We have also learnt lessons from the experience of countries which were not able to follow Finland’s example and became, to borrow the title of one of the EBRD’s recent annual Transition Reports, ‘Stuck in Transition’.
This was not just an academic exercise, although it was of considerable interest to academic economists.
For the EBRD, updating the way we define transition is a basis for action, for better defining what our objectives are whenever we invest in or offer advice to our clients and partners.
I am going to do a quick run through of five of what we now call our transition qualities.
And then spend rather more time on number six.
The countries where we work have to be more competitive because greater competition means lower prices, more innovation, and better value for consumers, as well as more growth.
They need to be better governed because good governance and the rule of law promote trust, fairness and cohesion, and the political legitimacy of the market economy. Good governance also encourages investment.
They must be greener because a genuinely sustainable economy should protect natural resources and the environment in the interest of all, including generations to come.
They have to be more resilient because, with progress vulnerable to reversals, sustainable economies need to withstand turbulence and shocks.
And their economies need to be more integrated because integration, within and across borders, empowers both entrepreneurs and consumers.
That’s five so called transition qualities.
Last but not least comes the sixth, Inclusion.
A modern market economy also needs to be more inclusive because growth should benefit entire societies.
This is the quality that I want to dwell on.
And it is one about which Finland has a lot to teach our EBRD countries of operation – and many others.
Globalisation and the shift to market economies in our regions have resulted in huge benefits, with countries on average becoming much more prosperous over the last quarter of a century.
But not everyone has benefited equally from this transformation. Some have even lost out.
Yes, our regions have enjoyed impressive growth and have in fact converged with the West.
But some people have benefited less than others.
Those who lack opportunities due to their gender, age, place of birth or other circumstances, tend to live shorter and less healthy lives.
They are unfortunately unable to break the vicious circle of poor education, low skills and limited employment prospects.
Their children also have fewer chances to prosper in the future.
The result is a rising perception of inequality and unfairness, which in turn undermines faith in the market economy and indeed democracy itself.
It has also created the paradox whereby countries which decisively rejected the enforced equality that was a defining characteristic of the old command economies are now turning against its opposite.
They are reacting, sometimes vehemently, against what they see as the excesses of inequality.
They still believe that talent and hard work should be rewarded. But they object to the situation whereby success is driven by political connections, place of birth, gender, ethnicity or family wealth.
To counter all this, our vision of an inclusive market economy promises anyone, regardless of their gender, place of birth, family background, age or any other circumstances over which they have no control, full and fair access to labour markets, finance and entrepreneurship and, more generally, economic opportunity.
In the future, we will also explore ways of broadening this approach to include other groups that encounter obstacles to their development, such as ageing populations, refugees or minority communities.
Our vision is about far more than economic efficiency on its own.
Beyond its role in creating well functioning markets, fair and equitable access to economic opportunity is essential for encouraging broad support for market reforms and, ultimately, sustainable market economies.
If everyone has a real chance to succeed in life, they are more far likely to join the workforce, pursue education or contribute to economic growth in other ways.
This, in turn, will strengthen the transition towards market-oriented economies as a whole.
I could cite any number of EBRD projects which are promoting these very goals.
They create pathways into jobs and training for young people, women and rural populations.
At the same time, they also address the challenges businesses face due to skills shortages, lack of workforce diversity or poor access to new markets.
They also include projects which provide women entrepreneurs with credit lines and business advisory services.
Or projects which improve access to water supplies, and thus enhance economic opportunities for men and women in remote regions.
That is what we are already doing to promote Inclusion in the more than three dozen countries, across three continents, where we work.
But there is another approach open to us in our efforts to further the cause of Inclusion.
We can point to those countries whose achievements in this field are themselves exemplary.
Countries where regional inequality is very low.
Where education outcomes are very high.
Where the gender pay gap and the gender labour force participation gap are low.
Where women’s attendance in science and technology programmes is high even compared to that of its progressive neighbours.
Countries such as Finland.
I realise that the people of Finland, especially young people, still face challenges, in finding rewarding jobs, for example.
And I also accept that many of the EBRD countries will not be able to turn themselves into a new Finland, at least not immediately.
But a few have all but managed it – and within the last 25 years as well.
Others – and I include the EBRD in this category – have a lot to learn from Finland’s success in the field of Inclusion – and some of the other transition qualities I listed earlier.
Ladies and gentlemen, our work to promote the transition to market-oriented economies in the EBRD regions continues.
And, as you can see, we look to Finland for support, for ideas and for inspiration.
Thank you very much.