From the periphery to the core

When did Finland become integrated into the world economy and European trade? The answer can be found through glimpses into certain times in the mid-19th century.

The prestigious magazine The Economist first included Finnish sawn timber in its stock quotations in 1856. Not much later, the British consul in Helsinki, Henry Woodfall Crowe, reinforced the notion of Finland as a land worthy of attention in a report to London: “In the vast forests which cover the greater extent of Finnish territory lies the chief wealth of the country.”

But why hadn’t the leading financial magazine included Finnish wood products in its lists until then? After all, timber had been shipped to Great Britain from Finland since the 1700s.The Finnish shipbuilding materials of tar and wood had been a part of the Europeans’ efforts to conquer the world since the 1600s at least, indirectly contributing to the commercial and military pre-eminence of first Amsterdam, and then London.

We could look further back in history. The royal courts and flourishing commercial towns of medieval Europe had a nearly unlimited thirst for furs, which was satisfied with the fruits of Finnish forests, among others.

Trade and cultural contacts extend back to ancient times, though undeniably, Finland remained for a long time a forested wilderness right on the northern periphery of Europe – a kind of Ultima Thule. Even though European and international networks had always reached this far north, transport links could be weak and the actual metropolitan centres of trading, population and power were very far away.

Issues of national sovereignty also played their part. In the 17th century, Finns were citizens of a European superpower: not Finland but Sweden, into which the region had merged already in the 12th century. As a by-product of the Napoleonic Wars, the Finnish population came to be ruled by another superpower from 1809 onwards, this time as a Grand Duchy of the Russian Empire.

As a Grand Duchy, Finland was self-governing and applied the western legislation it had adopted long before; it was a constitutional state with traditions and relatively extensive freedom to build the foundations of a sovereign nation-state. Of course everything was ultimately done within the boundaries set by the centralised imperial power, but with several dozen nations under the same umbrella, these boundaries could be surprisingly flexible.

Finland was permitted and occasionally even encouraged to modernise its institutions to favour the progress of the market economy and industrialisation. For example, in 1860 St. Petersburg granted Finland its own currency, the Finnish mark, which five years later was detached from the unstable rouble and linked to the European silver standard instead. Traffic and transport were developed with canal and railway projects following the model of the pioneer of the industrial revolution, Great Britain. The first proper commercial banks were established in the 1860s, almost hand in hand with the European trend. Finland set its customs frontiers as early as 1809, and although foreign policy was still led from St. Petersburg, Finnish companies had a lot of freedom in operating internationally. Finnish merchant vessels sailed the world’s seas and the Grand Duchy conducted a growing foreign trade. By the end of the century, Russia was no longer even the major trading partner.

The aforementioned listing by The Economist came at a time of swift economic transformation when the unintended by-products of political and military collisions of certain superpowers – the birth of the Grand Duchy of Finland and the development of the Finnish nation-state – began to seep into the European consciousness.

For example, in British trade statistics, imports from Finland were still classed as coming from either Sweden or Russia in the early 19th century, in line with the historic political divisions, but by the 1850s, Finland was separately classed. The Economist was forced to update its listings, especially as Finnish timber producers had for decades accounted for around one tenth – and occasionally much more – of all the timber imports into Britain.

Finland’s more intense integration into the global economy progressed largely thanks to the influence of St. Petersburg and London.

Russia gave a green light to liberal reforms, which opened doors to the breakthrough of modern industrial capitalism in Finland. Additionally, the St. Petersburg and, indeed, Russian market as a whole nourished the emergence of large-scale industry in the Grand Duchy.

The free trade policy led by London spurred growth, and industrial and technological progress. Free trade, a cohesive monetary system and the spread of technological advances were turning most of Europe into a huge economic area. A European common market was close to being a reality in the 19th century: the continent was characterised by similar aspirations towards industrial progress as well as a cosmopolitan cultural and financial elite that crossed ethnic and geographic borders without any difficulties. Finland was included in this great wave, although with a slight delay in comparison to the most progressive spearheads on the continent.

The trend in itself was actually unsurprising, with the European population nearly quadrupling and the international trade increasing fifty-fold between 1750 and 1913. In the period from 1820 to 1880, world trade grew to nine times its former volume. Therefore it was almost inevitable that even the northernmost edges of the continent would become linked to growing world capitalism.

Thanks to its wealth of forest resources, Finland attained integration in the role of a raw material producer. In the 17th century, tar from Swedish Finland dominated the Western European market, while in the late 19th century Finnish and Swedish sawn timber competed for leadership of the continent’s major marketplaces.

The expansive sawmill industry linked Finland to the British-led world economy better than anything else could. Soon it was joined by another sector of the forest industry: pulp and paper production.

An industrial structure that relied entirely on forestry was problematic, yet long-lived. In fact, as the international division of labour increased and integration continued, Finland’s one-sidedness only deepened. Between the World Wars, over 80 per cent of Finland’s exports consisted of forestry products, declining to some 50 per cent in the 1950s and even 30 per cent still in the 1980s.

In light of these figures, Finland’s rise from one of Europe’s poorest marginal countries in the 19th century to among the wealthiest nations in the world by the late 20th is something of a miracle. The lot of a raw material producer is not always rosy in the global economy.

The miracle is partly explained by the positive long-term price development of forestry products, and by terms of trade that were favourable for Finland.

Other underlying factors were socio-political and included the ownership of forest property: the government put an end to a centralisation trend at the turn of the 1920s.Thanks to forest ownership being spread out among hundreds of thousands of farmers and landowners, the income from industrial exports was distributed quite broadly across the national economy, where it fuelled progress and entrepreneurship.

The strong forestry cluster, meanwhile, led to the development of new sectors that were initially only intended to serve the wood processing industry but would later grow into global success stories in their own right: high-tech drivers such as Nokia or the elevator company Kone. In view of Finland’s historic links to the forest industry, the emotional response of Finns to the rises and falls in Nokia’s fortunes is actually unsurprising.

Seen in this way, the Finnish miracle shows that is possible to advance from poverty and a marginal position as a raw material producer to being integrated in the global economy, with more than moderate success.

Markku Kuisma
Professor of Finnish and Nordic History
University of Helsinki

Published 2014-03-05 at  14:56 , updated 2014-04-15 at  12:48
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