and Finland in the Cold War International Economy:
mutual economic relations intensified and became more equal.
Finnish GNP per annum had reached that of Sweden by the end of
the century. Investments were made in both directions, and
Finnish companies competed with Swedish ones, alongside the
traditional wood processing industries, in the fast growing
information and telecommunications sectors. Large-scale
corporate mergers and acquisitions between Swedish and Finnish
businesses were the keyword of the 1990s and thereafter.
this development towards greater integration of the national
economies several factors were at play. Starting from a lower
initial level, Finland’s growth rates were higher than
Sweden’s throughout the period, thus helping to close the
gap between the two national economies. In trade theoretical
terms the growing similarity in the demand structures of the
two national economies created greater potential for mutual
step-by-step liberalisation of international trade and the
lowering of national barriers to economic transactions
beginning in the 1950s, the geographic proximity of the two
countries, among other things, has been mentioned as a
contributing factor in the increase in these contacts. The
character of both as small, open economies in terms of in- and
outflows of factors of production contributed similarly. The
development of intra-industry trade was significant especially
from the 1960s onwards, highlighting the fundamentally
transformed nature of Finnish-Swedish economic interaction if
compared to the pre-Second World War period or earlier.
overall diversification of Finnish exports, that is, the
greater variety and quantity of exportable goods in the 1960s
and the 1970s, increased Finland’s trade not only with
Sweden, and foreign direct investments, which saw a marked
increase in the 1980s, were hallmarks of the general
internationalisation of the Finnish economy as a whole. In
this process Sweden was well placed as a contributor, or as
can be seen in the following, as collaborator.
these more easily quantifiable factors, there were factors
such as language, culture, religion, traditions and customs,
climate, similarities in taste and design, business culture,
easy access to knowledge about market opportunities, readiness
for risk-taking close to home markets etc., which all can be
considered to have created favourable circumstances for
increasing economic interaction between Sweden and Finland
during this period.
introductory list of factors influencing economic relations
between and Finland and Sweden over the post-war decades
highlights how there can be numerous factors that were in
various ways related to a structural
change of the Swedish and in particular the Finnish economies, what
their foreign trade consisted of, their trade patterns, income
and production levels etc., which all can be analysed as
explanatory factors behind this phenomenon. In addition to
this, several psychological factors may be helpful.
this paper the rise of economic activity between Sweden and
Finland between 1944-73, mainly the increase of trade, is
analysed against a set of foreign political and foreign
economic policy priorities and goals. The first aim of the
paper is to outline a broad framework for political
and institutional analysis of international trade, in
which political and institutional factors related to creation
and hindrances of trade as well as the political significance of trade can be assessed. The main
theoretical points of departure are the state-centric realist
approach to International Political Economy represented among
others by Robert Gilpin and institutional economic theory
developed by Douglass C. North.
is analysed first is the institutional and organisational
setting regulating economic relations between the countries,
which will be followed by an overview of the increase of
economic interaction until 1975. Second, the political
motivations and goals in establishing and influencing the
institutional setting will be analysed. Finally, the political
outcomes of increasing trade are outlined.
is argued is that the rapid increase of Finnish exports to
Sweden between 1963-73 influenced the perception of Finland as
a Nordic country not only in economic, but also in political
terms. This change in Finland’s attachment to the western
European economy through Sweden, and to a lesser extent Norway
and Denmark, should be added as an explanatory factor in the
Soviet Union’s policy revision after 1968, when a tougher
approach towards Finland's international status was adopted in
the other hand, both the growth and diversification of Finnish
exports was closely linked to official export promotion
campaigns and encouragement by the political and
administrative decision-makers so as to achieve Finland's
economic integration to the West through the Nordic region in
general and Sweden in particular. This campaigning should be
taken into account as an explanatory factor in the rapid
increase of Finnish exports to Sweden in particular in
framework and sources
the type of political and institutional analysis applied in
this paper main emphasis is on the analysis of non-economic
motives attached to, and non-economic
outcomes following international trade and the political
and administrative direction of international economic
activities in general.
motivation to study the administrative regulation and
political interventions to bilateral economic relations is
twofold. First, there is a need to establish the
politico-administrative and institutional setting for the rise
of economic activity between the countries in the post-war
decades. In order to do this research is needed on trade
policy, trade negotiations, administrative practices, official
promotion of mutual economic interaction and high political
studying both of these broad themes, and seeking to find the
links and relationships between them, the main focus of
analysis is besides basic economic motives also on
non-economic motivations of the policy-makers. It may be held
as an a priori assumption that the primary motive of all
economic actors is eventually to maximise their economic gain.
But when it comes to the regulation of economic activity,
including its active promotion, other interests come to play.
These interests are not necessarily in conflict with the
motivations of the economic actors, but they shape the
organisational and institutional setting for economic actors.
Here these non-economic motivations are expected to arise
primarily from the power politics of the cold war
international system - economic orientation signifying a
country’s international position, regional stabilisation -
and from the politics of adaptation to changes in the
defining global political experience in 1945-1991 was the
system of structured and regulated superpower competition
known as the cold war. The structure was the result of the
system of alliances built mainly in 1945-55 and the regulation
a function of the nuclear build-up, which made conventional
war between the two main poles impossible. War was waged by
proxy, in particular in the third world, and power-political
competition found outlets in the non-military fields of
economic, social or cultural-ideological interaction. Trade
policy, subsidies and sanctions, or the direction of the
international economic system towards either the
capitalist-liberal or the socialist models, were dimensions of
the master conflict.
explaining the cold war international system, two closely
related fields of scholarship have attracted particular
attention over recent years. The first debate has concerned
the rise and the responses to economic and political
interdependence in Western Europe after the Second World War,
manifested in what today is a large body of literature on
various aspects of economic and political integration between
European nation states, culminating in the European Union of
the 1990s. Related to this have been the studies conducted
upon EFTA and Nordic co-operation.
second debate has dealt with the ways in which the
international economic system of the post-war decades should
be understood in relation to superpower competition and the
geo-strategic considerations of the cold war. As societal,
cultural as well as the economic spheres were influenced by
and had influence in the way in which that conflict developed
and ultimately reached its end in 1989-1991, a conceptual
shift in cold war studies has occurred.
general, the traditional, realist or neo-realist school
stressing geo-strategic and geopolitical interests, their
definition, and responses to perceived threats to the national
interest, has given way among others to constructivist
approaches stressing the significance of culture and the
societal dimension as a whole, leading into the return of the
concepts of ideology and ideas back to the research agenda.
Questions of not only how but why certain events happened the
way they did, and what were the ultimate driving forces behind
political behavior (ideology, security etc.) in the cold war
are now at the centre of scholarly attention. The debate on
the essence of the cold war has in terms of its analytical
focus and methods applied been similar to the first one in as
much as its main concern has traditionally been on concepts
such as military or economic power, open or latent conflict
and international negotiations and bargaining.
end of the cold war seemed to vindicate the approach
propagated already in the 1980s by International Political
Economy scholars, who had brought international trade and
financial regimes on the agenda of International Relations.
But one of the most difficult issues in the dialogue between
economists and international politics experts was, and still
is, about the nature of economic activity and its analytical
economic activity is studied from the viewpoint of factors
that are not directly related to economic activity as such, or
factors that are not its direct material consequences, the
fundamental question of the purpose of economic must be
tackled. Robert Gilpin has pointed out how:
economists, trained in the discipline of neoclassical
economics, believe that the purpose of economic activity is to
benefit individual consumers and maximize efficient
utilization of the earth’s scarce resources. While other
values may be important, they are not of fundamental to
economists qua economists. The basic task of economists is to
instruct society how markets function in the production of
wealth and how these markets can be made most efficient. How
societies then choose to distribute that wealth among
alternative ends is a moral and political matter lying outside
the realm of economic science.”
contrast, in the study of political economy the purpose of
economic activity is a fundamental issue. Is the purpose of
economic activity to benefit individual consumers, to promote
certain social welfare goals, or to maximise national power?
In most studies of contemporary global political economy a
salient question is the way in which societies decide to
pursue particular strategies in economic policy. Whether they
decide to rely on the market or some other mechanism to
allocate productive resources and the distribution of national
product is a political decision arising from the set of
priorities agreed by the decision-makers irrespective of the
type of the political system they operate in. In most cases:
social or political purpose of economic activities and the
economic means to achieve these goals cannot be separated. In
every society, the goals of economic activities and the role
of markets in achieving those goals are determined by
political processes and ultimately are responsibilities
delegated by society to state.”
the viewpoint of a political and institutional analysis of
trade and trade policy this highlights the necessity to
understand the political purposes, rivalries, and cooperation
of states, which interact to create the framework of political
relations within which economic forces operate.
statement on the relationship between political and economic
activity is a useful point of departure for not only in
analysing decisions behind particular domestic economic
strategies, but also on the relationship between the origins
and execution of national power and the international economic
regime. Although Gilpin's main interest has been to explain
the evolution of the global political economy, the
state-centric approach is useful in conceptualising bilateral
economic relations, in particular during the transitory period
from regulation and protectionism towards liberalisation
and international economic interaction
to Douglass C. North institutions
the rules of the game in a society or, more formally, are the
humanly devised constraints that shape human interaction. In
consequence they structure incentives in human exchange,
whether political, social, or economic. Institutional change
shapes the way societies evolve through time and hence is the
key to understanding historical change.”
exist, North argues, due to the uncertainties involved in
human interaction; they are the constraints devised to
structure that interaction. On the other hand, institutions
create the incentive structure in an economy and organisations
will be created to take advantage of the opportunities
provided within a given institutional framework.
is hardly controversial to say today that institutions affect
the performance of economies, and that economic changes cannot
be separated from the institutions
that either instigated them in the first place, or influenced
ongoing changes towards specific, consciously determined
goals. The latter claim is key to the analytical framework
used in this research.
are the institutions in question here? First, an important
distinction must be made between organisations and
institutions. If institutions are the "rules of the
game", organisations are created to provide a structure
to human interaction. They include political bodies, economic
bodies, social bodies and educational bodies, for example.
is not difficult to list the political, economic or
administrative organisations involved in economic and
political interaction between Sweden and Finland. A more
challenging task is to identify the institutions involved and
their significance. Such institutions that have been relevant
can be found mainly on four levels: domestically, bilaterally,
regionally (i.e. at the Nordic level) and internationally.
in both countries' international trade policy a corporatist
policy-making framework was adopted and developed since the
early 20th century, in Finland's case since its independence.
The corporatist frame sought solutions to conflicting
interests arising for example between exporters and home
market industries as a result of protectionist tariffs and
The inclusion of various organisations representing different
interests into the policy-making process can be understood as
an institution in North's sense, incorporating and
legitimising different domestic views and preferences in the
on the bilateral as well as the regional Nordic levels it has
been distinctive how the way in which expectations of Nordic
co-operation has influenced activities on various fields. In
can be argued that there has been an a
priori expectation that the Nordic countries would treat
each other preferentially for cultural, social as well as
practical material reasons embedded in their national
self-interest. Between Sweden and Finland this has been seen
in the way in which mutual goodwill and trust has been
expected as an important ingredient in bilateral trade
negotiations. Even it this good-will could not always be
realised, and expectations have failed, there is strong
evidence of the presence of this good-will factor during the
1940s crisis years and reconstruction period, when the
stabilisation of Finnish society was both in the Swedish
material self-interest as well as the goal of many private
people and organisations for general humanitarian reasons. On
the level of Nordic co-operation these expectations were high
in the 1960s, although not much thereafter.
the international level we can find institutions in the
practice of diplomacy, the conventions in signalling
policy-change, or agreement or displeasure in other nations' behavior.
In the Nordic context there has been a particular wish that
the other Nordic countries would consult each other regularly
in major foreign policy issues, and a marked dislike for
are also various informal constraints in the ways in which
states interact with each other despite the anarchic nature of
the international system. These constraints can among other
things be seen behind liberal notions such as the
impossibility of democratic nations to go to war against each
other and the related concept of the so called 'democratic
research is based mostly on official trade data and statistics
and the material of the central policy-making organisations in
Sweden and in Finland. In both countries the foreign
ministries have been central co-ordinating authorities, which
means that their archives contain extensive documentation on
Finnish-Swedish trade, trade policy and trade promotion also
beyond their executive remit. Classified material is available
until 1975 in both countries.
institutional and organisational setting
post-war period began very differently in Sweden and Finland.
The way in which Finland eventually closed the gap between
them, exemplified by rising living standards and their
simultaneous membership in the European Union in 1995, was at
best a utopian vision and not held by many in the 1940 and the
1950s. Sweden had remained outside the Second World War, its
economy intact and its political leadership willing to engage
its country positively in the post-war reconstruction of
Europe. Finland, on the other hand, had fought two wars
against the Soviet Union, 1939-40 and 1941-44, the outcome of
which led to formidable challenges in the reconstruction of
the country’s political and economic life. Whereas Sweden in
1944 seemed to be a source of stability in a war-torn Europe,
Finland seemed dangerously unstable.
to Sweden, Finland’s room of manoeuvre in international
trade policy was limited. Until the peace treaty was signed
with the Soviet Union and the Allied powers in 1947, the
making of independent Finnish international trade policy was
hamstrung in several ways. The strongest influence was the
fact that it was committed to large reparations deliveries to
the Soviet Union that were to last until 1952. Due to Soviet
attitudes also, Finland could not participate in the
Western-led attempts in Europe’s economic reconstruction and
integration that took shape from 1947 onwards.
This raised Finnish decision-makers’ expectations about
Swedish assistance also on the political field more than would
have otherwise been the case.
domestic affairs were also complicated by the needs to settle
more than 400,000 refugees from the eastern territories
acceded to the Soviet Union, by the reconstruction of its
economic and social infrastructure and the management of its
political system which faced severe tension between the
non-socialist parties and the communist left. Especially the
emphasis put on agriculture, which was largely a result from
the needs to solve the immediate refugee and resettlement
problem, placed Finland’s agricultural protection high on
the agenda of its international trade negotiators.
bilateral relationship between Finland and Sweden was closely
connected to their overall policy orientations in
international economic policy. Bilateral economic relations
were in principle governed by the policies and regulations
concerning international trade and economic interaction in
general. Sweden’s and Finland’s behavior in economic and
financial organisations established after the war under the
umbrella of the United Nations (UN) was similarly dependent on
their general foreign trade policies, where they followed
widely different strategies until 1961.
aspired to avoid being drawn into discussions on trade
liberalisation and sought to preserve the levels and forms of
protectionism defined domestically by the government and the
relevant interest groups.
Sweden, compared to Finland, was prepared to accept an
increased degree of flexibility in the international trade and
financial regimes and could follow more easily the drive
towards liberalisation in the 1950s, despite its reservations
to quota liberalisation and exclusive European-wide schemes
which conflicted with aspirations to global liberalisation of
the Second World War Sweden followed low tariff policies and
participated closely in the trade and financial institutions
that were created both on a global and regional basis. Besides
favouring continuing liberalisation of world trade, Sweden was
apprehensive lest politically as well as economically
motivated economic blocs emerged in Europe and elsewhere. In
the first post-war years it promoted East-West trade and
sought to enhance economic co-operation under the umbrella of
the UN. It subsequently participated in the Organisation of
European Economic Co-operation (OEEC) and benefited from
American Marshall-aid in its balance of payments position. In
the 1940s and 1950s Sweden’s trade policy was marked by low
tariffs and reliance on quotas in its trade regulation.
contrast to Sweden, up to 1961 Finland followed a policy of
intensive protection of its home markets and wide-ranging
regulation of its economic interaction with the outside world
Main instruments in Finnish post-war trade protection in
addition to tariffs were quotas and payments arrangements,
which gave the official authorities a pivotal position in
managing the in- and outflow of goods and payments. In
addition, a significant part of Finland’s foreign trade was
managed through bilateral trade arrangements with the Soviet
Union, which was continued until 1991. Due to its special
relationship with the Soviet Union, Finland was barred from
closer co-operation with Western regional economic
organisations, until to the signature of the association
treaty with the EFTA in 1961. In the same vein, Finland could
not participate in the discussions for Nordic economic
co-operation until mid-1950s. As it did not receive Marshall
aid, it did not have to take part in the liberalisation
process of the OEEC and quietly dragged its feet in the
General Agreement of Tariffs and Trade also, which it joined
addition to the attempts towards a global liberalisation of
trade and payments, Sweden and Finland were closely affected
by the institutional changes in Europe aiming at regional
economic co-operation, and ultimately, economic and political
integration. Sweden’s relationship with European integrative
processes from 1950 onwards was more complex, but compared to
Finland Sweden had a larger room of manoeuvre in the
definition of its position towards Europe.
However, both countries found the linkage of regional economic
co-operation with the cold war blocs problematic. Sweden’s
problems with the institutional development were explained on
the basis of its foreign policy of ‘non-alignment in peace
aiming at neutrality in war’, or neutrality policy, which
was interpreted to preclude participation in economic blocs
with political underpinnings, such as the European Economic
Finland’s problems arose primarily from its special
relationship with the Soviet Union, which was based on
political ties and geo-strategic realities as well as economic
dependencies, and secondly from its attempts to establish and
follow a credible neutrality policy.
the early 1960s several developments brought Finland into a
similar position in institutional terms with Sweden towards
Western economic organisations. But in actual economic and
political terms, Finland’s situation continued to depend on
the closeness to the Soviet Union on the one hand, and the
current stage of its economic development on the other. This
was seen again in 1968-70 during the abortive
NORDEK-negotiations, and in 1970-72, when Finland and Sweden
negotiated their trade agreements with the European Economic
differences in the countries’ economic and international
political circumstances notwithstanding, both countries could
identify common interests politically and economically in
these contexts. Despite the condition and the stage of
development of their respective economies, both were small,
open economies in the sense of their dependence on large-scale
international in- and outputs of factors of production. Both
of them were exporters of raw materials and semi-finished
goods, a significant share of which was based on their
forestry sectors. Access to world markets was imperative for
their economic well-being, but this need had to be balanced
with domestic constraints and goals, which in both countries
were linked to the political management of their modernisation
processes, establishing a consensus over common social and
political goals and in particular the building of the welfare
state. In these social management projects, increased
interaction and cooperation with Nordic neighbours enjoyed
wide popular support and legitimacy. Hence, by strengthening
the popular base for a particular policy, the tactical
‘cooperation case’ for small state behaviour in
international negotiations was strengthened. With failures in
the multilateral Nordic arena, such as was seen in the faith
of NORDEK in 1970, the bilateral relationships became even
more important. Cooperation as a strategy of survival for
these countries was not just useful, but it was also, to use a
phrase from an age yet to come, politically correct.
the war Sweden was the only foreign country Finland had trade
relations independent of its relations with Germany or its
allies and occupied countries. The termination of German trade
in 1944 isolated Finland economically, as in practice also
trade with Denmark ended and trade with the Soviet Union was
at first largely confined to reparations payments.
Significantly, trade with Sweden continued uninterrupted,
behind which was found considerable political goodwill in
Sweden. Before the Baltic Seas opened again for foreign trade
in the spring of 1945, Finland’s foreign trade was almost
solely concentrated to Sweden, where important provisions of
foodstuffs and other necessities were made available for
The abnormal conditions of 1945 were seen in the trade
figures, which gave Sweden a 36 % share of Finnish foreign
trade, with as much as 51.3 % of Finnish exports going to
Sweden in 1945.
the Swedish side, and despite reconstruction aid and the
prominence given to domestic stability in Finland, the
economic relationship looked very different than in Finland.
Finland’s economic importance for Sweden was very low as it
represented a mere fraction of Sweden’s exports and imports.
In 1947 Sweden’s imports from Finland were 1.3 % of its
total imports, and its exports to Finland were 1.8 % of its
After the abnormal conditions of 1944-45 the figures were only
slightly higher in Finland too. Still in mid-1950s Sweden’s
share of Finnish total imports was c. 5 % and the share of
Sweden of Finnish total exports a modest 3-4 %. Finnish
exports to Sweden concentrated on few basic raw materials,
whereas exports from Sweden were more diversified.
of the most remarkable developments in the following years was
how fundamentally this situation changed. After Finland’s
return to multilateral trade in 1955-57 and the FIN-EFTA
agreement in 1961, Finnish exports began to diversify. The
character of Finnish-Swedish trade was transformed over the
next couple of years. In the early 1970s Sweden alone bought
30 % of Finnish metal exports, which previously had mostly
been sold to the Soviet Union.
In step with diversification the volume and the relative
significance of Finnish-Swedish trade grew too. In the 1970s
Sweden’s share of Finnish imports had arisen to 15-20 %,
from where it continued to grow in the 1980s.
the inclusion of Finland in the FIN-EFTA agreement, trade with
Sweden began to increase rapidly. From 507 million FIM in 1960
Finland's trade with Sweden grew to 1080 million FIM in 1965
in current prices. The deficit grew in step from 201 million
FIM in 1960 to 395 million FIM in 1965.
1966-1969 Finnish trade with Sweden grew from 1 204 million
FIM to 2 592 million FIM, which was mostly based on the
increase in exports. The trade deficit decreased from 358
million FIM in 1966 to 277 million FIM in 1969.
1970-1975 Finnish trade with Sweden grew in real terms more
slowly, from 3 568 million FIM in 1970 to 8 711 million FIM in
1975. The deficit again grew from 381 million FIM in 1970 to 1
490 million FIM in 1975. Trade with Sweden grew roughly in
step with the growth of Finland's foreign trade as a whole.
But as a result of the boom years 1965-1970 Sweden became
Finland's biggest trade partner for the years 1970-74,
replacing the Soviet Union, the United Kingdom and West
and goals of international trade and economic policy
were the expectations, goals and motivations of policy-makers
regarding the development of Finnish-Swedish economic
interaction after the Second World War, and in particular
during 1957-1975? What political outcomes did the
intensification of these contacts have by the end of the
period? The following sections seek answers to these questions
in three main areas: reconstruction aid immediately following
the war, their behaviour and policy-making in multilateral
organisations and integration processes, and official trade
promotion and industrial policy.
the political, social and economic distance between Sweden and
Finland in 1944, Swedish reconstruction policy was intended to
help to bridge the gap between the two economies and political
systems. Sweden was well placed to do this, albeit its
resources were insufficient to achieve it alone.
the war, Sweden had given Finland humanitarian, and, during
the Winter War in 1939-40 also significant military help in
the form of materiel and volunteers. After the armistice in
September 1944, humanitarian assistance continued, but it
increasingly began to take the character of reconstruction
assistance. Most of the assistance was organised by voluntary
associations in Sweden, such as Rädda Barnen, Hjälpkommittén
för Finlands Barn, Fadderortsrörelsen, Hjälpkommittén för
Finlands Invalider and the so called Europahjälpen (Svenska
Kommittén för Internationell Hjälpverksamhet), who acted
with governmental blessing but without its direct involvement.
most important help from the Swedish government in Finnish
reconstruction were the loans of 1944-46. The first and the
most important loan agreement was signed in October 1944, in
which the Swedish government gave Finland a loan of 150
million crowns for reconstruction on liberal terms. This was
followed by a smaller 9 million crown ‘Soteva loan’ in
January 1945, which was intended to assists Finnish efforts to
meet its reparations deliveries. The 1944 reconstruction loan
was used for purchases of essential goods from Sweden, which
were not normally imported from there, such as coal and coke.
Initially the war reparations industry bought steel and
machinery from Sweden too. In the autumn of 1944 the needs for
grain for bread were fulfilled with Swedish provisions, which
came from Swedish storages originally intended for Swedish
first loan was followed in 1945 by a further credit of 61,5
million crowns (‘förskottskredit’) to cover Finland's
short term import surplus, of which half, 30,8 million crowns,
was due to Finland's inability to cover the annuities of its
other loans. In the beginning of 1946 Sweden gave a further
short-term credit of 30 million crowns, but by that point it
was made understood that Finland should turn elsewhere for
credits as well, such as the United States.
In all, Swedish credits to Finland between 1939-1945, together
with interest, were ca 542 million crowns.
then did reconstruction aid to Finland fit in the overall
thinking of the Swedish government of Europe’s economic
future? What political significance aid to Finland was hoped
to have? Should Sweden’s actions in Finland be considered as
some kind of ‘mini-Marshall-plan’, which also had several
economic and non-economic goals? Or did the Swedish government
just do what was necessary at minimum, and left it to that?
are several observations that can be made about the ways in
which reconstruction needs influenced the ways in which both
countries adapted to the changes in the international system
after the war. In Swedish-Finnish trade, which at first was
about asymmetric flows of goods from Sweden to Finland,
domestic and in particular Finland’s domestic political
needs were paramount from the beginning. When looking at the
benefits the political and administrative elites hoped to
achieve from all this besides tangible economic goods, one has
to look at the political goals that were set on increased
economic interaction and co-operation.
interaction – and not only economic, but the movement of
people in general – was hoped in both countries to have a
stabilising influence on Finland. Finland’s economic
relationship with Sweden could be seen as a counterweight
balancing Finland’s position between the East and the West.
This view over the significance ordinary material interaction
between nations and economies was shared by key
decision-makers in both countries and largely set the agenda
for subsequent trade and integration policies when the
reconstruction needs had surpassed in the 1950s.
Multilateral organisations and integration policy
economic reconstruction would have had very different
political meaning had there not been a cold war. The
deterioration of superpower relations in 1946-47 had economic
as well as political and security repercussions to Sweden and
Finland. Their bilateral relations in such widely separate
spheres such as culture, economic interaction and high
politics could all in the cold war be construed in the terms
of how their international position was defined in the outside
world. In Soviet eyes, Finland's participation in even rather
modest forms of Nordic co-operation with no military or
political implications was treated with deep suspicion during
the first post-war decade.
the other hand, Sweden's abortive attempts to increase its
trade with the Soviet Union in 1946-47 could be seen by US
policy-makers as a sign of its lack of resolve and its
submissive attitude in confronting the communist menace. In
the post-war world, international politics influenced economic
interaction, and international economic interaction was
irreversibly tied up with the struggles for power, status and
influence, all of which could be justified in terms of the
maximization of the well being of people and nations.
Finland the Nordic region was generally seen as its most
favoured international point of reference, gave as it did the
nation a way to identify itself outside the rigid East-West
divide. Although not nearly as significant politically or
economically in the 1940s and 1950s as the Soviet Union was,
for many Western-oriented Finns Sweden was the first and most
favoured foreign country, a psychological counterweight to the
increased influence emanating from its eastern neighbour.
Gradually, especially from the 1960s onwards, Sweden became
more directly important in economic terms too when
liberalisation of trade within EFTA proceeded and mutual
integration and interaction intensified between them. The
political significance of Nordic cooperation and bilateral
relations with Sweden increased in step with deeper
the same time, Finland gained something of a special position
in Swedish foreign policy, something that influenced its
integration and security policies. In the cold war Finland’s
precarious position within the Soviet sphere of influence was
frequently used as an argument for Sweden’s policy of
neutrality by Swedish diplomats trying to convince suspicious
Western statesmen about the wisdom of its foreign policy,
although the exact position and significance of Finland’s
position in Swedish foreign and security policy was far more
complex than that. Sweden’s policy towards European
integration was foremost influenced by its own foreign
political and domestic concerns, but its choices were of
paramount importance to Finland as well, which could be used
as an additional argument for its non-committal attitude
towards European integration.
policy goals regarding Finland in the foreign economic sphere
can be summarised as follows.
political and economic immediate and long-term self-interest
maintain Nordic (not merely Scandinavian) co-operation on the
political agenda (as long as Finland was involved)
Finnish government on its side, sought close communication and
coordination with Sweden in European economic and trade policy
questions, and also in GATT from the early 1960s onwards. This
was seen also when the Nordic countries operated with a joint
negotiator in GATT in the mid-1960s. Whereas many other fields
of economic activity were characterised by intense competition
between economic actors, the economic and trade policy field
was one of cooperation. This was a typical small state
strategy, which was seen between other Scandinavian countries
as well. In the Swedish-Finnish case, it was embedded in the
reconstruction experience and Sweden’s role in it.
important issue was Sweden’s attitude towards Finland’s
relationship with regional economic co-operation in the Nordic
area and in Western Europe. Swedish policy was particularly
significant towards Finland’s specific requirements in both
the Nordic Customs Union discussions from 1947 and 1955
onwards, and in the process leading first to the Stockholm
Conventions establishing EFTA in 1959 and the subsequent
negotiations with Finland of its association agreement in
1961. These were later followed with the question of Finnish
OECD membership in 1968, NORDEK in 1968-70 and the
simultaneous negotiations for their trade agreements with the
EEC in 1970-72.
what extent did Sweden play a special role when Finland
established its relations with the regional economic
arrangements in Europe? To what extent were considerations
over Finland’s position taken into account in Swedish
integration policy? Mikael af Malmborg and Tapani Paavonen
have in their research found evidence that the Swedish role in
the negotiations leading to Finland’s association treaty
with EFTA in 1961 was crucial.
It seemed that the Swedish government identified the Finnish
interest almost completely with its own, promoting Finland’s
cause with more sceptical Western partners as if the cause of
Finland was its own. The difficulties arising from Finland’s
exceptional arrangements with the Soviet Union, i.e. the need
to continue Soviet Union’s preferential treatment despite
its not being a member of the GATT, could have remained
insurmountable lest Sweden lobbied in its favour in other EFTA
countries and the US. This was also the contemporary
observation in other EFTA capitals and in the US.
promotion and industrial policy
bilateral trade in the 1950s trade negotiations and agreements
were somewhat strained, mainly due to the problem of trade
imbalances and Finnish indebtedness, which were difficult to
solve as long as Finland had few exportable goods and
experienced its own domestic economic problems. From the early
1960s onwards, following Finland's successful attachment to
EFTA, the political and administrative framework was marked by
co-operation on various levels, including political
decision-makers. But as the NORDEK-negotiations in 1968-70 and
Sweden's announcement to apply for EU-membership in 1990
without consulting the Finnish - nor the Norwegian -
government showed, towards the end of the period the
relationship was not entirely free from trouble.
are various explanatory factors behind the startling change in
the Finnish-Swedish economic relationship under 1957-1973. The
most important single factor may have been the relatively
rapid growth rate of the Finnish economy and the development
of its industrial base, which created opportunities for
further trade and investment between the countries. The
general liberalisation process facilitated greatly the
opportunities within the trade field in the 1960s. Here,
however, another element behind this phenomenon can be found:
political and administrative goal-setting and activity.
Finnish and Swedish governments in general, it can be argued,
favoured closer economic relations and co-operation between
Swedish and Finnish businesses. Here the historical experience
was not altogether encouraging. In the inter-war period, trade
negotiations between Finland and Sweden had been fairly
difficult even when compared to other problematic partners,
such as Germany.
But already before the war reduction of competition in the
forestry industry was clearly seen to have been in the
interests of both, and later in the 1960s also the benefits of
intra-industry trade became an important consideration for
policy-makers too. With liberalisation under the EFTA underway
in the 1960s, home market industries in both countries found
new opportunities, as well as challenges, in the neighbouring
country. The success of many businesses in establishing
themselves in what gradually became an expanded home market
showed the distinctive advantages of such interaction.
of this was favoured in principle by governmental authorities,
and endorsed in joint statements by leading political
decision-makers and representatives of industries and their
organisations. In Sweden there is evidence of this kind of
‘Nordic home market’ thinking already in the 1940s, when
in Norway and Finland attitudes were more reserved, but in the
1960s Finnish policy-makers began to endorse the principle
quite enthusiastically too.
benevolence, aiming at enlarging the home market base of
industry in a closely regulated manner, could, for example,
take the form of favourable treatment by the regulatory
authorities. This indeed was the guiding norm amongst Swedish
trade officials, who regulated Sweden’s imports from Finland
on a de facto
preferential grounds until the end of bilateral trade in the
late 1950s, despite the fact the trade regime was otherwise
severely restricted due to the inherent imbalance in favour of
Sweden and the loan payments that reduced the Finnish import
motivation behind this general benevolence was partly
economic, as any increase in Swedish exports to Finland
required special arrangements to let Finnish goods in Sweden
during bilateral trade. But in fact the Swedish policy of
favouring Finnish imports had political grounds too, as it
continued Swedish reconstruction aid to Finland after the
immediate post-war period in a sustainable manner. As further
loans and outright grants were deemed impossible from Sweden
after 1947, the furtherance of trade could be seen as an
substitute to a more active, but unsustainable, Swedish
involvement in the Finnish economy.
concrete administrative action, this attitude could also be
seen in high-level encouragement or promotion of
Finnish-Swedish trade or moral support from key
decision-makers in the public sphere, whenever a common
interest could be defined, pursued or defended. None the less,
the exact dimensions and meaning of these ideas and actions
need to be established. A case in point of the limits of such
a preferential approach was seen in 1961-64, when a proposed
merger between the electro-technical company ASEA Ab of Sweden
and its much smaller counterpart Oy Strömberg Ab in Finland,
was called off due to apprehension by Finnish businessmen and
in particular the lobbying activities of the more
nationalistic oriented Finnish-speaking section of the
engineering profession. Faced with mounting domestic pressure
the Finnish government hesitated to grant the necessary
licenses to allow for the purchase of Strömbergs stock by
ASEA, which eventually cancelled the operation. As is known,
the merger eventually took place in changed circumstances in
Finland campaign 1966
was typical to the Finnish economy in the decades following
the Second World War was the penchant for balance of payments
problems, which were particularly severe after Finland's
foreign trade was liberalised beginning in 1957 and gaining in
speed in the 1960s. The problems resulted from the heavy
reliance on the forestry sector as the main exporter, and
hence the diversification of Finnish exports was a strategic
goal for economic planners in the public and private sectors
alike. One method that proved particularly useful in Sweden
was the active promotion of trade, which culminated in the
massive Finn Finland campaign in 1966.
results of the campaign were studied simultaneously using
polling methods. The main conclusion was that the competitive
edge of Finnish exporters in the Swedish consumer's mind was
in particular in design and in co-ordinated marketing between
different producers so as to gain more visibility for the
individual products and companies.
observers went as far as to describe the Finn Finland campaign
as a 'wake up call' for both Finnish exporters of the
opportunities in Sweden, and for Swedish consumers and
importers of the potential that existed in Finland. The 280 %
increase (in nominal figures) in Finnish exports to Sweden in
1965-1969 would indeed be difficult to explain otherwise, as
there was no corresponding expansion in Finnish production
capacity to explain it. Neither were Sweden's initial tariff
levels such that EFTA liberalisation would have had much
effect on the entry possibilities of Finnish exporters in
Sweden. The low tariffs had already in the 1950s given Finnish
exporters access to Sweden, but in the absence of exportable
goods this was not realised. The most plausible explanation is
in efficient marketing and the distribution of information.
also led into permanent changes in the attitudes of consumers
and producers. Until 1950s many Finnish home market industries
operated in a closed system and only rarely were business
opportunities explored abroad. The experience of success in
Sweden in the later half of the 1960s was a mental watershed
for many Finnish producers outside the traditional export
sector. Later this encouraged many Finns to reach out for more
distant markets as well. In Sweden, a revision of Finland's
image as backward and a relatively poor neighbour was required
before it could be realised what benefits imports from nearby
Finland could bring about.
end result of the expansion of Finnish-Swedish trade (as
Swedish exports to Finland grew also) was, that by 1970
Sweden's share of Finland's total exports was overemphasised
according to calculations made by Tuomas Sukselainen. In 1960
the share of Sweden was very close to its share of the total
Western markets (EEC + EFTA + USA) and then Denmark, for
example, was clearly overemphasised. By 1970 this situation
had changed clearly in Sweden's favour.
of international trade and economic policy: Finland’s Nordic
orientation 1957-1973 and Soviet responses
of the issues that have vexed historians of the former Soviet
bloc has been the question why did the Soviet Union squander
the political leverage afforded by its trade subsidy to
Eastern Europe. Why did Soviet officials fail to bargain with
resolve, to link subsidies to salient political issues, to
make credible commitments, and to monitor the satellite’s
policies? As Randall W. Stone has recently shown in a study
based on extensive primary material and interviews, the Soviet
Union did make an effort to reduce its implicit trade subsidy
and increase the efficiency of the bloc, but the satellites
managed consistently to outmaneuver Soviet negotiators.
The implicit trade subsidy resulted from the way in which
prices were distorted and the satellites could profit from
trading on the margin between prices on the Western market and
those in the Soviet bloc.
situation regarding distorted prices, limited political
leverage and the negotiation strategies outlined by Stone
applied to Finland as well, although the Finnish position was
not entirely analogous with the satellites. What made the
Finnish bargaining position even better than that of the
satellites in the latter half of the 1960s and thereafter, in
contrast to a more strained situation in the Soviet-Finnish
trade negotiations in the 1950s, was the leverage the
diversification of Finnish exports and its trade in particular
with Sweden gave to Finnish negotiators. It can be argued,
although research here is still incomplete, that improved
terms of trade in Fenno-Soviet exchange resulted from the way
in which Swedish – and later also other western – markets
served as a potential or actual substitute to the Soviet
market. During the last years of the 1960s Finnish exporters
realised what potential there was in other markets in
particular in the field of so called “new exports”
(products outside the traditional forestry export sector).
This gave Finnish trade negotiators distinctive leverage,
which in turn created additional leeway for Finland when
compared to the Eastern European satellites.
change in Finland’s bargaining position had also general
political implications in Fenno-Soviet relations. New research
has discovered how there were several factors behind the
Soviet Union's new policy towards Finland after the occupation
of Czechoslovakia in 1968. According to Kimmo Rentola, the
Soviet leadership sought to consolidate its positions in
Finland politically in 1968-70 and hence to tie the country
closer to its sphere of interest.
This challenged the Finnish political leadership, which had
hoped for more room for Finland's neutrality policy and
independence. The Soviet strategy remained a far cry from a
shining success, and in 1971 a new policy was formed which
stressed economic factors, such as increasing trade and
technological co-operation with Finland. Instead of openly
challenging the Finnish leadership politically, the Soviet
Union decided to 'buy' Finland instead.
changes that had happened and were happening in Finland's
economic relationship with Sweden were an important
contributing factor in the Soviet policy change in 1968, and
can be argued in the revision in 1971 as well. The Swedish
ambassador to Finland, Ingemar Hägglöf, noted that the
Soviet Union would not swallow
ungrudgingly the fact that Sweden overtook it Finland's
most important trade partner in 1969.
And as Kimmo Rentola has discovered, they did not. Commenting
Sweden's increased economic weight in Finland, Prime Minister
Alexei Kosygin told Prime Minister Olof Palme the next summer
that 'you are not a small country ... you keep on saying that,
but look what you are doing'.
increase of economic activity between Sweden and Finland since
the Second World War has in this paper been understood within
the wider frame of international
politics as well as the institutions of bilateral, regional
and international economic system as a whole.
results of the paper can be summarised as follows:
Swedish policy-makers three issues attached to the development
of mutual economic contacts were paramount:
The maintenance of Nordic co-operative structures in
which Finnish participation was necessary;
The creation of a Nordic home-market base for Swedish
A policy seeking for and favouring internal
stabilisation and economic modernisation in Finland.
the Finnish side policy-makers considered the intensification
of economic contacts with Sweden:
As an important aspect and ingredient of the Finnish
foreign policy of neutrality;
A necessary stabilising force and am economic
counterweight to Finland’s trade with and its
politico-economic dependency to the Soviet Union;
A manifestation of Finland’s character as a Nordic
 As this paper is a draft it does not contain adequate documentation about the sources and the relevant secondary literature. It's main aim is to serve as a basis for discussion and to test the main hypotheses with an expert audience.
 Robert Gilpin, The Political Economy of International Relations (Princeton: Princeton University Press, 1987).
Gilpin, Global Political Economy. Understanding the International Economic Order.
Princeton: Princeton University Press, 2001, 23 – 4.
Robert Gilpin, Global Political Economy. Understanding the International Economic Order.
Princeton: Princeton University Press, 2001, 24.
C. North, Institutions,
Institutional Change and Economic Performance.
Cambridge: Cambridge University Press, 1990, 3.
 Ibid., 3 - 5.
 Ibid., 4 - 5.
Juha-Antti Lamberg, Taloudelliset
eturyhmät neuvotteluprosesseissa: Suomen
kauppasopimuspolitiikka 1920-1930-luvulla. Helsinki:
Suomen tiedeseura, 1999; Tapani Paavonen, Suomalaisen protektionismin viimeinen vaihe: Suomen ulkomaankauppa- ja
integraatiopolitiikka 1945-1961. Helsinki:
Suomen Historiallinen Seura, 1998.
Mikko Majander, ’The Limits of
Sovereignty. Finland and the Question of the
Marshall Plan in 1947’, Scandinavian
Journal of History, Vol. 19, No. 4 (1994), 309-26.
 Paavonen, Suomalaisen protektionismin viimeinen vaihe, 90.
 Paavonen, Suomalaisen protektionismin viimeinen vaihe, 41-8.
 Paavonen, Suomalaisen protektionismin viimeinen vaihe, 90.
Mikael af Malmborg, Den ståndaktiga nationalstaten. Sverige och den västeuropeiska
integrationen 1945-1959 (Lund: Lund University Press,
Charles Silva, ’An introduction to Sweden and European
Integration 1947-1957’, Michael Gehler & Rolf
Steininger (Hrsg.), Die
Neutralen und die europäische Integration 1945-1995
(Wien: Böhlau Verlag, 2000), 276-308.
 Harto Hakovirta, Puolueettomuus ja integraatiopolitiikka. Tutkimus puolueettoman valtion adaptaatiosta alueelliseen integraatioon teorian, vertailujen ja Suomen poikkeavan tapauksen valossa (Tampere: Acta Universitatis Tamperensis A:78, 1976).
 Tapani Paavonen, Suomalaisen protektionismin viimeinen vaihe. Suomen ulkomaankauppa- ja integraatiopolitiikka 1945-1961 (Helsinki: Suomen Historiallinen Seura, 1998), 35-6.
Report No. 6/1948, 23 March 1948, G. A. Gripenberg, "Suomen
ja Ruotsin taloudelliset suhteet v. 1947”,
Microfiches 5 C, The Archives of the Finnish Foreign
Ministry (AFFM), Helsinki.
 Erkki Pihkala, ”Ulkomaankauppa ja ulkomaiset maksusuhteet”, in Jorma Ahvenainen, Erkki Pihkala and Viljo Rasila (eds.), Suomen taloushistoria 2. Teollistuva Suomi (Helsinki: Tammi, 1982), 376.
 Ibid, 377-8.
 Report No. 6/1947 from Stockholm, 8 April 1947, G. A. Gripenberg, ”Suomen ja Ruotsin väliset suhteet v. 1946”, Microfiches 5 C, AFFM, Helsinki. On Swedish reconstruction policy, see Cay Sevón, Visionen om Europa. Svensk neutralitet och europeisk återuppbyggnad 1945-1948 (Helsinki: Suomen Historiallinen Seura, 1995).
 Paavonen, Suomalaisen protektionismin viimeinen vaihe, 35-6.
 Paavonen, Suomalaisen protektionismin viimeinen vaihe, 36.
 Hjalmar Krogius, Handelspolitik i krigstid. Finlands och Sveriges ekonomiska och handelspolitiska relationer åren 1940-1945, Helsingfors 1991, 138.
Mikael af Malmborg, ‘Swedish Neutrality, the Finland
Argument and the Enlargement of “Little Europe”’,
Mikael af Malmborg, ‘Swedish Neutrality, the Finland
Argument and the Enlargement of “Little Europe”’, Journal
of European Integration History, No. 1, Vol. 3 (1997),
63-80; Paavonen, Suomalaisen
protektionismin viimeinen vaihe, 101-115.
 Erkki Pihkala, ”Kauppa sotien välisellä kaudella”, in Ahvenainen et al, Suomen taloushistoria 2, p. 263.
 Caj Linden, "Ruotsi on löytänyt Suomen", Unitas, 4/1970.
 Caj Linden, "Ruotsi on löytänyt Suomen", Unitas, 4/1970.
 Tuomas Sukselainen, Suomen vientimenestys 1960-luvulla. Vakio-osuusmallin sovellutus. Taloudellisia selvityksiä, 1972.
Randall W. Stone, Satellites
and Commissars: Strategy and Conflict in the Politics of
Soviet-Bloc Trade. Princeton: Princeton University
 Kimmo Rentola, "Suomi liu'ussa? Neuvostoliiton Suomen-politiikan kiristyminen 1968-70", Historiallinen Aikakauskirja 2/2002, 137 - 52.
 Rentola, 140.
 Rentola, 140.