The early days of VATT: work behind the scenes of economic policy-making
At the time of the 1970s economic crisis and the 1990s recession alike, unpopular political decisions could only be made once the policy-makers had their backs against the wall, and nothing much appears to have change since those days, says Seppo Leppänen. The long-serving Secretary General of the Economic Council was also heavily involved in VATT around the time of its establishment.
Seppo Leppänen knows what he is talking about, as he was well placed to watch not only the building of the Finnish welfare society but also the ups and downs of the economy from the 1970s till the early years of the 2000s. He has recently published his memoirs titled Ajopuusta mallioppilaaksi (‘From driftwood to a model student’). His take on how Finland evolved into a wealthy nation treats the reader to insights into the development of Finnish society and economic policy-making.
At the core of economic policy
This country boy from Nurmes in North Karelia ended up studying economics and having a grandstand view of economic policy partly by chance.
– At home, I did forestry work and originally planned to go and study in the Faculty of Agriculture and Forestry. My grades were not good enough for that, however, so I had to choose between law studies and economics. In hindsight, economics was a good choice.
The young economist secured his first job at the economic research institute of the Bank of Finland.
– I spent around four years planning financial statistics. As a result I got interested in following economic policy. Research sort of ended up playing second fiddle, even if I did complete my licentiate’s thesis at the same time.
Leppänen’s career indeed led him to the core of economic policy-making and the Economic Planning Centre TASKU, which produced reports to underpin economic policy decisions and also served as the Secretariat of the Economic Council. Chaired by the Prime Minister, the Economic Council is a cooperation body between the Government, the Bank of Finland and major interest groups which examines key economic and social policy issues vital for the nation's prosperity.
VATT was established to produce high-quality economics research
In October 1990, TASKU and the Ministry of Finance's planning secretariat SUSI were merged to form the Government Institute for Economic Research VATT. Leppänen had started as Director of TASKU in 1989 and served as VATT’s Director General for the first year; Reino Hjerppe, who had been appointed to this post, was unable to join the new agency until later. Leppänen later worked as Research Director at VATT and once again as Director General during Hjerppe’s two-year leave of absence.
– Around the time VATT was established, Erkki Liikanen was Minister of Finance. It was his view that the two organisations should be amalgamated. This proposal was underpinned by the idea of a research institute conducting high-quality research in economics, Leppänen reminisces.
In the early days of VATT, Leppänen had his work cut out with organising the institution's tasks and reconciling two organisation cultures. VATT produced long-term budgetary projections and extensive economic policy background studies, and the work with the Economic Council continued. VATT also studied globalisation, and its meaning for Finland was discussed.
– During my second spell as acting Director General, I got lucky and a decision was made to separate the post of the Economic Council's Secretary General from the role of VATT’s Director General. From 1995 on, I focused fully on the Economic Council, which enabled me to work even more closely with the chair of the Council, or the Prime Minister.
Leppänen recalls Paavo Lipponen’s term as Prime Minister in 1995–2003 with particular warmth.
– Lipponen appreciated the Economic Council's work and efforts to develop it. While he was Prime Minister, he was only absent from Economic Council meetings on two occasions.
Lessons learned from the recession
Leppänen's position in the Economic Council gave him a grandstand view of economic policy-making at the practical level. He also actively brought up his views in different reports and articles.
– In 1989, the Economic Council ordered the appointment of a working group to examine Finland’s current account problems. At that point, I had been Director General of TASKU for one day. We produced a report discussing the type of crisis that Finland could end up with. The report was not taken seriously at the time of its publication, but the reality of the recession was much harsher than what we had described.
Leppänen also describes in his memoir how Finland drifted into the recession of the early 1990s and how the country tackled it. He followed these events from a close range at VATT and in the Economic Council. In addition to the current account report of 1989, he contributed to resolving and fixing the crisis as an author of reports and leader of working groups.
– Both in the economic crisis of the 1970s and the recession of the 1990s, unpopular decisions were delayed until the very last minute, and finally they had to be made when the policy-makers had their backs to the wall. And in conditions where unemployment is high and resources meagre, you have to wait for some time before decisions bear fruit.
In a global economy, you can also never rest on your laurels as the world keeps moving on.
– Before the 1990s recession, the starting point was great: thanks to devaluations, Finland’s price competitiveness was good and the general government finances were doing well, but by 1991, all this lay in ruins.
Working for the welfare state
During the early days of Seppo Leppänen’s career in the 1970s, the welfare state was being built energetically. Since then, economic downturns and Finland's demographic structure have forced us to consider its future. Reinforcing and securing the funding base of the welfare society have thus been a central theme throughout Leppänen's career.
– General government finances showed a strong surplus as lately as the 1980s but hit rock bottom in the early 1990s. A balance was not reached until 1995. In the aftermath of the 1990s recession, long-term unemployment was another problem. Suddenly, the type of labour in demand was quite different from before.
Unlike during the 1990s recession, the interest rates are now zero, which is why Leppänen does not see the burden of public debt increased by the coronavirus crisis as a major problem. He is more concerned over the ageing of the population and the dependency ratio, which Leppänen already wrote about in his reports in the 1990s.
– The trend in Finland’s demographic structure is quite abrupt. The funded pension system alleviates this problem somewhat, but our grandchildren will certainly be in quite a pickle. I hope the policy-makers are able to take action before we again reach a point where our backs are against the wall.
During his career Seppo Leppänen, Licentiate of Social Sciences (born in 1939) worked at the Bank of Finland in research and planning tasks, Statistics Finland, Economic Planning Centre (TASKU), Government Institute for Economic Research (VATT) and Prime Minister’s Office, finally retiring from his post as Secretary General of the Economic Council in 2003. He held senior management positions at VATT in 1990–1995. Both in his work and in his articles on economics and economic policy, Leppänen has dealt with issues of fiscal balance and the welfare society, in particular.
Leppänen’s memoir (Ajopuusta mallioppilaaksi. Näkökulmia Suomen polusta vaurauteen) gives insights into the development of Finnish society and economic policy-making from the 1970s until the early years of the 2000s.
Seppo Leppänen: Ajopuusta mallioppilaaksi. Näkökulmia Suomen polusta vaurauteen
Printed publication available from the author for the price of EUR 20 (please order by e-mail: antti.leppanen(@)gmail.com) or place your order with Booky.fi online store