Finland: the connection between pension systems and national culture

Finland’s economy has struggled to recover from its 2008/2009 recession. Image courtesy of Chrisser via Flickr.

Finland’s economy is stuttering.

After all, it fell into a recession in December 2012.

Also, during 2012, the Finnish economy shrunk for three successive quarters with an overall contraction of 0.2% for the full financial year.

Its economy is very export-dependent, and the recession can be attributed to a slump in demand among its trading partners in Europe.

But while Finland’s budget deficit is small, its ageing population and early retirement schemes are straining the government’s fiscal policy.

A shortage of workers, for example, could contribute to a fall in government revenue, with a subsequent rise in both pension claimants and government expenditure.

The consequence of this would be further economic fluctuations and an increasing budget deficit.

Previous pension reforms

There were major pension reforms in 2005, which led to the introduction of a flexible pension scheme.

The qualifying age for a pension was increased from 60 to 62 years, and it also became possible for workers to receive a pension between the ages of 63 and 68.

And some further progress has been made. For example, the average pension age in 2011 increased from 59.6 to 60.5 years.

However, it is expected that the working age population will suffer a decrease of 150,000 by 2025 with an average retirement age of 61.

The government had aimed to adopt the Swedish model of retirement by 2011, through raising its effective age to 65, but this fell through as employers and trade unions could not come to an agreement.

Amendments, however, have been made, as the rules regarding the Farmers’ Early Retirement Scheme were tightened. Now, the only way that farmers can receive early retirement aid at 59-years-old is to sell their entire farm to a younger successor.

Despite these developments, though, a YLE news agency survey stated that only 16% of Finns supported the idea of increasing its retirement age.

The survey also highlighted the political and demographic divides that surround this issue.

Geert Hofstede’s culture

Although Geert Hofstede’s study, of how national culture affects workplace values, has been accused of being overly singular and simplistic, it can explain some of the hostility towards further reforms.

Between 1967 and 1973, Hofstede compared four dimensions of culture – power distance, uncertainty avoidance, individualism and masculinity – across 40 countries, by collecting data on employee attitudes and attributes for over 100,000 individuals, while working as a psychologist for IBM.

He later added a fifth dimension, long-term orientation, after surveying Chinese managers and employees.

Short-term orientated

Finland scored 41 out of 100 in the latter dimension, which means that Finland’s culture is more short-term orientated.

Countries that scored low in this dimension, such as Finland, respect their traditions greatly, and can lack the ability to adapt these traditions to changing circumstances.

With little tenacity in obtaining long-term results, Finland’s workplace culture reflects the insignificant support for increasing the statutory age of retirement.

This is also backed up by Finland’s medium to high levels of uncertainty avoidance, after scoring 59 in Hofstede’s study.

This generally means that codes of behaviour and beliefs will be inflexible, in addition to resisting risks and unusual ideas.

Finland’s age of retirement is traditionally low – for example, in April 2001, those who were born before 1944 could still receive an early retirement pension at 58-years-old – so any calls to increase the effective retirement age further could be seen as unorthodox.

Highly individualistic

Additionally – with scores of 33 and 63, respectively – Finland’s power distance is low with relatively high levels of individualism.

The Finnish style of working can, therefore, be characterised by independence and decentralised power. And, if there is a hierarchy, it is used for convenience only.

Employees from highly individualistic cultures also tend to just take care of themselves and their immediate families, rather than others.

Furthermore, Finland’s low masculinity score of 26 suggests that negotiation and compromise would normally resolve conflicts, and there is a strong focus on well being and equality.

This can provide an explanation as to why Finland’s current pension system does not prevent work force mobility, and also includes joint decision-making between employees and employers.

No wonder 70% of Finnish employers and 86% of employees feel that the current retirement schemes are sensible.

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This opinion piece was self-published in March 2013.

Non-web sources

Chrystal, K. Alec and Lipsey, Richard G. (1997) Economics for Business and Management. Oxford: Oxford University Press.

Hill, C. W. L. (2007) International Business: Competing in the Global Marketplace. 6th edition. New York: McGraw-Hill.

Hofstede, G. (1991) Cultures and Organizations: Software of the Mind. London: McGraw-Hill.

McSweeney, B. (2002) Hofstede’s model of national cultural differences and their consequences: A triumph of faith – a failure of analysis. Human Resources, 55(1), p.89-118.

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