Annual Review

Research cooperation across sectoral boundaries

The year 2009 will be remembered in Finland for a record fall in exports and the gross domestic product. The economic crisis was not only reflected in statistics but it also led to widespread uncertainty in many areas of society and more unemployment. It was a reminder that rapid changes and sudden disruptions are a fact of life in the world economy and that Finland, being a small and open economy, is vulnerable to crises and fluctuations in global finances.

The financial crisis did not go unnoticed by economists either. The debate on the causes of the crisis is continuing and a great deal has also been said about the state and future of macroeconomics. At the same time, it is also important to examine different economic policy options so that concrete decisions can be made on exit strategies and measures aimed at strengthening government finances. In addition to macroeconomic issues, a great deal of attention should also be given to structural reforms because the impacts of the economic crisis and the ageing of the population are closely connected in Finland. Slower economic growth has spurred efforts to improve productivity and extend work careers in the public sector so that the sustainability gap affecting central government finances could be brought under control. This situation has made the research carried out by VATT more important.

The period of economic uncertainty provided VATT with an opportunity to make use of its strengths. Smooth interaction between research work and policy preparation is essential when information with practical applications is required at short notice. We are familiar with the spending and tax structures of Finland’s public sector and know the workings of the country’s labour market institutions. Evaluations of the impacts of earlier restructurings provide us with a solid basis for studying new reforms. Moreover, a long-term approach to the development of the model basis and the ability to manage extensive data resources make it easier to respond to information needs at any given time.

VATT made a particularly important contribution to the preparation of economic policy in the working group appointed by the Ministry of Finance to develop taxation. The input of the Institute’s researchers was important, both in terms of the project content and project coordination. The deliberations of the taxation policy working group underlined VATT’s crucial role as a link between academic research and policy preparation. Our researchers also played a vital role in the SATA committee discussing the need to reform Finland’s social welfare system. The committee relied heavily on their expertise, particularly in issues concerning the housing allowance system.

Many of the research projects concerning local government finances and labour markets were also connected with reforms currently under discussion. For example, a study on health centres examining their efficiency and the availability and quality of their services has relevance to the PARAS project involving the restructuring of Finland’s local government and services. In a survey on Finland’s labour markets, VATT assessed the effectiveness of such measures as job alternation leaves, low-wage subsidies, adjusted unemployment benefits and labour market activation measures.

VATT also helped to achieve some of the central aims laid out for sectoral research in the government administration. After all, many of the studies produced by the Institute were prompted by cross-sectoral information needs. At the same time, they also provided different ministries, the Prime Minister’s Office and the Parliament with a large amount of useful information. VATT also assumed a greater role as a body supporting anticipation of future policy needs conducted in different administrative branches. Here, the anticipation for long-term demand for labour and it’s implications for education are a new opening assisting four different ministries in their planning work. In addition to its research work, VATT also prepared a large number of surveys for short-term economic decision-making. These were in the form of background calculations and memoranda. It is essential that high-quality expert work is based on research that can also be subjected to authoritative and critical reviews by outsiders. The problem is, however, how to ensure conditions for longterm research that will allow VATT to continue to produce background reports that are based on sufficiently high-quality research.

The year saw the completion of four doctoral dissertations and the appointment of three researchers as adjunct professors. Cooperation between VATT, the economics departments of the ECONOMICUM and HECER has also become closer in other areas. As part of this campus cooperation, joint posts and research projects were set up, seminars held and teaching provided. It is essential to continue this work so that the quality of research can remain high and it can have the desired impact. Cooperation between VATT and the establishments providing university-level education in economics helps to broaden interest in issues concerning public finances, which will have a positive impact on such matters as the assessment of the economic effects of reforms.

The reforms in Finland’s central government administration have required a great deal of reorganisation and new division of labour. The changes have also required inputs in workplace well-being and leadership skills. VATT has successfully managed the multitude of research and administrative challenges it has faced. This is due to the inputs of the Institute’s personnel and partners who deserve warm thanks for their work.

Seija Ilmakunnas
Director General

VATT Annual Review 2009 (pdf in Finnish)