Björn Wahlroos: Finland’s Road to Freedom

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Björn Wahlroos

On the occasion of the launch of his new book The Road to Freedom, Nobel laureate Joe Stiglitz was recently interviewed by the leading Finnish daily Helsingin Sanomat. To no one’s surprise, Stiglitz came out in favor of the European welfare state and high taxes. Somewhat more surprisingly, Finland got to take pride of place in the book, not just because of its high taxes, but also because Finns, according to Professor Stiglitz, love their taxes. 79 percent of Finns are said to be happy to pay their taxes.

What may not have crossed Professor Stiglitz’s mind is that when taxes are truly high and economic growth all but non-existent, freedom of choice is severely curtailed for most people. Ultimately, the thought of losing access to free public services and income transfers may become frightening, to a point where one actually starts to love taxes, especially if they are mainly paid by someone else. Finns don’t love taxes any more than anyone else. But because of the economic misfortunes that have befallen their country, they have become more dependent on the free public services they are provided with and the sizable income transfers many of them typically receive.

Stiglitz also prefers not to mention the fact that in high-tax Europe, economic growth has for years, if not decades, lagged far behind that of the United States and many other countries. High taxes reduce incentives to work and push investments, jobs, wealthy individuals, and capital offshore, thus hurting growth and tax revenue. For many years, Europe managed to fund its welfare states by outsourcing its defense to the United States. After Russia’s attack on Ukraine, that is no longer an option.

Nowhere is this more apparent than in Finland. The Finnish economy has not grown for 16 years. Lack of growth, combined with irresponsible public finance during the pandemic, has now forced the country into strict austerity. Severe cuts in public expenditure are certainly called for, but they alone will not solve the crisis, which has been brewing for a long time. To bring the country back on track and return it to sound public finances, much faster economic growth is called for.

I recently saw a graph depicting GDP per capita for all member states of the European Union and for all the states of the USA. The Americans took 28 of the top 30 spots, but the top two went to Europe. The outstanding achievers in the EU are Luxembourg and Ireland, both well known for their low taxes and rapid economic growth. Of the two, I particularly like the story of Ireland.

Some 50 years ago, Ireland ranked with the likes of Spain, Greece, and Portugal among the poorer countries of Europe. At that time, Irish GDP per capita was only a third of Sweden’s. Like Finland, a country on the fringes of Europe, suffering from a complex historical relation to its eastern neighbor, Ireland believed in the advice of economists like Joe Stiglitz. Then something happened, and the country decided on radical tax reform. During the most recent 15 years, while Finland has stagnated, Irish GDP per capita has (again) more than doubled. Many similar examples can be found around the globe. Finland should take note and start to work on tax reform.


Björn Wahlroos is a former professor of economics and chairman of Wahlroos Capital.