All right, welcome to the Neuvottelija channel. Once again, Mauri Kotamäki, chief economist at Finnvera. Morning.
Hi. Hi. And now we have Markus Hollmen from Switzerland. Morning. Wealth manager. All right. Hi. Hi.
And Markus, we met at the private equity investors' annual event, and you gave this really popular talk where people were groaning at your slides. It had these grim figures in it. This is a popular genre of talk, where you tell people how badly Finland is doing and it doesn't look like it's getting any better. But let's maybe come back to that later — a little light-hearted start first. So now that you live there in Switzerland,
apparently the young communists there are just as radical as in Finland. So they proposed — was it a wealth tax in Switzerland, Markus — an inheritance tax, on amounts above 50 million.
Yeah, it's really awful, because in Finland — in Finland it's, well, above 20 thousand there's already inheritance tax, and it goes up to as much as 19% — while in Switzerland they voted on it. Actually, I remembered it as a wealth tax, but yes, they did propose an inheritance tax, and then the people got to vote on it themselves, and what do they always say — they didn't want an inheritance tax.
Well, they didn't want it, so that was actually a pretty sensible decision. Norway — Norway set an example of what kind of foolish things you can do, and millionaires and billionaires fled from there.
Yeah. Well, I'd like a Swiss citizen for Finland.
But then, Mauri Kotamäki, you've been really prolific at Finnvera. I was thinking, since we're talking about the challenges facing the Finnish economy, we could bring in your excellent aging-population report, but you also wrote a short analysis this week on financing for Finnish companies, and I see a lot of this repeated argument on LinkedIn, where certain people — you know who you are — keep saying that good companies always get financing, and that's a bit of a
so-called tautology. Yeah — good, or another version, good projects always get financing — and that is indeed a tautology, because it's usually the lender who defines what counts as a good project, and since they're lending to someone, then by definition it's a good project, so it doesn't actually mean anything. And then there's also the question of the terms on which some party lends money to a company — that's a separate matter. It
usually does that in a commercially sensible way from its own point of view, but that doesn't mean it's necessarily sensible from society's point of view — there can be various frictions. Whether it's regulation, or lack of competition, or whatever other factor of that kind, that causes the market not to function even so, even though from their perspective good projects always get financing. Yeah. And Finnvera apparently believes in its own
research, being that kind of institution, so you then continued this popular financing programme for small growth companies, having identified this bottleneck through research? Yeah, exactly. We continued — well, we first piloted it from October '24 for six months, and did some thinking and researching, and actually VATT's data room also took part in that research, and now we just recently announced a new
decision — that from February next year we'll run it for another six months, with slightly different terms but largely the same. New companies are brought in, and it's required that companies first go and apply for a loan from the private sector before coming to us — so we're continuing for a new six months from here.
Yeah. So maybe this first theme in Finland's misery, in my view, is precisely this insufficient financing — both equity and debt financing — both from the private sector and from abroad. And Markus, over there in Switzerland, you see quite rational reasons why Finns, in turn, want to diversify their portfolios in terms of ownership — it'd be worth exploring this phenomenon a bit. Well, if we start from history,
well, Switzerland was a country where a certain nest egg was taken so a family could get it to safety, in case something came across the border from over there. For Finns it was originally the Russians that were feared, and then in a neighboring country, for example Sweden, they feared domestic communists — that if a family company did too well, it would get nationalized, and so the money was taken
to safety for that, in case things went badly. And in that sense this starting point, Switzerland as a country, was a place like that, and still partly is. And I myself started talking about this theme back when I was working here in Helsinki — about what diversification means and what it means for risk management, and I started on this already earlier
talking about this — that actually a wealthy Finnish entrepreneur and investor family should move all of their liquid assets somewhere else, rather than into domestic stocks and corporate loans and so on. Yeah.
You could think of it this way: if we're a fairly small peripheral market, and let's say, for instance, that our global weight is one percent in the EU — it's around 2% by these capital-key measures, but let's just take that as a rough figure — then, in principle, if you believe in a globally, efficiently allocated market, 99% could well be held by a Finn elsewhere. And then if you have, say, fixed
and business assets in Finland, then roughly speaking that's at least 10 times bigger — so at least 10%, and for many people even two-thirds of their wealth may be in Finland.
Usually it's even much more if you think about total wealth — it's probably actually closer to 95%, if you think about having a business here and so on. Then if the whole world thought this way — that is, they also allocated Finland's percentage share of wealth — there's no problem in that as such. Everyone would just put it in their portfolio according to that global capital-weighted allocation, and there's no problem there. But then there's this
so-called home market bias, this domestic-market skew — home market bias. Yeah.
So, in a way it's a good thing. If your capital stays a bit overweight, because that in turn boosts employment here, I'd maybe say our pension sector has taken a bit of the same approach — as it siphons off that 25% contribution from the payroll, it then, quite sensibly, allocates more and more in this direction. So we're not exactly at Finland's percentage weight,
but we've been moving steadily toward that. So, in a way, maybe the sensible allocation by Finnish capitalists is going abroad, and then the pension system's allocation is also going abroad, and then you'd need to get foreigners to, in a way, replace that departing capital — and then we get to your horror slides at the capital-markets gala, where we can dig into those a bit. So then, when a foreigner looks at a peripheral market, do you still want
yeah, I actually have a follow-up question about this allocation. How much do you think it's a conscious decision that those risks are concentrated in Finland, and how much is it just ignorance?
It's probably not a conscious decision. It just started off that way. And if you think about what Finns themselves watch and follow, well, it is those domestic stocks, and that way it feels easy. But this isn't just a Finnish problem. It's the same problem in Switzerland, and in the US, and in Norway, anywhere really — but from a risk-management standpoint, if you think about Norway, for example, the Norwegian oil fund does exactly what I recommend — that a Finnish entrepreneur
should do: put it all somewhere other than Norway. And in that sense it's not good from the standpoint of that same capital supply, or of company financing coming here from domestic investors, but from a risk-management point of view, in my opinion, it's the right thing to do. And this used to be — I myself have been a stock-market trainer for Nasdaq's Finland unit for many years
and for a long time they could say that Finland — Finland was even the world's number one for a long stretch in terms of stock market returns, because we had a functioning capitalist market, and somehow we got peripheral-market excess returns too, and everything was going well — so no one had any problem allocating here, because the returns were good. Yeah, that's right. If you think about what happened in Finland after the recession, we had a continuous
rise in the real estate market. Then it kicked off through devaluation and its timing, a massive boom in the forest industry. Then Nokia took off. Then we hit the financial crisis. Finns were on floating-rate loans. The ECB cut rates to zero. The housing market didn't dip at all — it was just uphill the whole way. It was so easy to be here, and back then it was hard to sell the story that, hey, you need to diversify.
Of course not. This just keeps going up and up.
Yeah. But still, if everyone somewhat shuns the domestic market and no replacement capital is found, that's unfortunate, because it usually means that when there's no supply but there is demand, the price rises. And then, a big part of this — the same problem applies to the state as well. The state hasn't really kept almost anything domestic at all.
So there's exactly that same percentage there. Sovereign debt is taken from the world market. Mm. Even though there really should be quite a big home market bias from domestic capital markets there, because it's vital that Finns themselves are able to finance their own deficit. Italy, for example, has always financed its own deficits quite strongly, Japan too. But with us, there's this sort of lulling ourselves into complacency — that, yeah, 98% of it will come from foreign
investors, because to them it's all the same — a euro is a euro, sovereign debt now, it doesn't matter — and Finland always used to pay off its debts. And now this too is a bit like — our pension sector also shuns Finnish debt, and has always shunned it before, because its yield was low, so it made more sense to take on Italian risk, or Greek, or well, French risk. You got a percentage point more back then, but now it's just
the case that no one really wants to put that much into it either. The sovereign sector isn't stuck yet. But then they start looking at these slides you presented — let's take this one, for example: just public spending per private-sector worker. Yes. Well, this started after the financial crisis. I was working at UBS at the time, and I brought our chief economist Andreas Höfert here. Mm.
And there was no research specifically on Finland, and when I said to Andreas, hey, look at Finland's numbers — we've got something to say about Finland, since you talk about the global cycle and the US economy and valuations, so look at Finland's numbers too — and back then the hot topic was this sustainability gap, if you remember, it was in all the headlines back then, and it was — it's basically
basically a weakening of the dependency ratio — that's what was being talked about then.
Finland had long had 50 dependents — that is, under-15s and over-65s — per 100 working-age people, and the forecast was that it would rise, fairly quickly, to 70, which means a plus 40% — a staggering figure in extra dependents. And then I started thinking about it this way, that
in Finland not everyone starts working at 15, and not everyone stops at 65 — some stop earlier, or don't work at all. So what is the real sustainability gap? And, well, my brain works better with charts, with numbers, than with stories, so I had to turn it into numbers, and
so I took, indeed — I moved, out of that denominator, that is, out of the working-age population, over to the dependents' side, in a way, those who aren't working, and also public-sector employees. So I could give these numbers, since I have them here — if public-sector spending is about 159 billion, and then, in a way, these
market-economy workers, 1.9 million — from that you get a burden of around 84,000 euros a year from that public-sector spending. And that's per private-sector employee, including entrepreneurs. Yeah. And that's a pretty, pretty big number.
Of course, they do get subsidized or even free services from it, and part of it also includes pension contributions.
so you get some of it back, but still it's a pretty, pretty big backpack to carry, at a time when hiring isn't getting any easier. Yes, that's right. And then, doesn't the money circulate here too — I mean, when a city manager gets paid, they pay taxes, and then they go buy food, and that has VAT on it, and so on. So it's not directly the case that everyone pays 85 thousand, 86 thousand, whatever it is, but — it still illustrates that burden, and
then of course there's the bad part — since we know the number of babies hasn't risen, but the number of grandpas and grandmas is rising, the long-term picture is even worse. And then, if you think about it, this aging is going to keep going the way it's going, and there will still be additional pressure on the public sector through healthcare
and through social security and pension spending — from this you can get, pretty quickly, if you simulate a bit of inflation and so on, to that burden being well over 110,000 euros very fast, and that, in my view, is the problem. Yeah, yeah, that's a good description of the situation, but I think the interesting global aspect here is that Japan was actually first to start this
aging trend, if we leave the under-15 population out of it.
Looking at that age group — the birth rate has fallen everywhere anyway.
Japan was first, in the '90s. Yeah. The second was actually Finland, from 2010 onward. Germany somewhere in between, but its development there is a bit non-linear — but it was Finland after that, from 2010 onward. Now we're actually in a situation where this is starting to level off a bit. Not stopping, but starting to level off. And looking to the future — but what's the global perspective here,
is that other countries are starting to age at roughly this same point — like Germany, and Italy, and many other European countries, and so on, and China.
China a little while ago already, and so on — so these aging costs are only just starting to gradually show up in these big countries, and what that then means, as it were, for the global economy and markets — the positive scenario is that we'd finally wake up and stop with the socialism and start doing productive work and shrink the public sector, so we could benefit from this small head start as a forerunner — but somehow it feels like
nothing gets learned. Well, if we now take a few other topical subjects — Finland fell into the EU's monitoring class, meaning the EU's excessive deficit procedure hit us. Even though, indeed, Mauri's ably analyzed sustainability gap is a big part of our 101-billion public deficit, it still doesn't fully explain it — there's, for example, the previous government's sin, on which the State Audit Office's
surprisingly right-leaning report focused — they scolded this 41-billion spending that the previous government put on debt, and part of it was of course justified, but it depends a bit on who you ask whether half of it was unjustified, or a bit less than that. So in this recent history we've done pretty, pretty poor preparation, and the current government's preparation also looks
in my eyes — and I'm someone who's market-liberal — insufficient, always.
I have to tell a funny, or maybe rather, from the standpoint of the economy and public finances, a very uncomfortable story related to this. So, when I did my own calculations on Finland's economic deterioration, it was around the year 2014, and I was sort of an early — an early awakener on this issue, and I started speaking, in a cautionary way, about Finland's situation, so I took those numbers with me and went
to Parliament House to meet a right-wing MP with an entrepreneurial background, and went through these, and said, hey, when you make decisions here, what's your view on this long-term outlook — are you worried? And he said, well yes, we've seen slides like these — the Ministry of Finance sometimes shows us these scenarios — but then when we make decisions,
we go with the Labour Institute for Economic Research's numbers instead, because they're better. So it was somehow — well, it was a bit worrying that you know you're deceiving yourself when you make these decisions, and exactly. Yeah. Yeah. And quite a few generations of politicians really have been deceiving themselves — this has been known for decades, you have to go well back into the last millennium. Yeah.
Since it was already known reasonably well that this kind of problem would arise. Of course it wasn't known exactly what it would mean in euros, but it was known that it would happen, and time and again decision-makers have kicked the can a little further down the road, and it hasn't been possible to act — and maybe, coming back to that VTV report, it wasn't even right-wing or left-wing, but in my view it captures very nicely this factual
factual situation we're in right now. And perhaps, unfortunately, the last government behaved somewhat poorly on this deficit and didn't return to the spending limits that had been set — but that way it's the 40 billion, and of that, if a round 20 billion was this kind of extra spending, then that's a pretty good figure — if I explain to the listeners as well, that since there's been this friction now regarding
this — where the Ministry of Finance says it's a different number, and then the political parties say whatever comes to mind, it feels like, sometimes — but, well, the Ministry of Finance's figure is 3 billion.
M, but we're talking about different concepts here. The Ministry of Finance's 3 billion is these decision-based items, i.e. what's decided through a separate decision, whereas the VTV figure includes, among other things, index-linked increases and everything else. But well, index-linked increases are, in a way, decision-based too. If you have, as it were, a ceiling on public spending that you're supposed to respect, then
you obviously have to take all expenses into account there. And somehow this now seems to be treated as some kind of problem. I myself don't really see it that way. And then, well, I think it's fair to say that during Marin's time, the tripartite, or Finland's corporatist wage-setting mechanism, was used pretty generously — where, for example, this healthcare and municipal
care-sector harmonization was applied to the largest wage groups, and at the same time, well, Hetemäki — or some other negotiator — ended up with this public-sector nurse pay-raise model, which was one percentage point above the export sectors. That was extremely generous, in a situation where it was obvious that money was being splashed around anyway — and yet something like this still got accepted. Okay, the labor market found this among itself, but in my opinion political steering should have been used quite a bit more decisively, because that money definitely wasn't
there. And yeah, so now these wage-earners get to enjoy that and it boosts purchasing power, but on the other hand it doesn't help the deficit at all. So in that sense I completely agree with Mauri. There are quite a lot of items of this type which, in my view, are at least significantly decision-based — you can't just wave them off by saying indices rose and inflation ate it up. And as was said here, this isn't — this isn't a one-off, current issue. This has been going on for years
and Finland's big downhill slide began with the financial crisis, and it never recovered from that. But maybe, to Mauri's optimistic point, your report has been praised, and it did have good analysis of this aging population — I think it's true that we took a bit of that first wave, and it's actually turning a bit better now. And in this group here, I'm maybe not quite elderly yet, but among the oldest here — I myself, for example
have found AI to improve my own productivity, and I genuinely experience it as a kind of salvation for me — I'm considerably more productive doing all sorts of things with that AI buddy of mine. So could there still be a bit of salvation here, that my fellow companions in fate could soon, before retirement, in our mass-wasting unit, start doing productive things — at least for those
last few years — and what then, possibly, even in retirement?
Yeah, that's a tough one — as noted earlier, Sami here is somewhat the exception, and you're not actually all that close to retirement age yet anyway, but of course it's a possibility.
Yeah, it's hard to see at this stage what that actually means in practice — say, ten years from now, what the world looks like then. It'll probably look quite different, but in what way? And then there's also this, on the other hand, that older generations typically don't adopt new technologies as readily as younger ones. There's some
research on that too. So, what that means in the case of AI — could you think that AI is, in that sense, a general-purpose technology, such that it might actually be easier for older people to adopt than some other comparable new technology, in which case there could be more potential there? But if it runs into this kind of aging friction, and people don't really know how to use it, don't really want
to use it, don't want to learn something new, then it doesn't help much. Mm, yeah. And then there's this — that 84-grand-a-year figure is a bit of an exaggeration, since it mixes in borrowing, and the municipal sector, and the state, and pensions a bit, which is that previously mentioned burden per private-sector employee. But if you just take it at face value, that's an incomprehensible amount of money — if you could
operate a bit like in Switzerland, where this burden is roughly half — if you got to use that 40 grand yourself in a market-economic way, it would inevitably be more efficient. Like I say, our Moloch's maw is in the unproductiveness of the public sector. That is, big salaries are paid there, and, in a way, the services it produces aren't worth that price, and its sheer size is just so enormous that — yeah, and that's where, in my opinion, now
you should put the AI tools to work. In that sense I hope there are a lot of committees now thinking about how we can boost that productivity, and that's probably right. I want to go back briefly to what you said, that Finland is a bit behind the curve here — that's exactly right. But then if we want to look at the effects that have come, for example, from Japan — and now, or rather, we're in the vanguard ourselves — so, Japan. Japan, Finland, Germany. Well
exactly, exactly, exactly. So, after Japan, I mean — but if we want to look at what's happened in Japan, and then if you think about it, this peak — in the US, for example, it also came at roughly the same moment as the financial crisis. This age structure was at its best back then, similarly in Japan — in Japan it was in the late '80s. There was a massive bubble there. If we start looking at what happened after that,
well, first of all, the Nikkei index — even if you look at total return, you only broke even maybe some 30 years later, right? So a huge, in a way, wealth slump, and it took decades to work off that real-estate bubble. Exactly, exactly. And then if you look now — I think I had
those charts too, in that chart pack — so I looked, and I found total returns from 1994, I believe — that is, once the bubble had already been thawing out for four, five years — so after that, if you look at what performed within the Japanese stock market — and then I also put gold in there. That's absolutely the one that's produced
the best returns — any sector, you might think, say, Japan being good at robotics and some industrial or export pull coming from there. Nothing of the sort. There are two sectors that have been the top performers: healthcare, and non-cyclical consumption, right? An aging population — they need their medicines, they need healthcare, they need food, but they don't need new detached houses or anything like that. And then what has come out of that
indebtedness is that the value of the currency has weakened, right? Gold priced in yen has absolutely been the best investment for a Japanese investor, no question. But they've had an iron home-market discipline — that kind of Japanese domestic bias. They've managed — the sovereign debt, which is massive, has still been successfully financed through domestic cash flows, and they have their own central bank, so
in a way they've gone in that direction. We, Finland, in my opinion, are poorly positioned compared to our other Nordic brethren. We don't have that magic card of inflating our debt away — though that could also be seen as an opportunity.
Of course smart investors vote with their feet when they see this bubble happening. But, well, Sweden, Norway, and even Denmark — Denmark could break its euro peg any time — and in a way, if they were in the same situation, they could inflate away that debt. We're part of the euro system. But then, if you look at France — well, they're doing even worse now, and racking up debt even more recklessly, so it could be that the euro itself starts getting battered at some
point, simply because France's situation is so bad it drags the rest of the European bunch into the whirlpool of an inflating euro. So you could, in a way, say that Finland's situation is good in the sense that whoever's about to hit the wall, Finland isn't first in line — though, unfortunately, its buffer isn't much better than others'. Yeah, Italy has some risks there too, and the PIGS countries — well, Ireland was once a PIGS country, and
Portugal have long since fixed, in a way, that crisis economy — they took that sovereign-debt crisis seriously, and have, at least to some extent. And now it's hard to know exactly — if you look at eurozone GDP growth, for example, there are just brilliant numbers in Spain and Portugal, Ireland, and even Italy looks good. But then, how much of that is still coming from
COVID support funds that went unused, and apparently that's still flowing into the economy and sustaining that growth.
Yeah, that's true. Yeah. And then Greece is an interesting case too — Greece is of course also an aging economy, but they've managed to get that economy into some kind of growth at least, and get the debt ratio falling. So the one we wagged our finger at some ten years ago — now it's starting to look like we're suddenly on the other side of the table. Yeah.
So the situation in Finland is that, at least as I see it, even a strong acceleration in economic growth isn't enough for the public finance situation — it requires, in a way, adjustment measures. Roger Wessman from MustRead calculated that 4% growth would be what's needed for our debt ratio to level off. This is, of course,
in today's world, a completely — completely impossible demand. Not even close. Completely — except that I've had this conversation with Aleksi Tolvanen, who speaks and reads Spanish well — Javier Milei has been discussed here in academic circles — well, Javier Milei achieved a 4% fiscal adjustment as a share of GDP in one year. So it can be done, if you just tackle these things boldly, boldly, and don't just look away. So I'd say about this, that
well, that leads to — in Finland's case, if you did that kind of public-sector adjustment, that's a depression. It's not a recession anymore. We're talking about something like a 7% of GDP contraction — in Argentina, after that, in local-currency terms it was over 100% inflation. But then, yes, the market economy does reap efficiency gains out of that depression too, once you take the brakes off it, so to speak. So in that sense I myself would actually be willing to make that sacrifice, in favor of it, and
pull out the chainsaws, Milei-style. But then I'd maybe say about this — the left, well, that's how it is — but looking at this left-wing rhetoric, the next likely government will probably be a red-blue coalition. Looking at Lindtman's proposals, it feels like they never actually spell out the size of the private capital sector, because somehow it feels like there isn't even a single
analysis done showing that, for example, most of our stock market is already foreign-owned now, and there are very few private households in it — even though there is that home market bias suggesting there should perhaps be more held abroad, still our market is, in a way, barely owned domestically. And then, in a way, we already have very high taxes on private capital and investors. So this 34 [percent] was, according to one such
tax analysis, still the world's third-highest tax when it comes to capital taxes. And then, indeed, if these Swiss don't even adopt this inheritance tax, well, we already have pretty, pretty left-leaning taxes, so the remedy can't be to add even more of these. Since we're already in pretty tight straits and the capital stock is really small, I'd like left-wing politicians to calculate the numbers — how little capital Finnish private individuals actually have. And some of it has already slipped away
abroad permanently, with those families having moved on to various other places. Yes. Yes. Yeah. It's not an easy equation. No, and then that just accelerates it further — and, for instance, my own firm, Translink Corporate Finance, donated 15,000 to this ownership professorship — a really excellent guy, this Samuli Knüpfer — he's calculated this kind of thing, we have a really open
data set, so he's calculated that only about 8,500 people own a million euros or more in unlisted shares — that's an incomprehensibly small number. Mm, yes, and these are exactly the guys who quite easily sell their company and move to Switzerland — and indeed have done so. So in a way it's already extremely precarious. That's how it is. But I'd say, on this — when you
started out leading with the SDP and Lindtman, well, this is just my gut feeling, but my sense is that at least in the SDP there'd already be some understanding of how tight taxation already is — that they're not exactly eager to raise taxes further there either. The Left Alliance is a bit different there — they openly put together this
shadow budget, where they did tighten things up quite substantially. But, well, in the SDP there'd be this kind of moderation regarding this issue. I don't know if there's really much tax-cutting ambition there either, but no other party really has that either, given the state of public finances. Yeah. But anyway, if you don't really understand how much — we're already a subsidiary economy now, foreign capital owns the good companies, and
in a way exits depend on foreigners, who benevolently choose to take them and give you capital for them. So if we squeeze Finland even more on top of that — because a sovereign state, as a rule, only taxes its own citizens at the individual level; with corporate tax you can tax everyone, and that's set to drop to 18% in Finland now, which is quite competitive — but that alone doesn't fix the equation and the cash flow, if you're already
raising private individuals' capital taxes and creating exit taxes for them, or talking out loud about a wealth tax — then those roughly 8,500-level people, well, it's pretty easy for them to just leave. And since the tax base in Finland is unfortunately already small, even if you raised the rate, the tax revenue wouldn't grow much anyway. So out of this 160-billion pot, you're really only talking about hundreds of millions — it's basically self-destructive thinking. Well
the Norway example, hey — right, and coming to that capital-supply question still — this is quite country-specific if you look at neighboring countries. When I was working at different banks, you'd see that even if you switch banks, that domestic — the investor behavior pattern and investment style within a country stays basically the same. Swedes trade domestic
stocks. They don't really have much else. They're very active there. If we talk about these tax-saving vehicles, they very often use investment wrappers — insurance policies and so on. At some point they used more of these foreign companies too, which they used.
Danes have their own bond market, mortgage bonds, and then they leverage up five- or six-fold in yen and Swiss francs and whatever else. A very peculiar market. Norwegians do all kinds of risky stuff, and Finns, then, are maybe more taught toward this kind of institutional investing — looking at the allocation, how much emerging-market exposure you're allowed, and so on, and
that maybe leads to, compared especially to Sweden, domestic money not being put into the stock market to the same extent. And then we have a terrible real-estate overweight — of course, the one genuinely tax-free asset class we have is the owner-occupied home. But that's true everywhere else too, so we shouldn't turn off that last light either, but it has steered us toward having a shocking overweight in real estate, and
now, for the first time since the '90s, we're seeing this — the collapse of Finland's rural, sparsely populated areas, and, in a way, urbanization — and so the values of properties in those border regions drop. But otherwise, apart from that, I feel that as there are fewer and fewer job-creating companies in Finnish ownership, since capital keeps getting eaten away and foreigners are more cautious about allocating capital here
and creating jobs, then labor supply, in my view, has actually risen, but wages haven't risen accordingly — I feel like wages might even start drifting down a bit here. Maybe this '26 tax cut will boost purchasing power, so that might counteract it somewhat, but we might see a decline in housing wealth, a decline in wages, and meanwhile this runaway spending on the public side just keeps climbing — and that leads to a point where, at some stage, the cash flow becomes so unsustainable that the lenders [unclear] say no. And then we have
absolutely no risk hedge at all on the self-sufficiency of capital in financing sovereign debt — 98% of our new sovereign-debt issuance now comes from abroad. That's a big — that's a big risk. And, well, if you look, sort of, at these leading indicators for Finland — if we look at the real estate market, I don't see any particularly fast recovery there at least. If we look at the export sector, look at
European industrial new orders, everything else — those have led Finland by about nine months or so, so there's no improvement coming from that direction. So, yeah, at least the first half of next year is going to be quite, quite weak. Yeah. This is a strange situation indeed. Yeah, and if we look purely at the GDP figure for Q3 — well, it's an unpleasant situation when Finland's
GDP figure was perhaps the only one in the EU that was in negative territory, at minus 0.6. Okay, it might still get revised a bit — that's still uncertain — but regardless, the chart looks pretty bad — why haven't we started recovering yet, when practically the rest of Europe, even if it's a weak recovery, has at least started some sort of shaky upturn. There's a big difference between the manufacturing sector and the services sector — like Spain and Italy, which we talked about,
there tourism is pulling things along, and everything is — and then, again, maybe there are still those big EU pandemic-era packages sustaining growth there, while the payers are here, and here we have manufacturing industry — and if you look at the whole manufacturing sentiment, it's basically been rock bottom for years, there's no recovery there at all.
Well, of course, a big question is what China does — since if its trade with the US goes downhill, which it already has to some extent, where does all that supply come then? Does it get dumped over here, and does it take market share away from Germans and Finns, and so on? Finland is still fairly strongly tied to Germany, and — yeah, incidentally, China's demographics are really bad too, they're aging as well and they don't have pension savings. So
there's a bit of risk concentration there too. Maybe that'll slow down their worst dumping tendency a bit, but — well, they have their own strategic priorities that they've decided on, be it electric vehicles, or renewable energy, and now, as something new — hey, just look at the investments and the sheer amount of money they're putting into it. And maybe I'd add AI
to that list for productivity. Now, let's cut the public sector down boldly, Milei-style. Throw AI solutions in there. And then the EU should somehow manage to abandon this over-regulation in AI, so it can genuinely be shoved into pretty much everything, even if some data splashes around a bit in the process and some private data leaks a little — in my opinion, I'd take that trade-off. We really can't afford to play the world's only saint here, if everyone else is playing completely without any
safeguards, and that's maybe not ideal either. No, no, no, no, right — but anyway, in a way, so that we don't — well, I have this: Mårten Mickos, who founded Finland's first unicorn, MySQL — he once said that in the US, and especially in Silicon Valley, the clock speed is just infinitely bigger, that they don't have those time-wasting bullshit-artists who all just do something every
single day making productive decisions, and they can't stand the kind of people who just slow things down. And it doesn't matter that they retreat into their own circles doing this — they do it with productive people. We really do lack that clock speed, and somehow we over-romanticize public-sector jobs and the flow of people coming from there. We really need to get some bold AI disruption into Finland now.
Yeah, and the essential thing isn't that they always make productive decisions in Silicon Valley either — the essential thing is that they make some decision, and if it turns out wrong, you fix it fast, learn something, and move forward. That's what's important. But on that regulation point I'll say this too: I do think there's a kind of window of opportunity here right now — we have the Draghi reports, and I feel that politicians around Europe are catching on pretty well that this is a genuinely real problem,
but this is now the high level where things are moving at the moment, and some have moved a bit further along, sure — but then, when we start actually negotiating concretely about individual rules, whether at country level or in Brussels, it just becomes so damn difficult in this kind of EU-style bureaucracy that even if we all agree, the end result can still turn out completely bizarre. And that sense of crisis awareness needs to be
brought to Finland. We're genuinely in pretty bad shape right now. We can't afford to do everything by over-regulating, and dragging our feet, and blocking the market economy — you know, just to be safe, let's ask for another permit round and grant one more right of appeal, that sort of thing — we simply can't afford that. We shouldn't go back to the dark '80s in that sense, but — well, we don't have — soon we might have cheap
labor ahead of us at least, but yeah — Europe — that's a pretty, pretty bad scenario. Just think, if these big, big forecasts pan out within a few years — a shocking number of unemployed across the EU because of AI — well, who pays those taxes then, and those pension billions — where do the new funds
come from. Yeah, there's a lot of work to do there, but as said, this isn't just Finland's problem, it's global. But of course Finland matters — it's important for Finns — and this picture right now is downright ugly. And on that regulation point I have to say this too: it's an embodiment of it, when you look at the United States and how there
are big companies there, how they can develop, how they can scale, how they can operate. We don't have that in Europe. We don't have many pan-European companies at all compared to the Americans, because it's so fragmented — we have our own domestic Finnish banks here, and we have our own domestic Finnish retail chains here, and one European player tries a bit, but doesn't really break through either, because the barriers to entering the market are so high, and so on, and so on, and so on — pretty much in every
sector. So, so it really looks bad, and that obstructive bureaucracy really ought to be shaken off somehow, even by force in some way. Yeah, of course we do have examples like Sweden and even Switzerland, where there's a lot of wealth and a lot of that home market bias, and — well, Switzerland incidentally is in an interesting position right now, with Trump rattling it a bit too,
in the sense that at some point they settled things with gold bars and Rolex watches, so to speak. So yeah, sometimes this rigid EU does provide some protection after all. But actually, on that Switzerland situation — Juho Lipsanen has told me at some point how shockingly much smaller the overall tax rate is there, how much smaller public spending is in a way, and then this direct democracy — in my opinion that's actually
a bit scary too — you'd think some populist could accidentally get really bad laws passed. Well, but so far, in my view, it's gone really well — I've now lived there for 15 years, and I think there's really only been one bad country-level referendum, and that was on EU immigration, which people wanted to restrict — and even there it was the only
bad decision, really, in that the referendum was held without anyone offering how this decision would actually be implemented — they decided to restrict it, but didn't decide how. And then you still need to remember that with immigration there, you're welcome as long as you have either money or a job, right? Then you have to
pay for your own housing and your own healthcare costs, and then as an EU immigrant you get a five-year residence right. But then if you misbehave, if you end up burdening the system, if you no longer have a job or your money runs out, then that card gets taken away and you go back. And that's different from the Finnish approach in that sense — yeah, I
would guess that people there are actually quite worried now about this German example of immigration, where this completely reckless, reckless approach leads. And I'm sure Finland and Sweden too will gradually come to understand that maybe we should move toward a model where you're welcome as long as you come to work and be productive. Exactly. So then the question that comes up is: what, what is Finland's pull factor?
Well, now there's Ville Valkonen, who was leading a working group, which achieved, among other things, that Finnish expats — once qualified, after eight years abroad — can now come back to Finland taxed at 25%, so that's starting to become competitive, that's pretty okay. And on top of that, during the coming year, our other, regular local top marginal tax rate is dropping to 59.52% [unclear].
So that's also a significant move that isn't yet reflected in the economy's supply side — I'd say it's bound to have an effect — and taxes were lowered further down the scale too, but that's a really massive change for Finland, coming from a truly inhumane level. Then this expat incentive — the 25% — well, I myself was in London for 13 years, and I would have come back right away if someone had told me you could pay a flat 25%. Well, in London too, taxes were
higher — whereas in Switzerland, an ordinary salaried employee in a decent location can get away with pretty moderate taxation. Yeah — one more thing on that: in my opinion, direct democracy has still led to good outcomes — like, if the local residents themselves get to vote on whether to build a new monument for the city manager, a new city hall, or an opera-house extension, or something
like that — then that vote happens, a good debate takes place, information comes in from both sides, delivered right to your home, you get to compare for yourself what it means for you, and then you vote. I think that leads to the public sector staying reasonably, reasonably efficient and lean. Yeah. And doesn't that also mean it minimizes the negative risk of populism, since you have most of the voting happen not so much
on the basis that a populist government got elected and then did crazy things for four years. Yeah, that's true too — maybe we should try direct democracy. Well, constitutional amendments are pretty heavy going. It's probably not worth pinning Finland's hopes of salvation on that. Maybe one more thing, hey — I have to bring up Credit Suisse for you now [unclear], since in Finland the banking sector is extremely concentrated, with Nordea and OP dominating, and then
Danske's branch office tries to offer something, but then it's a pretty small tail. Yeah.
But then in Switzerland, this beloved Credit Suisse of mine was sold to its arch-rival, the United Bank of Switzerland, for basically fire-sale prices. Didn't an absolutely insane amount of concentration just happen here? This can't be a good thing for Switzerland, that the banking market got structured this way. Well, that's probably right. I mean, maybe what the country should have done instead — I won't say now
that the bank, UBS, bought it — bought it really cheap — but okay, there's its own burden there too, and problems have kept surfacing from that old CS nest as well, but from the country's point of view, yes, certainly so.
So, Credit Suisse was a big local corporate bank, and now that competition has dropped out. It's been a big local mortgage lender, and so on — that competition decreases. And then, of course, through employment — if you think about it, you merge two organizations, you cut the large IT departments, legal, compliance, all the other departments, and
merge it into one, and then on top of that, use AI, Sami, to squeeze even more efficiency out of the already-existing organization. So that certainly means the number of jobs will drop drastically, but on the positive side, the private banking sector will probably flourish, because now it's easier to say, well, it's not worth putting everything into that monolith, UBS — so there's room to grow elsewhere then.
Well, maybe, if you think about our own business — since we use bank infrastructure and resources and systems — this has actually been heading in that direction for a long time already, that senior people have been leaving the big banks, preferring to use those resources but not be part of the whole circus the bank wants to run around them. So this has been going on for a while now. It's not
come purely from this, and of course these smaller banks were actively recruiting the Credit Suisse people they wanted to poach from there. So it wasn't quite a complete wipeout.
But I do believe there'll still be more rounds of layoffs there for a while yet, and it's not really all that great for the country as such. So maybe the price of a Big Mac will drop to European levels then.
Well, there have actually been a few sale campaigns now, so you've gotten a somewhat reasonable deal on those. Yeah. But this kind of successful-country problem is a form of Baumol's cost disease, or general inflation, where the cost level just runs away, so it's no longer worth being poor in a rich country. Well, inflation there has actually been low, but the franc has strengthened, maybe precisely because of that, and
because their economy is well managed, and because they have that defensive sector as a big one — pharma, which is a high-value-added, stable business sector — so the franc has stayed so strong. It's more of an annoyance than the price level per se, since prices would actually be fine if the franc were cheaper. Well, right. M.
Good stuff. Thanks. Um, maybe one more thing on this — since the general theme has been a bit of doom and gloom about Finland, maybe let's explore one more scenario. You mentioned that a colleague of yours floated the idea that by 2030 — was it that a third of the workforce could be out of a job? Yeah, well, this is an extreme scenario, but it's — it's from a former employer, it's a former employer's wealth
management scenario, and, well, I don't know if it's such a good scenario.
You can comment on it. And banks are now doing this kind of analysis in this way — trying to find some way to prove that these AI investments being made now are worthwhile, so you have to find some way to get there. And now there've been these top-down ideas about how much
of the global workforce, for example, AI has to render redundant, so that these investments being made now — whether it's 3 trillion or 7 trillion, that remains to be seen — how much, how much additional efficiency needs to be found from there for them to become profitable. And the wildest scenarios are exactly of that
order — a third of the global workforce. And of course that could be good for whoever captures that efficiency, but what does it mean for national economies if a third of the population ends up unemployed? That scenario isn't your positive one — of course, probably not — but let me quickly comment on this: I myself don't find it credible that within five years, 30 percent
of people would end up unemployed. It sounds like an insanely fast pace, but still, I think these calculations are nevertheless useful to go through — these doomsday calculations — because it forces us to think through the effects of AI, what the mechanisms could be. So, even though the result is probably unrealistic, in my opinion, it's still probably a
useful calculation nonetheless. Yeah, and it's actually pretty easy then to think, well, okay, for once being poor might save us here — this is a sunk cost that the Americans have put upstream — they've put money into Nvidia hardware, they've put it into data centers, into compute clusters, into these AI training runs, those trillions — and since we're so poor, we haven't put any in — the Americans bear those costs, and then, in a way, that
productivity improvement comes to us too, but they take on that sunk cost from it — possibly. And it's already visible, if you've looked at these indices and prices, how — since this was supposed to be this totally critical resource that couldn't be found anywhere, these Nvidia processors — well now, for instance, I looked yesterday, and the rental index for these has already come down
by a good 30% over this past year, so now maybe it's not such a critical resource after all — it turns out you can find it. And Google has developed its own chips, and everyone else is doing the same thing constantly, and the Chinese are making their models more efficient too, and so on. So maybe, maybe that's actually an opportunity. And then, going back to that thing you mentioned at the start, about those slides of mine,
there at the private equity investors' event — yeah, this change really has to come from the private sector, from entrepreneurship, and from private equity investing.
Finland really has a shockingly bad-looking situation right now when it comes to the growth of these big companies and their growth ambitions.
Historical growth has been shockingly poor compared to neighboring countries, and their growth targets are also very low, and that's really concerning. And that capitalist you've been calling for really does need to step in there. I was at the ownership annual seminar over at Aalto, and actually this was discussed there, and the conclusion was that we have exceptionally faceless capitalists — that being the pension sector,
which is this committee-like owner. They're not active owners. Well, they used to be, and then it was discussed that they stopped going onto the boards, and that's fine — but then we have very few of those wealthy families that you'd find, say, in Sweden, Switzerland, or the US, and these tech exits pop up entirely on their own. And in a way, when someone like Peter Sarlin, say, gets tens of millions, that can really accelerate that cluster a lot — so, well, and on top of that you also need to plan for that inheritance tax
in such a way that — for example, if you look at a company like Vaisala, it's worth one and a half billion — if they can't get that ownership tax relief, then the whole next generation has to take out 7% of that 1.5 [billion], so to speak, from their own ownership, as dividends paid out in advance, so they can finance those future taxes and the interest on them. So this — nobody really knows how to calculate how devastating that is. Think about it — if that pressure, if you think of that company, and the pressure is that we have to
constantly pay rising dividends, then yes, that really cuts into growth — it's precisely taking away from growth capex, and from risk-taking, because it takes away from risk-taking. And yet, the capitalist should really think of it as a portfolio — you should have management go after growth, because this is just one part of your portfolio, right? Yeah.
And if management instead thinks, well, I want to protect my own earnings and options, and a modest annual pay raise, and just make sure we can keep growing the dividend, then the growth outlook inevitably stays weak. Exactly right, I completely agree. And somehow we're kind of coming full circle here back to aging — I'd argue that has its own
effect too — since, on average, at the societal level, there are more aging owners, risk-taking is simply lower.
Yeah. That could indeed — that could — well, maybe that's exactly why I'd now like to see more private ownership in Finland — well, this idea of converting inheritance tax into a capital gains tax, as they've championed in Sweden — because then you could keep taking that long-term risk even right up to the moment you die, so you wouldn't have to think, well, once I kick the bucket, someone's got to pay seven percent tomorrow
with interest, on this illiquid private-equity portfolio of mine. So, in a way, then you could actually take on risk.
For example, I think the Swedes can take out home equity loans that way, because in a way, that equity you have narrowly tied up in the apartment isn't seen as risk — whereas in Finland, that too gets grabbed right away, and it may be in illiquid investments, since basically all good, long-term products of that kind tend to be somewhat illiquid. So, on top of the stock market, we should really get more of these into Finland, specifically at the private-individual level — not into that pension cluster, which is
in a way, for perfectly sensible reasons, investing more and more abroad.
Yes. But things like this — so, this is still reversible, but I think we need to stop drifting and daydreaming and turn toward capitalism and the market economy, toward domestic ownership and building up wealth. Yes, that's exactly it. And let's remember what situation Finland started from for the '90s upturn. It was absolutely, absolutely dreadful — we were in the middle of a full-blown depression, banks were going under, interest rates were 15%, and so on.
Compared to that, of course the situation is different now. The age structure is worse, but on the other hand — and public finances are a total mess — but in a way we're still not, not, not living in that complete misery yet, so we need to take those measures now precisely so we don't end up there.
And of course, unfortunately, politicians tend to have this trait — until their back is against the wall, they don't dare make those tough decisions that should have been made years ago — but at the latest now.
Great. My guests today have been Mauri Kotamäki and Markus Hollmen. And if you've watched or listened this far, go ahead and subscribe to the channel, and hit like, and let's head over to the insider side, and maybe continue from there. So this global index is tech-heavy there, of course, always in the videos and other things, but there are apparently other, in a way,
overweights too, so we can talk about those on the insider side.