Finland’s rise as a prosperous industrial nation, which started in the mid-20th century, is due primarily to two very different factors: its extensive forests, which deliver wood, a raw material in demand around the world, and its historically close relationship with Russia. The greatest obstacle on the path to industrialisation was the lack of energy resources: both coal and oil must be imported, and although running waters are plentiful in this country, generally they do not have sufficient gradient to drive water wheels or turbines. Nor could agriculture play any significant role in economic development: although Finland’s farmers were never serfs, the handful of owners of large, profitable estates long dominated an overwhelming majority of day labourers and small tenants subsisting on the bare minimum.
A modest tradition of iron-working emerged as far back as the mid-17th century, when Finland still belonged to Sweden: as both labour and charcoal as fuel were available in abundance, Swedish iron ore was refined in Finnish iron works. However, the use of wood as fuel, in saw mills and for the production of tar, was economically more important.
When Finland became part of the economically virtually undeveloped Russian Empire in 1809, a gigantic market was opened up to Finnish entrepreneurs. The nearby capital of St. Petersburg alone absorbed enormous quantities of construction timber and firewood, food, and iron products. From the 1820s on, the first Finnish textile factories appeared. Driven by the availability of water power and an exemption from tariffs, the city of Tampere developed into a significant industrial centre. By mid-century, the cotton factory founded by Scottish entrepreneur James Finlayson alone employed around 1600 people. In the last third of the 19th century, industrialisation accelerated. Wood and wood tar were in great demand for shipbuilding, the new paper factories demanded wood fibres. Modernisation of the agricultural sector finally began in the wake of the last great famine in 1867/68, so that domestic purchasing power gradually developed as well.
The notorious lack of capital, however, proved to be an obstacle to modernisation, for instance in the construction of canals – an important transport mode in the “land of a thousand lakes”. However, 1856 saw the opening of the Saimaa Canal, which linked the extensive watershed of Lake Saimaa with the Gulf of Finland. Starting in 1862, trains traversed the first railway line running inland from Helsinki, and the vital link to St. Petersburg was completed in 1870. However, telegraph lines, electric and telephone networks grew only slowly.
At the start of the 20th century, one of Finland’s few major mineral deposits was discovered: the copper deposits in Outokumpu, which were actively mined until 1989. Finland became independent in 1919 in the wake of the Russian Revolution. The young republic weathered the economic turbulence between the wars, and even the great crisis of 1929, much better than many western nations; however, this success was still due almost entirely to the export of wood products. A broad industrialisation did not begin until after the second world war, ironically sparked by the reparations that Finland was forced to pay the Soviet Union. As the Russian economy demanded primarily metal products, from ships and railroad cars to machine tools, the metal-working industry was compelled to modernise extensively, a process which ultimately made the nation competitive in the global market. Additionally, the Soviet Union continued to order Finnish metal goods even after the reparation demands were fulfilled, which guaranteed a base level of revenues. Starting from the end of the 1950s, new industries such as chemical plants, oil refineries and plastics factories emerged with the help of government subsidies. Ultimately, technically sophisticated, high-quality products were the decisive factor that enabled Finland to find its niche in global markets: Finnish icebreakers and other special-purpose ships are famous, lifts manufactured by the Finnish company Kona and furniture in Finnish design may be found around the world. The country also exports oil drilling platforms, machinery for the wood and paper industries, and cranes and forklifts. Since the service sector surpassed manufacturing as the most important economic factor at the end of the 1970s, Finnish companies have increasingly concentrated on exporting leading-edge digital technology.