The Covid-19 pandemic – A friend or foe?

In economic terms, we can ask: is Covid-19 a friend or foe, or is it irrelevant in the mid-long term? We can speculate about this question  by investigating how Finland has been doing during the pandemic.

What is normal?

The definition of normal is tricky. What is the reference point? Maybe we can define normal as habit or how we have done things in the past. We have met people live, made investments to infrastructure, travelled, been active in networking, had visions about how Finland could be attractive in tourism, had a vision Finland could the world-leader in high-tech start-up scene and leader in AI, had challenges in public sector debt and slow growth in Finland when comparing to Nordics or OECD peers. Also, in normal business landscape bad companies may prosper, at least in the short run.

What would Joseph Schumpeter have to say about Covid-19?

Does Covid-19 show change in the economic structure, this is the question that the political economist Joseph Schumpeter would have asked. Currently, in 2020, Baldwin asks the same question (Talouspolitiikan strategia koronakriisissä, 2020):  Does Covid-19 bring Hysteresis to the economy. If there are permanent changes in economic activity or structures we can argue Hysteresis takes place.

In Schumpeter’s view, technological innovation is at the cause of both cyclical instability and economic growth. Today we can ask how Covid-19 will influence this technological innovation. Schumpeter identified innovation as the critical dimension of economic change. He argued that the bull’s eye of economic change is innovation, entrepreneurial activities, and market power. He sought to prove that innovation-originated market power can provide better results than the invisible hand (Adam Smith) and price competition.  However, the concept of innovation is multidimensional, according to Schumpeter (1934, p. 66), an innovation can be a new good (e.g., product), a new method of production, the opening up of a new market or a new source of supply, or creating a new type of organization.

Does Covid-19 accelerate or influence the innovation mechanisms?

Schumpeter proposed two major patterns of innovative activities. The first one, is named Schumpeter Mark I. New entrepreneurs come in an industry with new ideas, new products or new processes, launch new enterprises that challenge established firms and thus continuously disrupt the current ways of production, organization and distribution and wipe out the quasi rents associated with previous innovations. (Malerba & Orsenigo, 1995)

The second one is labelled Schumpeter Mark II. This is about the relevance of the “industrial” R&D laboratory for technological innovation and the key role of large firms. According to this view, the pattern of innovative activities is characterized by large established firms and by relevant barriers to entry for new innovators. Large firms have institutionalized the innovation process with the creation of R&D laboratories filled with researchers, technicians and engineers. With their accumulated stock of knowledge in specific technological areas, their advanced competence in large-scale R&D projects, production and distribution and their relevant financial resources, they create barriers to entry to new entrepreneurs and small firms. (Malerba & Orsenigo, 1995)

How have companies coped with the turbulence resulting from Covid-19?

According to Statistics Finland (9/2021) the Covid-19 pandemic resulting in the following changes in the economy:

  • Positive development of industries

In service industries, production has been on the rise, but the level of output is still well below the level before the coronavirus crisis. In manufacturing, production is above pre-pandemic levels, but the peak in 2019 is still a long way off. In construction, the sales volume has grown and thus exceeded the pre-pandemic level. The development of the trade sector, which has done best during the coronavirus epidemic, has also continued to be positive.

  • Increase in investments in the first quarter of 2021

Investments made by firms started to grow in the first quarter of 2021, with growth of 0.9 per cent year-on-year. Prior to this, investments decreased by 1.5 per cent in the fourth quarter of 2020 and by 9.1 per cent in the third quarter of 2020 compared to the values one year ago.
In addition, new opportunities exist, e.g. Green Deal, start-up ecosystems and developments in AI, that Finland need to pioneer in after Covid-19 world.

  • Number of bankruptcies at normal levels

During January–June 2021, 1,298 bankruptcies were filed. In total, 6,583 persons worked in companies filed for bankruptcy. In 2020, a total of 1,355 bankruptcies were filed during January–June, and 7,546 persons worked in these companies.

Compared to previous years, the number of bankruptcies has remained more or more the same in different industries. In relative terms, the number of bankruptcies has decreased most in accommodation and food service activities and in the trade sector. The number of bankruptcies grew only in the transport and storage sector and in agriculture, forestry and fisheries.

  • Employment growth continues

The trend of the employment rate reached the level of 72.7% in July 2021, which prevailed before the outbreak of the coronavirus crisis in February 2020. The employment rate in the second quarter of 2021 was even higher than the corresponding figure for the second quarter of 2019.

  • Consumer confidence continues to be strong

The consumer confidence indicator remained strong between July and August 2021. The CONFIDENCE indicator was 4.4 in July and 4.0 in August. Confidence in the economy has previously been this strong in the first and second quarters of 2018.

  • New orders in manufacturing growing strongly

According to the latest published monthly data, in June 2021, firms received more orders than one year ago in all the main industries examined. The production of paper and paper and paper products grew most, where the value of orders was 44.7 per cent higher than in the year before. In the metal industry, orders grew by 37.8 per cent from the year before and by 29.8 per cent in the chemical industry.

  • Business confidence developed positively

The transfer of confidence indicators published by the Confederation of Finnish Industries (EK) to another service published in April. business confidence has continued to rise. For the first time since the coronavirus crisis began, the confidence of construction companies has also risen above zero. Companies consider the outlook to be largely positive, although sales expectations in service industries are more cautious due to the fluctuating coronavirus situation. As a result, the confidence indicator for the service sector saw a slight dip in August for a long time.

Concluding remarks: Covid-19 as an accelerator

The Covid-19 pandemic is the accelerator in both good and bad. Companies that had challenges to survive in the pre-Covid environment had difficulties and companies that were innovative managed to find new business opportunities. However, it seems, at structural level, Covid-19  is almost irrelevant to economic structure, i.e. the companies are recovering back to normal and structural changes to the Finnish economy have not taken place. A key learning is that we should increase the good developments in economy despite of Covid-19  and take benefit and momentum of the strong global growth to Finnish economy.

Henrik Sievers
PhD, Marketing

Vihriälä, V., Holmström, B., Korkman, S. & Uusitalo, R. (2020) Talouspolitiikan strategia koronakriisissä
Malerba, F., & Orsenigo, L. (1995). Schumpeterian patterns of innovation. Cambridge Journal of Economics, 19(1), 47-65.
Finland adopts new coronavirus strategy designed to open society ( (9/2021)
Talouden tilannekuva | Tilastokeskus ( (17.9.2021)