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Finland Economy Outlook and Welfare System

This is a summary and analysis of the Mckinsey Helsinki office pro bono project. Link: Helsinki_Report

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Problem: In the face of an aging population, global competition and the financial crisis, how does Finland keep it’s current social model (a welfare state), in a sustainable manner?

Background

Finland has a well functioning public sector and successful welfare state, and wish to keep it in a sustainable manner. However, Finland faces significant challenges starting from 2010:

  • Population aging at the fastest rate in Europe, working population will shrink
  • Global competition leads to industrial restructuring, manufacturing jobs lost in financial crisis may never recover
  • Elderly population will strain the public healthcare system and public financing

If no action is taken, in the next decade, the above factors will push the Finnish public sector into unsustainable debt and the government will be forced into unfavorable changes and will inevitably harm the current welfare system.

Methods

The study was based on historically sustainable support ratio levels, predicted trends in population, and predicted number of private sector jobs. The support ratio is defined as number of public sector jobs / number of private sector jobs. In the report, a ratio of 1.9 – 2.0 was deemed as “sustainable”. If no measure was taken by the Finland government, the support ratio would surge to ~2.5 in 2020, which is highly unsustainable.

Proposed solution

  • Increase number of jobs in private sector.

In 2020, 150k – 200k private sector jobs is estimated to be needed to maintain a sustainable support ratio.

  • Increase supply of labor to private sector.

In 2020, Finland will need 270k – 320k more people in workforce to maintain a sustainable support ratio.

  • Producing more public services with the same resources.

Public productivity has to increase 1.2% year for the next decade to satisfy demand. To achieve this without increasing resources demanded, changes in working methods and procedures is needed.

——————— end of the summary here.

Below is an brief analysis in terms of the structure, presentation style, and other aspects of the report.

Structure

The overall structure of the report is:

  • Preface (1 page, including Acknowledgments)
  • Executive summary
  • Background and presentation of the problem (Challenges, aims of the project)
  • Proposition 1
  • Proposition 2
  • Proposition 3
  • Conclusion and Implication (What does this mean for Finland?)
  • References

Overall, the structure is clear and concise, and easy to follow logically.

The Charts

In my opinion, the highlights of the reports are the well designed and illustrated charts. In such a long report, few people has the patience to read all text, thus the charts are the key for effective communication. There are 56 “Exhibits”/Charts in the 108 page report, which can be grouped into seven types:

  • Column/Bar Charts – display numbers/percentages of a few groups Example: Exhibit 19. A variant of bar chart (Segmented bar chart): Exhibit 23.
  • Scatter plots and variants – display trends in large amount of data, two dimensional. Example: Exhibit 18. Variants: Exhibit 20, 26.
  • Line charts – display trends over time. Example: Exhibit 16.
  • “Waterfall” chart – a variant of bar chart, used to display changes in amount/percentage. Example: Exhibit 4, 5, 6.
  • Flowchart – display workflow or structure. Example: Exhibit 8
  • Tables – listing categories of information. Example: Exhibit 21.
  • Pie chart – displaying proportions, illustrating components. Example: Exhibit 30.

All these charts could be made from Excel/PowerPoint 2007. The key is selecting the appropriate type of chart for the information you want to display, the above summary could give be used as a guide. Also highlighting the key information in the charts is important. Formats of the charts in one reports should be kept uniform.

Analysis method

I think the analysis in the reports are all straightforward. In summary, they can be grouped into the following categories:

  • Segmentation – Dividing big problems into sub problems and analyze individually

For example, when we ask how do we increase employment, we segment the economy into six major sectors: Company services, local services, infrastructure, capital intensive production, industrial production and research intensive production. Then we address each sector separately according to their features.

  • Comparison – Comparing the data/problem we have with other countries/historical data and gain insights.

For example, comparing the job growth problem Finland is facing now with US, Japan, UK, Germany, etc. and identify key factors that influences job growth.

  • Association – find association between groups of data, and transform/simplify the problem.

For example, identified the association between support ratio and overall outlook of the economy, and focus on improving the support ratio.

  • Scenario analysis – making assumptions and perform forecasting

For example, making some assumptions about the trends, and forecast the  support ratio in 2020. This will illustrate the importance of reforms and strategies for the government to take before it’s too late.

No statistical analysis beyond simple regression between two variables is used – the client won’t be able to follow anything beyond that.


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