The State Pension Fund of Finland

The State Pension Fund of Finland (VER) was established in 1990 to balance state pension expenditure. VER invests pension assets and helps the state to prepare for financing future pensions. VER is a long-term investor characterised by a high standard of professionalism and an ethical code of conduct. VER operates as part of the prefunded Finnish pension system.

 

 

Industrial policy race

2023-03-03 at 7:40 Timo Löyttyniemi

Governments are increasingly trying to outdo other countries by pursuing an active industrial policy. It appears that faith in the power of industrial policy is making a comeback. The doctrines of a pure, free market economy and free trade take a back seat as countries compete under the banners of green transition, digitalisation, energy and security to improve the world and their position and beat each other in competition. Investment markets may soon discover both opportunities and risks in the face of abrupt policy changes. Economic growth may receive a boost as governments and businesses invest in the future.


A stronger European industrial policy

The rise of the industrial policy to centre stage is the result of a range of factors. The Covid-19 crisis revealed the vulnerability of supply chains. Russia’s war of aggression accelerated the transformation of energy markets. Disputes between China and the US could trigger a crisis in the production and supply of microchips.

The programmes launched by the European Union are a maze. The EU talks about strategic autonomy, green transition and industrial policy. It appears typical of EU policy that each crisis spawns new programmes, with the old money being partly recycled. The EU Recovery Fund and NextGeneration EU were born out of Covid-19, whereas REPowerEU came as a result of the war and energy crisis. The EU Green Deal Industrial Plan represents a new industrial policy in continuation of the EU Green Deal. Other new programmes include the Net-Zero Industry Act, the Critical Raw Materials Act as well as the Chips Act currently under preparation. The latest of these initiatives are responses to the US Inflation Reduction Act, which is designed to speed up the green shift but is widely interpreted in Europe as a protectionist measure.

Finally, the EU will, by the summer, clarify what it means by the Sovereignty Fund and what it is needed for. All of this leaves a lot of uncertainties and unanswered questions, but past experience shows that the project will eventually be adapted to Europe’s needs, i.e., needs on which Europe will reach a consensus by the summer.


Strategic autonomy

What European projects have in common is the quest for strategic autonomy. Strategic autonomy is an umbrella concept embracing all the themes listed above. At present, it is related to energy, key raw materials, the green transition and chip production. Later, it may well be connected to other themes. The path to strategic autonomy will be a long one, as the EU's ideology has in the past been based on free trade, the market economy and non-interference by the government. The transition to strategic autonomy is about rebuilding Europe on a new basis.

There is a fierce battle being fought in Europe between the proponents of government subsidies and pure competition. Decision-makers are called upon to create a new system based on a turning point in sustainable development, fair competition between companies and the added value provided by government action.

Government presence is often decried, but it will not go away. Some want to strip down government and bureaucracy, while at the same time asking for government help in times of crisis. National debt should be reduced, but governments are borrowing more and more. And now a new value-adding industrial policy should be shaped amidst these conflicting forces.


A global problem

Global trade policies are pursued under several sets of rules. For a long time now, China and other so-called emerging markets have been allowed to strongly support governments’ industrial policies. At the same time, many western countries call for free competition and trade. The game is the same, but there are two sets of rules.

Now these rules will be harmonised. Concurrently, China is discarding its role as a developing nation to become one of the most advanced countries in the world. Presumably, the international rules of trade will be renegotiated once the adoption of protectionist industrial policies is completed in the West. As a result, the negotiations will reopen with new arguments.


Conclusions

What should an institutional investor think of these developments? The good news for investors is that governments are willing to create opportunities and improve the business environment while making major new investments in the green transition and digitalisation. Economic growth will receive a boost.

Before long, the leading powers will engage in extensive negotiations that will shape the direction of global trade and the world order in the 2020s and 2030s. Optimally, these developments could eventually lead to a new "deal" between the US and China, which could reinvigorate competition between countries and companies. At the same time, they could offer some sort of security guarantee for companies that operate globally relying on global supply chains.

Meanwhile, in anticipation of this “deal”, we will see a world in which protectionism gains ground and a new industrial policy takes centre stage. In the face of this new situation, many beliefs will make room for realism. In the best of cases, we will be able to create something new and sustainable. What is important, however, is finding adequate concepts and new arguments for old ‘new’ things.

The writer is VER's CEO Timo Löyttyniemi.

TLö blogi 2020

Recent posts

2024-01-26 at 11:55
2023-12-14 at 11:02
2023-11-24 at 11:18

Tags

acceleration active investing added value AI alternative investments asset classes austerity measures authoritarian governments baby boom baseline capitalism carbon border tax carbon emissions carbon footprint carbon intensity carbon neutrality carbon risk carbon tax carbon-neutral economy carbon-neutrality central banks circular economy climate change climate commitments climate crisis CO2 emissions collateral commercial paper market commodities concentrated markets contingency plan contrarian corona crisis coronavirus coronavirus crisis countermeasures covid crisis covid economy crises crisis crypto currencies currencies debt burden debt structures decision-making democracy demographic trends demography dependency ratio depression derivatives development digital money digitalisation dilution disease monitoring system diversification ECB economic competition economic development economic growth economic policy economic system economy effective treatment electricity exchanges emergency measures employment figures energy export energy exports energy imports energy prices energy war environmental policy equity market equity markets escalation ESG exchange rates expected returns external borrowing FAAMG Fed financial crisis financial market financial markets financial stability fiscal policy fixed income investments fixed-income investments forecasting fossil fuels free trade funding ratio geopolitics global trade globalisation globalization government debt government finances green technology green transition growth healthcare systems hedge funds illiquid assets increase in prices indebtedness index investing index weighting indices inflation institutional investor institutional investors interest level interest rate interest rate level interest rates internal market international trade investment beliefs investment environment investment returns investments investments contribution approach level of risk liberalism long-term return low-carbon economy market crash market economy market forces market interest rate market movements market portfolio market rallies market reaction megatrends miracle momentum monetary policy ownership policy pandemic pension investments pension investors pension liability pension promise pension system pension systems planning political decision-making portfolio structure positive side effect predatory traders pre-funding preparedness presidential elections price fall protectionism real estate investments real estate sector recession regulation renewable energy renewable natural resources rescue packages responsibility restrictions returns on investments risk bearer risk level risk management risk profile sanctions scenarios security investments short squeeze sovereign debt spill-over effect stagflation state state ownership stimulation stimulation packages stock market stock markets stock prices stocks strategic allocation strategic autonomy strategy success support measures supportive actions sustainability taxation the leading powers timeframe for liabilities timing totalitarianism transition risk uncertainty virus war war of aggression welfare state