ABSTRACT
In this chapter, the authors explore the size of the general (central and local) government sector in Finland from 1890 to 1960 and discuss the drivers and obstacles of public-sector growth before the welfare state era. In addition to central government development, they examine local government institutional development by concentrating on three aspects: urbanization, education, and healthcare, which essentially explained public-sector growth in towns and municipalities. According to their new consolidated general government statistics, public expenditure/gross domestic product (GDP) ratio increased from 11% in 1890 to 28% in 1960. They argue that when the size of public sector is related to the level of real GDP per capita Finland was not lagging. Yet, in a temporal comparison, Finland, because of its lower income level, was behind the most developed European economies in the size of its public sector. The late structural change partially explained the low level of public expenditure in Finland until the early 20th century, and urbanization increased governmental spending on construction of infrastructure. Moreover, healthcare and education costs increased, and agrarian social security was not suitable and sufficient for people getting their living from manufacturing and service. Local governments provided many of the new services.
