The case study: top earners in Finland

The research project behind this chapter concentrated on those Finns who have benefitted the most from the developments of the past decades, namely, the top 0.1% of earners.

As a Nordic welfare state, Finland has historically strongly focussed on distributional policies and relatively small income differences (Atkinson et al., 1995), being one of the most equal countries in the world (OECD, 2019) as the Nordic welfare model has substantially decreased income inequalities (Kangas & Kvist, 2018). However, after decades of declining economic differences in the post-war era, economic inequalities also grew rapidly in Finland in the 1990s (Jantti et al., 2010; Riihela et al., 2010). Finland experienced a major banking crisis, and the ideas of the Nordic welfare state were substituted by new policy ideas, which view state and society in terms of market efficiency or competitiveness and rely on workfarist thinking (Kantola & Kananen, 2013). Along with many other countries, since the 1990s, the incomes and wealth of the top 1% and the top 0.1% in Finland have increased more rapidly than those of other groups (Keloharju & Lehtinen, 2015; Riihela et al., 2010; Tormalehto, 2015a, 2015b). The real incomes of the top 1% roughly tripled from 1990 to 2007 as their incomes increased by 208.8%, while the average (mean) income increased only by 40.7% (Riihela et al., 2010). The top 0.1% of earners have also gained substantially; between 1990 and 2007, their gross income share more than doubled, and their share of disposable income more than tripled (Riihela et al., 2010). In 2013, of the income share of the top 1%, the top 0.1% earned more than one-third (Tormalehto, 2015b), and the income limit of the top 0.1% of earners approximately doubled between 1995 and 2014 (Ravaska, 2019). Concretely, the rise of the very top can also be observed in the number of billionaires in Finland, which increased from zero to six between 2006 and 2019, according to the Forbes list.

To understand in more detail these developments and the role of ownership in the accumulation of incomes in Finland, we explored the following questions: Who were the top 0.1% of earners in Finland between 2007 and 2016? What were the sources of their wealth and incomes? What was the role of capital income at the top of the income bracket? By taking into account the incomes earned over a ten-year period, we wanted to avoid one-off top earners, whose incomes were boosted one year, for example, because of the sell-off of their own companies or severance pay.

For our project, Statistics Finland provided statistical data on the group. These data showed that in 2016, the average income of the individuals who belonged to the group was around 22 times that of the average Finn. This group’s average yearly income was 684,000 euros, compared with the 31,000 euros of the entire population, but the top 5% of the top earners earned at least 1,800,000 euros that year. The majority of the top earners were men over middle age; less than a tenth of the top earners were under 44 years old, although this age group comprised almost half (44%) of the entire population. Approximately one-third of the 0.1% were pensioners, who formed the largest single occupational group among the top earners. Only every fifth top earner was a woman.

However, the statistics do not indicate how individuals make their way to the top. To explore the group’s structure, we compiled a list of the country’s top 0.1% of earners (5,000 individuals) using public tax records. We created the list by combining the ten-year taxed earned incomes and the capital incomes of the top 10,000 earners between 2007 and 2016 and subsequently took the 5,000 individuals topping the list. Thus, our list of the 5,000 top earners consisted of individuals who had been able to sustain high incomes more consistently.

Finland’s public tax records allowed us to explore and identify who the top 0.1% of earners were and what their main sources of income were. We took the 5,000 earners at the top and identified their backgrounds by searching public databases, such as company websites, media archives, social media and the national trade register. Thus, we finally identified 83% of the 5,000 top earners, whom we then classified according to their main sources of wealth and income.

In the analysis, we discovered three major groups among the top earners: entrepreneurs who had established their own companies and had often become rich by selling them (n = 850, approximately), managers who either earned top salaries or had become wealthy through remuneration programmes (n = 1,600), and heirs who had originally inherited significant wealth (n = 800). Moreover, a diverse group of professionals, such as lawyers, doctors and bankers (n = 900), did not belong to any of the three main groups. Around 900 names were also uncategorised because they were too common or due to highly complex and heterogeneous backgrounds (Figure 12.1).

Different groups among the top earners

Figure 12.1 Different groups among the top earners.

In the analysis, we examined the relationship between capital and earned incomes of the top earners and among the three main groups: heirs, entrepreneurs and managers.3

Overall, capital and capital income clearly accumulated strongly at the top; the top earners received significantly more of their income in capital income than the population on average. Almost two-thirds (61.6%) of the ten-year incomes of the top 0.1% consisted of capital income4 - a significant share compared with that of the population on average, which receive only 10% of their income in capital income (Tuomala, 2019).5 Even the lowest quartile of the top 0.1% of earners received more capital income than an average Finn earned per year in total (Kantola & Kuusela 2019a).

The share of capital income also increased at the top of the income brackets - the higher on the scale, the more significant the capital income became. The mean gross income (4.90 million euros in ten years) of the top earners was significantly higher (53%) than the group’s median gross income (3.21 million euros), signalling the skewed income distribution among the top 0.1% and even more so in the case of capital income. The mean capital income (3.01 million euros) received by the top 0.1% of the earners was 81% higher than its median (1.66 million euros), suggesting that the capital income in the top group accumulated heavily for the few and more so than the total gross income.

Among the 0.01% earners (the top 500 Finnish earners), the role of capital income was again much more significant than in the entire group of the top 0.1%. Of their gross income, 81.7% consisted of capital income against 61.6% of the entire group. Among the top 0.001% (the top 50 earners), almost all income (90.6%) comprised capital income (see also Figure 12.3). The fractile of 0.95 of the top 0.1% earned at least 10.9 million euros in capital income in ten years, whereas the fractile of 0.05 of the top earners hardly earned any (6,000 euros at most).

188 Hanna Kunsela and Anu Kantola

The income distribution and sources of income for the top 0.1% in 2007-2016 (excluding its top 1%)

Figure 12.2 The income distribution and sources of income for the top 0.1% in 2007-2016 (excluding its top 1%).

The income distribution and sources of income for the top 1% of the top 0.1% in 2007-2016

Figure 12.3 The income distribution and sources of income for the top 1% of the top 0.1% in 2007-2016.

Figure 12.2 shows the distribution and sources of income of the top 0.1%, excluding the top 0.001%, illustrated separately in Figure 12.3 because of the large differences in the scales. Both figures show the importance of capital income compared with that of earned income at the top and even more so at the very top.

Looking at the main groups among the 0.1% reveals clear differences among them. Heirs and entrepreneurs (instead of managers) occupied the very top positions in the group of top earners, due to the amount of capital income they received. The distribution of income in the top 0.1% shows that on average, heirs and entrepreneurs earned almost two times the managers’ income (Figure 12.4).

In other words, the distribution and sources of income varied heavily among the three groups, showing the significance of ownership in creating top incomes compared with that of managerial labour (Figure 12.4). The heirs who had acquired their wealth through inheritances clearly drew the vast majority of their incomes (as high as 90% on average) from capital income. Many of the inheritors are descendants of the business families that

Annual mean incomes and sources of incomes among inheritors, entrepreneurs and managers in the top 0.1%

Figure 12.4 Annual mean incomes and sources of incomes among inheritors, entrepreneurs and managers in the top 0.1%.

made their fortunes during Finland’s industrialisation at the end of the 19th century, but for some, the family wealth is more recent, dating back a couple of generations. Inheritors comprise a mixed bunch; in addition to the CEOs and the board directors of their own companies, there are artists, researchers and small entrepreneurs. What they have in common is inherited wealth and large amounts of capital income. The distribution of the heirs’ incomes indicated how incomes accumulated strongly at the top, as also in this group, the distribution was highly uneven. The heirs’ ten-year median income was 4.32 million euros, and their mean income amounted to 7.32 million euros (almost 70% higher), suggesting that the very top inheritors earned significantly more than inheritors in general. The incomes of the top 1% of the heirs in the group were tenfold in relation to the 99% of the heirs.

Similar to the heirs’ case, the distribution of the entrepreneurs’ income accumulated heavily at the top. The entrepreneurs’ ten-year mean income (7.26 million euros) was almost 90% higher than the median (3.83 million euros). Capital income was clearly the main source of income (90%) of the entrepreneurs who founded their own companies, making them an important group in controlling capital assets.

The third group, the managers working as hired executives, clearly deviated from the other two groups. The bulk of the managers’ income came from earned income (88%); only 12% was capital income. Indeed, in the top 0.1% of Finnish earners, executives stood out as the largest group of salaried employees. Out of the three groups we studied in detail, executives also comprised the group with the lowest income; the executives on our list earned on average little more than half of the entrepreneurs’ and the heirs’ earnings (Figure 12.4).

Thus, the importance of ownership can also be observed in the mean incomes of the different groups (presented above). Those groups (entrepreneurs and heirs) that received most of their income in capital income also had the largest mean incomes. The managers’ group also showed a somewhat uneven income distribution, the ten-year mean being 3.97 million euros and the median amounting to 2.93 million euros, but with only around

36% difference, that is, much smaller than in the other two groups’ case. The large shares of capital income enjoyed by the entrepreneurs and the heirs seemed to result in a more uneven distribution also among the top earners. The Finnish income statistics at the top thus follow Piketty’s (2014) described developments on the substantial role of rent-seeking. Top earners do not earn their top incomes primarily through work, but above all, their ownership of capital makes them reach the top.

In addition to the statistics, in our project, we found plenty of evidence that the top-earning owners clearly sustained specific cultures of ownership, extending to policy advocacy. To obtain a more in-depth view on the activities of the top 0.1% of earners, we interviewed 90 of them, comprising 31 entrepreneurs, 33 managers and 26 heirs. In the interviews, we explored interactions among elite cultures, practices and economic thinking (Kantola & Kuusela 2019a; Kantola 2020), as well as the ways in which the cultures of ownership were central to creating and sustaining economic privileges (Kuusela 2018). Our results support the view that the owners of capital are active in both creating cultures of ownership and advancing their policy interests. The top-earning Finns use various cultural frames that help reproduce the idea that wealth accumulation is not only acceptable but also desirable and natural (Kuusela 2020). The interviews with the heirs in particular revealed a tendency towards formalised or at least deliberate techniques to ensure that the younger generations of dynastic families would recognise and value their roles as owners and accumulators of wealth and as a class sharing common interests (Kuusela 2018).

Finally, do these top-earning owners wield any actual influence in policy making, or are they able to influence it? Regarding power and policy influence, in our project, we also conducted some network analysis to explore the inner circle of policy lobbyists. We listed the board members of the 12 most important business lobbies in Finland from 2006 to 2018 and counted how many of the board members were on the list of the top 5,000 earners. The top 0.1% accounted for almost half of the board memberships and the majority of important business lobby boards. The most active group comprised the managers, yet the heirs have also founded their own business lobby, and the entrepreneurs influence policy issues that are important for their own businesses. Compared with the managers, the entrepreneurs and the heirs seem to have more specific needs and channels for policy advocacy that specifically concerned ownership. Again, echoing Piketty’s (2014) findings, the heirs, with their growing inheritances, seem to play an active role in policy making, too.

Perhaps the most obvious evidence of the owners’ political power comes from taxation. The tax rates of the top 0.1% of the earners suggest that the owners of capital have been particularly influential in policy advocacy. According to our statistics, the average tax rate of the top earners studied in our project remains low at 34% compared with the highest tax rates of 55% in Finland. This is largely due to the tax on capital income, which is in practice a flat tax with only two categories (30% and 34%). These results correspond with the work of Tuomala (2019) and his colleagues, who have shown the regressive taxation of the top 0.1% earners in Finland. The tax rate of the top 0.1% has remained below 35% in the 21st century so far, less than the tax rate of the top 1%, and the fractile from 90% to 99%. In other words, in contemporary Finland, the ownership of capital or the ability to transform earned income into capital income is a substantial means to lower the tax rate legally, without the need for offshore solutions. The same holds true for the so-called tax-free dividends that the owners of unlisted companies can receive in Finland. In 2005-2009, the top 0.1% earners received one-fifth of all tax-free dividends, again demonstrating considerable privileges available for those who have significant ownership in unlisted companies (Ruotsalainen, 2011). Thus, the owners of capital have gained a privileged position in the national tax regime, with tax advantages over others only by virtue of their ownership.

Privileging ownership in taxation can be perceived as a strong deviation from the earlier regimes of the Nordic welfare state, as taxation has been at the heart of the Nordic model and its virtuous cycles between public services and free education, resulting in inequality, social mobility and economic growth (Kangas & Kvist, 2018). While the welfare system itself has not been entirely dismantled, its finances are affected by decreasing tax rates, and the owners of accumulated capital seem to play a crucial and influential role in advocating for lower tax rates for capital.

Based on our research among the top-earning Finns, it is safe to state that the owners play a central role in the accumulation of earnings at the top in 21st-century Finland. Capital income performs a substantial function at the highest range of the income brackets as it accumulates strongly at the very top. At the same time, the receivers of capital income have gained significant powers against the state. The relatively light tax burden suggests that the owners have gained a privileged space in society with respect to politics. Echoing Piketty’s work on inheritances, it also seems that cross-generational ownership in particular has managed to endure. Our categorisation of the sources of wealth of the top 0.1% of Finnish earners reveals approximately one-fifth of those identified in the research as heirs. Moreover, as the current tax records do not register wealth but only incomes, the proportion of heirs among the top owners is most likely significantly higher than among the top earners, as generally, wealth is spread far more unequally than income in most countries.

Finally, although our research shows a significant proportion of the top earners as entrepreneurs, from the perspective of ownership, such entrepreneurs who have managed to accumulate significant wealth are likely to create dynastic chains in the future by passing their enormous wealth to their offspring - if tax policies would not change.

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