Shipbuilding, which had led the development of heavy industry, continuing to be the most important branch of the transport sector, and it determined the sector's health. The land transportation branch, however, led by exports of railroad locomotives and rolling stock to the Soviet Union, provided a valuable supplement to shipbuilding. Finland first began to produce automobiles in 1969, and it had developed a full range of vehicles.

By the late 1980s, Finland's shipbuilding industry ranked fifteenth worldwide. The country boasted eight major shipyards, which employed about 14,000 highly skilled workers. Unlike many other countries (including nearby Norway), Finland had avoided large investments in petroleum tankers, a choice that proved to be a blessing when the world tanker market slumped in the late 1970s. Instead, Finland had specialized in high-priced vessels such as icebreakers, luxury liners, car ferries, ocean exploration vessels, and container ships. Starting in the 1970s, shipbuilders also had branched out into offshore oil-drilling platforms and equipment. Finnish icebreakers were world-famous-- the country had produced about 60 percent of all icebreakers in service by the late 1980s. Finland also specialized in vessels designed to operate in arctic conditions. Such projects were well suited to Finnish expertise, and they yielded higher-value-added products that compensated for high input costs.

Shipyards exported up to 80 percent of their production, which made them heavily dependent on world market developments. The shipbuilding industry had survived the difficult years following the 1973 and the 1979 oil shocks without subsidies from the government (except for occasional favorable financial packages) these years had seen a wave of mergers and large-scale investments that had improved competitiveness. Above all, the industry owed its success to continued orders from the Soviet Union in a period when demand lagged in Western markets. Finland was thus the one European country in which the number of shipyard workers had increased after 1975. During the same period, the Finns built two new shipyards for oceangoing vessels, established a heavy engineering works for oil-drilling rigs, and modernized older yards.

By the late 1980s, however, it appeared that shipbuilding was entering a crisis. The decline in the price of oil in the middle of the decade caused a reduction in Soviet purchasing power, limiting new orders for ships (see Regional Economic Integration , this ch.). Moreover, Soviet buyers, who had long preferred Finnish ships, had started to place orders with other countries, including East European firms that enjoyed lower labor costs. At the same time, certain Finnish specialties, such as icebreakers, were attracting competition from more advanced shipbuilding countries such as Japan.

The crisis in shipbuilding led to a decline in employment and to further restructuring. In July 1986, two of Finland's four major shipbuilding companies, Wartsila and the Valmet Group, merged their shipbuilding div3ad ivisions and planned to eliminate about 40 percent of their 10,000 jobs. Another several thousand workers were out of work, and the increased competition from the new firm threatened the two remaining firms, Rauma-Repola and Hollming. Indeed, competition had already undermined an arrangement under which each firm specialized in a particular field: Wartsila in icebreakers and luxury liners, the Valmet Group in cargo ships, Rauma-Repola in offshore oil equipment, and Hollming in high-technology research vessels. As the crisis continued, industry analysts began to question whether the industry could survive without government bailouts.

Data as of December 1988