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In 1917, the population was three million. Credit-based land reform was enacted after the civil war, increasing the proportion of the capital-owning population.[57] About 70% of workers were occupied in agriculture and 10% in industry.[72]
The Soviet Union launched the Winter War on 30 November 1939 in an effort to annex Finland.[73] The Finnish Democratic Republic was established by Joseph Stalin at the beginning of the war to govern Finland after Soviet conquest.[74] The Red Army was defeated in numerous battles, notably at the Battle of Suomussalmi. After two months of negligible progress on the battlefield, as well as severe losses of men and materiel, the Soviets put an end to the Finnish Democratic Republic in late January 1940 and recognized the legal Finnish government as the legitimate government of Finland.[75] Soviet forces began to make progress in February and reached Vyborg in March. The fighting came to an end on 13 March 1940 with the signing of the Moscow Peace Treaty. Finland had successfully defended its independence, but ceded 9% of its territory to the Soviet Union.
ostilities resumed in June 1941 with the Continuation War, when Finland aligned with Germany following the latter's invasion of the Soviet Union; the primary aim was to recapture the territory lost to the Soviets scarcely one year before.[76] Finnish forces occupied East Karelia from 1941 to 1944. Finnish resistance to the Vyborg–Petrozavodsk offensive in the summer of 1944 led to a standstill, and the two sides reached an armistice. This was followed by the Lapland War of 1944–1945, when Finland fought retreating German forces in northern Finland. Famous war heroes of the aforementioned wars include Simo Häyhä,[77][78] Aarne Juutilainen,[79] and Lauri Törni.[80]
The Armistice and treaty signed with the Soviet Union in 1944 and 1948 included Finnish obligations, restraints, and reparations, as well as further Finnish territorial concessions in addition to those in the Moscow Peace Treaty. As a result of the two wars, Finland ceded Petsamo, along with parts of Finnish Karelia and Salla; this amounted to 12% of Finland's land area, 20% of its industrial capacity, its second-largest city, Vyborg (Viipuri), and the ice-free port of Liinakhamari (Liinahamari). Almost the whole Finnish population, some 400,000 people, fled these areas. Finland lost 97,000 soldiers and was forced to pay war reparations of $300 million ($3.7 billion in 2021); nevertheless, it avoided occupation by Soviet forces and managed to retain its independence.
For a few decades after 1944, the Communists were a strong political party. The Soviet Union persuaded Finland to reject Marshall Plan aid. However, in the hope of preserving Finland's independence, the United States provided secret development aid and helped the Social Democratic Party.[81]
Establishing trade with the Western powers, such as the United Kingdom, and paying reparations to the Soviet Union produced a transformation of Finland from a primarily agrarian economy to an industrialized one. Valmet (originally a shipyard, then several metal workshops) was founded to create materials for war reparations. After the reparations had been paid off, Finland continued to trade with the Soviet Union in the framework of bilateral trade.