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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.
In 1950, 46% of Finnish workers worked in agriculture and a third lived in urban areas.[82] The new jobs in manufacturing, services, and trade quickly attracted people to the towns. The average number of births per woman declined from a baby boom peak of 3.5 in 1947 to 1.5 in 1973.[82] When baby boomers entered the workforce, the economy did not generate jobs quickly enough, and hundreds of thousands emigrated to the more industrialized Sweden, with emigration peaking in 1969 and 1970.[82] Finland took part in trade liberalization in the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade.
Officially claiming to be neutral, Finland lay in the grey zone between the Western countries and the Soviet bloc during the Cold War. The military YYA Treaty (Finno-Soviet Pact of Friendship, Cooperation and Mutual Assistance) gave the Soviet Union some leverage in Finnish domestic politics. This was extensively exploited by president Urho Kekkonen against his opponents. He maintained an effective monopoly on Soviet relations from 1956 on, which was crucial for his continued popularity. In politics, there was a tendency to avoid any policies and statements that could be interpreted as anti-Soviet. This phenomenon was given the name "Finlandization" by the West German press.[83]
Finland maintained a market economy. Various industries benefited from trade privileges with the Soviets. Economic growth was rapid in the postwar era, and by 1975 Finland's GDP per capita was the 15th-highest in the world. In the 1970s and 1980s, Finland built one of the most extensive welfare states in the world. Finland negotiated with the European Economic Community (EEC, a predecessor of the European Union) a treaty that mostly abolished customs duties towards the EEC starting from 1977. In 1981, President Urho Kekkonen's failing health forced him to retire after holding office for 25 years.