Sep 14, 2015

Sipilänomics, or Finland's fake austerity

While everyone is more or less horrified by the ongoing train wreck that is the Donald Trump presidential campaign, it's worth remembering that in Finland, we elected our own version of Trump prime minister. Juha Sipilä, a Christian millionaire businessman, became an agrarian party MP in 2011, was elected party leader in 2012 and went on to win the 2015 parliamentary election and form the current cabinet. This fall, he's been busy shocking the nation with unprecedented cuts in education, social security and now public sector salaries. All is, however, not as it seems.

**

The recession of the early 1990's hit Finland particularly hard, not least because it coincided with the collapse of our friendly, co-operative and helpful major trading partner. Government debt, already rising in the 1980's, exploded during the recession when unemployment hit 20% and the economy contracted dramatically.


Even though growth resumed, we'd only gotten about halfway through the debt before the collapse of Nokia and the current financial crisis. Again, the economy contracted, and growth since has been slow or nonexistent, with the government running multi-billion euro deficits for several years in a row.


This is the essential background to the previous election. Even though neither the debt or deficit are alarmingly high in themselves, all parties except the extreme left agreed that this couldn't go on, and we needed to balance the budget. Sipilä didn't so much make a convincing case that he could do this, as he maddeningly refused to commit to any concrete measures whatsoever before the elections. Instead, what I think happened was that his general aura of masculine leadership was felt to be exactly what the country needed. In other words, he ran Ray Smuckles's election campaign, and won. Welcome to Finland.

**

After the election, Sipilä formed the first majority right-wing-only cabinet in Finnish history with the Coalition party and the populist racists who have the effrontery to call themselves the "Finns party". The new cabinet came out swinging, with a political program that promised four billion euros of spending cuts over their four-year tenure. The main targets were welfare, health care and education; on a personal note, the University of Helsinki, where I study, is set to lose at least a fifth of its government funding over the next couple of years. Sipilä then summoned the labor unions to negotiations over what he hilariously called a social contract, in practice a program for lowering salaries to boost national competitiveness. When the unions predictably refused and Finland, presumably, returned to a state of nature, the cabinet announced they would implement their competitiveness measures unilaterally.

Last week, we got a taste of what this Sipilänomics was going to mean in practice. The cabinet announced considerable cuts to salaries and benefits: Sunday pay will now no longer be double, but rather 175% of normal, the first day of sick leave is unpaid, a couple of holidays come off the calendar, overtime pay is halved, and public sector workers lose a bunch of vacation days per year. Overall, this adds up to savings of over a billion euros.

Our professor of economic history estimates that the net effect of these cuts will be to increase our government deficit by half a billion euros. No, I didn't mistype that. First of all, lower salaries also mean lower tax incomes, but crucially, the cut package also includes a 1.72% deduction in social security payments from employers, which will henceforth be covered from the government budget. This comes with a price tag of some 800 million euros, wiping out over half of the nominal savings by itself.

Of course, the idea is that the deduction in employment costs will encourage companies to hire more people. Our minister of finance, Coalition party leader Alexander Stubb, has blithely assured us that the cuts will create "tens of thousands of jobs". At least one prominent economist dismisses this entirely, believing the cuts will create no new jobs whatsoever. The cabinet has generally been criticized for overly optimistic views of the future, and this seems to be an excellent example; with world trade the way it is, plus the fact that the cuts will reduce domestic purchasing power by 3%, it's very difficult to understand where the tens of thousands of jobs are going to come from. The net effect of the cuts was calculated ceteris paribus, so it's entirely possible that the cuts will increase the deficit even more.

So if the government's cuts are actually going to make the deficit worse, where does the money go? Effectively, the Sipilä government is subsidising corporate payroll expenses by almost one billion euros. So the newest round of spending cuts aren't actually spending cuts at all; they're a wealth transfer from workers, and especially public sector workers, to corporate shareholders. If the net effect of the cuts really is to increase the deficit, then they are, in fact, a transfer of wealth from all taxpayers to shareholders. This isn't balancing a budget, let alone austerity; this is the opposite. The Sipilä administration is increasing our public deficit in order to redistribute income.

**

For a number of years, the political and economic debate in Finland has been framed as a juxtaposition of balanced budgets and stimulus. Supposedly, the right wants to cut spending to balance the public budget, while the left insists that the correct course of action is countercyclical stimulus. Their version of the story has Finland gripped by merciless fiscal austerity under a succession of penny-pinching right-wing governments.

For comparison, this is what austerity looks like: (image: Wikipedia Commons)


Greece underwent an extremely painful process of austerity, at great human cost, to almost eliminate their primary deficit. Until Syriza came along, that is. But in terms of statistical indicators, the above is austerity: a clear and sustained drop in government expenditure, ideally to the point where borrowing is no longer required. At that point, the budget can be called balanced.

I've put together the following graph from official government statistics collated by the Taxpayers Association of Finland and Statistics Finland. The blue line shows real central government debt in millions of euros; the red line is net central government budget expenditure. The time is 1990-2014.


Would any of our left-wingers like to show me on this diagram where, exactly, the Finnish government has done anything that even remotely resembles austerity?

**

As the graph shows, in this millenium Finnish central government expenditure has, with very few minute exceptions, only gone up. The national debt is skyrocketing. In short, at no point since the beginning of the current series of financial crises has there been any austerity whatsoever in Finland. Overall government spending has not been cut.

To anyone who's lived in Finland, this is a massively unintuitive conclusion. Surely we know for a fact that several successive right-wing-led cabinets have made several cuts to public spending? The university cuts I mentioned, for instance, were only the latest in a long series of cuts and budgetary interventions by the state. So where the hell is the money?

To answer this question comprehensively would take a lot more work and expertise than I can put into this blog post, but I'll give a couple of examples. Sipilä's agrarian predecessor Matti Vanhanen's cabinet removed the Social Insurance Institution payments from employers. This came with an estimated cost of 800 million euros, and because of the particular progression of the payments, chiefly benefited large, capital-intensive corporations. According to the rhetoric of the time, this was supposed to generate thousands of jobs. There are no good reasons to think that it created any at all. At one point, a regional experiment actually tried removing employer social security payments entirely - and found no overall benefits whatsoever (h/t to the sadly defunct Markkinakohinaa blog). So the end result was that government spending went up, and a billion-euro subsidy was delivered to Finnish corporations. Sound familiar?

The agrarian cabinet was finally ousted by a Coalition victory, which brought us Jyrki Katainen's six-party cabinet. One political measure all parties could agree on was, rather surprisingly given the presence of the Left Alliance and the Social Democrats, lowering Finland's corporate tax rate. This made a dent in the budget of approximately a billion euros, but the "dynamic effects" of the tax cut were estimated to increase revenue by at least half that, and, of course, create ten thousand jobs. Before writing this, I had no idea that ten thousand jobs and a billion euros is the Finnish government equivalent of about tree fiddy. Predictably, the dynamic effects never showed up; corporate tax income fell by, coincidentally, 800 million euros, and the jobs were nowhere to be seen. Instead, the money seems to have mostly been paid out as dividends to shareholders.

In both these cases, the failures of the stimulating effects was chalked up to the poor performance of the world economy. Or to put it another way, in both cases Finnish politicians had been far too optimistic about future economic growth, and gave up sizeable chunks of government revenue to boost growth that never happened. So against this background, it's hardly surprising that the Sipilä cabinet has come up with a billion euros of cuts, which he intends to use to directly subsidize corporate shareholders because economic growth is just around the corner. Apparently this is what we do in this country.

But to sum up, it seems to me that a large reason why government spending continues to rise despite expansive cuts is that the money saved has been given away, saddling the central government with more fiscal responsibilities while leaving it with lower tax revenue.

**

Having been quite critical of the left, I have to say that the right's rhetoric is also at times unbearable. The cuts the current administration are making are not the only possible way to respond to our fiscal situation. Even if you firmly believe that the deficit needs to be cut, there are other ways of going about it than these specific cuts. The right has been alarmingly succesful in creating a rhetorical environment in which any criticism of the government's cuts means fiscal irresponsibility. At worst, they pretend that the cabinet has no choice but to make these exact cuts, and couldn't possibly make any others. This is an outrageous lie. Choosing to make cuts that disproportionately impact the poorest citizens, women with low incomes and higher education, while barely touching higher income classes and giving money to big companies and farmers, are all political choices made by the current administration. It takes an astonishing degree of willful blindness and idiocy to maintain that there are no alternatives. We incessantly hear the right bleat about the massively expensive welfare state, and never acknowledge that we already pay more in farm subsidies than in unemployment benefits. The vast sums of money wasted in botched information systems are similarly completely exempt from cuts. These are all political choices, not the inevitable functioning of economic realities. It's deeply reprehensible for the right to try to deny its own political agency.

By far the most ludicrous aspect of right-wing rhetorics is the constant posturing over fiscal responsibility. If you believe the right, heroic right-wing politicians have been tirelessly trying to plug the deficit while an evil, greedy labor union movement does everything it can to stop them. Rightists moralizing about balanced budgets are equally welcome to show me on the diagram where, exactly, a succession of right-led cabinets has done anything at all to curb overall spending. Until you can do that, it might be smarter to not pretend to champion some fiscal responsibility that the parties you represent have no intention of executing.

**

There are two conclusions to draw from this. Firstly, for all its pseudo-corporate jargon and pretense of novelty, the Sipilä cabinet is doing exactly what its predecessors did: making sweeping cuts to government spending, only to give the money saved away to big business. I hate to sound so much like a socialist, but unfortunately that seems to be the reality of what our politicians do. This includes all parties of the left, who have enthusiastically participated in subsidizing our corporations and their owners. While this may seem surprising to an outsider, it makes perfect sense in a country dominated by a nationalist-corporatist ideology of national competitiveness. One of the most widely held articles of economic faith in this country is that the only sector of the economy that produces real value is the export industry. This is completely nonsensical, but articles of faith often are.

The second conclusion, which I wish would propagate even a little, is that the all-pervasive debate on austerity and cuts versus borrowing and stimulus is senseless. Not one single party in this country has at any point shown the slightest intention of balancing the budget. There has been no austerity; there will be no austerity. Instead, each party has its own particular schemes for ensuring the competitiveness of our export industry for when the upturn comes, which is literally the only way we can conceive of of reducing the deficit. The Sipilä administration's plan to reach a primary surplus by 2021 is nonsensical - unless you assume that the world economy will boom and Finland's exports will boom with it. If that doesn't happen, and given what's going on in China one is tempted to say when rather than if, we're screwed. No party is willing to even contemplate the idea that slow growth might be the new normal.

The only substantial fiscal policy difference between Finnish parties outside the lunatic fringe is which sectors of government spending that aren't farm subsidies to cut in order to transfer more money to our major corporations.

So a reasonable prognosis for the future is that Finnish parties will continue to engage in public spending cuts with dramatic impacts on our quality of life, human capital and purchasing power, in order to fund various hare-brained stimulus schemes with imaginary "dynamic effects". Although that's probably unfair to rabbits. It's utterly pointless for the left to rave about imaginary austerity and budget-balancing when no such things are even being attempted. Actually challenging the economic policies of the current administration requires critically dismantling the myth of national competitiveness through exports, and the endless optimism that sees 5% annual growth perennially around the next corner.

The problem is that the general Finnish population is completely economically illiterate. I personally know intelligent, academically educated people who can't even understand the simplest market transaction, let alone what economic policy even is. Because they don't understand that they don't understand economics, most people are faced with two alternatives: accept the right-wing neoliberal narrative that the only possible thing that can be done is cut welfare and salaries, or embrace some lunatic fringe theory that economics and money are all a scam. I'm honestly kind of surprised we don't have sovereign citizens in this country, and that the political left is doing so badly, because the complete ignorance of economics that so much of the population demonstrates would seem to be fertile ground for both brands of nonsense.

The biggest single reason for this is the unwillingness of our school system to actually teach any basics of economics. These days, there is one compulsory course on economics in high school, but this is a fairly recent development. What exacerbates this into a serious issue is the ignorance of our media on the same subject, which leads to the same effect on its pages: Finnish journalism will, in general, either parrot the government's competitiveness narrative, or challenge it with conspiracy theory garbage. Mostly, our media seems to see its task as explaining the government's actions to the people, rather than doing actual journalism. The run-up to the elections was a pathetic mess, and after it they've regressed to reporting on the government and then reporting on the opposition's reply. No analysis is being done, or is going to be done, because there's apparently simply no-one to do it. To question the competitiveness narrative, let alone massive money sinks like farm subsidies and conscription, is to question nationalism, which in a small, xenophobic country in thrall to its invented heroic past is simply not done.

Because of the dominance of the economic doctrine of national competitiveness, and the extreme difficulty of challenging it due to popular ignorance and media ineptitude, it's difficult to see how Finland can expect to escape the debilitating fixation on labor costs and export industries. Add to this the nationalist lunacy of wasting billions of euros each year on maintaining the illusion of agricultural self-sufficiency and "area equality", and it seems inevitable that things are going to get much worse before they get better. Despite the right's scare-mongering, Finland is far from going the way of Greece, but not only are the constant cuts to health care and education destructive right now, they'll be rebounding on us later with far greater effect, like they did after the previous recession. Because we can only conceive of competitiveness in terms of labor costs, we're effectively eradicating our human capital. This is complete madness.

The only thing that can save this country is if there's an upturn in world trade that boosts our economy before the pseudo-austerity of "competitiveness" wrecks it completely. If this happens, the main question will be whether the upturn lasts long enough that we can repair the damage. Last time, it didn't, and we entered the next downturn with a massive debt burden and huge structural problems. Next time, it'll probably be worse. The way it looks now, I don't think our political system can solve this problem. In the long term, we're a failing state.

29 comments:

Samuli Sinisalo said...

I really like your post. But I had to stop reading and write this comment, when you asked someone to show you where the austerity is in your graph #4. It's not there, because you use an indicator, which will not show it. If you drew the line of stock of debt in the graph of Greece, then you'd get an upward sloping line - like you do in the case of Finland. The stock of debt keeps increasing, even if net borrowing (which you use in the case of Greece) is reduced.

If you want to use "Net borrowing" as a measure of austerity, which you do in the case of Greece, you'll have to look at net borrowing for Finland as well. You can get the graph here: http://www.treasuryfinland.fi/en-US/Statistics/Funding/Net_borrowing

There is ever-so-slight downward trend in net borrowing since 2013, which accoring to you is a sign of austerity in Greece. Of course the trend is not as dramatic as in Greece, but nevertheless, with the indicator of your choice, there has been a couple of consecutive years of austere budgets in Finland. Which is also the feeling one gets while living in the country. Cheers!

Samuli

Michael Halila said...

If you want to use "Net borrowing" as a measure of austerity, which you do in the case of Greece

I may have expressed myself unclearly, but my measure of austerity is at all times net government expenditure, not borrowing,

Arttu Niskasaari said...

Thank you. Very interesting to read and nicely illustrates several issues in this country.

I'd also add that the quality of discussion here is so low that it diminishes hope of better future even further. It is very hard to find examples of proper dialoque in any political or economical topic here. Participants seem to completely refuse to learn anything from opposing views and it seems that trying to understand another point of view is seen as a sign of weakness. The one with loudest voice and most dramatic message wins.

In the meanwhile the ones who would be capable of actual, fact-based discussion trying to solve the common problem grow tired with all the yelling and give up. I wish another topic in our schools was debate and argumentation.

Artifex 28 said...

The real issue lies in two things.

1) Expectancy of growth. While the productivity has multiplied since 70s, the purchasing power hasn't increased at all. The 1% elite has netted all the fruits of the labor. Read more from the link below.

https://www.reddit.com/r/collapse/comments/2y4sgm/expectancy_of_growth_is_causing_world_of/


2) Finland has five times the municipal law requirements today than it had in 70s. The support from the government to the municipals is by far the largest expenditure in the budget. While people can choose to live anywhere, it makes no sense that every municipial, no matter how small, has the same mandatory law requirements.

Rufio said...

Someone needs to translate this into finnish, print it in large quantities and mail it to every single person living in this country.

Michael Halila said...

I'd also add that the quality of discussion here is so low that it diminishes hope of better future even further.

Which is why this post is in English, and I'm not publishing all the comments. Thank you very much to those of you I have published!

Michael Halila said...

Some comments have been made elsewhere that I "don't understand" that government spending rises in a financial crisis due to automatic stabilizers. It's symptomatic of the abusive, dickheaded nature of our public debate to immediately assume that when someone disagrees with you, it's because they're stupid. This is very much why I don't like to engage in these things, and thought twice about writing this whole thing. The idea that cutting the corporate tax rate, or making any of the other billion-euro-sized wealth transfers to corporations can be dismissed as "automatic stabilizers" is frankly ridiculous.

Jussi Härkönen said...

Thank you for this very interesting post. I'd like to add that running balanced or surplus public budgets is in itself unsustainable. Money has to come from somewhere, and if the government runs a surplus while imports equal exports then the private sector has to go deeper into debt. But private debt is already record high throughout the western world and China giving little room for growth. Steve Keen has articulated this point really well.
https://youtu.be/jqzfOQXCwFg?t=21m11s
I think much of this boils down on the fact that mainstream neoclassical economics refuses to admit the role of banks in creating money through credit.

Pike84 said...

So, you don't even want to try and make these ideas known by Finnish audiences? It would make me sad...

I just think this was an eye-opening text on many important points, and people should hear it. Stuff, that's not so hard to understand, but hard to realize, if you live muddled inside the Finnish media discourse.

You could always spread information anonymoysly (though it could be too late now). I will certainly try and do my part, if/when I ever get involved in such a discussion.

Michael Halila said...

So, you don't even want to try and make these ideas known by Finnish audiences?

The discussion culture, as they say, in this country is so implacably hostile and abusive that I have no interest in writing anything in Finnish. Because I wrote this post in English, I've mostly gotten positive and/or reasonable comments; I've only left a few unpublished, either because they were being so obtuse I suspected it was deliberate, or were just nonsense. My experience in blogging in Finnish, on the other hand, has been that either what I write is ignored, or I get a deluge of hate and am threatened with violence or death. Even acquaintances - hell, even people I've called friends - will become incredibly abusive if I make the mistake of disagreeing with them. Right now, our political culture is so rabidly anti-intellectual that we've got creationists coming out of the woodwork. I don't need that shit in my life; nothing I write has any impact on anything, which means there's no way it's worth putting up with the stress and abuse that comes with publishing it.

Mikko said...

Hmm, that GDP per Capita graph doesn't look right... I think you've only used stats until 2013 (from http://www.findikaattori.fi/fi/2), after which we've declined substantially.

Check out fresher stats for example: http://tilastokeskus.fi/tup/suoluk/suoluk_kansantalous.html

3 years of decline :-)

Michael Halila said...

I think you've only used stats until 2013

Yes, if you look at the years along the x axis, that's what you'll find. It's quite clearly labeled. The point if the graph is to illustrate the two economic crises.

I genuinely don't understand what the point of some of these comments is.

Johan Meriluoto said...

Halila: "I may have expressed myself unclearly, but my measure of austerity is at all times net government expenditure, not borrowing"

Hmm, you could also try something like measuring the fiscal stance adjusted for unemployment and the current account in order to assess the relative overall stance of the budget.

For instance: is a 1.3 % increase in budget outlays (2011) stimulative or austere if unemployment rises from 8 % to 9.5 %, while the current account remains negative at the same time?

Pike84 said...

"My experience in blogging in Finnish, on the other hand, has been that either what I write is ignored..."

You can't know that ;).

There may be many who don't comment, in fear of the abuse you talk about. That doesn't necessarily mean the message wouldn't reach proper audiences.

But yes, I get your point. It's surely discouraging, this "climate".

Outi said...

"First of all, lower salaries also mean lower tax incomes, but crucially, the cut package also includes a 1.72% deduction in social security payments from employers, which will henceforth be covered from the government budget."

When you say 1.72 percent deduction, don't you mean percentage point deduction? Perhaps my English is failing me here, but I got the impression from your text that the employers will pay about 2% less social security payments, when in fact they will pay about 80% less.

Aimo.Puntero said...

I've been trying to tell the same to people, but they rather BELIEVE the official statements than a "random guy". Guessing and believing is so much easier than thinking. :-(

The farm subsidies doesn't go to farmers though, most of the money goes to big agriculture related companies: http://www.mtv.fi/uutiset/talous/artikkeli/suurimmat-maataloustukien-saajat-julki-16-sai-yli-miljoonan/4897610

I've also "shouted around" that investment subsidies in the situation of slow market is basically giving money to the company owners. What's the point of investing or upgrading production (and creating jobs) if the production is already bigger than what can be sold. The owners don't want to use the money for the losses due to lower price. They rather keep the money themselves and sell less. The owners today are not investing into the company but into the marginals in the stock market. They don't care what happens to the company after they have sold their shares.

And another observation: At least since Holkeri, every time the coalition party has been strongly involved (prime minister or minister of finance) there has been cuts and talks about stopping national debt growth, but each time the national debt has stepped up to a new level. There was a diagram of national debt growth from (was it?) independence 'till these days somewhere (I think on the web pages of state treasury), but I haven't been able to find it anymore.

The political right wants a weak state, so that the money can have more influence.

Soh Wan Wei said...

Wow, it's truly encouraging to FINALLY read something that isn't propaganda.

I 100% agree with this part:

"The biggest single reason for this is the unwillingness of our school system to actually teach any basics of economics...What exacerbates this into a serious issue is the ignorance of our media on the same subject, which leads to the same effect on its pages: Finnish journalism will, in general, either parrot the government's competitiveness narrative, or challenge it with conspiracy theory garbage.

Mostly, our media seems to see its task as explaining the government's actions to the people, rather than doing actual journalism. The run-up to the elections was a pathetic mess, and after it they've regressed to reporting on the government and then reporting on the opposition's reply. No analysis is being done, or is going to be done, because there's apparently simply no-one to do it.

To question the competitiveness narrative, let alone massive money sinks like farm subsidies and conscription, is to question nationalism, which in a small, xenophobic country in thrall to its invented heroic past is simply not done."


All the best to Finland, when your finance minister has ZERO economic background and has a career closely related to the EU; when your Finns Party chair Timo Soini is so damn racist and xenophobic; and your prime minister is--well, I quote from an instagram post-- "a hard and cruel man".

I once seriously considered staying in Finland because my boyfriend is a Finn. But at this point, I definitely can't foresee my kids growing up in Finland, when huge cuts to education are being made. The economy and society is in a mess, there is no political leadership and it seems like on the global field Finland is being pushed around.

I agree too that the biggest winners would be big corporations with all their tax breaks, and may I add--the bankers.

Michael Halila said...

When you say 1.72 percent deduction, don't you mean percentage point deduction?

Yes I do. For purposes of the deficit, the lump sum is what matters.

**

The farm subsidies doesn't go to farmers though, most of the money goes to big agriculture related companies

This is a false dichotomy, since the money goes both to farmers and agrobusiness. Subsidizing either is senseless, but I actually believe it's far more harmful to subsidize farmers, because subsidizing them creates both opportunity costs (people continue unprofitable farming at state expense instead of producing value) and huge infrastructure costs (farmers need to be provided with services at massive cost because of "area equality".

What's the point of investing or upgrading production (and creating jobs) if the production is already bigger than what can be sold.

This is more of less the key absurdity, and it doesn't even require such a negative view of businesses: when both international and domestic trade are in a slump and purchasing power is stagnant, does anyone really believe that a minute reduction in either taxes or employment costs will produce investments and jobs? They've already admitted that the previous schemes failed because of this, and so will these ones.

**

"I once seriously considered staying in Finland because my boyfriend is a Finn. But at this point, I definitely can't foresee my kids growing up in Finland, when huge cuts to education are being made. The economy and society is in a mess, there is no political leadership and it seems like on the global field Finland is being pushed around."

I hear you. I'm Finnish, but spent considerable parts of my childhood abroad, and the only way I can see a future for myself right now is somewhere else, exactly for those reasons. The additional kicker of massive cuts to universities and the atmosphere of deep hostility to learning, cultivated by said finance minister, just underlines the fact that our decision-makers don't want peope with fancy book-larnin' around.

Thank you all very much for your comments!

Mikko Leinonen said...

Really long post. Not a single word about the number of public sector employees, increasing year after year. Not a single word about public sector salaries, increasing year after year. Our money is not given for the corporate world, it is given to the people who work on the public sector as they did in Greece.

Michael Halila said...

Not a single word about the number of public sector employees

I was talking about the state budget. You'll find that salaries form part of central government expenditures.

increasing year after year.

Actually, the number of both state and municipal employees has been declining for a number of years now.

Our money is not given for the corporate world, it is given to the people who work on the public sector as they did in Greece.

Nonsense. The state spends money on both its employees and corporate benefits, as well as a gigantic pile of other things. You can't just pick one area of state expenditure and insist that this is where our money is going.

Iain Mac Eochagáin said...

Thanks for the great post. Very illuminating for me, a non-Finn living in Finland. I have a couple of questions:
1) In which area do you think Finland has the best chances of attaining economic growth, given the global situation, when export is clearly not to be relied upon as strongly?
2) Do you think it's nigh on impossible to ever get public spending down in the modern world? I've been wondering whether public spending and the size of the state has a life of its own in some way, growing of its own accord, as bureaucracies tend to do (cf. trade union bureaucracies and the EU). If so, should that be acknowledged before, perhaps vainly, trying to reduce public spending?

Mark said...

Great post which I really enjoyed reading. I am not a Finn and I have only lived and worked here for 2.5 years so I see things through a slightly different lens.

I agree pretty well with your economic arguments. I value your insight into Finnish politics and culture, they seem to confirm some of the conclusions I have come to in my short time here. As I do not read or speak Finnish, I have no idea what the media say or about the level of discourse and debate prior to the election, so your description is interesting and valuable to me.

So, on all of that, I agree and I am grateful.

However I think you are too hard on the Finnish general population. As I have said, I have lived and worked internationally for a long time, the truth is that most people in most countries are economically ignorant and are not taught basic economics. The same is true of the teaching of logic and philosophy. Many of the arguments used do not hold water logically, even if you do not fully understand economics, with false dichotomies, fallacies and false premises.

As for debate and discussion and the trolling that you complain about, it is also everywhere and I would say that it may well be worse elsewhere, though admit I cannot say for sure because of my lack of languages apart from English. Just take a look at things in the UK before the general election, before the Scottish independence vote or the recent Labour leadership campaign. Look at the US! FFS!

This is our world, this is the shitty mess that democracy and politics has become in the 21st Century at a global level. Very few people, as a percentage of the voting public, are willing and able to participate in any meaningful debate on anything. Look at the outright lies in the media in the UK and US as examples. Indeed the two party, first past the post ‘undemocratic’ system of the UK has a tendency to not only turns everything into a false dichotomy as does the Rep V Dems system in the US. Everyone argues everything as black or white everywhere and the nationalism and patriotism arguments are brought out if you take issue or fact check. Look at how all the economic woes of the UK are now being blamed on immigrants. It’s like the late 1930s in Germany with the Jews. So please do not be so tough on the Finns, this is a global trend and although in the comments you seem to suggest that you believe that things are better elsewhere, I do not think they are, they may even be a good deal better.

So where I take issue with your post and your comments is your surrender to the forces that seek to silence you. They are winning and you are surrendering. I am late in the autumn of my life but you are young and you should speak out and should fight Michael because if everyone gives in then people like this government will win. They are winning.

You are right in your criticisms 100%, but for Finland it is not too late. You do not have sky high tuition fees for university and private schools for the rich elite (yet). You do still have a pretty good health care system that is not owned by private, for profit, health corporations. You do still have good public transport and you have well educated citizens despite the shortfalls that you correctly identify.

So – I urge you to start a movement – to speak out, to be brave and stand up for what you think and to use your logical arguments and economic thinking against the rubbish that is politics and democracy today. There will always be haters, it is the way of our world. Sadly the technologies and social media that allow for positive change also allow anonymity for the cowards who make threats and troll. But Finland really needs smart young people and your writing strongly suggests that you are one of those. So rather than writing in English and keeping silent I urge you to do the opposite.

Pike84 said...

I agree with Mark wholeheartedly.

Remember, even though the ignorant lot may try to discourage you from taking part in the discourse, if you persist, and keep the quality of your arguments at this level, I'm sure you'll end up with a strong following as your guard as well. Ignorance cannot beat knowledge, intelligence and logic!

So, like Mark, I urge you not to surrender a field that you should rightly triumph. The grass is probably not greener in other pastures, and I think you'd have a good chance at influencing the society here in a positive way.

Of course, you've already done it in part, but there's potential for much more...

Michael Halila said...

Thanks again for the comments! I'll have to reply in a couple of installments.

1) In which area do you think Finland has the best chances of attaining economic growth, given the global situation, when export is clearly not to be relied upon as strongly?

Several international studies have highlighted Finland's readiness to make far greater use of information technology. We've let a lot of our advantage there slip due to inexplicable decisions like removing computer science from our school curriculums in the 90's, but even if we've let many of the low-hanging fruit of the information revolution rot, much of the potential is still there. Of course, the cuts to education make that a lot harder.

In more general terms, if you listen to our politicians and economists, just about everyone will say that we need to modernize the structures of our economy (the infamous "rakenteelliset uudistukset"), but they'll rarely actually name anything we could modernize. But the fact is that there are monumental structural inefficiencies that we could fix, which would boost growth and just make everyone's life better. The whole agricultural and area subsidies scheme is a gigantic waste of money, and the housing shortage in the capital region really cramps growth. These things, of course, will not be addressed by an agrarian-led cabinet. Another problem is that if you look at Finnish companies, we only really have tiny and large ones; the growth path to a medium-sized company is difficult because of our collective bargaining mechanisms. I would have hoped that if a right-wing cabinet has to declare war on the unions, it would've been over the collective bargaining process, not a moronic scheme to reduce wages.

But to sum up this somewhat off-the-top-of-my-head list, I think there are lots of structural adjustments we could make that would unlock a lot of growth potential.

2) Do you think it's nigh on impossible to ever get public spending down in the modern world? I've been wondering whether public spending and the size of the state has a life of its own in some way, growing of its own accord, as bureaucracies tend to do (cf. trade union bureaucracies and the EU). If so, should that be acknowledged before, perhaps vainly, trying to reduce public spending?

Left to its own devices, any bureaucracy will only ever expand, which we definitely have to acknowledge. But I don't actually think it's completely impossible. As I had to point out in an earlier reply, the number of Finnish public sector employees has actually been steadily declining. If we hadn't given away so much money in badly thought out stimulus schemes, our public spending would be going down. Certainly it's a nightmarishly difficult thing to do and clearly requires a major crisis, but I don't think the effort is vain.

Soh Wan Wei said...

OK! I'd blogged a supplement to your post, using the Keynesian AD-AS framework :)

http://thehieno.com/2015/09/20/examining-sipilas-fake-austerity-via-an-economics-framework/

Michael Halila said...

OK! I'd blogged a supplement to your post, using the Keynesian AD-AS framework :)

http://thehieno.com/2015/09/20/examining-sipilas-fake-austerity-via-an-economics-framework/


Thank you! I'm flattered. Strongly agree with your conclusions.

**

However I think you are too hard on the Finnish general population. As I have said, I have lived and worked internationally for a long time, the truth is that most people in most countries are economically ignorant and are not taught basic economics.

I didn't mean to imply that Finns are more ignorant than people in other countries at all, just that they're ignorant of economics in the sense of not being able to at all engage critically with economic policy. I'm sure this is the case in most other countries as well. The only substantial thing I would say many other Western democracies have over Finland is that they're going to survive this financial crisis in much better condition than Finland. Few other wealthy, stable Western democracies are mounting such an assault on their human capital and future as Finland is. When I talk about leaving the country, this is mostly based on the simple fact that the massive and ongoing cuts to our universities are going to make creating an academic career in this country very, very difficult indeed.

Very few people, as a percentage of the voting public, are willing and able to participate in any meaningful debate on anything.

This is sadly true. The spread of critical thinking has been quite succesful in some respects, but in others there's still a lot to do. The massive hostility of political discourse is deeply concerning; I'm no fan of Jeremy Corbyn, but the media response to his election has been amazing, and on the other side of the pond we have the racist madness of the GOP primaries. The analogies to the 1930s really do make themselves.

So – I urge you to start a movement – to speak out, to be brave and stand up for what you think and to use your logical arguments and economic thinking against the rubbish that is politics and democracy today.

Oh dear lord, anything but Finnish politics. I've tried that in this life and had enough for the rest of it.

**

Remember, even though the ignorant lot may try to discourage you from taking part in the discourse, if you persist, and keep the quality of your arguments at this level, I'm sure you'll end up with a strong following as your guard as well.

Unfortunately, this is not the case. I've been blogging and trying various other things for years, in both Finnish and English, and it's mostly generated abuse and threats of violence, and very little else. Occasionally, a couple of people will like something I've written, which I always deeply appreciate because it's so rare, but mostly the response to everything I've written or tried to do has been overwhelmingly negative. I honestly speak from years of experience when I say that from any broader point of view, this kind of thing is pointless. Although I've been very pleasantly surprised by the quality of this discussion, so thank you again to everyone who's participated!

Michael Halila said...

I hope I don't come across as terribly ungrateful! I really do very much appreciate the positive feedback and encouragement, so thank you very much again.

Milo said...

Thanks for this post. It must be the first time I read something in English about Finnish economics and as an amateur it was really interesting.

As it seems like the debate is rather constructive and open, with more than one person having scholarly knowledge on the subject and willingness to share it, I'd like to ask a couple of clarifying questions.

To my untrained eye it looks as Finland is trying to do some salary dumping, in order to compress internal demand and increase exports.
This will surely not lead to more jobs being created, but might contribute to reverse the current balance account, which I believe has been negative for a few years now.

However, to my understanding, that is seldom the effect that is reached with such measures, unless one actually has readily available markets to buy goods (so maybe Sweden, as Russia isn't an option anytime soon). Most of the times it's just a move to reassure international markets about the financial credibility of the country (they are willing to reform, let's give them a better rating). What do you think?

Also, could the negative current account balance, rather than public spending, be the main worry here? It has been steadily negative for a few years now..
Public spending in subsidies to agriculture was something relatively new to me, but I wonder how much of the public spending could also be directed to financial aids for private debt. I remember checking private debt in Finland going rather up in the past years, a sign that has been previously linked with failing economies. I was offered myself very easy loans, without so much credibility as a creditor. What do you guys think about the role of private debt in Finland's economy?

Michael Halila said...

Thank you for commenting! I'll start off with just a brief note that I'm putting together another post on Sipilänomics, where I hope to get into more detail about this export and account balance business.