Feb 27, 2017

Sipilänomics V: Competitiveness boogaloo

I first posted about Sipilänomics, or Finland's fake austerity in September 2015, followed by further posts on unit labor costs, the healthcare reform and the wrecking of the universities. That's almost two years ago. So how's it going?


This January, the Economic Policy Council released a report on just that. With regard to the deficit, under the headline "Fiscal policy targets will not be reached" in the summary, the report states the following:

The prolonged recession has had serious consequences for public sector finances. Despite the spending cuts by the current and the previous governments, general government gross debt has increased from 32.7% of GDP in 2008 to 64.3% of GDP in 2016. Debt will continue to grow, the general government deficit is projected to be 2.4% of GDP at the end of 2016. According to current forecasts the deficit will still be 1.5% of GDP in 2019. In fact, the deficit is projected to increase during 2017 due to tax concessions adopted in connection with the competitiveness pact.

So, while the recovery of the Finnish economy, no longer technically in recession, is expected to eventually start eating into the budget deficit, for the moment, debt will continue to go up. This is still nothing even remotely like austerity. In fact, as the report notes, the 2017 budget is being submitted at a value of 55.2 billion euros, which is 800 million more than the 2016 budget, and two billion more than the 2015 budget submitted by the previous cabinet. So just as before, central government expenses continue to rise, and the deficit is getting worse, not better. The key message of the Economic Policy Council report is that the Sipilä government is highly unlikely to meet the goals it set for itself. They've made massively destructive cuts to public spending, yet that spending has continued to increase. By their own standards, they have thoroughly failed.


A large part of this failure is the ludicrously idiotic "competitiveness pact" mentioned in the quote above. The pact, negotiated between the government, the labor unions and the employers' organizations after massive public dramatics, shifts some pension payments from employers to employees, and lenghtens working hours by six minutes every day. Yes, really. Both of these measures mean that employers are paying less for labor, and workers get less pay. To offset this pay cut, the government introduced sweeping tax cuts that, we were promised, would mean that employees ended up with as much money in hand as before.

According to the Economic Policy Council, the pact is expected to generate no new jobs, but the tax cuts add 900 million to the deficit (p. 105). The best-case estimate is that in the long term, the competitiveness pact will be cost-neutral; in other words, at best the new jobs or additional value generated will compensate for the tax cuts. The only thing that we can be sure of is that the pact represents yet another transfer of wealth to employers, at the expense of workers and the state. Its impact on the deficit looks set to be at best minimal, if it doesn't actually make things worse.

As I explained before, the whole notion of competing through lower unit labor costs isn't supported by any data. This doesn't seem to deter our right-wingers, whose vision of the future for our country is basically a massive sweatshop. One sure way to get closer to that is to de-educate the population, and that's actually happening: according to the statistics, my age group will be the first in Finnish history to end up less educated than our predecessors. The Sipilä government, of course, has made massive cuts to education, accelerating brain drain even further with entire research teams quitting the country. Not only is this policy well in line with the prime minister's Trumpian contempt for education and expertise, it also serves the right's objective of de-education.

Once again, if you believe in national competitiveness, then declining education levels and overall human capital are a much bigger issue than six minutes more work per day. Joseph Stiglitz called this "robbing from your children".

In the face of the broad criticism the government's education and research cuts evoked, they commissioned a report from the OECD on Finnish research and development. Judging from the Helsingin Sanomat article on the report, the way it's being spun is that the government should give more money to corporations. Surprise!


The competitiveness pact is almost certainly going to be a catastrophic failure. Massive amounts of time, effort and political capital were expended to create a deal that cements the baroque corporatist collective bargaining system in place, transfers money to corporations and at best does nothing to reduce the deficit. Or I don't know, maybe people working an extra six minutes per day will cause an explosion of innovation and productivity. I wouldn't bet on it. The people running our country are.

The Sipilä cabinet took power on a mandate of decisive masculine leadership that would fix our economy. It has done no such thing. On the contrary, so far the administration has made massively destructive cuts that are wreaking havoc on our future and dismantling what little remains of the welfare state, only to squander most of the money saved on wealth transfers to corporations, and boondoggles like the "key projects" and the fiasco that is the Talvivaara mine, a combined financial and economic disaster with few, if any parallels in our history. But don't worry, many corporate shareholders, including the Prime Minister's family, are doing quite nicely out of it. You might think that sounds like corruption, but we don't have corruption in Finland so it can't be. I'm really not qualified to correct a Nobel laureate, but when Stiglitz said this administration is robbing from its children, I disagree: to be specific, they're robbing other people's children and distributing the spoils to their own.

The Economic Policy Council estimates that in order to reach the fiscal goals they set for themselves, the Sipilä cabinet needs to come up with at least a billion euros' worth of cuts on top of everything they've already done. Reaching their long-term goals would require another billion. So in theory, their choices are to either start making even more massive cuts at huge political cost, up to and including the cabinet breaking up and a new election being called, or jettison their goals and admit to the nation that they failed. As Sipilä famously promised that he would either get results or get out, either alternative should mean that we'll finally be rid of him.

This is all well and good in theory. In practice, however, you have to remember that we're dealing with what is almost certainly the most incompetent cabinet in Finnish history, led by a complete moron who is as belligerently ignorant of politics or the economy as he is unable to tolerate the slightest criticism or dissent. We may think there are two choices before them. Somehow, they'll find a third way that's even worse. It's what they've done so far. Sipilä already appeared before Parliament in February, where he lied about the deficit and lied about long-term unemployment, which may give us some pointers on what's to come.

The lesson in all this? Don't elect an ignorant jackass to run your country just because he acts butch and claims to be rich. My heartfelt condolences to the Americans. We can't seem to get rid of ours either.

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