Rogue Trader: Thinking about the Imperial economy

To lend some kind of coherence to our Rogue Trader tabletop campaign, I've tried to think semi-seriously about how the Imperial economy works. Rogue Trader abstracts money and business with the profit factor mechanic, which I think is excellent, but in the interests of verisimilitude, I also wanted to form some notion of what actually goes on. So here I'm going to talk about what I think are the two principal drivers of the Imperial economy.

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The Imperial economy is overseen by the Adeptus Administratum: the administrative arm of the Priesthood of Earth. The Administratum assigns each world in the Imperium a tithe grade and collects the tithe.

If you want a historical analogy, think about the annona system in the Roman Empire, where vast fleets of ships delivered grain to Rome from all around the Empire. Because of the unimaginably vast size of the Imperium of Man, obviously the tithes can't be gathered on Terra, or even in the segmentum capitals. Because the planets the tithes are collected from can be completely different and have very different tithe grades, the actual tithe can be anything from a fully equipped regiment of mechanized infantry to bulk freighters full of grain or ore, or in less typical cases, probably almost anything you can think of. The only constant is that the tithe is that planet's contribution to the business of the Imperium: war.

Because the Imperium is constantly engaged in a multitude of wars all over the galaxy, I would imagine there has to be some kind of sector- and/or subsector-level system for directing the tithes where they are needed. We can think of this as a series of supply chains that culminates in the production of Imperial Guard regiments. The focus of this production is the hive worlds. Vast urban centers housing billions of people, the hive worlds supply the soldiers and manufacture their equipment. To do this, they need gigantic quantites of ore from mining worlds and constant imports of food from agri-worlds; the recruits can be supplemented by tithes of people from feudal or feral worlds. The regiments then need to be shipped out to whatever warzone they are needed in, and provided with supplies and reinforcements.

This massive process, where the tithes from each planet are turned into fighting forces and delivered to the Imperium's field commanders and garrisons, is what I refer to as the Imperial war economy. It's a massive, galaxy-spanning planned economy run by the bureaucrats of the Administratum, so we can only imagine the gigantic inefficiencies this entails. Many of the supply chains would probably not be in any way economically feasible, but like in the Soviet Union, if no-one is counting, who cares? In addition to the regiments, the war economy also has to support the Imperial fleet, and some tithes no doubt go to the Ministorum, the Adeptus Astartes, and other Imperial agencies - not to mention the Administratum itself! But the majority of the traffic will be from planets engaged in primary production to manufacturing and recruiting centers, and from there to war zones.

I assume that the volume of the war economy is so large that it dwarfs all other shipping, and effectively defines trade routes in the Imperium. Since the tithes have to be delivered, there's an opportunity to use any excess cargo space for other exports. As tithes will usually be one-way, they provide huge opportunities for trade in the other direction: transport costs will be almost zero since the ships have to go back anyway! So the tithes are absolutely crucial in shaping the whole Imperial economy.

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Tithes are only a part of any Imperial planet's economy, of course. It's long been established that as long as a planetary governor delivers their assigned tithes and suppresses witchcraft and heresy, they can pretty much do what they like. So governors and everyone else high enough in the planetary administration are left to enjoy the spoils, and can become very wealthy indeed. On smaller or poorer worlds, this can just mean the governor and his family; a teeming hive world will support entire noble houses.

So all these people have plenty of disposable income. What are they going to spend it on? The luxury economy. Luxury products marketed to a super-rich clientele can easily be valuable enough to ship over interstellar distances, especially if they're in fashion. You could probably do some interesting stuff with how waves of trends propagate across a gigantic interstellar empire, but it probably suffices to imagine that if some obscure luxury product becomes popular in the right circles, they'll have orders pouring in from across the segmentum, if not further.

This is also where mercantile-minded rogue traders operate, in my opinion. Recall that rogue traders are so named because they have an extraordinary license to trade beyond the Imperium, even with the xenos. For what, though? What can a rogue trader trade for that wilĺ be worth the considerable trouble of warp travel outside the Imperium? Possibly some strategic resources, but in most cases, if they're trying to make a profit out of it, surely it must be luxury goods for the Imperial elite. With their warrant, rogue traders can effectively launder xenos luxuries into the Imperial economy. Given how unequal the distribution of wealth in the Imperium is, that's going to be worth quite some money and influence.

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There will also be other shipping routes, especially ones connected to rogue trader operations. We also know from the tabletop books that there are entire dedicated pilgrim vessels: it'll also be worthwhile to map any pilgrimage routes! In addition, there may be some substances valuable enough to transport over interstellar distances that aren't strictly part of either the war or luxury economy: building or industrial materials of exceptional quality, maybe, or some kind of consumer products that aren't exclusive enough to be restricted to the nobility, but still very valuable; I don't know! It's a big galaxy.

Anyway these were some thoughts I had bouncing around in my head on how the Imperial economy works, and how rogue traders fit into that, which I wanted to set down on virtual paper.

Sipilänomics VI: Unwrecking the universities?

Two years ago, I wrote about our current cabinet's plan to wreck Finland's universities. Just last week, though, we were told that that very same cabinet was making massive investments in science and education (Yle). Really?

Well, hardly. Let's look at some numbers.

To start with, in 2016 student benefits were cut by 122 million euros (IS). Now, our glorious leader is introducing a "family subsidy", which totals 75 million euros. So students are left 48 million euros poorer.

I concentrated on the universities before, but massive cuts were made to vocational training, where 190 million € was cut last year (IL). Now the government is investing 80 million euros into revamping vocational training. So they're still 110m€ behind.

As part of Sipilä's cuts, the Finnish Funding Agency for Innovation (Tekes) lost 138m€ (source). Now, though, the three bandits cabinet is giving them 70 million euros of additional funding, which leaves them at -68m€. Similarly, the Academy of Finland is getting 50 million more - which doesn't redress more than half of the 100m€ cuts to university funding (Acatiimi).

So you see how this goes. First the government makes gigantic cuts to education. Then they turn around and make headlines with their "investments in education and research" - which in reality don't compensate at all for the previous cuts.

It's also worth noting that in one respect, this additional funding continues a longer trend: money is being taken away from the universities and given either to funders like the Finnish Academy or to political boondoggles like the government's "flagship ventures". This means that universities and researchers have less freedom, and need to spend even more time negotiating a massive public bureaucracy to get funding for their work. Finnish research is being methodically reshaped into a planned economy, where the government centrally directs what research areas get funded. We have no reason to think that this is going to work any better than any other planned economies.

There are two observations to be made about this. Firstly, the Finnish media is so thoroughly in thrall to the government that they're swallowing this hook, line and sinker. So the government can pull this back-and-forth act and actually use it in the next elections to claim that they're not wrecking education.

Secondly, as I explained earlier, the Sipilä government is failing to meet its fiscal goals. This farce should give you some notion of why. The Sipilä notion of public economy is to make cuts, and then undo many of the cuts, so that things are getting objectively worse but no real savings are made. I don't understand how anyone can possibly approve of running an economy like this.

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The Sipilä gang, of course, claim that they're reaching their goals. As I predicted, they're largely accomplishing this by lying. Key to their claimed billions of savings is a ridiculous notion that the healthcare disaster is going to cost three billion euros less than some imaginary alternative.

Meanwhile, the racist "Finns party" was destroyed in the municipal elections, and is currently debating whether to elect a fascist or a fascist as its chairman. One of the fascists is more rude than the other, so the other two parties in government are pretending that if the rude one is elected, there will be a crisis. This is probably also a lie.

But on the whole, then, Sipilänomics rolls on much like the Trump administration: the country is being run by idiots who want to destroy it, but they're constantly tripping over their own incompetence. Despite this, both their actions and their inactions continue to do very real damage.

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?

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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.

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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!

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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.

Sipilänomics, part 4: Wrecking the universities

In my previous Sipilänomics posts, I've looked at the current Finnish government's economic policies in general, and more specifically at their attempts to cut unit labor costs and restructure health care. It's high time to take a closer look at another great controversy of the Sipilä administration: higher education.

This is going to be a bit more personal than my previous Sipilänomics posts, quite simply because it's the closest to my everyday life. I graduated from the University of Helsinki with a Master's degree in political history this October, and my plan was to apply to a doctoral program there in the spring. So not only have I had a front-row seat for much of this process, but it very directly affects my future as well.

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The current administration's attitude to the Finnish university system has been made abundantly clear. The current minister of finance and head of the coalition party, Alexander Stubb, has publicly declared that he has no interest in "the concoctions of docents", and prefers reports from civil servants to academic research. Last summer, when the Sipilä cabinet's swingeing education cuts were announced, he mocked university professors by making fun of their three-month summer vacations.

Here I'd like to interrupt with a personal anecdote. I wrote my master's thesis during that same summer, supervised by one of these afore-mentioned professors. We had a long meeting on my thesis in Midsummer week, after which he took his annual vacation. Our next meeting was when he had returned from vacation and had time to read my thesis in its then-latest incarnation. This was at the very beginning of August. It may seem slightly worrying that a former prime minister and current financial minister thinks that the distance from Midsummer to the beginning of August is three months, but on the other hand, math skills of that caliber would explain many of his fiscal policies.

This same attitude was put into slightly more practical form by minister for education Sanni Grahn-Laasonen in an astonishing open letter to the universities. She accused the universities of a "sleeping contentment", maintaining that Finnish tertiary education doesn't suffer at all from a lack of resources, but rather from gross inefficiency. If politicians have been at fault, she says, it's been because they've trusted the universities too blindly in giving them too many resources. Now other countries are "running faster", accomplishing more with less, because of our universities' lackadaisical approach.

Jouni Tilli, currently of the University of Alabama at Huntsville, has presented an excellent analysis of the minister's rhetoric, pointing out its reliance on scapegoating, and connecting it to the similar blame and atonement rhetoric of prime minister Sipilä's televised speech.

So the thinking behind the massive education cuts seems to be clear: the government has done everything to provide for the universities, but they have become entitled and inefficient, resting on past laurels, and are therefore falling behind in international competition. A more vulgar version of these notions can be seen in the comments to just about every news article on higher education: universities are entitled, politicized, left-wing wastes of money.

Is any of this true?

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There are several rankings that compare different universities to each other; one of the most prominent is the Academic Ranking of World Universities, generally known as the Shanghai ranking. In the latest iteration, the University of Helsinki is reckoned the 67th-best university in the world. It's also the only Finnish university to crack the top 300, although I'm not sure if that accurately respects the achievements of some portions of the Aalto university conglomerate. So we're doing extremely well globally, but then again, so are the rest of the Nordic countries. In fact, the top universities in the Scandinavian countries rank higher than ours. Are we falling behind? Not on the Shanghai ranking, where the University of Helsinki has improved its position. Similarly, in 2015 Helsinki cracked the top 100 in the Times Higher Education ranking for the first time, so not only is Helsinki very highly ranked, but its position has also been improving. As far as my alma mater is concerned, minister Grahn-Laasonen's accusations seem completely unfounded.

How inefficient is the system, though? The University of Helsinki may be ranking very high, but what about the system as a whole?

One way of assessing this is through the Universitas 21 Ranking of National Higher Education Systems. It ranks 50 countries' higher education systems in Resources, Connectivity, Output and overall performance. In terms of resources, Finland is well-ranked, showing we do make - or have made - a considerable national investment in tertiary education.

What are we getting in return? Simply put, one of the highest outputs of any higher education system in the world.

In the overall ranking, ours is reckoned the fourth-best tertiary education system in the world.

In pure monetary terms, as one of my former teachers, Juhana Aunesluoma, points out, the University of Helsinki is competitive in world rankings with universities that have a larger budget than the entire Finnish university system, fully bearing out the findings of the U21 report. So there's really no two ways about it: the notion that the Finnish university system is inefficient is ludicrously false.

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Minister Grahn-Laasonen has responded to some of the criticisms of her letter. One of the points she addresses is the complaint that actual research is becoming more and more difficult to do because of the constantly growing administrative demands on researchers. The minister sympathizes with this, and calls on universities and researchers to innovate ways to focus more clearly on research.

This is either fantastically dishonest or deeply ignorant - as usual, take your pick. The reason for this burgeoning bureaucracy is the minister's own Coalition party. As Jouni Tilli pointed out in his analysis, the Finnish university system went through extensive reforms in 2010, initiated by Vanhanen agrarian-coalition cabinet, which made universities nominally independent. What this meant in practice was that they remained dependent on government funding, but all research staff became increasingly preoccupied with constantly searching for funding. The following Katainen-Stubb coalition cabinet not only cut that funding, but introduced a "strategic research council" to assess research projects and distribute funds, leading directly to hundreds of doctoral work-hours wasted on drawing up funding requests for government bureaucrats. It's amazing for a minister to completely ignore the political decisions that have led to this situation and demand the people being regulated "innovate" around the regulations put in place by her party. Again, in the rhetoric of the Finnish right wing, the consequences of their decisions can be blamed on the people who suffer from them. Looking at their track record with science and education policy, the only innovation that would seem to have real consequences would be getting rid of the Coalition party.

The one relevant statistic Grahn-Laasonen could quote to support her position was an OECD finding, according to which Finland was spending more on tertiary education than some comparison countries and getting less in return. As I hope the previous section demonstrates, this is gravely misleading. But if there are inefficiencies in the Finnish university system, where are they?

Professor Roope Uusitalo of the University of Jyväskylä had a fascinating post over at Akateeminen talousblogi, on university policy in Finland. It's generally known that university admissions have increased considerably over the last half-century; a perfectly natural and necessary consequence of transitioning from an agrarian to a service and high-tech economy. But where has the growth taken place? Here's a graph he made, which I stole:

The overall number of university students in Finland has quadrupled over the last 50 years or so. However, what's striking is that the University of Helsinki has barely grown at all. Instead, the growth of university education has mostly taken place outside of Helsinki, for reasons of area politics. Minister Grahn-Laasonen has also pointed to the proliferation of regional universities as a key inefficiency of the system: with limited resources, we can't do everything everywhere. However, the Sipilä government's cuts specifically target the University of Helsinki. If the point of the reforms is supposedly to make the system more efficient, why are the largest cuts being targeted at the best-performing university in the country? Again, because of area politics. No agrarian administration will tamper with the regional universities. For Coalition politicians to talk about there being too many universities is completely dishonest, because they know perfectly well that they're in a cabinet that will never under any circumstances see this as a problem.

As professor Petri Mäntysaari of Hanken puts it, Finnish higher education policy as a whole is based on thinking that the ruling parties would never countenance in any other sector of society. Instead of encouraging competition and individual effort, the universities and their researchers are being choked with bureaucracy, and their funding is being increasingly placed in the hands of government bureaucrats. Minister for economic affairs Olli Rehn just announced that they will seek tighter controls on assessing university research, again increasing bureaucracy.

It remains utterly hypocritical that a government that claims to be liberalizing the Finnish economy and society is monomaniacally dedicated to bringing every single aspect of university research under tighter and tighter bureaucratical control. Their talk of consolidating the universities and eliminating inefficiencies is complete nonsense when they make the heaviest cuts to the best-performing institution. The key values of Finnish university politics are bureaucracy, government control and area politics.

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Last week, Alexander Stubb spoke at an event at our university, and was met by a massive demonstration. I wish I could have been there. Stubb has since apologized for the education cuts, because they've made people at universities feel bad. As Janne Saarikivi says in the previous link, this is the worthless rhetoric of a politician: supposedly feeling sorry for decisions you've made, but not actually doing anything about them. It's also part of a deeply pernicious political trend of framing all discussions as emotional speech. I was absolutely appalled by the Finnish researchers' union's response to Grahn-Laasonen's epistle; the title they went with was "Minister's letter feels insulting to university people". Feels insulting? Feels? I've tried to go to some lengths here to demonstrate that the picture the minister gave of Finland's university system is in many ways completely false, and at best seriously misleading and dishonest when compared to the policies it's defending. And the best that the researchers' union can come up with is to comment on how it makes them feel? With unions like these, do we even need the right to wreck the universities?

The response of the University of Helsinki has also been thoroughly disappointing. Despite an unprecedented frontal assault on the universities by the cabinet, the university still meekly invites the ministers in charge of gutting its finances and mocking it in public to speak at its events, and deploys the staff these same politicians want to see sacked to wrestle for the doors to auditoriums to keep the poor ministers from hearing student protests. Their only conception of university autonomy seems to be which direction to roll over in when kicked. For those of us evaluating the University of Helsinki as a potential future employer, it's painfully clear that the university administration is not going to fight our corner.

In general, the mood among my demographic is captured perfectly by Sophy Bergenheim in her blog. None of us have at any point been under the illusion that pursuing an academic career of any description would be easy. However, the actions of the previous administration, followed directly by this current one, make us wonder whether there's any point any more. We've gone from a country that saw education as a key component of nation-building and competitiveness to one where universities are the targets of savage cuts and public derision. Certainly none of us expect young academics to be hailed as heroes, but an atmosphere that celebrates anti-intellectualism and vilifies science and research as socialist lies is deeply depressing. The financial and general working realities of postgraduate study in the humanities and social sciences are miserable enough today, and are constantly getting worse. Anyone considering postgraduate study now has to deal with the fact that there will be unprecedented layoffs that will still be glutting the job market when they graduate, and university funding as well as research funding in general will be at record lows, locked away behind a planned economy of byzantine bureaucracies. What's the point?

I don't have an answer to that.

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As the excellent Soh Wan Wei puts it, the tertiary education cuts have no economic basis. My goal here has been to demonstrate that the view of the university system that they are based on is completely wrong. As I've explained before in the context of unit labor costs, there is no reasonable economic philosophy that considers stripping a national economy of its human capital to be a way toward growth. Instead, what the Sipilä government is doing can more accurately be characterized as a project to undevelop the Finnish economy.

If the current administration's economic and education policies make no sense, why are they doing all this? It's not because they're stupid or evil, at least in any more significant sense than politicians and people in general are. It's because the Sipilä administration's policies are essentially a performance designed to pander to a certain segment of voters. Their overall economic policy is designed to give a false impression of "austerity", while channeling money to the government parties' main supporters. The focus on reducing unit labor costs was similarly designed to give an impression of creating competitiveness while actually sacrificing it in favor of short-term benefits. The great health and social services reform project masqueraded as savings and rationalization while entrenching a massively expensive system of area subsidies. In sum, the main policy of the Sipilä administration is to pretend to reform the Finnish economy. The cabinet poses as rational business administrators making tough decisions and fighting a bloated, lazy, entitled public sector.

In the context of this grand narrative, it doesn't matter that the university system is none of these things. The kind of Audi-driving engineer with A Real Job who passionately supports the Sipilä administration knows that the universities are corrupt, stagnant pools of left-wing social justice warriors leeching on public funds, and the administration is putting into effect an education policy designed specifically to pander to him. The universities are convenient scapegoats, not only as examples of the supposedly gigantic and wasteful public sector, but especially for the failures of previous administrations' educational policies. This is manifestly obvious in the ways in which minister Grahn-Laasonen demands that universities innovate around the difficulties created by her party, as if the problem wasn't stupid and short-sighted policy but rather researchers' failures to think up ways to get around it. Facts don't matter; responsibility doesn't exist. The only coin of the realm is the public image of the cabinet parties as stalwart warriors fighting entitled fatcat professors with three-month summer holidays.

In pursuing this image, the current administration is doing deep and long-lasting damage to one of the best university systems in the world. As so many other aspects of the Sipilä cabinet's policies, their university policy poses as tough thinking on long-term problems, but is actually cheap populism of the worst kind, which sacrifices the long-term health of the economy and the entire country to score cheap political points by pandering to voters' prejudices.

Sipilänomics, part 3: Health zones and falling cabinets, oh my

Last Thursday, Finland suddenly found itself in a crisis when prime minister Juha Sipilä threatened to dissolve his cabinet. There was high drama until around 1 am Saturday, when we were told that the situation had been resolved. The crux of the argument was sote: the social and health services reform. To explain what this is all about, we need a short lesson in Finnish administrative history.

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For most of Finnish independence, there were three main administrative tiers in the country: the municipality, the province and the state. Of these, the Finnish municipality in its current form dates back to the 1865 decree of municipalities, passed when Finland was still a grand duchy of Russia. At this time, a secular local administration separate from the church parish was created. Some of the responsibilities of the state were devolved to the municipalities, and municipal councils started to be established. Another 19th-century development was municipal taxation. These laid down the basis for the municipality as a local unit with theoretically independent finances and a large and growing array of responsibilities to provide services for its inhabitants. In the 21st century, the constitution guarantees municipalities autonomy.

Over time, two things happened. First, with the general growth of the state, municipal responsibilities also mushroomed. Contributing to this was the decline of the provinces. Back in 1996, there were still twelve provinces in Finland:

Coming into the 2000s, that number dropped to five, until the agrarian-led second Vanhanen cabinet abolished the provinces entirely in 2010. The weakness and eventual disappearance of this intermediate level of administration meant that Finnish municipalities ended up being saddled with a huge number of responsibilities. Finland is almost unique in Europe in having practically no intermediate level of government whatsoever between the municipality and the state.

Secondly, continuing urbanization made the municipal structure unviable. Because the original municipalities were based on parishes, there were a lot of them. Below is a map of Finnish municipalities in 2007:

That's a total of 432 municipalities. Today, that number is 317. The financial autonomy of the municipalities was never really possible, and all kinds of co-operative arrangements were created between municipalities to produce services more economically. With the continuing movement from the countryside into the cities, the state of municipal finances became so dire that several grand local government reforms have been attempted since the 1960s. Real progress only started to be made under agrarian and coalition administrations in the 2000s, but municipal reform has been a constant battleground between parties and areas.

With healthcare forming such a large part of overall state and local expenditures, the bewildering array of administrative arrangements created to provide them has been identified as a prime target for rationalization ages ago. Back in 2005, a working group comprised of all parliamentary parties forged an agreement to centralize healthcare and social services in five national "social and health" (sote) areas. The actual implementation of this was delayed in the general clusterfuck that was the Katainen/Stubb administration, but when prime minister Sipilä took office on his messianic mission to rescue the Finnish economy, it was clear from the get-go that the sote reforms would be a key project.

So the Sipilä administration inherited an agreement on five sote zones, based on expert consensus. The coalition party had set a maximum of twelve sote zones in their electoral program coming in, as this had been identified as the maximum viable number. Despite this, the prime minister demanded that the Coalition party agree to a system of eighteen zones. Experts condemned this as completely unworkable, but the prime minister insisted that it was either eighteen zones or he would dissolve cabinet.

Why? What happened?

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As Sipilä explained in his dramatic live press conference last Friday, his aim is not only to provide healthcare and social services efficiently. Instead, the agrarian party has hijacked the sote reform, and instead of creating healthcare and social service zones, they are now insisting that the reforms produce comprehensive, autonomous local government units that will combine a far wider variety of administrative powers.

Whether it's left-wingers occupying the universities or an agrarian local government scheme, the definition of autonomy in Finland is that a group of people decide what they want to spend money on, and make someone else pay for it. What Sipilä is doing is taking a healthcare reform project with almost universal parliamentary support, and turning it into an agrarian pork-barrel scheme to funnel endless streams of money into what they are pleased to call "area politics".

After the Second World War, Finland was still largely an agrarian economy. By the 1960's, the mechanization of agriculture and forestry work made the small farmer's life largely untenable, and a wave of urbanization started, leading to the evolution of Finland from an agrarian to a high-tech and service economy. The simplest way to explain what prime minister Juha Sipilä's agrarian party stands for is to say that they are doing their best to stop this evolution from happening. At their most demented, they condemn urbanization as an artificial, politically created process that can be reversed, in a sort of Finnish agrarian version of Mao's Cultural Revolution.

The raison d'être of the agrarian party is the pork barrel. Under the guise of farm subsidies, area subsidies and the wonderful euphemism "area equality", the Finnish state dumps billions of euros every single year into what is called "keeping all of Finland inhabited". It's difficult to comb through the various state budgets to figure out exactly how much money is being spent on various area subsidy schemes; it becomes a herculean task to estimate how much money is constantly being wasted in retarding the development of the Finnish economy. The chimera of "area equality" is almost certainly the most colossal waste of resources by the Finnish government. Dispensing with it would fix the deficit immediately, and make life better in this country for everyone. Maintaining it, on the other hand, creates this:

That right there is a map of Finland with each municipality color-coded by the party that got the most votes there in the 2015 parliamentary elections. Guess who's dark green.

This scheme, where the agrarian party makes sure the money keeps flowing from the state and the cities into the countryside and the voters keep on voting, is the machine that powers Sipilä's party. Because it gets dressed up in various nationalistic notions of food autarky, the exceptional purity of Finnish food and other ridiculous mirages, it's politically very difficult to oppose openly anyway, but to the agrarian party, it's absolutely crucial. Crucial enough that healthcare reform and even the entire Sipilä cabinet can be laid on the line to safeguard it.

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At the time of this writing, the word was that a compromise had been reached: there would be 15 sote zones and 18 autonomous administrative areas. This sounds like a terrible compromise, and a decisive defeat for the Coalition party, who effectively surrendered to Sipilä's blackmail. At worst, it will be ruinous for the nation. Compared to the more reasonable four- or five-area model, the Sipilä scheme is at least a billion euros more expensive. A billion.

Sipilä's sote project will take a system of healthcare and social services that was supposed to save money by centralizing services and turn it into a permanent pork-barrel system of autonomous local administrations, whose actual task will be to keep this political machine running in perpetuity. So what is being sold to the public as a scheme to cut the deficit is, in fact, again, the opposite. This is entirely in line with the Sipilä cabinet's fake austerity policies in general, and their project to undevelop the Finnish economy.

So the headline you may have seen, that says health care reform is bringing down the Finnish government, is dead wrong. Sipilä's insistence on turning health care reform into a pork barrel electoral machine and sacrificing his cabinet to make it happen is what caused this crisis, and the Coalition party's capitulation means it's being resolved in the worst possible way. If the government really wanted to reform healthcare, it wouldn't be this hard. To paraphrase Lenin, it's not what the mouth says, it's what the hands do. As ever for the Sipilä cabinet, these are two completely different things.

Sipilänomics, part 2: Unit labor costs, competitiveness and the export fixation

In my previous Sipilänomics post, I talked about how the Finnish ideology of national competitiveness continues to drive our economic policy to a short-sighted, if not actually ultimately disastrous, focus on reducing labor costs at the expense of cutting the deficit. Indeed, successive right-wing-led cabinets have cut public spending and immediately spent the dividend in reducing employers' labor costs, so that in spite of extensive cuts to the public sector, government spending has actually increased in real terms. I managed to provoke some macroeconomic analysis, which I urge you to read.

This time around, I want to look more closely at the specific issue of unit labor costs, and whether reducing them is a sensible goal for national economic policy or not.

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First, to give some context, I want to throw out some ballpark figures on government spending that the current administration isn't cutting. Remember that our net deficit is around five billion euros.

Wealth transfers to corporations obviously start with direct corporate subsidies, which, according to the Cabinet office's report on corporate subsidies, total 1.3 billion euros a year. The current administration is not making any significant cuts. In addition, Finnish businesses receive six billion euros' worth of tax breaks every year.

Incidentally, total tax exemptions in Finland are a staggering twenty-three billion euros annually. Every third tax euro is exempt. You'd think the tax system could do with some streamlining.

This is a slightly artificial number, but if you want to talk about eliminating the deficit, we can total up all the money we're throwing at businesses. One billion in direct subsidies plus six billion euros' worth of tax breaks is already a larger sum than the entire central government budget deficit. Add to that the three billion dollars of tax and social security payment cuts I talked about in my previous post, and you can argue that as a ballpark figure, over the last decade or so we've been giving Finnish businesses ten billion euros per year.

Another massive money sink we're not touching is farm subsidies. The 2015 government budget lists some 1.8 billion euros in agricultural subsidies, 400 million to forestry and fisheries, and another 400 million to rural development, totalling about two and a half billion euros annually. We pay more in farm subsidies than we do in unemployment benefits.

Again, though, this two billion figure doesn't capture anything like the whole expense of Finnish "area policy". The cabinet office report on corporate subsidies points out that all subsidies and tax breaks are created for a variety of political reasons that are difficult to untangle. It's impossible to even estimate how much of the seven billion euros of corporate subsidies and tax breaks are in practice area subsidies. A far greater challenge would be in trying to come up with some notion of the opportunity costs of agricultural and area subsidies, as well as untangling municipal finances and state interventions in them. So the direct budget expenditure of two billion is barely scratching the surface of what our illusion of agricultural self-sufficiency and "area equality" actually cost. These subsidies have all been increased during our so-called austerity, including by the Sipilä cabinet.

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So we're not cutting any of those expenses. We're not even really talking about them. Instead, the constant focus has been unit labor costs. In his farcical, patronizing televised speech last month, Sipilä again insisted that labor costs must be reduced by 5%; his cabinet and party have repeatedly made it clear that they're willing to negotiate on how this can be achieved, but not on the reduction itself. The idea of reducing vacation compensations and/or lengthening working times amounts to the same thing as the pay cuts the cabinet has suggested: reducing labor costs.

For a company, unit labor costs are an important figure. Obviously the less a company has to pay out in wages to produce a given quantity of product, the better. On the national level, though, unit labor costs are a completely different animal: effectively, national labor costs are the share of national income that goes to workers. So when a company says it wants to reduce labor costs, it's saying it wants to produce more efficiently; however, when you say that a country has to reduce its labor costs, what you mean is that income has to be distributed less equally: less needs to go to workers and more to, effectively, shareholders. So in a sense, the literal meaning of lower labor costs is greater income inequality.

What's more, as is explained in some detail here, unit labor costs are actually a terrible indicator of national competitiveness. Unit labor costs are in many ways an unreliable aggregate number that can give a serously misleading picture of the development and competitiveness of an economy.

The World Economics Association newsletter I linked to includes a graph of real unit labor costs in selected EU countries, including Finland (orange):

As you can see, real unit labor costs rose dramatically in 2008. At the same time, though, there was no corresponding rise in real incomes, which rose steadily until 2009 and have since plateaued.

So whatever it was that made Finnish unit labor costs suddenly rise in the late 2000's, it wasn't wages. It's also worth pointing out that in the context of plateaued real wages, the Sipilä cabinet's wage cuts combined with continuing insistence on extremely low raises will mean that real incomes will actually decline.

What happened, then? According to the Labour Institute for Economic Research, what happened was a dramatic decline in the electronics and paper industries, not to mention a global financial crisis. This would seem to be in line with the criticism of unit labor costs linked above, where change in one industry can give the misleading impression that the entire economy has become less productive. Elsewhere, aggregate productivity statistics have been misleading.

So effectively, what we're trying to do now is compensate for losing Nokia, and the continuing decline of our paper industry, by lowering everyone's wages.

Further, as Jesus Felipe and Utsav Kumar argued in 2011, unit labor costs don't explain Germany's strong exports, but rather, complexity and diversity of exports do. Attempting to compete with Germany solely by lowering unit labor costs is, in their view, completely misguided. Especially if our unit labor costs are actually already lower - it does strike me that most presentations on Finland's diminishing competitiveness focus on change in unit labor costs, which can be tremendously misleading; see also Haaparanta. Moreover, it's a generally accepted fact, known as Kaldor's paradox, that low unit labor costs don't correlate with increased output. Therefore, their conclusion is: "Wage reductions would do probably cause more damage through a compression of demand." When real incomes haven't risen for five years, this seems inevitable.

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But if reducing unit labor costs isn't an effective way to boost exports, how do we do that, then? Because if there's one thing pretty much every political party and public commentator in this country agrees on, it's that we need to boost exports.

Here, from Finnish Customs, is our trade balance over the last couple of years:

Here are monthly figures for imports and exports:

What I am going to say now is so heretical that I need to warn any Finnish readers in advance. Make sure you're sitting down, not eating and drinking at the moment, and brace yourselves.

I don't see why we need to worry about exports.

Seriously. Our trade balance is all right. Other things being equal, exporting more would always be nice, so I'm certainly not in any way opposed to anything that can enhance our foreign trade, but there doesn't seem to be any reason at all why we should panic about the state of our exports. Certainly no reason to make massive cuts and depress domestic purchasing power in favor of a minute, theoretical boost to exports.

So to sum up, not only are lower unit labor costs not a sensible way to enhance our exports, but there isn't even anything in our foreign trade balance that suggests we should be particularly concerned about exports at all - especially when what we should be concerned about is our government deficit and national debt.

Unfortunately, our decision-makers seem to feel the opposite way. MTV3 interviewed the head of the Finnish Federation of Enterprises, and asked him to explain how cutting nurses' salaries helps Finnish exports. A good question! His reply was that cutting public sector salaries reduces the deficit, which will allow more tax breaks for exporters. So when I said in my previous post that we can only conceive of cutting the deficit through increasing exports, I may have been wrong. Instead, the only reason we want to cut the deficit is so that we can increase exports. This isn't so much putting the cart before the horse, but rather harnessing a horse to a cart so that we can lighten the cart to make the horse go faster. Amazing.

This is how deep the cultural fixation of prosperity through exports goes. As far as I know, not a single Finnish party questions the need for Finland to concentrate on exports and international competitiveness.

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How bad is our competitiveness, then, since our cabinet constantly insists on such drastic measures to restore it? According to the World Economic Forum's Global Competitiveness Report published last summer, Finland is the second most competitive economy in Europe, ranking fourth worldwide. This is no fluke: Finland consistently ranks very highly in international competitiveness surveys. This makes the massive sense of doom propounded by the right about our competitiveness somewhat difficult to understand.

The World Economic Forum uses 12 pillars to assess a country's competitiveness. Some of these are being dismantled by our right wing. The third pillar, for instance, is the macroeconomic environment, prominently including government fiscal deficits and debt levels, which we've seen continue to get worse. The fourth pillar is health and primary education, both targeted for sweeping cuts. The fifth pillar is higher education and training - also cut. The twelwth pillar is innovation:

This progression requires an environment that is conducive to innovative activity and supported by both the public and the private sectors. In particular, it means sufficient investment in research and development (R&D), especially by the private sector; the presence of high-quality scientific research institutions that can generate the basic knowledge needed to build the new technologies; extensive collaboration in research and technological developments between universities and industry; and the protection of intellectual property, in addition to high levels of competition and access to venture capital and financing that are analyzed in other pillars of the Index. In light of the recent sluggish recovery and rising fiscal pressures faced by advanced economies, it is important that public and private sectors resist pressures to cut back on the R&D spending that will be so critical for sustainable growth into the future.

My boldface. Perhaps coincidentally, on the same day that the prime minister's pre-recorded speech was shown on television, the University of Helsinki announced they're cutting staff by approximately 15% over the next five years. Overall, university funding is being cut by half a billion euros annually. So our R&D spending is being cut quite massively.

The four pillars of competitiveness the Sipilä cabinet is so intent on toppling can be summed up in one concept: human capital. If there's one thing we do know correlates strongly with economic performance, it's human capital. If nothing else, a more highly skilled workforce is more productive and more innovative. Finland, for instance, can hardly claim to owe its present prosperity to abundant natural resources or other accidents of geography. Nokia came about because of the high level of human capital in the Finnish economy; if we want to see similar success in the future, we need more investments in human capital, not less. Unfortunately the Sipilä cabinet is committed to doing exactly the opposite. According to some statistics, the quality of Finnish exports is already so low that attempting to compete through cheaper labor is doomed to fail. Reducing our human capital would seem to be most likely to lower that quality even further. The new head of the government's economic research institute agrees, and points out that the few investments the government is making are minuscule and misguided.

The WEF report divides countries into three groups based on their economic development, in ascending order: factor-driven, efficiency-driven and innovation-driven. Right now, they place Finland at the very top of the innovation-driven economies, but the current administration's goals are focused on efficiency at the expense of innovation. In that sense, you could argue that they're actually trying to drastically reduce our competitiveness by downgrading the entire economy.

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So, some conclusions. First of all, the Sipilä cabinet's monomaniacal fixation on reducing unit labor costs doesn't seem very likely to actually increase the competitiveness of our exports. What's more, it isn't at all clear why we so desperately need to enhance either our national competitiveness or our exports right now. I, for one, would much prefer trying to actually cut the deficit.

What makes everything much worse is that barring some completely unexpected chain of events, the negative effects of this labor cost policy are likely to be substantial. In the short term, cutting wages will necessarily reduce domestic demand, depressing the economy even further. In the long term, making large cuts to health care and education will severely diminish our human capital, which means that future growth will be less than it otherwise would have been. Furthermore, the hardships inflicted by the cuts, disproportionately borne by lower-income citizens, will rebound in larger problems in the future - just like after the last recession. At this rate, though, the deficit will land us in serious trouble before any long term effects make themselves felt. I strongly agree with Björn Wahlroos: our sustainability gap is never going to be a problem, because at this rate we'll go bust long before it hits.

In my previous post on the subject, I tried to demonstrate that there hasn't at any point been, and still isn't, any austerity or deficit-cutting going on in this country, because all Finnish parties agree that exports are more important than the deficit. In this post, I've done my best to examine the particular strategy of export-boosting adopted by the Sipilä administration. At the very least, there are strong doubts that a focus on unit labor costs is going to produce the results the cabinet claims; it seems far more likely that in the long and short term, this is a disastrous strategy. The only people who will benefit are corporate shareholders in the short term. That should make it pretty clear to everyone whose interests this cabinet represents.

In general, it's tremendously imporant to understand that right-wing rhetoric relies heavily on a srategy of depoliticizing economic policy, where political decisions and value judgements are presented as the only possible course of action, when in fact this is almost never the case. A further problem that arises from this is that too many critics of right-wing economic policies believe this, and imagine that politicians slavishly obey the dictates of some imaginary worldwide cabal of economists. This is complete nonsense, and dangeous, because it abandons the rhetorical playing field to the right. The economic policies of, say, the Sipilä administration, are very much open to challenge from the same paradigm of economics that they purport to draw on themselves. Don't let them get away with equating their policies with economics in general.

If there is an ideology that our current administration follows, it's the same one that the entire rest of the political field shares: national economic competitiveness through exports. My opinion is that both this strategy, and the specific means chosen to advance it, are disastrous for this country in both the short and long term, both in general as well as on its own terms. Our tragedy is that our political discourse needs to be fundamentally unpacked to address this, and this is far from easy.

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It's definitely true that our fiscal deficit is a problem. However, the current administration, like several preceding ones, refuses to address this problem by looking at structural problems in the Finnish economy. Instead, their solution is to sacrifice our human capital and degrade our long-term competitiveness in order to, at best, improve our economic prospects in the short term. The current policy of cutting salaries, health care, social services and education to improve competitiveness is robbing the future to pay the present - and is entirely contingent on a growth of world trade that may not happen, and may pass us by. The damage will be done regardless. To call this kind of policy irresponsible is putting the matter very, very mildly.

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.

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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.

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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.

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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?

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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.

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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.

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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.