TUT DPA & TG

Vaesus – sotsiaalne norm?

2011-10-11T19:39:00.006+03:00

By Egert Juuse

Ameerika Ühendriikides kuulutati sõda vaesusele juba 1960ndate keskpaiku, samas kui Euroopas jõuti tõdemuseni selle olulisusest 2010. aastal, “tähistades” Vaesuse ja sotsiaalse tõrjutuse vastu võitlemise Euroopa aastat, millest ilmselt paljud ei ole kuulnudki. Esmaspilgul jääb mõistetamatuks, miks jäi mullune üle-Euroopaline algatus Eestis varjusurma, kui kõrvutada eelnenud “innovatsiooniaastaga” ja seda saatnud furooriga - sündmuste laiaulatuslik kajastus rääkimata nende poliitilise vankri ette rakendamisest. Heites aga pilgu Eesti poliitilisel maastikul valitsevale ideoloogilisele mõttelaadile, võib riigiaparaadi tasandil mõista seksapiili puudumist vaesust puudutavates küsimustes, ent meedia ja laiema avalikkuse passiivsus, kui mitte ükskõiksus, debati algatamises tõstatab paratamatult küsimuse: kas vaesus ja sellega lahutamatult seotud tööpuudus ongi aktsepteeritavaks normiks kujunenud ehk teisisõnu, vähemgi kriitiline mõtlemisvõime valitseva majandus- ja tööturupoliitika osas on minetatud?

Kolm aastat hiljem pärast 2008. a lahvatanud globaalset finantskriisi peegeldab reaalsus tänases Eestis senise poliitilise kursi võimetust lahendada ühte põletavamat sotsiaalset probleemi. Eesti majandus on triivimas stagflatsiooni, kus juba pikemat aega oleme euroala riikide seas juhtinud edetabelit ametliku pikaajalise töötuse määra, aastase inflatsiooni ning suhtelise vaesusmäära osas. Nende indikaatorite taustal peaks mõtlemisainet pakkuma kaks tõsiasja: 1) viimaste aastatega on üheks riskigrupiks tõusnud 16-24 aastased noored, kelle seas saab täheldada vaesus- ning pikaajalise töötusmäära kasvu, ning 2) parimas tööeas - 25-49 - inimkapitali raiskamine, kus 14% elab suhtelises vaesuses. Milliste hoobadega on siis püütud olukorda lahendada?

Langusaastate töövõitudena on muuhulgas esitletud Tööpuuduse vähendamise ja töötute tööle aitamise tegevuskava 2009-2010, Eesti majanduskasvu ja tööhõive tegevuskava 2008-2011, Arengufondi Valget paberit Riigikogule jpm. Nimetatud dokumentide läbivaks sõnumiks on soodsa ettevõtluskeskkonna loomine era(välis)investeeringute mahtude kasvatamiseks, ekspordile panustamine, makromajandusliku stabiilsuse poole püüdlemine ning aktiivse tööturupoliitika juurutamine läbi paindlikkuse tagamise koos täiendus- ja ümberõppega. Teisisõnu, juhindutakse arusaamast, et erainvesteeringutel ja ekspordil põhineva majanduskasvu najal pudeneb “saiapalukest” ka vaesematele, kelle elujärg sellevõrra paraneb, ning vaesusprobleemi kõrvaldamiseks tuleb ennekõike muuta inimest, mitte kehtivat institutsionaalset korda.

Valitsuse kinnisidee uute investeeringute saamiseks on saavutamas fetišistlikud mõõtmed, mille taustal ei olda suudetud täheldada tõsisasja, et erainvesteeringutel ja ekspordil põhinevasse kasvustrateegiasse on sisse programmeeritud inflatsioonilised arengud, mis kahandavad vaesema elanikkonna ostujõudu ning paratamatult päädivad turbulentsete sündmustega finantsmaastikul. Keskpikas perspektiivis võimendab välisinvesteeringutel ja ekspordil põhinev kasvustrateegia majandustsüklilisi kõikumisi, destabiliseerides finants-makromajanduslikku keskkonda – ajapikku kaldub eelistus vähemlikviidsete varade kasuks ning kasvab erasektori võlakoorem. Taolise stsenaariumi puhul jõuame ringiga tagasi vana probleemi juurde, kus Eesti maksusüsteemi iseärasuste taustal võtavad majanduskasvust koore niigi paremal elujärjel olijad, mistap tulemuseks on vaid kasvav lõhe sissetulekutes, vaeste osakaalu tõus ning krahhijärgne armee töötuid. Sisuliselt on tegemist võitjateta võidurikastumisega, kus suurimad kaotajad on sinikraed ja vaesem elanikkond. Tasub heita pilk Eesti makronäitajatele enne 2008. a sündmusi maailmas, et mõista, kuhu taaskord suundume.

Aktiivsete tööturumeetmetega saab vaesuslõksu jäänutele pakkuda vaid võimalust sellest väljaronimiseks, kuid eeldusi võimaluste realiseerimiseks tänases Eestis pole loodud – olles kui hüpiknukk välisinvestorite meelevallas, jääb välisinvesteeringutele toetuva strateegia kontekstis osa tööealise elanikkonna oskuste-teadmiste sobitamatus tööturu vajadustega püsivaks probleemiks. Pealegi, arvestades Eesti majanduses valitsevaid struktuurseid probleeme, võtaks ümberõppe positiivsete mõjude avaldumine aega aastaid. Loo kurb pool on aga see, et hektilise tööstus(innovatsiooni)poliitika taustal süstitakse koolitusega vaestele vaid lootust, et ehk läheb nende kompetentse kunagi tulevikus tarvis. Seega vaatamata üllatele eesmärkidele, mida väljapakutud meetmetega soovitakse saavutada, ei ole ükski neist mõjusaks lahenduseks vaesusprobleemi kõrvaldamisel. Piltlikult öeldes üritatakse majandus- ja tööturupoliitikatega õpetada ujumist, kui vaid keegi basseini vee ka sisse laseks...

Üheks vaesust ravivaks rohuks ehk “basseiniveeks” ei ole midagi muud kui koordineeritud täistööhõive tagamine koos madalama sissetulekuga isikute elustandardit parendava sotsiaalkindlustus- ja maksusüsteemiga. Näiliselt lihtne lahendus, kuid Eesti oludes poliitiliselt teostamatu, vähemalt tänasel päeval. Väljakujunenud maksusüsteem on valitsuse püha lehm, mida kui ekspordiartiklit “müüakse” välismaailmale, ning teisalt hellitatakse naiivset lootust, et turujõud on võimelised saavutama täistööhõivet olukorras, kus nii era- kui ka avalik sektor on otsustanud säästukuurile minna. Mida annaks siis üleüldse teha? Suurt midagi olukorras, kus valitsus on langenud eneseimetluse ohvriks, sipeldes poliitilise nartsissismi ahelais – pälvimaks välismaailma heakskiitu täidame lakeiliku eeskujulikkusega ettekirjutisi ja soovitusi, kui vaid mõned ebamugavad erandid välja jätta. Üheks selliseks on ÜRO Inimõiguste ülddeklaratsioon, mis näeb muuhulgas ette iga inimese õigust tööle. Selle klausli taustal võiks valitsuse viimase aja tegemisi pidada lausa “kriminaalseks”, kus solidaarsuse lipu all on nõustutud andma Eestipoolset garantiid euroala päästefondi, samas kui igasugune arutelu riigipoolse töökohtade garanteerimise programmi rakendamise võimalikkusest kui ühest moodusest võitlemaks vaesuse ja tööpuudusega Eestis on päevakorrast välja jäetud.

“Riik kui viimse abinõuna tööandja” (employer of last resort ehk ELR) kontseptsiooni ellukutsumine ehk töötute rakendamine avalike teenuste ja kaupade pakkumiseks on üheks realistlikuks alternatiiviks, mida rakendatud paljudes riikides (Ameerika Ühendriigid, Argentiina jpt.). Samas, mainitud käsituse korraliku eestikeelse vaste puudumine ilmestab juurdunud ideoloogilise mentaliteedi kitsarinnalisust, mis väljakujundatud sotsiaalkindlustussüsteemiga on sisuliselt institutsionaliseerinud Eestis almusühiskonna ehk vaeseks olemise. Riiklike investeeringute, innovatsiooni edendavate riigihangete ja kogunõudlust stimuleerivate meetmete vajalikkust ei saa kahtluse alla seada, kuid vaesuses virelevaid riskigruppe puudutavad need väga kaudselt, kui üldse, mistõttu vaid sihtgruppidele suunatud meetmetega on võimalik saavutada soovitud tulemusi. Töökohti võib läbi avalik sektori luua väga erinevalt - alates stipendiumiskeemide rakendamisest kuni otseste töökohtadeni, mis vähendavad sotsiaalseid kulusid ning võimaldavad leevendada teisi ühiskonnas eksisteerivaid probleeme, nt. lastehoiu- ja hoolekandesüsteemis ning heakorratöödel, kui valitsuse tasandil ei hakata programmist poliitilist profiiti lõikama, stigmatiseerides abivajajaid. ELR-iga saavutatav inimeste kindlustunde paranemine on stiimuliks erasektorile suurendamaks nõudlust tööjõu järele, mille tulemusena toimub vaid tööjõu siirdumine ühest sektorist teise.

ELR ei ole “lõplik lahendus probleemile”, vaid üks alternatiividest, mida tasuks poliitikutel oma mõtteharjutusrepertuaari lisada, samas kui selles vaid tondi nägemine peegeldab poliitilist skisofreeniat. Saab kindlasti välja tuua poolt- ja vastuargumente, ent ELR ja kapitalism ei ole üksteist välistavad. Seega oleks aeg hakata mõtlema süveneva euro-kriisi oludes alternatiivsetele võimalustele, sealhulgas riigi rahanduse valdkonnas, kuidas kohalikku majandust ja ennekõike elanikke jalule tõsta. On sinisilmne loota, et ainuüksi välisinvesteeringud suudavad tagada stabiilse ja jätkusuutliku majanduskasvu, rääkimata majandusarengust, mistap tänaste ja tulevaste ühiskondlik-majanduslike arengute taustal hellitan lootust, et poliitiline eliit on võimeline tõstma oma intellektuaalset kapatsiteeti ning võimekust tegeleda komplekssete väljakutsetega, millega lähiajal tuleb silmitsi seista.

Is addressing fragmented EU Aid useful without focussing on productive capacity?

2010-12-06T15:35:00.008+02:00

By Riaz K. Tayob

At an 11 November lecture at Tallinn University EU Development Commissioner Andris Piebalgs very candidly highlighted the need for the EU to have “a more determined system” for its aid to address the fragmentation in European delivery. What does this mean in terms of development cooperation, and what should cooperation include?

Since member states manage their own aid, Piebalgs' frankness in the discussion was important, not least, because it offers the possibility both of reducing transaction costs (cited as more than half of all aid, due in part to monitoring and evaluation) but also of centralising control at the EU level. As Piebalgs stated, this would not only mean more work for his department but offers the possibility of enhancing the EU's voice in the global aid debate as one of the largest donors.

Since aid dependency can breed ostensible civility if not servility, being critical of EU aid runs the risk of seeming ungrateful. But this is necessary, if good outcomes are the intention. And while there is lots to be commended in the EU's new development aid architecture, there are some concerns about the prescriptions that flow from Piebalgs' diagnosis.

Part of the prescription involves tying EU aid procedurally with EU external/foreign relations. Piebalg's explained that EU aid, under his control, to particular countries would essentially have to be vetted first by Baroness Ashton (EU High Representative for Foreign Affairs and Security Policy). This may be seen as promoting greater coherence of EU policies, but it is also competent to see it as a more explicit formalisation of aid as an instrument for enhancing EU foreign policy objectives. However, countries like the United Kingdom for instance maintain (at least in principle) a separation between foreign affairs and development cooperation.

This brings to the fore the substance of what the EU hopes to achieve from its aid, aside from Piebalg's explicitly mentioned concerns about “competition” with China in resource rich developing countries, in particular on the African continent.

Recently, there has been a great deal of debate on the efficacy and effectiveness of Aid which has become more mainstream. At a time of budgetary crisis in the rich world this is hardly surprising. However many of these arguments were made before or just at the beginning of the Global Economic Crisis which saw an unprecedented stash of cash made available for a reckless financial sector – cash that was somehow not available for binding international obligations on aid.

Dead Aid (by a former Goldman Sachs economist Dambisa Moyo of Zimbabwe) and Ending Aid Dependence (by Prof. Yash Tandon former director at the South Centre, Geneva) raise substantive diagnostic issues beyond fragmentation.

Moyo states that aid is often misappropriated, unproductive and most importantly leads to indebtedness. Moyo also argues that aid crowds out investment and local initiatives. Tandon argues against “aid dependence”, aid ought to be on a solidarity basis. He is firmly against aid that has compulsory “ideological” conditionalities. He adds that certain types of aid, like concessional financing, are included in the OECD definition of aid but are questionable as aid per sé and lead to significant outflows from poor countries. That is, not all aid was in the form of grants, lots of it was in fact lower cost loans, which have to be paid back!

Competing national development needs within Europe has put the spotlight on aid and its outcomes. And much of the discussion misses some important elements. A dalliance on aid statistics sheds light on the lack of development outcomes despite generosity.

Rich countries often “pledge” large amounts of aid (usually when the media is present) but actually pay out significantly lower amounts, which is called the “commitment”. This practice is unashamedly formalised in OECD statistics. So one could almost forgive EU taxpayers for feeling aggrieved that so much is spent without denting persistent poverty – they see the announcements in the media spotlight but not the follow up “commitment” (which is rarely if ever given coverage).

However these feelings need to be contextualised. There is an international legal obligation on the developed countries to provide a certain amount of aid (0.7% of their gross national product) that has been disregarded by most rich countries, even in the good years, with the notable exception of the Nordic countries. Piebalg's contrition for Europe not honouring its international legal obligations was, therefore, welcome.

Issues of distribution of aid between poorer countries also needs to be considered, particularly so if there is a link to foreign relations. For instance aid and foreign relations make strange bedfellows. In the poorest country in the world, Afghanistan, from the perspective of a villager, the rich world policy was to throw bombs first, followed by food. With these types of contradictions 'winning hearts and minds' of Afghans is undoubtedly made more complicated where simple folk could easily view foreign powers as more incoherent than local elites!

In the discussion with Piebalg's, another substantive critique was made by Prof. Rainer Kattel of Tallinn University of Technology. Kattel said that EU aid did not really focus on building up of technological and productive capacity. It also lacked a focus on developing much needed state capacity, which many developing countries lacked. He added that the main international aid agenda, that of meeting the the Millennium Development Goals (MDGs), dealt with the symptoms of poverty rather than its causes.

While Piebalgs was clear that under the Lisbon Treaty the objectives were to alleviate and eradicate poverty, it is reasonable to deduce that Kattel's critique implies that poverty alleviation is emphasised over poverty eradication. If as Piebalgs said, aid cannot be provided indefinitely, then more weight needed to be given to poverty eradication. Poverty alleviation, while needed, may not on its own reduce aid dependency. Poverty eradication offers a solution and would mean developing and distributing productive capacity in poorer countries so that they can take care of themselves.

Building productive capacity is about wealth creation, or what Prof. Erik Reinert's work refers to as increasing the size of the economic pie, rather than redistribution of what is already there.

The contrast between the current strategies of poverty alleviation (MDGs) and its successful eradication (e.g. the Marshall Plan in post-World War II Europe) is stark – what is measured tells this tale in a compelling way. MDGs indicators include measures like increased access to water, reduced mortality, etc. The Marshall Plan focused on what and how much was produced in a country, prices, employment levels, etc. While it is tempting to think that the world is too much changed from the post-war time, the failure of the adopted strategies based on MDG-type welfare clearly indicate otherwise (unless of course blame is cast exclusively on the recipients themselves).

Poverty eradication, and the need for ending aid dependency, demands a focus on building up the capabilities of poor countries to increasingly provide for their own needs while the symptoms of poverty are dealt with. This points to the need for a fine balance, and this directionality certainly matters for the EU's aid strategy. As Prof Erik Reinert points out, productive capacity is what needs to be distributed around the world as a wealth generating machine. But this is precisely where coherence is lacking between Piebalgs and the EU's DG of Trade. But that is another story...

Inflation vs. the Autonomous Individual

2010-10-05T22:27:00.010+03:00

By Wolfgang Drechsler

Recently, I have argued that the notorious German fear of inflation, allegedly based on Weimar Republic experiences of hyperinflation, is not irrational but very rational indeed, not because of history, but because of the present. In a recent contribution entitled "In Praise of Inflation", James Surowiecki, in my opinion probably the best economics journalist currently active (not surprising as he writes for The New Yorker, the thinking person’s Economist, and then some), explains why moderate inflation as such is often good for the economy and that fear of inflation as such, and anywhere, is irrational. He concludes by saying,

This intuitive prejudice against inflation may not be purely rational, but in normal times it’s beneficial: it encourages sober habits and discourages quick fixes. But, in times of crisis, other policies may succeed where pure rectitude can’t. … the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one.

But as is well-known, there are beneficial aspects of inflation well beyond crisis times. This is of course Keynes’ argument, i.e., to quote Rainer Kattel,

Inflation is actually a form of the hermeneutical circle: the way we think the future will pan out changes our current economic behavior. If we think prices won't rise, or even fall, then why should we consume or invest now, since if the real value of our savings is bound to grow, postponing economic activity and hoarding cash makes a lot of sense. However, if everybody does that, we will get a stagnating economy that might easily end up in a crisis. That, and not crisis investment, is the main Keynesian argument for government spending and deficits.

Also, the other way around, if we think that prices will be very volatile in the future, again why should we consume or invest now? However, if we assume that there will be a moderate growth in prices, it makes a lot of sense to consume or invest now, as this way, we can profit from current lower prices and by investing actually reap future higher prices. In that sense, moderate inflation is a function of moderate growth as well. That's why Keynes thought that government should essentially always run deficits, as this way, there's always slightly more money around than really needed and thus there's moderate inflation that then feedbacks into economic behavior.

And of course, in situations with high debt levels, moderate inflation is doubly interesting or good as it favors current investment over past debts and current savings.

The problem with inflation, however, crisis or no crisis, is that “the people” don’t like it much. As Surowiecki explains,

A 2001 study that looked at the “macroeconomics of happiness” found that higher inflation put a severe dent in how happy people reported themselves to be. The distaste for inflation is such that a 1996 study (titled, aptly, “Why Do People Dislike Inflation?”), by the Yale economist Robert Shiller, found that, in countries around the world, sizable majorities said that they would prefer low inflation and high unemployment to high inflation and low unemployment, even if that meant that millions of extra people would go without work.

So, naturally, the challenge to good economists and policy-makers is, according to Surowiecki, to explain to the people why moderate inflation is actually in their own interest.

Or is it? That depends on what economics is for. Keynes, in a speech towards the end of his life, declared that economists are the "trustees, not of civilization, but of the possibility of civilization." The entire idea of democracy is to prevent experts, who do not only think they know best, but who actually do know best, from making the final decisions, because the rule of the expert does not exactly have a good track record in human history. (And the reasons for that are, among other things, that we cannot agree on what is best; that if we could, we couldn’t communicate it; that human happiness is a moving target; and so on and so on.) Our civilization, from the polis to today’s democracy, from public sphere to public policy, is based on the assumption of autonomous individuals who can make up their own minds and who have a meaningful idea of what is good for them. They make the basic choices, and those basic choices actually form what the polis, the comune, the state in the end is about (Leo Strauss’ point) – because choices could be otherwise as well, but they are the way they are, yet they can and do develop. The Good Life in the Good State, Aristotle’s goal of living together in a structured manner in place and time, is objectively ascertainable, but it rests on the combination of subjective decisions regarding what the Good Life actually is. Economics, again, is to enable this; it’s not a substitute for the Good Life – it’s a means, not an end.

If that is so, if a majority of people, everywhere on the globe, say that they'd rather not have inflation, because for them, monetary stability is more important, for a variety of reasons (choosing not to reward the unworthy; choosing as much stability and predictability as possible as high priorities in life), and if they know what the negative effects may be or even will be (and of course, in economics this is never fully clear), then if one basically believes in those autonomous individuals – and the form of human consociation based on this, which is Democracy –, this is a very strong argument in favor of currency stability and against inflation.

In other words, my point is that the popular anti-inflation stand, according to Shiller’s indeed still extremely interesting research, may not be just good or bad economics but rather, like institutions such as private property or monogamous marriage, a way-of-life choice within the polis, and thus beyond the say of the expert.

Of course, these things can change. Of course, things have been different – memories of William Jennings Bryan and the "Cross of Gold" come up. Of course, happiness research has always suggested, and now has come to the agenda again (such as Derek Bok in a recent book) that people do not know what makes them really happy. Of course, in a moderately rational world, people should pay attention to rational arguments. Of course, if one feels strongly that inflation increases human happiness, one should do what one can to make people see this. And thus, the discourse can and must be kept open.

But still, fear of inflation, if, as I suggest, it at least often is really based on choice and priority setting, however subconsciously, is not irrational then, because basic world-view-based goals are beyond the rational/irrational divide – that divide is about questions of how to achieve those goals. That may be very regrettable indeed from an economic policy perspective, but many of our choices are like that. In the end, what matters isn’t the correct policy, but rather the right one, and the system in which we have chosen to live, Democracy, has been set up precisely to make the chances higher that sometimes, the right things are actually done – or at least that the wrong ones are avoided as often as possible.

Tööandjate manifesti tähendusest

2010-09-10T15:45:00.013+03:00

By Erkki Karo

Majanduse struktuursete muutuste üle on võimalik arutleda nii emotsionaalselt ja omakasupüüdlikult kui ka neutraalselt ja analüütiliselt. Kumba mõttemaailma võiks kuuluda Tööandjate manifest? Ametiühingute eestkõnelejad ning isegi peaminister on sildistanud manifesti esimesse kategooriasse, kuid neid silte on seatud suuresti samamoodi emotsionaalselt ja ehk ka isiklikest huvidest lähtuvalt.

2008. aastal ilmus innovatsiooni ja tehnoloogilise arengu uuringute valdkonnas raamat Small Country Innovation Systems (toimetanud Charles Edquist ja Leif Hommen), mis võrdleb omavahel viite kiire tehnoloogilise arengu ja majanduskasvuga majandust (Aasia tiigrid ja Iirimaa) ning viite küpsema majandusstruktuuriga ja väiksema kasvudünaamikaga arenenud riiki (Skandinaavia riigid ja Holland). Sellest raamatust võib tuua välja huvitavaid mõtteid ja järeldusi, mis võiksid olla olulised ka praeguse Tööandjate manifesti sisu ja reaktsioonide valguses.

Ühe huvitava paradoksina tuuakse raamatus välja järeldus, et kui vaadata erinevate riikide suutlikkust seada prioriteete majanduspoliitika struktuursete arengute kujundamisel, strateegiliste valikute tegemisel ja poliitikate koordineerimisel (n. migratsiooni- ja maksupoliitika sidumine tööstus- või innovatsioonipoliitikaga jne.), siis kiiresti arenevad Aasia riigid on suutnud seda teha lihtsamini ja efektiivsemalt, kui küpset heaoluühiskonda esindavad Skandinaavia riigid. Skandinaavia riikidele heidetakse ette, et viimastel kümnenditel on nende tegelik arengupotentsiaal pidurdunud ning järjest keerulisemaks on muutunud strateegiliste poliitikate kujundamine ja valikute tegemine. Selle tulemusena on riiklikud majanduspoliitikad muutunud hägusaks ning ei oma piisavalt olulist mõju majanduse sisulistele arengutele, et käia kaasas tehnoloogiliste muutustega. Samas väidetakse, et nüüdseks on need tendentsid üha enam esile kerkimas ka kiire arenguga Aasia riikides.

Huvitaval kombel ei seletata seda paradoksi mitte liiga suure riigi või liiga keeruliste poliitikatega, mida riik ei ole võimeline ellu viima. Vastupidi, raamatu autorid väidavad, et põhjused, miks kiire arenguga riigid on varasemalt suutnud ellu viia tugevaid ja kohenemisvõimelisi poliitikaid ning küpsed riigid on viljelenud pigem struktuurseid arenguid mittetoetavaid hägusaid poliitikaid, seisnevad hoopiski poliitikaid mõjutavate huvigruppide koosseisudes ja tugevuses.

Raamatus väidetakse (hüpoteesi tasandil), et Aasia tiigrid saavutasid majanduskasvu ja tehnoloogilise arengu, kuna nende arengutee alguses puudusid ühiskonnas tugevad huvigrupid traditsioonilistes, kuid väheneva lisandväärtusega tööstusharudes, mille eesmärgiks oleks status quo säilitamine (ehk oma positsiooni säilitamine läbi suuremate riiklike toetuste või väiksemate riiklike piirangute ja koormiste). Seetõttu said ka riigid rakendada tugevate prioriteetidega poliitikaid ja viia ellu põhimõttelisi visioone, mis tagasid tehnoloogilise arengu ja majandusliku kasvu.

Tänaseks on aga Aasias esile kerkinud oht, et ‘eilsed’ uued tehnoloogiad ja tööstused on muutunud samasugusteks traditsioonilisteks valdkondadeks, kus lisandväärtus kaheneb, mistõttu tööstuste huvid ja ootused riiklike poliitikate suhtes on muutumas. Samamoodi, Skandinaavia riikides on raamatu autorite väitel viimastel kümnenditel olnud läbivaks oluliseks mõjuteguriks just traditsiooniliste tööstuste huvigrupid, kelle eesmärgiks on olnud status quo säilitamine, mis on võimalik läbi üldiste, häguste ja horisontaalsete poliitikate, mille peamiseks eesmärgiks ei ole majanduse struktuursete muutuste läbiviimine (horisontaalse poliitika näiteks võiks olla sotsiaalmaksu lagi kõikidele kõrgepalgalistele töökohtadele; tugevate prioriteetidega poliitika näiteks võiks olla sotisaalmaksu lagi IKT ja teiste kõrgtehnoloogiliste valdkondade T&A töötajatele vms.).

Innovatsiooni kontekstis räägivad nii visionäärid kui ka poliitikakujundajad väikeettevõtete, uute start-up’ide (n. IKT puhul poisid naabri garaažist) ja muude seni avaldumata ettevõtlikkuse initsiatiivide tähtsusest ja nende riikliku toetamise olulisusest. Tööandjate manifesti esitanud Tööandjate Keskliidu liikmeskonnas (ja ka nõukogus) on uute tehnoloogia valdkondade esindajad, väikeettevõtjad ja võimalikud uue ‘Eesti Nokia’ omanikud selgelt vähemuses.

Seega, kuigi me ei saa selgelt väita, et Eestis domineeriks tugevad traditsioonilised tööstusharud uute tärkavate tehnoloogia valdkondade üle, võivad huvigruppide mõjujooned ja eesmärgid poliitikas olla ühesemalt selged – eriti kui uutes tehnoloogiavaldkondades domineerivad väikeettevõtted, virtuaalsed ja globaalsed tegijad, võrgustikud jne., kellel ei ole kombeks rahvuslikke huvigruppe ja käegakatsutavaid kogukondi luua, või nendele loota.

Selles valguses, ehk on Tööandjate manifest ‘vanakooli’ (heas mõttes) meeste nägemus, mitte kõikide praeguste ja tulevaste tööandjate nägemus, mille kõrvale oleks vaja konkureerivat mõttekäiku ettevõtjatelt, kelle jaoks ei ole tulevik mitte 2011-2015, vaid kuskil kaugemal tehnoloogilise arengu trajektooril. Samas, kui selline mõttekäik on tõene, siis peaks ehk ka riik vaatama üle oma majanduspoliitika kujundamise mudeli, kus avaliku sektori poliitikakujundamise võimekuse asemel eelistatakse loota ettevõtlust ja tööstust esindavate organisatsioonide visioonide ja nägemuste peale. Kui viimased on selgelt ühele poole kaldu, siis on oht, et kogu majanduspoliitika kisub kreeni või ei vasta tuleviku ootustele ja vajadustele.

The Myth of German Inflation Fears

2010-06-27T21:42:00.009+03:00

By Wolfgang Drechsler

Germany’s stubborn insistence on austerity rather than increased spending to stimulate economic recovery is the worst possible stand to take at the current moment of the global financial crisis; it shows that nothing has been learned from history, that Keynes is still not understood in Berlin and that at the end of the day, Europe, the European Union and the Euro, and even the world economy, may go down in flames because of German stupidity. And why are Germans being so stupid? Just because of the irrational fear of the repetition of history, the German hyperinflation of 1922-1923, an outright mythical event which until today conditions Germany’s (and that means the Germans’) attitude towards spending vs. savings. Politicians from Sarkozy via Barroso to Obama and opinion leaders from Krugman via Dean Baker to Soros agree on that, and you can read it in many of the current G-20 and G-8 statements and comments as well.

Nevertheless, this is complete nonsense. The myth here is not the German hyperinflation at all – the myth is that the German attitude towards austerity vs. demand stimulation is in any way significantly based on that historical event. How much does history really matter in Germany – at least, pre-World War II history? How much does the average German really know about the hyperinflation of yore? Next to nothing, I would say – the majority of Germans has probably never even heard of it, as horrible and disastrous an event as it was. But how much can the past really hold sway over the present? It seems to me that only the burned child shuns the fire and that among today’s German decision-makers, opinion leaders and citizens, almost nobody consciously remembers that time. If we say that in order to halfway understand what the inflation meant, you had to be 16 years old when it happened (otherwise this is too abstract a topic, rather than say a war), that means you had to be born by 1907 at the latest. In this case, you would be at least 103 today – which my philosophical teacher Hans-Georg Gadamer in fact was when he died in 2002, and he had remained a public intellectual until the end, but he is still a rare exception. Sure, the hyperinflation is used as an image, as a reference point, as an illustration, but not more – which is also my experience from Germany, where I am right now as well, and one side of my family even did suffer heavily during the hyperinflation. Hyperinflation references in the German media are usually to foreign statements, not to the event itself. Historical events that people don’t remember are not “real” – unless propaganda and/or family lore renarrate them again and again in such a way that they become immediate and relevant again, and the hyperinflation, as I mentioned, seems somehow too abstract and complex for that. In any case, whatever the reason, the hyperinflation is not “immediate”, as Gadamer would have said, in today’s Germany at all.

In order to understand the German attitude right now, therefore, especially if one is concerned about it and if one thinks it stands in the way of crisis-appropriate policy, it is important to discard this faith in the myth and to try to find out what the real reason for this harsh anti-inflation stand is. My answer is that Germany’s strict opposition to inflation is perfectly rational, the opposite of being myth-based, and that there is indeed a connex between spending policies and inflation. Many Germans, if not most (and certainly most of a key segment of the population, the large middle class which is the foundation of the political system), have their assets in currency-based investments and are not in debt, or at lest perceive themselves that way either for now or for the immediate future, and any inflation is a net loss for them, and they have paid into a (currently) very well-working social and medical insurance system that likewise appears to hinge on a stable currency. As their life quality and future rest on this, and as they were always and unequivocally promised again and again by all politicians, experts and bankers that the currency will remain stable, it’s hardly surprising that they would mind, and indeed mind very much indeed, if this were not the case anymore. I basically agree with Adolph Wagner of course that all private property is state-created rather than natural, indeed that it is a function of the state, but it’s hardly surprising that people want to at least keep what they have if they have been assured again and again that they may keep it.

Add to this that a positive overall effect of inflation on the German, and indeed European and global, economy can be claimed but not proven within our ruling episteme, i.e. the system that conditions what we take for true or false: Insisting on a low inflation might bring the entire system to a collapse, so that in the end, Germany would have to pay anyway, but it only might – some, perhaps many (but certainly not all) economists may claim that it does, but how does that add to any likelihood of it being true in the eyes of a well-informed German citizen? Thus, being totally opposed to inflation and to policies that are conducive to or even based on it, is entirely rational for a German citizen. This is also the systemically correct and even ethical position because democracy is based at least to some extent, and even to a necessary one, on voters voting their genuine interests as perceived.

But how can one call the rational pursuit of economic self-interest ethical? Well, one can if one is a Smithian in any case, but the key aspect to realize in this context is that if one claims that Germany should take up its responsibility for the welfare of Europe and the European Union and its fellow Europeans, one ignores that there is no European identity – yet – in Germany or elsewhere. Maybe there should be (I myself would certainly like that), but that is not the issue – the issue is that it is not the case. The European project has, to a good extent even purposefully, dodged the creation of a European identity, and it is just absurd to claim now that there should be one, or even that it should come about because of the crisis. So, even if a higher inflation (even a mildly higher one than exists) were desirable on a European level, on the German level, it is not. A vast majority of Germans do not feel pan-European solidarity to the extent that they want to finance other countries, especially if those – especially Greece – are reported again and again to have brought their economic problems largely upon themselves by corruption and leisure orientation, even if that was well-known but calculatedly ignored by the EU and its other member countries.

All this means that Germany’s stand against inflation is not a case of an evil elite imposing wrong economics on a witless and hapless people, but of politicians representing the well-considered self-interest of their electorate (although it would appear anachronistic to most Germans to ascribe any sort of competence and policy design to the Merkel government right now). And this, in return, is, as I stated just a moment ago, close to the very definition of democracy. One may call it populism, but democracy necessarily entails a popular element.

One may not like any of this, but the problem then is elsewhere. It is in the missing European identity in Germany (and elsewhere), the missing willingness to part with one’s money, a lack of empathy, a lack of leadership – but under the current circumstances, the fact that Germans generally don’t want any inflation of what for them is primarily their currency is as normal as it is that the German leadership therefore doesn’t push, or at least consent to, inflation either, or at the very least, hesitates and delays. It has nothing to do with the legacy of the hyperinflation of 1922-1923, which, if anything, is simply used as an illustration among those in the German discourse who are already familiar with the topic. If one minds the German position and thinks it should be revised, one would be wiser to think about arguments addressing the genuine – and rational – German concerns over inflation, rather than whining about the power of a myth that, in the way it is claimed to, does not even exist.

Euroopa2020 – tagasihoidlik retoorika reform?

2010-06-18T11:48:00.004+03:00

By Erkki Karo

Miks võib väita, et Lissaboni strateegia reformimine Eruoopa2020 strateegiaks on kõigest tagasihoidlik retoorika reform?

Esiteks on strateegia puhul tegemist poliitilisele eliidile kuuluva reformiga ehk selle sisu üle otsustamine on poliitilise (ja osalt tippametnike) eliidi privileeg. Osapoolte – nii huvigruppide kui ka tegelikult väiksemate ja uuemate liikmesriikide – kaasamine ja konsulteerimine toimub ennekõike domineeriva retoorika legitimiseerimiseks. Seda seetõttu, et tegemist on väga üldsõnalise ja EL-sisestest erinevustest – nagu regioonide kvalitatiivselt erinev võimekus ja vajadus, poliitilised vaated ja väärtused jne. – ülelibisev strateegiadokument, mille eesmärgiks ei ole midagi sisuliselt ära teha, vaid paika panna järgmiste kümnendite sõnade mäng ja õigustada varem Lissaboni strateegia raames tehtu suhtelist edukust.

Teiseks ja tulenevalt paljuski eelmisest, Euroopa2020 jääbki suure tõenäosusega retoorika tasemele seetõttu, et strateegia koosneb ennekõike liiga ümmargustest ja üldistest eesmärkidest ning puudub tegelikult nägemus ja kokkulepe, et milline on hea plaan nende eesmärkide täitmiseks. Strateegia probleemiks on see, et formaalsete eesmärkide taga (tööhõivest ja innovatsioonist keskkonnapoliitika eesmärkideni) on ka sisulised eesmärgid ehk nägemus kuidas ja milliste meetmetega formaalseid eesmärke täita. Viimane aspekt on aga poliitilise retoorika jaoks liiga detailne ja teiselt poolt on selles ka väga raske EL-tasandil kokku leppida, sest siin muutuvad regioonide erinevad vaated ja nägemused liiga olulisteks. Probleem seisneb selles, et neid eesmärke võib saavutada või nende täitmise poole püüelda nii heade kui ka halbade poliitikate abil.

Seega võib öelda, et Euroopa2020 eesmärkide täitmine ei sõltu mitte Euroopa2020 strateegiadokumendist ja selle detailsest sisust, vaid hoopis keerulisematest EL-i ja rahvusriikide poliitikatest ja tegevustest.

Eesti kui edukas retoorika vabariik?

Eelneva valguses võib väita, et Eesti on äärmiselt osav ja tubli EL retoorika kasutamisel ja selle toetamisel. Eesti nägemus Euroopa2020 strateegia eesmärkidest on ju väga eeskujulik – sisuliselt toetame me kõiki Euroopa2020 põhieesmärke püüdes neid saavutada vähemalt sama hästi või isegi paremini. Ka siseriiklikud eesmärgid (tootlikkus, eksport, haridus) on sisult ideaalsed EL retoorikaga sidumiseks. Samas võib ka siin väita, et tegemist on pelgalt retoorikaga, mille tähtsus Euroopa2020 ja Eesti sisuliste eesmärkide täitmisel on võrdlemisi vähetähtis.

Esiteks, Euroopa2020 põhieesmärkide ja Eesti lisatud eesmärkide puhul ei ole tegemist mitte millegi uuega. Kõige selle olulisus on teada juba vähemalt viimased 10 aastat ja seda sõltumata Lissaboni/Euroopa2020 strateegia olemasolust. Hoopis olulisem küsimus, mis retoorikas on alati tagaplaanil, on selles, et kuidas neid eesmärke realiseerida.

Teiseks, eelnevat toetab ka tõsiasi, et Eesti nägemus Euroopa2020st pigistab silma kinni nii mitmegi väärtuste erinevuse osas. Eesti päevapoliitika reaalsusega lähevad vastuollu EL-tasandil rõhutatavad väärtused nagu liikumine sotsiaalse turumajanduse suunas, tööstuspoliitika olulisus EL-i poliitilises retoorikas jne. Tõsiasi, et EL-i ja liikmesriikide nägemuste vahel võivad tekkida olulised väärtuspõhised erinevused, millest lihtsalt üle vaadatakse, viitab sellele, et tegemist on väga üldise retoorikaga, millel pole suurt kaalu siseriiklikes poliitikaprotsessides.

Kolmandaks, vaatamata sellele, et EL näeb Euroopa2020-s võtmestrateegiat peamiste poliitiliste eesmärkide paikapanemisel ja siseriiklike poliitikate kujundamisel, on Eesti lähitulevikku arvesse võttes tegemist sisuliselt teisejärgulise strateegia ja poliitilise retoorika kujundamise protsessiga. Vaadates EL-i ja Eesti prioriteete Euroopa2020 raamistikus on selge, et suurem osa eesmärkide täitmiseks kasutatavast finantsvõimekustest tuleb ennekõike EL struktuurivahenditest. Seetõttu muutub olulisemaks ennekõike see, kuidas ja milliseid reegleid ja prioriteete kirjutab EL ette struktuurivahendite kasutamiseks.

Paradoksaalselt, Eesti võimekus täita Euroopa2020 raames seatud eesmärke võib olla rohkem sõltuvuses EL-i suutlikkusest koordineerida oma poliitikaid (siduda Euroopa2020 struktuurivahendite poliitikaga) kui Eesti enda sammudest Euroopa2020 retoorika tegudeni viimisel. Kokkuvõttes võib öelda, et Eesti on olnud silmatorkavalt edukas Euroopa2020 retoorika kodustamisel. Sisuliste eesmärkide täitmiseks peaks Eesti veel endale pea ja seda kandva selgroo soetama.

No Sidestepping the Eurozone Implosion?

2010-05-19T19:09:00.010+03:00

Originally published on Naked Capitalism

By Jan Kregel, former professor of economics at Università degli Studi di Bologna and Johns Hopkins,m and currently a senior scholar at The Levy Economics Institute and professor at Tallinn University of Technology and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

A week ago eurocrats launched their campaign of overwhelming force designed to shock and awe the “wolf pack” of professional speculators and institutional investors (hedge funds and pension fund managers) into a more docile, subservient position. In the currency market, the shock and awe wore off after the first 48 hours, while by the end of the week, it also appeared to be wearing off from the equity markets.

Some of this is undoubtedly just the innate brazenness of the wolf pack being expressed. As a general rule, they do not take kindly to being cowed or constrained in any fashion. It is simply is not in their genetic make up. Consequently, they have no choice but to follow their instincts to call the bluff of the eurocrats, and that is part of the reason we are seeing, for example, the wolf pack dragging the euro exchange rate down to the ground in recent trading sessions.

But this is about more than just testosterone counts. Some wing of the professional investing world is beginning to see the design flaws built into the eurozone from day one. And once the spy these flaws, they begin to realize the nature of the solution is something utterly different than what they are witnessing being rolled out before their very eyes. In the following 11 points, we highlight some of the key aspects of the eurozone predicament using the financial balance approach developed by the late Wynne Godley which we have explored in previous blog submissions, papers, and book chapters. Until more investors and policy makers can understand the true nature of the various predicaments facing the eurozone, and the inherent design flaws exhibited in the European Monetary Union and the (In)Stability and (Lack of) Growth Pact, odds are precious time will simply be wasted trying to make believe the shock and awe fix is already in.

1. Underlying the eurozone predicament is a missing adjustment mechanism. There is neither a price nor a policy mechanism that encourages the current account surplus nations to recycle their surpluses in a win/win, pro-growth fashion. Keynes tried to design such a mechanism into the Bretton Woods agreement, but the American negotiators scotched it. This same pro-growth adjustment mechanism is missing at the global level with regard to China (although they did
report a trade deficit in March).

2. An ostensibly moral stance advocating balanced government budgets is revealing a profound ignorance of the simple accounting of sector financial balances. Those preferring to impose a “fiscally correct” policy on the peripheral nations should best recognize these accounting realities, and soon. If we are correct that domestic income deflation will be the end result of fiscal retrenchment colliding with private sector attempts to net save, then surely more desperate citizens will turn to even more desperate acts. Rather perversely, the combined effects of fiscal retrenchment, private income deflation, and rising private debt distress are likely to make moral considerations a second or third order concern for many eurozone citizens.

3. Ultimately, current account surpluses need to be recycled into chronic deficit nations in a sustainable fashion. Such a mechanism could be set up under the auspices of the European Investment Bank very quickly. Effective incentives to recycle current account surpluses via foreign direct investment or equity flows should be crafted at once.

4. Such an approach is likely to prove superior to funneling financial assistance through the IMF or other multinational arrangements. The IMF will undoubtedly insure that fiscal retrenchment gets imposed across the region. Any fiscal assistance is likely to be imposed with conditionality – a conditionality that fails to recognize sector financial balances are interlinked, both within and between nations. IMF conditionality is bound to set off the twin contagion vectors of falling trade surpluses and rising bank loan losses in the core nations. Surely this is not what Dutch and German policymakers intended, nor is it any way to hold the eurozone together.

5. Rapidly cutting fiscal deficits without considering the impact of such moves on private sector financial balances is a shortsighted, if not dangerous policy direction. Sector financial balances – the difference between saving and investment, or income and expenditures – are interconnected, and cannot be treated in isolation.

6. Hiking taxes and slashing government expenditures will suck cash flow out of the private sectors of the peripheral eurozone nations. These private sectors have been rebuilding their net saving positions in the wake of sharp and prolonged recessions. Companies have been conserving cash by slicing investment spending, inventories, and employment. Households have already drastically reduced home purchases and consumer spending.

7. It is an elementary fact of accounting that the private sector as a whole can only spend less than it earns if some other sector spends more than it earns. That sector has tended to be the government, usually as automatic stabilizers kicked in while recessions deepened. Indeed, most of the dramatic widening of government deficits is due to a collapse in tax revenues, not to discretionary stimulus. Pursuing fiscal retrenchment in order to reduce government debt default risk will merely raise the odds of private sector debt defaults. Cash flow will be taken from households and firms attempting to rebuild their net saving positions, and private debt servicing will falter.

8. The only way to avoid this outcome is if the nations undertaking fiscal retrenchment can swing their trade deficits around in a fully offsetting fashion. Otherwise, domestic income deflation is the likely result, Indeed, this is the madness behind the method of “internal devaluation” so evident in Latvia’s economic implosion. There is no guarantee that trade swings will be large enough to overcome fiscal drag. A return to debt deflation dynamics like those engaged after the Lehman debacle is not out of the question.

9. Furthermore, since the current account surplus of the eurozone has remained between +1 and -1 percent of GDP for quite some time, there is every reason to believe that attempts by the periphery to achieve trade surpluses will undermine the export led growth of Germany and the Netherlands.

10. It would therefore appear that fiscal retrenchment is about to set off two related contagion effects. First, the loans on the books of German, Dutch and French banks are likely to sour as private sector cash flows are squeezed in the periphery. Bank holdings of government debt issued by the periphery may not default, but the mortgages and corporate loans these banks have outstanding to the periphery will experience rising loan losses.

11. Second, the export sales of German and Dutch companies will fade with the falling import demand of the periphery. As their domestic incomes fall, they will import less. In other words, the fiscal retrenchment the core nations are insisting upon is highly likely to boomerang right back on them.

As it stands, investors have started to recognize that bank in the region are at risk. CDS for Spanish and Portuguese debt have started to widen more dramatically over the past two weeks, although investors still appear overly focused on government debt CDS. Policy makers have also begun to realize Greece is unlikely to be the last country requiring a bail out, while they at the same time sign on for rapid fiscal “consolidation” (read retrenchment) in order to ostensibly avoid
becoming the next Greece.

Yet we continue to find many of the points detailed above are not yet recognized by professional investors or policy decision makers. Absent this coherent framework, it will indeed prove very difficult to sidestep an economic and financial implosion in the eurozone, following on the heels of an already historically deep recession, and burst property bubbles in a number of eurozone nations. May wiser heads prevail.

A ticking time-bomb in the Estonian pension formula

2010-05-10T14:46:00.017+03:00

By: Ringa Raudla

Based on recent discussions in the media and the political arena, one may get the impression that increasing the retirement age from 63 to 65 was the only shortcoming that needed fixing in the Estonian pension system. In fact, after a closer look, there are other – and perhaps even more urgent – problems that call for solutions, both in the first pillar, which is state-run and PAYG, and in the second pillar, which is pre-funded and run by private pension funds. In this entry, I would like to discuss the problems that may emerge from the existing formula for calculating old-age pension benefits in the first pillar.

According to the State Pension Insurance Act enacted in 2002, the old-age pension from the first pillar is calculated on the basis of three different components: a base component, a working-time component and a contribution-related component. While the base component is paid in equal amounts to all pensioners, the working time component takes into account the number of years worked before 1999 and the contribution-related component is based on the salaries earned after 1999. More detailed technical description of the formula is available at the end of this entry.

In addition to the fact that the formula is rather complex (and putting together the different pieces requires looking into several acts and regulations), there is a ticking time bomb hidden in this formula. Namely, the contribution-related component, if left unchanged, will lead to huge disparities between pension pay-outs in the future. In order to grasp the implications of the contribution-related component, let us have a look at extreme examples. First, how large would be the sum of annual factors for a person who works for 40 years and earns the minimum wage? Making some simplifying assumptions, the formula would grant him an annual factor of 0.3 per year, which adds up to the sum of 12 over 40 years of working. If we were to calculate the value of the contribution-related component in today’s terms, it would be 12 x 68 = 816 EEK. In year 2009, the largest earned annual factor was 100. If this person were to receive the factor of 100 for all 40 years of his working life, it would add up to the sum of 4000, which in today’s terms would mean the benefit of 4000 x 68 = 272 000 EEK. These examples are based on very simplifying assumptions but they clearly demonstrate the inequalities that the current pension formula can lead to, if left unchanged. Of course, there aren’t that many people who earn factors over 10 (see Table 1), but even when we compare those who earn an annual factor of 3 per year over 40 years with those who earn an annual factor of 0.3 per year over 40 years, the resulting differences in the sum of annual factors are stark and would lead to 10-fold differences in the contribution-related component of pension benefits.

Because of the aging of the population (and the ensuing drop in the number of working persons per retiree), the resources available for the Estonian state pension system in 20-30 years are likely to shrink; hence, it is very unlikely that such inequalities in pension benefits would be politically acceptable. Rather, one can imagine, there would be calls for converting the first pillar benefits into flat-rate minimum pension payments for all pensioners. At the same time, the more time passes before this formula is changed, the more difficult it becomes to change the formula without running into constitutional disputes. If people assume that this formula remains in place, they can build up lawful expectations and act accordingly in their decisions concerning retirement savings. For example, if the parliament attempted to the change the formula (and cap the contribution-related component) in 15-20 years, for example, the state could face legal disputes from persons who claim that they decided not to join the second pillar because of the existing pension formula in the first pillar. The more time passes before the formula is changed, the more clout are these arguments, based on lawful expectations, likely to have and the Constitutional Review Chamber of the Estonian Supreme Court would face a very tough dilemma.

One of the motives behind the contribution-related component was to encourage the payment of social tax and constrain incentives for tax evasion. It was conjectured that since individuals perceive a clearer link between their contributions and the future benefits they would be less inclined to collude with the employer by agreeing to receive part of the salary in “an envelope”. However, it is not clear to whether the pension formula of the first pillar should be used for this purpose. On the one hand, the link between the social tax paid and its exact impact on the expected retirement benefits is not easy to calculate and may remain rather uncertain even for those who can compute their annual factors. On the other hand, since the second pillar of the Estonian pension system is defined-contribution, with fund accounts that people can keep track of, the diversion of the part of the paid social tax (4 percentage points out of 20 percent) to the individual accounts already serves the purpose of encouraging the official declaration of salaries paid.

In addition to creating incentives for more extensive tax compliance, the new pension system was intended to stimulate labour supply by creating a better linkage between the contributions paid and pension benefits received as well as providing additional incentives for later retirement. Again, it could be argued that the second pillar is already serving this purpose and using the contribution-related component of the first pillar for that purpose is duplicative. Furthermore, if the sum of the accumulated annual factors during the postponed retirement is low, relative to the minimum pension, they do not yield higher pension than is the level of minimum pension, and the motivation to work for additional years may be undermined. Thus, it is important to recognise that the effects on the labour market also depend on the relative sizes of the minimum pension (or people’s pension), the base part, and the value of one service year. Furthermore, there are specific financial incentives for postponing retirement and disincentives for early retirement built into the State Pension Insurance Act, whereby postponed retirement results in higher and early retirement in lower benefits; these incentives are likely to have a stronger and more direct effect on the retirement decisions.

Alongside the goal of poverty prevention, the designers of pension systems (especially those following the Bismarckian tradition) have pursued the goal of income replacement, which should guarantee that nobody has to face a large drop in the quality of life one is accustomed to. In that light, linking the size of first pillar benefits to life-time contributions seems to serve a legitimate goal. In the case of Estonia, however, one has to keep in mind that the function of income replacement – at least in principle – is already served by the second pillar, where the payouts are directly linked to life-time contributions. Also, those who wish to secure even larger replacement rates for themselves can make use of the third pillar, which is very lucrative in terms of tax deductions (allowing individuals to deduct contributions to the third pillar) and offers very favourable tax treatment of the eventual pay-outs (annuities bought for the third pillar pension savings are not subject to income tax). Altogether, one can say that making the benefits from all three pillars of the Estonian pension system dependent on life-time contributions is overly duplicative with regard to securing income replacement. Furthermore, the disparities created by the different pillars reinforce each other and could give rise to extreme inequalities among future retirees.

Hence, there is a need to change the pension formula of the first pillar as fast as possible. The most obvious way to do it is to add a provision to the State Pension Insurance Act, stating that the maximum annual factor that can be earned in a year is, let’s say 1 or 2. Although an amendment made to the State Pension Insurance Act in 2008 tries to increase the weight of the base component by using a coefficient of 1.1 when the indexation formula is applied to the base amount – and a coefficient of 0.9 when indexing the value of the service year – this change is insufficient to address the disparities. The longer the amendment of the formula is postponed, the louder the ticking of the bomb will become, which could threaten the fiscal and political sustainability of the Estonian pension system.

Technical description of the pension formula

The formula for calculating the pensions in the first pillar of the Estonian pension system can be expressed as following:

B = the base amount

H = the value of a service year

s = number of years worked before 1 January 1999.

Σ α = sum of annual coefficients accumulated after 1 January 1999.

The base amount is paid to all retirees who are eligible for state pension; it was determined in the State Pension Insurance Act in 2002 and has been indexed annually. Until 2008, the indexation was based on equally weighted increase of the consumer price index and increase of the social tax contributions; since 2008, however, the indexation formula attributes the weight of 20% to the increase in consumer price index and 80% to the increase in social tax revenues. In addition to the annual indexing, there have been additional increases, subject to the discretion of the parliament). As of 2010, the base amount is 1793 EEK. The working-time component is calculated as the number of accumulated years of pensionable service attained before 1999 multiplied by the value of one service year. The value of one service year was also determined in the State Pension Insurance Act and is indexed. In 2020, the value of one service year is 68 EEK. The contribution-related component depends on the contributions paid into the first pillar on behalf of the employee after 1 January 1999, and is found by multiplying the sum of a person’s annual factors (or “implicit years”) by the value of one service year. One annual factor or “implicit year” is a person’s pension-earmarked social tax as a fraction of the average pension-earmarked social tax paid by all contributors in the given calendar year. The average part is calculated by adding up the pension earmarked part of the social tax paid by all contributors and dividing it by the sum of accumulated service years earned in that year by all the contributors (if a person has paid social tax on less than minimum wage per month, the “earned” service year is respectively less than 1).

Should Greece follow Estonia’s example?

2010-04-20T22:41:00.026+03:00

by Rainer Kattel

(What follows is a write-up of my presentation at the last week’s Hyman Minsky conference at the Ford Foundation in New York. If you want to have a look at the US debate on financial regulation, see Paul Krugman’s talk from the same event.)

As the representatives from the European Union, the IMF and Greek government are trying to flesh out the deal how Greece can use EU’s and IMF’s funding to remedy its fiscal position, the main question hovering above these negotiations is whether Greece can and should follow Estonia’s example in massively cutting public spending. Estonia’s public spending was in 2009 a drastic 12% less than in 2008 and this kept public deficit below 2% of GDP in 2009. Both the European Commission and the IMF have hurried to praise Estonia’s efforts; in credit markets Estonia’s credit default swaps (bets on how likely it is that Estonia defaults on its public debt) valuation has been halved since the beginning of the year (that is, the likelihood of default has halved). While it is odd that Estonia’s debt (one of the lowest in Europe, just over 6% of GDP at the end of 2009; in fact, Estonia has government reserves amounting to almost 9% of GDP) is being valued at all as it is not publicly traded to begin with, it is a sign of a general tendency to see in Estonia an example par excellence of handling the crisis. Indeed, the entire issue of public debt seems to have taken the center stage in the ensuing financial crisis on the both sides of the Atlantic, see for instance IMF’s warning.

It is true that Estonia’s numbers (public debt and expenditure, budget cuts) are sheer magic in the European context. As is the fact that these numbers have been accompanied by no street riots; moreover, the government is now probably even more popular than before the crisis. There’s justifiable cause for envy and this begs the question: should Greece, with 13% of public deficit and 113% of public debt (both as percentage of GDP), follow Estonia, bite the bullet and get down to slashing budget and wages? Similarly to Greece, Estonia has no exchange rate policy option as the kroon is pegged to the euro. (Of course, pegs can always be un-pegged but there seems to be no political will in Estonia or in Europe to do this and by now it is also probably too late as devaluation would now make all the efforts of 2009 futile.) In other words, the question actually is whether the so-called internal devaluation works and if so then precisely how.

The euphoria around Estonia should die rather quickly when one looks at the GDP performance in 2009. It fell nearly 15%; Greece’s GDP contracted just 2%. The figure below shows real GDP growth rates in Estonia, the Baltics taken together (for comparison) and Central Europe (Czech Republic, Hungary, Slovak Republic and Slovenia; simple averages; all data from Eurostat).

The GDP data show one intriguing figure that really begs the question: how come Poland is still growing? Well, not only is Poland growing, its exports haven’t really slowed down at all during the crisis, as is evident from the next figure below.

A look at the real effective exchange rates clarifies the story with a rather amazing picture: Poland’s floating currency seems to have done what it’s supposed to do in the crisis like that – devalue. This has considerably softened the crisis and contrary to the Baltic and other Central European economies, Poland has very quickly regained its export competitiveness. It is clear that at least partially this was deliberate policy as is explained by the Polish Central Bank president in a Financial Times piece published posthumously last week. It remains to be seen whether Poland remains on this course of sanity.

That devaluation works in situations like we are currently experiencing shouldn’t really come as that much of a surprise. There’s an interesting parallel from the Great Depression and its aftermath, depicted in the figure below (the figure comes from Barry Eichengreen and Jeffrey Sachs, “Exchange Rates and Economic Recovery in the 1930s ”, The Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp. 925-946, p. 936).

So, what is the price paid by Estonia and the other Baltic states? Again, one would expect that with the heavily overvalued currencies, the main suffering would take place in the labor market and this is indeed what is happening in the Baltics. While the Baltic media is fanfaring that the unemployment figures didn’t not raise last week for the first week since the crisis started, it seems clear that under conditions of weak domestic demand (engendered through anemic borrowing and uncertainty amid wage cuts) and lagging productivity growth (especially if compared to Germany and Scandinavia – Baltic and Central European export industries are largely part of German or Scandinavian production networks) there’s no quick end to the crisis in sight.

While the respective national statistical offices report some price deflation and falling real wages in the Baltic economies, the former are merely cosmetic and the latter in fact contribute to collapsing domestic demand. It has led to positive external balance over the last quarters, but this is not due to exports, but rather because of the breakdown of the capacity to import. Without actual devaluation, in other words, such internal devaluation is bound to last for years in the Baltics and to a lesser extent in the Central European economies generally (other than in Poland, of course). Growth is bound to stay anemic and, because of lagging productivity, exports simply cannot pick up fast and strongly enough to offset the weak domestic demand. Polish companies at the same time could take advantage of their relatively higher export competiveness.

However, without European fiscal transfers, most Baltic and Central European economies would have similar levels in public deficits as Greece, and, accordingly, raising level of debts. See figure below. (Fiscal transfers from the European Union are annual transfers through the so-called structural funds. Here, the EU fiscal transfers include funds from three main sources: Cohesion, Rural Development and Fisheries Fund; calculations by the author.) Continued high unemployment will lead, especially in the Baltics, to increasing public debt – or to even more unemployment until the situation becomes untenable for some who then emigrate.

Thus, one can draw the following conclusions: first, in essence, Estonia and the Baltic economies are simply mirror images to Greece and other PIIGS. In the former, the private sector carries the cost of the crisis, in the latter mostly the public sector (social safety nets); because of the in-built inflexibilities, both are cases of free riding: the former export public deficits, the latter unemployment to the rest of Europe. Second, Central European economies, except Poland, seem to follow Germany (weak domestic demand, high levels of exports) through high level of integration into latter’s production networks and tailwind Germany’s export machine. This assumes recovery in Europe and the world. The danger is that these economies should match Germany’s productivity growth or else their effective exchange rates start to appreciate again. This is precisely the trap the PIIGS fell into. And third, Poland, with floating currency and relatively large domestic market, seems to be faring the best so far among Eastern European economies. Such divergence within Central and Eastern Europe will probably become only more pronounced in the coming years.

It is important to understand that these woes have a common cause: unifying rather unequal countries into an economic union. That this is bound create problems for PIIGS was brilliantly predicted by Jan Kregel already in 1999. Simply put, the eurozone assumed and still tacitly assumes either growing German wages or growing productivity in the rest of Europe. Neither has been the case.

The Baltic economies with pegs, and with insisting on keeping the pegs, have simply tied the noose around their own necks, and trading monetary stability for, first, high financial fragility, and second, now for very probably long-term high unemployment and debt deflation in the private sector. This will probably result in waves of emigration, growing social problems and the like. In other words, the costs have been shifted to the future and they are more than likely to equal Greece troubles in fiscal terms. Estonia is Greece in disguise. It remains to be hoped that the EU and the IMF recognize that and refrain from simplistic fiscal retrenchment that make problems only worse as Greek domestic demand and, accordingly, government fiscal position will only weaken further. This results, as we have seen in Estonia, in real economic depression, that is GDP contraction in double digits.

Addicted to neoliberalism

2010-03-29T22:13:00.009+03:00

by Rainer Kattel

Almost two years ago just before the global financial meltdown, some of us predicted the end of neoliberalism, globally and specifically in Estonia (see here and also here). History has proven us wrong. If anything, the lean state ideas are more powerful than ever, at least in Estonia and in the Baltics generally. Many would say that the neoliberal and new public management (NPM) ideas of non-intervening and lean state have never really left the Baltic policy scene. Yet, one would expect that with these economies being hit probably the hardest by the financial and economic crisis that this would lead to some sort of backlash against the established neoliberal ideology. It certainly has not, on the contrary: with the budget cuts in 2009 the lean government ideas seem to have gained even more in currency. Thus, for example, in Lithuania, the new government that took office after parliamentary elections in November 2008 campaigned on the basis of a NPM platform. Similarly the Latvian government adopted in 2009 a public administration reform agenda called the ‘Optimization Plan’ with the main objective to minimize the state. In Estonia, the crisis has re-enforced NPM reform ideas to reduce the civil service, to outsource accounting and similar functions, to widen performance management, and so forth. (The examples are from a forthcoming work by Peters, Pierre and Randma-Liiv, no link available yet.) Also in economic policy sphere all Baltic States have not substantially changed their basic neoliberal policy outlook as main policy focus is turned to cutting back public spending. Ironically, without the European structural funding which embodies precisely the opposite ideas to neoliberal program, the Baltic States would be all but stripped of all funding in labor market, R&D and other key policy areas to counteract the crisis.

This goes certainly against global trend where at least during 2009 there was a lot of talk and policy action about the return of the state in the aftermath of the global financial crisis. One stimulus package or bank nationalization chased the other. There’s also more specific evidence that the state is indeed back, at least in some quarters of the world. Thus, for instance, Ilene Grebel argues that the crisis seems to have opened more economic policy space for developing countries in relation to the IMF. Brazil’s recent bold actions in instating capital controls and using punitive tariffs against US (with WTO authorization) bear witness to very different kind of understanding about the role of the state in economic growth as well.

So, why is the neoliberal slim state back in full force in the Baltics? I would argue there are three key reasons.

First, in particular the Estonian government has been very successful in keeping up the fiscal mythology about the need for balanced budgets. This view is also entrenched in the EU’s Maastricht criteria but has now become much more powerful with the fiscal woes faced by Greece and other EU countries. Ironically, the Baltic States can now serve as examples of prudential fiscal policy within the EU and such powerful wind makes for strong sailing and justifies many a past action.

Second, for the last 20 years Baltic policy makers (as their counterparts in the rest of Central and Eastern Europe) have focused only macro-economic competencies (how to keep inflation low and to discipline public spending and so forth) as these were and still are seen as key ingredients in creating attractive environment for attracting foreign investments. This is how they were socialized almost for a quarter of a century by now. In other words, neoliberalism is all what most policy makers know in the Baltics.

Third, lack of domestic intellectual alternatives: unlike Brazil or India (let alone developed economies) where heterodox economic traditions go back at least half a century, the Baltic economies and policy makers seem to have all but forgotten their own successful industrial policy experiments during the inter-war period. Thus, to many, a state that reacts to economy by intervening with its functioning still equals Soviet style planning.

In sum, the Baltic States seem to seek cure for their current ills in the same medications that caused the crisis in the first place. Baltic policy makers have become addicted to neoliberalism. Yet, fiscal prudence in a deep crisis like the one we are experiencing simply shifts costs either to private sector in form of investments – which are not forthcoming as the private sector deals with debt deflation –, or to future taxpayers in form of social costs (unemployment). Thus, the addiction is paid for by the current European taxpayers (substituting Baltic domestic public and private spending through EU’s structural funding) and the future Baltic taxpayers as key industrial, labor market and other policy reforms are postponed while unemployment grows and wages fall.