The Finnish Response to Economic Recession; Job Stimulus

This article contains yet another neoclassical economist arguing against active state involvement in job creation, stimulus  and growth strategies. The author (previous banking economist) argues that ‘job creation schemes and expansionary measures would have been disastrous’ for the Irish economy had they been adopted in 2009. He states that these policy options were ‘alternatives’ to ‘NAMA and the April emergency budget‘. This is based on very little argument or supporting evidence. It is perfectly conceivable that a government would provide capital support to its banking system whilst simultaneously designing policies aimed at creating employment. In fact, this is precisely what the Finnish government did in March 2009.

The centre-right Finnish government introduced a supplementary budget as a response to the economic recession. Part of this budget was a €1.2bn stimulus package. The increase in state spending is expected to create 17,000 jobs directly and 25,000 indirectly by 2011. €70m was aimed at maintaining the rail and road network and a further €70m for transport infrastructure projects.  The rationale is informed by an awareness that employment protection cannot occur during a recession without active state support. This is a lesson the Finnish government learned after the collapse of a housing bubble in the early 1990’s, where it took 15 years to reduce unemployment from 15 per cent to 6 per cent.

Furthermore, the same budget contained a €60bn guarantee and investment loan to the banking system. Banks that receive this support must commit themselves to financing small and medium sized enterprises. They must also accept limits on the level of bonuses paid to bank directors. Thus, in a single emergency budget the government opted to support jobs and the banking system. Granted Ireland is operating within the constraints of the strict fiscal parameters imposed by our public deficit. But, having high levels of unemployment is not cost free to the exchequer. The job seekers benefit is a significant portion of state spending. It is approximately €2.2 bn.

Interestingly, the social partners in Finland (Confederated Trade Union – SAK, and Organsied Employers-EK) have subsequently criticised the government for not introducing a more robust stimulus package in the 2010 budget. Finland has a highly coordinated and consultative market economy. A coordinated economy with social democratic structures of welfare provision. In 2005 the World Economic Forum declared Finland the most competitive economy in the world. The social partners from 1995-2007 adopted ‘National Income Policy Agreements’ every two years to coordinate wage formation. These tri-partite agreements involve government policies. In the past these have taken the form of tax reductions (on the basis that unions and employers agree to moderate wage growth), an  increases in statutory redundancy payments, an improvment in maternity and parental leave amongst other qualitative issues. Almost all work related legislation/ policies are drawn up by government (department of labour) with the social partners.

The national income agreements are implemented at sectoral level and legally binding on all companies. Trade union density is 70 per cent and collective bargaining coverage over 100 per cent. The national agreements came to an end in 2007 as employers felt that the ‘solidaristic’ income policy did not reflect differing levels of industry level productivity; highlighting the increasingly segmented nature of work across the economy. But, sectoral agreements still coordinate wages, are legally binding and include almost all employees. It was a case of organised decentralisation supported by many but not all Trade Unions.

The narrowing of economic and ideological debate in Ireland is hindering our political capacity to respond to the economic crisis. It is narrowing the range of policy options available to government. Looking abroad to other small open economies in the Eurozone would provide for a significant amount of policy learning. The Netherlands, Finland and Slovenia have all opted to prioritise the most important and productive aspect of an economy; employment. If the Irish economy is to recover it requires more than austerity programmes. It will require active and nuanced approaches to job creation.

Unemployment like other labour market problems (inflation, industrial disputes, cost competitiveness) is a collective action problem that requires a coordinated response. This is all the more important in a small open regional economy of the Eurozone. To be more open and vulnerable to international market pressure produces a somewhat ironic outcome; the need for greater strategic co-ordination amongst labour market actors.  International markets and finance capital may be totally footloose and carefree, but trade unions and electorates are entirely indigenous. Governments need the electorate more than they need mobile capital. Even though there has been a liberalisation of labour markets since he 80’s, governments are still considered responsible for economic performance and employment creation.

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