Download Scandinavian Countries - Robinson College, Cambridge

Some reflections on the Scandinavian
countries during the crisis
a Post-Keynesian case study
Jesper Jespersen
Roskilde University
[email protected]
1
Structure of the paper:
1. Why post-Keynesian economics?
Because ‘uncertainty’ and ‘social and
institutional changes’ prevent us from
having any determinate knowledge of the
future
 General Equilibrium models seem not to
apply to the uncertain understanding of
the changing real world economics.
2
2. Post-Keynesian analytical features:
• Like it or not – GDP in money terms and
(un)employment are focus points within
PKE
The Principle of effective demand rules
the roost – but, watch out, effective
demand is not what (some of) you might
think it is! It is a multi-facetted analytical
concept
Context dependent
3
My preferred quote from Keynes’s on
Methodology:
• Economics is a science of thinking in terms of
models joined to the art of choosing models
which are relevant to the contemporary world.
• It is compelled to be this, because, unlike the
typical natural science, the material to which it is
applied is, in too many respects, not
homogeneous through time (CWK, XIV: 296)
• It seems to me … that you [Roy Harrod, jj] do not
repel sufficiently firmly attempts ... to turn
[economics] into a pseudo-Natural-science.....’
4
Jesper’s methodological
’iceberg’
Two cultures
World 1:
data
World 2:
clock-work
agents
Market System
World 3:
Prediction of
marketsystem
Inspiration: Martin Hollis
actors
reflexive
organism
Power,
structures,
institutions
Understand
reality
5
The business sector as a whole is at
the focal point of Effective Demand:
• As I now think, the volume of employment
is fixed by the entrepreneur under the
motive of seeking to maximise his present
and prospective profits; (Keynes, 1936: 77)
6
Principle of effective demand (I)
• What factors make the entrepreneurs decide on
production (and employment)?
Here, one cannot meaningfully separate between
short run and long run, because:
if the entrepreneur does not balance his books
in the short run (liquidity) and in the medium run
(profitability), he/she will be out of business in
the longer run
but, if he/she disregard the longer run
implications of investment, competition and
technology, he/she will be out of business in any
case
7
Principle of Effective Demand(II)
Short run: Expectations, profit and finance
• Expected aggregate demand (domestic
policies and global demand)
• Profitability & international competitiveness
• Availability of money and finance/credit
8
Longer run: Institutions and politics
• Welfare institutions: supply & quality of
labour
• Technology and new products: productivity
& falling rate of profit
• Environmental issues: work place,
products, externalities & sustainability
9
Figure 1: Outlines for the macroeconomic principle of effective demand
Expected Aggregate profitability:
competition
Expected proceeds from aggregate
demand
Effective Demand
Aggregate credit facilitates: the
working of the banking and
financial system
Expected availability of supply
factors: labour, capital, technology
environmental conditions
The business sector ‘acts’ within a frame of agreed institutions: labour
market, welfare system, tax structures, financial and political concerns
10
Overall picture in rich countries
– what is it all about?
• Happiness and sustainability
• Of course, I know that Ministers of Finance
always talk about growth to fill their coffers
• But growth alone cannot make them reelected
• Hence, we will talk about social ontology
before economic growth
11
2003/04
Because:
Life satisfaction only up to a
certain point
corresponds with
GDP/capita
12
13
Sl
ov
e
Sl nia
ov
a
C
S k
ze we ia
ch
d
R en
ep
u
D bli c
en
m
H a rk
un
ga
Au ry
st
ri
Fi a
nl
an
d
M
al
Lu
B ta
xe
N el
m et giu
bo he m
ur rl a
g
(G nds
ra
nd
,,,
C
Eu
yp
ro
ru
s
ar
ea Fra
n
(1 ce
6
G
co
er
u,
m
an
Ire ,,
y
(i n lan
cl d
ud
in
Es ,, ,
to
ni
a
Ita
ly
Sp
ai
Po n
la
G nd
re
e
U Li t ce
ni
h
te ua
d
n
Ki i a
ng
d
Po om
rtu
g
Bu a l
lg
a
R ria
om
an
i
La a
tv
ia
Gini coefficient
Income distribution, 2008
40
35
30
25
20
15
10
5
0
Source: Eurostat
14
The welfare state, does it impede
employment and growth?
Total governm ent incom e, percent of GDP
65
Sweden
60
Denmark
50
45
40
OECD-area
35
30
19
71
19
73
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
Percent of GDP
55
Source: OECD, EConom ic OUtlook, 2010
15
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
percent of GDP
Governm ent total receipts
65
Sweden
60
Denmark
55
50
Euro15
45
40
Source: OECD, Econom ic Outlook, 2010
16
Employment rates
Em ploym ent rate, Denm ark, Sw eden & Euro15
80
Denmark
75
Percent of population (18-64)
Sweden
70
65
Euro15
60
55
50
1992 1993 1994 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Eurostat, 2010
Euro area (15 countries)
Denmark
Sw eden
17
Employment rate
• Euro15 grew the fastest – 5965 percent
of population, age 18-64
• Denmark grew from 74 to 76 percent of
population, age 18-64
• Sweden hardly increased employment (74
percent
Why? ‘We don’t know’
18
Growth are very alike
Real Grow th in GDP
8
6
Sweden
2
Euro-zone
Denm ark
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
pencent, yearly
4
-2
-4
19922009
Denmark
-6
Germany
19952009
Sweden
Denmark
Germany
Sweden
Source: OECD, Econom ic Outlook, Juni 2010
Germany
0,865748
1
Sweden
0,821969
0,785827
Euro13
0,886006
0,944485
Serie1
Serie2
Serie3
Germ.
0,878061
1
1
Swed.
0,92538
0,849294
0,916189
EU15
0,93808
0,954362
19
1
0,943638
One percent point a year adds up to 20 points
GDP in fixed prices
160
Sweden
150
Denmark
140
Euro15
!992 = 100
130
120
110
100
90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: OECD, Econom ic Outlook, 2010
20
GDP/capita, PPP-m easurem ent
135
Denmark
130
125
Sweden
120
Eu27=100
-5
-15
115
Euro15
110
-7
105
100
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Eurostat
21
Unem ploym ent
14
12
10
Euro13
Starting point
percent
8
Sweden
6
Denmark
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: OECD, Econom ic Outlook, 2010
22
Why did they have different
(un)employment paths?
• Sweden higest growth – moderate fall in
unemployment – unchanged employment
• Denmark (relative) low growth, lowest
unemployment – middle increase
employment
• Euro15 (relative) low growth, high (nearly
unchanged) unemployment, but the
highest growth in employment!
• That is puzzling!
23
Labour market & Welfare
Scandinavian countries deviate on:
•
•
Higher labour market/women participation
rates (welfare state institutions)
Flexicurity – meaning flexible, but structured
hiring and firing and welfare security system
(unemployment benefit, and free/subsidized
welfare institutions – you don’t loose your
social rights, when you get fired)
24
Public Sector Budget
8
6
4
2
Percent of GDP
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
-2
-4
Sweden
-6
Denmark
-8
-10
-12
-14
Source: OECD, Econom ic Outlook, June 2010
25
Unem ploym ent & Budget, Denm ark
15
10
20
07
20
09
20
05
20
03
20
01
19
99
19
97
19
93
19
95
19
91
19
89
19
87
19
85
19
83
19
79
19
81
19
77
19
75
19
73
0
19
71
percent
5
-5
1973-2010
actual budget
unempl
publ. Empl.
part. Rate
-10
actual budget
1
-15
Unemploynt
-0,71008
1
public empl.
-0,12252
0,424201
1
part.rate
0,109415
0,26439
0,525417
1
private empl.
0,770684
-0,7939
0,036539
0,266508
Source: OECD, Econom ic Outlook, 2010
26
Unem ploym ent & Public Budget, Sw eden
15
10
0
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
Percentage
5
-5
Correlation:
1971-2010: -0,46
-10
1990-2010: -0,58
EU13:
-15
1991-2010: -0,49
OECD, Econom ic Outlook, 2010
Denmark:
27
1990-2010: -0,83
Public Sector Budget
6
Denmark
4
2
Sweden
0
1990
1995
2000
2005
2010
percent of GDP
-2
Euro-Zone
-4
-6
-8
-10
Sweden
-12
-14
Source: OECD, Econom ic Outlook, June 2010
28
Inflation?
• You have to separate between
• Consumer price inflation
• Wage cost inflation
• Scandinavia is more like Southern Europe,
than like Germany
29
Consumer price harmonization might give a
misleading signal due to the single market effect
Consum er price inflation
18
16
Denmark
14
12
Sweden
8
6
4
Germany
2
0
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
percent p.a.
10
-2
Source: OECD, Econom ic Outlook
30
Because, no one can beat the
Germans in unit labour cost!
Unit labour cost, total econom y
1,5
Denmark
1,4
1,3
1998=100
Sweden
1,2
1,1
Germany
1
31
0,9
1999
2000
2001
2002
2003
2004
2005
2006
Source: OECD, econom ic outlook, 2010
2007
2008
2009
2010
Unless, you have a flexible
exchange rate!
Unit Labour Cost, effective exchange rate
1,6
Denmark
1,5
1,4
1998 = 1
1,3
1,2
Sweden
1,1
Germany
1
32
0,9
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: OECD, Econom ic Outlook, 2010
2007
2008
2009
2010
No wonder Sweden is doing well: export led growth
Denmark is doing less well; oil & gaz does the trick
Balance-of-paym ents, current account
12
Balance-of-payments, current account
10
8
6
Sweden
Percent of GDP
4
2
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
-2
-4
Denmark
-6
33
-8
Source: OECD, Econom ic Outlook, 2010
Rate of Interest
• Depends on the Balance-of-payments
• Especially, if you have your own currency
• If the competitive position is weak, profits
are squeezed and effective demand is
weakened  Unemployment
Spain is the arch example, but Scandinavian
back in the 1970s & 1980s
34
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
percent p.a.
Long term rate of interest
25
20
Denmark
15
Sweden
10
5
0
Source: OECD, econom ic outlook, 2010
35
Long Term rate of Interest
12
Sweden
10
Percent p.a.
8
6
Denmar
k
Germany
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: OECD, Econom ic Outlook, 2010
36
What have we learned?
• Economics is not a blind machinery
• Different institutions (Banks) and politics
(exchange rate) matters a lot – e.g. the
actual situation
• Compared to the 1930s, the western world
has become much richer, closer integrated
and, I think, more supportive
• Hence, priorities may change from growth
to sustainability
Really, this is a Post-Keynesian story! 37