Download Social Democracy and the Economy

Managing the Economy
Well While Staying
Faithful to the Ideals of
Social Democracy
(Version 2.0)
Associate Professor Phua Kai Lit
Monash University Malaysia
July 2015
Lecture Objectives







What is Social Democracy?
Social Democracy and the welfare of the people
Social Democracy and the economy
Progressive fiscal policy & Keynesian countercyclical fiscal policy
Increasing revenue
Ensuring cost-effective expenditure
Sweden as a success story of Social Democracy
What is “Social Democracy”?

Democracy = rule by the people

Social Democracy = a democratic
government that serves mainly to promote
the welfare or well-being of the people

Best examples of successful rule by Social
Democratic governments – Sweden, Finland,
Norway, Ecuador (under President Rafael
Correa)
What does the term “Welfare of
the People” mean?
Good health i.e. high life expectancy, low
infant mortality, low rates of disability and
disease, proper environmental protection
 Well-educated population
 Employment in safe jobs with decent wages
 Low unemployment
 Low poverty rates; a Welfare State helps the
poor, disabled, the elderly & the unemployed
 Political freedoms safeguarded (IMPORTANT)
 Ethnic/religious minority rights are protected

Social Democracy and the
economy

Social Democrats need to manage the economy
well. (Right-wing political parties and their
supporters almost always accuse left-wing political
parties of “economic mismanagement”).

Managing the economy well – low unemployment,
low inflation, satisfactory rate of “green” economic
growth, high foreign exchange reserves, good
physical infrastructure, high quality human
resources & workforce
Progressive fiscal policy




Social Democratic governments managing a “mixed
economy” must ensure that market forces are made to work
for the good of the people
“Fiscal policy” means how a government raises revenue
(e.g. through taxes) and spends public funds (expenditure)
Fiscal policy can be used to reduce economic inequality e.g.
free or highly-subsidised health, education, transport and
housing for poor people; financial help for the poor through
welfare payments or “conditional cash transfers” (you
receive public money only if you undergo job training
courses or keep your kids in school, or get them vaccinated)
Fiscal policy should be “Keynesian counter-cyclical” i.e.
increase spending during recessions, strongly resist
pressures to increase spending during good economic times
Increasing Revenue
A progressive tax system i.e. higher taxes on
citizens with higher income
 Consumption tax – to reduce consumption and
increase investment. A broad-based consumption
tax will also increase revenue of the government.
 Combat tax avoidance (which is legal) through
closing loopholes and punish tax evasion (which is
illegal) with stiff fines and jail terms
 High taxes on goods and activities that are harmful
to health and well-being of citizens e.g. very high
taxes on tobacco, alcohol, junk foods; very big
fines for occupational health and environmental
health violations

Cost-Effective Expenditure
“Cost effective” means “more bang for the buck”
i.e. maximum output at each level of input, or
achieving a fixed output using less inputs, or
achieving targets with less inputs
 An example of cost-effective expenditures:
emphasis on public health (vaccinations, good
nutrition, clean water, proper sanitation,
environmental protection, basic medical care)
rather than expensive high tech curative medicine
 Another example: public expenditures used to
promote public transport (trains, trams, buses) or
use of bicycles. Discourage car ownership.

Anti-Corruption Efforts

There should be an independent anti-corruption
agency that reports directly to the Legislature

The anti-corruption agency should be bolstered
with tough laws against corruption and abuse of
public funds
Successful management of the
economy by the Swedish Social
Democrats:

http://www.newstatesman.com/politics/2014/09/lessons-labour-partyswedish-social-democrats-victory

The Swedes also place a lot of emphasis on job training and retraining
programmes to lower the rate of unemployment.
Thank You