The economic crises of today:
Crises and coping strategies
Joakim Palme
Uppsala University
Crisis management and research
• Lessons from the past,
advice for the future?
• 30s
• 90s
• Averting the old-age crisis
• Global financial crisis, and beyond
Lessons from the 1930s
• The Great Crash and the Depression
- Keynesianism emerging (A treatise on
money, 1930; Stockholm School; General
theory, 1936)
• Crisis of the Population Question
- social policy of reproduction, quality of
population (The Myrdal Legacy)
Research and ways out the crisis?
The Golden Age
• Putting Keynesianism to work
• Rediscovering the gender agenda
The welfare state in crisis (OECD, 1980)
• Growth to limits
• The unemployment problem
• ”The need to see economic and social policies
together”
• Is it possible to return to non-inflationary
growth?
• Research: diagnosis vs. Prescription
• Beyond redistribution, new priorities, full
employment without growth, welfare society
The Swedish crisis of the 1990s I
Lindbeck commission; 113 reform proposals for
’Turning Sweden around’:
• Stricter budget process
• Independent central bank
• Quantitative inflation target
• Competion in/for the public sector
• Etc, etc
• Research and ways out the crisis: prescription
The Swedish crisis of the 1990s II
•
•
•
•
Welfare commission, Balance sheet, results:
The macro economy and the vulnerable
Prolonged employment crisis
Monetary and fiscal polices too tight (Ministry
of Finance)
• Social deficits
• Research and ways out of the crisis,
conclusions
Welfare state in crisis:
How to protect the rights whilst
controling the costs?
A study for the Council of
Europe
Cheap rights or more taxpayers
10 commandments for more taxpayers
•
•
•
•
•
•
•
•
•
•
Improve tax collection
Prevention and rehabilitation
Sustainable entitlements
Two-earner family support
Policy coordination: e.g. taxing and spending
Universalism > means-testing
Rights of children, responsibilities of parents
Breaking benefit dependency, not rights
Civil society and respecting entitlements
Removing barriers to employment: incentives,
education, services, opportunities
Increasing the number of tax payers:
Nordic experience female employment
By;
• improving work incentives in the tax system,
as well as in the benefit systems
• promoting human capital investements
(among women and children)
• subsidising social services for children and frail
elderly relatives
• offering employment opportunities
Labor force participation among women in prime child-bearing age (20-44)
in different family policy models 1970-2000
Per cent
90
Dual-earner
model
80
70
Market-oriented
model
60
Traditional
model
50
40
30
20
1970
1975
1980
1985
1990
1995
2000
Policy learning is possible only if we
move away from the concept of a
model, or culture, and instead apply
an institutional program specific
approach and look for institutional
complementarities
In the shadow of the ageing crisis
Sustainable policies in ageing
societies
Edited by Lindh and Palme
Rethinking social policy in ageing societies
• Social security is strongly redistributive over the life
cycle: the ageing of societies puts tough fiscal
pressures on public spending
• The debate on ageing issues has been overly
focussed on pension reforms and savings
• How social policy interact with fertility, education
and labour supply is of vital concern: secure the
future tax base!
Education and Growth:
Macro model
Statistically significant relations
– Education expenses have a positive impact on
GDP/capita
– GDP/capita has a positive impact on average years
of education but a negative impact on the GDP
share of education expenses
Lehman Brothers and beyond
The Econonomic Life-Cycle and the a
future for Social Investment?
Source: NTA project 2007: www.ntaccounts.org
Institutional variation behind life cycle variation in the intergenerational
transfer system
1.5
Life cycle deficits per capita
Normalised by average
labor income 30-49
1
0.5
0
-0.5
-1
Age
Austria (2000)
Sweden (2003)
USA (2003)
The strategy EU2020 puts forward three
priorities:
• Smart growth: developing an economy based
on knowledge and innovation.
• Sustainable growth: promoting a more
resource efficient, greener and more
competitive economy.
• Inclusive growth: fostering a highemployment economy delivering social and
territorial cohesion.
Flaw of the EU 2020 Agenda:
How can the sole focus on expenditure cuts,
generate the necessary revenue for a social
investment approach?
The Social Investment Pact
The New Agenda from the EU
Commission (Andor)
Social Investment Pact
•
•
•
•
•
•
•
Social protection, investment, stabilization
Recomendation on early child-hood
Youth Package
Employment Package
Elderly care
Stabilization via EU UI
ESF….
Social investment approach
is unattainable and elusive,
unless boldness and willingness to
take political and other risks. This
includes raising enough taxes for
massive social investment.
Agenda for a social investment approach
• Go beyond immediate responses to the current crisis
not to reproduce the failures of the recent past.
• Global crisis in the financial system may change our
views on what is possible.
• Human capital investments have been getting less
attention in the debate.
• How can we rethink the future with the time horizon
being prolonged by the issue of climate change?
Capability formation:
A life course perspective
Publicly funded child-care
invests in cognitive skills
essential for life chances of
children
Quality of compulsory
education – PISA studies of
core competencies: reading,
mathematics, science
Skill needs in advanced
industrial societies have
changed –polarization
among youth is a reality and
a threat
The ”learning economy”
requires a constant
renewing of capabilities in
firms and competences of
workers
Nelson and Stephens 2011:
Policies
Outcomes
• Cumulative Educational
Spending
• Educational Spending 1995
• Skill Acquisition Index
• Cumulative ALMP
Spending in 1995
• ECEC (cumulative daycare
spending)
• Short Term Unemployment
Replacement
• Bottom 5th Percentile
Literacy
• Average Literacy
• Employment Levels in
1995
• Discretionary Learning
Employment
Political economy of social investment
• European social models are attempts to apply
‘strategies of cooperation’, time to revitalise,
else no social cohesion
• Social investment approach is unattainable
and elusive, unless boldness and willingness
to take political and other risks
Neo-Schumpeterian approach
• During great transformations there are always
winners and losers.
• Old forms of security are replaced by new ones.
• We can speak about a constructive destruction
(Schumpeter).
• Nordic experience of making winners of the potential
losers in structural transformation
• Support to globalization contingent on the social and
policy fabric of society
Goals/functions of social policy
• Redistribution
• Insurance
• Services
• Investment
Institutional, functional
complementarities
Economic and social sustainability
Too early to tell….
Crisis, and its opportunities
• GFC triggered what has become an on-going ‘global’
economic crisis, from a Eurocentric perspective…
• …exogenous shock that has repercussions for societal
institutions and individual conditions….
• …as effects are mediated by institutional factors, we
may talk about endogenously conditioned shocks…
• Divergence in policy output (spending) and outcomes
(poverty)
• Study changes in social protection entitlements and
their correlates in EU+ , 2008-2014
Lessons from previous
Crises and social policy change
• Class-based politics have not ceased to influence
mature welfare states
• Unemployment key role; as an outcome of
distributive conflict and as a ’risk factor’ for
retrenchments
• Political institutions and electoral systems matter for
the likelihood and magnitude of change
• Institutional design matter: co-integrated causal
processes at work
• Institutional change not only paradigmatic, also
incremental, but what processes are at work?
• Policy feedbacks from welfare state institutions
reflect interactions between institutions and the
socio-economic distribution of risks and resources
among citizens
• Type of data matters for results; spending confuse
• Methods matter for the results; important to come
close to the political decision-making
All insurance-schemes
average per year 2008-2014
2.5
2
1.5
1
0.5
0
Baltic
New Members
Average Expansions
Old Members
Average Retrenchments
GIPS
Cuts
Total
Family
benefit
Social
insur.
GDP
level
Unempl.
Ben.
---
Growth
+
Budget
deficit
+++
+++
+
Unempl.
Rate
+++
++
+++
Social
spending
Left
cabinet%
Pension
++
---
---
---
Eligibility
SI/UI/WA
Tentative conclusions
• Large number of expansions too, not only first years
• Family benefits not as severely hit as social insurance programs for
the working aged
• Sickness cash benefits cuts on par with unemployment benefits
cuts (in contrast to 1975-1995)
• Changes affecting precarious workers by sharpening the eligibility
criteria
• Changes in pension systems: sharpening the qualifying conditions
• Paradigmatic shifts vs. incremental change: drift, layering,
displacement, exhaustion and political economy
• Cuts:
- budget deficit and unemployment are risk factors
- left cabinet share protect, at least social insurance
• Expansion:
- weaker and unpredicted correlates, catching up,
growth and family policy modernisation
• Understanding the EU level influence: MOU+
• Effects on inequality outcomes from the imposed
changes, as well as the initial differences, to be
explored…
Greece and social consequences of the crisis
Average number of expansions & retrenchments
5
4
3
2
1
0
0
2008
2009
2010
2011
2012
-1
-2
-3
-4
-5
Greece
Rest of GIPS
EU-28
2013
2014
Expansions and retrenchments by insurance type
1.4
1.2
1
0.8
0.6
0.4
0.2
0
0
Greece
Rest of GIPS
EU-28
-0.2
-0.4
-0.6
-0.8
-1
-1.2
-1.4
Family Policy
Sickness, Unemployment and Work inj.
Pensions
Type of change
1.2
1
0.8
0.6
0.4
0.2
0
0
Greece
Rest of GIPS
EU-28
-0.2
-0.4
-0.6
-0.8
-1
-1.2
Benefits
Eligibility
Duration
Political sustainability
Strategies of cooperation
Social conservatism
Social liberalism
Social democracy
Political economy:
How are interests structured by regimes?
Unemployment Benefits in EU
Member States
Background
• Growing imbalances
• Responses to the crisis should foster
strengthened solidarity
• European integration needs an elaborate risksharing system
• One strategy is to set up some kind of EU- or
Eurozone wide unemployment provision
Template
• Automatic stabilisers as an insurance
mechanism as well as stabilisation mechanism
• Unemployment benefits are an obvious
candidate for becoming a European automatic
stabiliser
• Not only have macroeconomic impacts but
also positive effects on citizens’ living
conditions
Purpose of my presentation
Good reasons to explore the basic character of
unemployment benefits in EU Member States
and highlight potential institutional barriers to
the introduction of an EU wide framework for
unemployment benefits
Approach
• The data is from the Social Policy Indicator
Database (SPIN), which is under construction at
the Swedish Institute for Social Research (SOFI),
Stockholm University
• Not income packaging à la OECD
• Our approach of focusing on unemployment
insurance programs as such, avoiding the
analytical confusion which appears when
different kinds of benefits are lumped together
Assumption
• We interpret the underlying ambition to
promote a European stabilisation/insurance
mechanism, is about making the provision of
unemployment compensation more generous
• Identify countries that deviate markedly from
broader European patterns, indicating where
special adjustments are most immediate in
Europe
• Possible to identify common denominators for
key dimensions of the systems
Observation
Variation among the Eurozone countries is
slightly lower as compared to the entire EU,
cross-national differences are evident enough
to warrant further reflections
Discussion I
• Harmonize:
- Contribution period of 26 weeks.
- Benefit duration period by extending it to 52
weeks.
- EU should not subsidize benefit periods
beyond one year.
- Replacement rate of unemployment benefits
between 60 and 80 per cent.
Discussion II
• One option would be to restrict the EU
participation to the funding of deficits of
unemployment insurance programs, building
on voluntary harmonisation
• MS would have to agree on some kind of
symmetric participation in the funding of the
common element
Social policy context of social investment
Key concepts in EU
• Social cohesion
• Social inclusion
• Social capital
• Social investment
• Social citizenship
What if it gets much worse?
What if it gets much worse?
Never to late to give up!
What if it gets much worse?
Never to late to give up!
Or:
Try harder! Act Wiser!